In Fearns v Anglo-Dutch Paint & Chemical Company Ltd [2010] EWHC 2366 (Ch), the High Court considered the date on which judgment sums should be converted into sterling and set off against each other, in a situation where the claimant had been awarded damages in sterling and was also liable to the defendant for a debt in Euros.

The Claimant, trading as Autopaint International, supplied paint for cars through both its own shops and through franchises. The Defendant supplied paint to the Claimant in the UK. The Claimant brought a claim for damages, alleging that the Defendant had been supplying paint direct to the Claimant’s franchisees, using the Autopaint brand. The Defendant brought a counterclaim for monies owed in respect of goods supplied to the Claimant. At trial, the Claimant was awarded damages in sterling and was also ordered to pay an amount in Euros to the Defendant in respect of the debt owed.  

The judge had to decide when the damages payable by the Defendant and the debt payable by the Claimant should be converted into a common currency and set off against each other. The sterling/euro rate had fallen during the course of the proceedings, and so the date of the currency conversion would make a significant difference to the net liability. Judgment was given on 28 July 2010, but the written reasons for the decision were not handed down until 23 September 2010.  

The date at which any equitable set-off should be effected is the date on which the existence and amount of the two liabilities is established. It was therefore held that the Euro sum should be converted into sterling at the exchange rate as at the date of judgment. Due to the currency loss, this decision operated to the Claimant’s disadvantage: what would have been a net liability owed to the Claimant at the exchange rate at the date the claim was brought became a net liability that the Claimant owed to the Defendant as at the judgment date.  

However, the judge did not believe that this result showed that the law was defective. When a party brings a claim for damages, it is open to that party to include a claim for loss arising from currency fluctuations. The claimant would in principle be entitled to such loss if he could show that he would have paid the debt he owed to the defendant, but for the existence of the crossclaim on which he relied by way of set-off. However, if the claimant would not have paid the debt in any case (for example, if he disputed that the debt was owed in the first place) and only relied on set-off as an alternative basis for non-payment, then there was no injustice in the claimant bearing the loss resulting from the fluctuation in exchange rates. In this particular case, the judge held that the Claimant would not have used any money received from the Defendant to pay the monies owed to the Defendant. The Defendant should therefore not be held responsible for the Claimant’s currency loss.  

The judgment contains a useful analysis of the current legal position on equitable set-off. Further, it confirms that a right of equitable set-off does not extinguish or reduce a claim or counterclaim. Set-off will generally only discharge a party’s liability when the court makes an order to this effect.