Although the Euro crisis appears to be more stable, it still appears far from resolved, and so stable, but critical.
Jersey investors with Euro portfolios may therefore eye our Continental neighbours increasingly nervously, thinking the previously unthinkable: will the Euro survive? If not, of immediate importance amid the chaos will be what happens to debts they have or are owed in Euros.
Obviously, this will depend on many variables including the steps taken at national and international level to regulate the position, especially those that provide new currency to replace the Euro. They also include the exact terms of the relevant contract creating the debt, especially (among other things) price, payment and governing law. However, subject to those variables, a starting point to negotiate through them can be ascertained by resorting to first principles applicable to a simple contract without elaborate terms and conditions, subject to Jersey law.
The law can distinguish between the currency of account (by which the price is measured) and the currency of payment (in which the price so measured is paid). These are usually the same, as there is an express price (e.g. €1,000) which must be paid. However, even where there is only one currency mentioned there may be a different acceptable currency of payment.
In Jersey, according to the Loi (1835) sur la monnaie, the only legal tender is “la monnaie Anglaise”: i.e. Sterling. So, although the Royal Court is happy to and frequently does order payment in other currencies because they are specified in the contract sued on, strictly the parties may insist on Sterling as the currency in which they make the payment or are paid. If so, the relevant amount of Sterling (as the currency of payment) must be calculated to match the relevant amount of foreign currency as the currency of account. This will be calculated at the market rate.
So what happens if there is no Euro market rate to refer to? The debtor will try to argue that the calculation is impossible, although the Royal Court is unlikely to take kindly to this argument, especially if the debtor owes money in respect of services already rendered by the creditor. Previously, the Royal Court has held that contracting party cannot avoid his obligations on the ground they have become impossible unless they are truly impossible, not merely difficult or onerous to perform.
An advantage of Jersey law is its flexibility to adopt solutions from other jurisdictions where appropriate, and some English cases may provide the answer. In cases decided after the Second World War concerning debts in German Reichsmarks, for which there was no market, the Courts made their best assessment of an appropriate rate on the best evidence available - even if (as they admitted) that amounted to an educated “judicial guess”.
Although admittedly rough and ready, this shows reluctance to allow a even a currency’s disappearance to thwart the obligation to pay, and the Royal Court is likely to adopt this approach as an attractive solution.