In today’s global economy, it is not uncommon for arbitration awards to be denominated in a currency that is foreign to the place of enforcement. In Continental Transfert Technique Ltd. v. Nigeria, CIV.A. 08-2026 PLF, 2013 WL 1201380 (D.D.C. Mar. 26, 2013), the D.C. District Court was called upon to decide whether a foreign arbitral award awarding damages in British pounds and Nigerian naira should be converted to dollars and if so, at what exchange rate. The Court had no difficulty holding that a foreign currency arbitral award should be converted into a dollar judgment confirming the award. The thornier question, however, was at what conversion rate? Continental argued that the date for conversion was the date the arbitral award issued. In contrast, Nigeria asserted that the date of conversion should be the date the Court entered its judgment and order enforcing the arbitral award. In answering this question, the Court, focusing on two U.S. Supreme Court cases and The Restatement on Foreign Relations Law (“Restatement”), held that the date the arbitral award issued was the appropriate conversion date.

The two Supreme Court cases, Hicks v. Guinness, 269 U.S. 71 (1925), and Die Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S. 517 (1926), set the basic parameters for determining what exchange rate a court should use in converting a foreign judgment into dollars. The rule in Hicks, known as the “breach day” rule, sets the date that the defendant breached its obligation to the plaintiff as the date for conversion. In contrast, the rule in Deutsche Bank, known as the “judgment day” rule, sets the date the court enters judgment as the date to determine the exchange rate.

In Continental, the difference between the two dates was significant. The drop in the Nigerian naira’s value, along with the size of the award, meant that millions of dollars hinged on whether the award was converted and, if so, at what exchange rate. The Court concluded that the “breach day” rule would make the date the arbitration award was entered the date for determining the conversion rate. But if the “judgment date” rule were used, the conversion date would be the date of the court’s order and judgment, which was almost three years later.

To determine whether to use the “breach day” rule or the “judgment day” rule, the Continental court followed the court’s holding in In re Good Hope Chem. Corp., 747 F.2d 806, 811 (1st Cir.1984), which directs courts to look “to the jurisdiction in which the plaintiff’s cause of action arose to determine which rule is applicable.” If “at the time of breach the plaintiff has a cause of action arising in this country under American law,” the breach day rule applies.” If the defendant’s obligation “arises entirely under foreign law,” the “judgment day” rule applies.

The analysis is further complicated by the Restatement’s suggestion that intervening currency fluctuations should be taken into account for equitable reasons: “If, in a case arising out of a foreign currency obligation, the court gives judgment in dollars, the conversion from foreign currency to dollars is to be made at such rate as to make the creditor whole and to avoid rewarding a debtor who has delayed in carrying out the obligation.” Restatement (Third) of Foreign Relations Law § 823 (1987); at cmt. c. Furthermore, “the date used for conversion should depend on whether the currency of obligation has appreciated or depreciated relative to the dollar.” Id. at cmt. c. Consequently, the Restatement suggests that unless the interests of justice require otherwise, the “breach day” rule applies if the foreign currency has depreciated in value.

While some commenters have argued that the flexibility endorsed by the Restatement is in conflict with the approach dictated by Hicks and Deutsche Bank, the Continental court found there was no conflict between the two approaches. Noting that although the original dispute between the parties may have involved questions of Nigerian law, the Court held “Continental’s right of action here derives entirely from U.S. law, namely the right to have an arbitral award that meets certain criteria be confirmed by a United States district court.” 2013 WL 1201380 at *5. Consequently, “regardless of the circumstances that led Continental and Nigeria to submit to arbitration initially, Continental’s cause of action in this Court arises exclusively under United States law; the ‘breach day’ rule therefore applies.” Id. The Court, therefore, concluded that

“Under Hicks, Deutsche Bank, and the Restatement it is appropriate to convert Continental’s foreign currency award using the exchange rates prevailing on the date of the “breach,” which in the context of an arbitral award confirmation means the day that the award issued, here August 14, 2008.”

Thus, under the Court’s holding, neither party to an arbitration award may benefit from “currency roulette;” the conversion rate is established on the date of the award.