Some rules and principles relating to enforcement of international arbitration awards are essentially matters of common sense. Foremost among them are rules relating to the currency of judgments enforcing awards, and post-award interest. But as they are not often the subjects of reasoned judicial decisions, it is useful to take note when well-reasoned decisions come along. Today’s text is from a federal district court in Washington D.C., which addressed currency conversion and interest issues associated with a judgment enforcing a large arbitration award, made in London and rendered in British pounds and Nigerian niara, against the Federal Government of Nigeria. (Continental Transfert Technique Ltd. v. Federal Government of Nigeria, 2013 WL 1201380 (D.D.C. Mar. 26, 2013)).
Common sense rule number one: An award denominated in a foreign currency ordinarily should be converted into a U.S. judgment in U.S. dollars unless the award creditor asks for judgment in the non-dollar currency of the award. One might suppose there could be another exception: where the agreement of the parties provides that the parties shall bear the risk of currency fluctuations even after a breach of termination of their contract.
Common sense rule number two: Conversion to judgment dollars of an arbitration award denominated in a foreign currency should be made as of a date, ordinarily the award date, that preserves the value of the award for the award creditor in case of intervening depreciation of the award currency. While this is the approach commended by the Restatement of Foreign Relations Law, two U.S. Supreme Court cases from the 1920s indicated that courts should look to the law under which the cause of action arose and convert the foreign currency obligation to dollars as of the date of breach only if the plaintiff had a cause of action under American law as of that date. Fortunately the district court here was able to navigate this arguable conflict, and find that indeed there was a cause of action under U.S. law (to enforce the award under the New York Convention/FAA) as of the date of the award (that being the “date of breach” of an obligation to satisfy the award).
Common sense rule number three: The award creditor is presumptively entitled to post-award, pre-judgment interest, so long as the award does not negate the existence of this entitlement, although the entitlement remains in the Court’s discretion (so that it might be denied for instance of the creditor failed to proceed diligently with enforcement).
The final point of decision in this case was selection of the prejudgment interest rate, and the court concluded that the prime rate more properly comports with the compensatory rationale for such interest than does the Treasury Bill rate. I hesitate to classify this as a “common sense rule,” however, because the decision to terminate the accrual of interest at the pre-award rate specified in the award is not intuitive and inevitable. Here the court gave short shrift to that question as the pre-award rate granted under Nigerian law was 18 percent based on prevailing interest rates in Nigeria during the relevant period, and the award creditor evidently did not present argument as to why the Court should continue this rate in effect post-award. But suppose the pre-award rate had been nine percent based the New York law having been the applicable law of the contract? Although presumably that would be significantly above the award creditor’s cost of funds, in that instance the level of compensation for the time value of unpaid obligations has been bargained for, and the effect of shifting to the prime rate for post-award interest is to deprive the award creditor of the benefit of the bargain.