Choice of Law in Foreign Currency Debts: A Comparative Study
| Autor | Yehya Badr |
| Cargo | Lecturer at the Department of Private International Law, Faculty of Law, Alexandria University in Egypt. Tulane Law School, S.J.D., 2010; Cornell Law School, L.L.M. 2007 |
| Páginas | 186-218 |
C
HOICE OF
L
AW IN
F
OREIGN
C
URRENCY
D
EBTS
:
A
C
OMPARATIVE
S
TUDY
Y
EHYA
B
ADR
*
I. Introduction ................. ........................................... ..................................................... 187
II. Choice of Law and Foreign Currency Debts..................................................... 188
A. United States ............... ............................................................... ................................. 188
1. Currency of Account ............................................................... .......................... 188
2. Currency of Payment ........................................................... ............................ 189
3. Conversion Rules ..................................................... .......................................... 189
a. Breach Day Rule .......................................... ........................................... ... 190
b. Judgment Day Rule ..................................... .............................................. 190
c. Explanation ................................. ............................................................... . 190
4. Foreign Currency Control Rules (F.C.C.R.) ................. .............................. 193
B. England .................................................................................................................... ..... 194
1. Currency of Account ............................................................... .......................... 194
2. Currency of Payment ........................................................... ............................ 195
3. Conversion Rules ............................................................ ....................................... 195
4. Foreign Currency Control Rules .......................................................... ............ 198
C. France ............................................................................ ........................................... ..... 198
1. Currency of Account ............................................................... .......................... 198
2. Currency of Payment ........................................................... ............................ 199
3. Exchange Rate ............................................................................. ....................... 200
4. Foreign Currency Control Rules .................................................................. 201
D. Egypt .............. ............................................................... ............................................ ..... 202
1. Currency of Account ............................................................... .......................... 202
2. Currency of Payment ........................................................... ............................ 203
3. Conversion Rules ..................................................... .......................................... 203
4. Foreign Currency Control Rules .................................................................. 204
E. General Remarks ......................................................... .............................................. 205
III. Evaluation of the Choice of Law in Foreign Currency Debts ..................... 205
A. Positive Indicators .......................................................................... ..................... 206
1. Party Autonomy ....................................... .......................................................... 206
2. Lex Loci Solutionis .................................................. .......................................... 207
3. Article VIII(2)(b) of the IMF Agreement ........................................ .......... 209
B. Negative Indicators .................................................................. ............................ 212
1. Public Policy ............................ ........................................... ................................. 212
2. Foreign Revenue Rule Doctrine ....................................... ............................ 214
IV. Suggested Approach ................................................ ................................................. 216
V. Conclusion ................................................................... ............................................ ..... 218
No. 2 Choice of Law in Foreign Currency Debts 187
I. I
NTRODUCTION
Choice of law in foreign currency debts is an area where several
contradictory rules exist; leaving it unclear how a court will treat said issue.
This article aims to explain the reasons courts have created uncertainty in
this field. In Part One, I will survey the choice of law rules on foreign
currency debts in four different jurisdictions. The first two jurisdictions are
the United States and England, which are common law jurisdictions while the
other two, France and Egypt, are civil law jurisdictions. In Part One, I
demonstrate that courts tend to deal with foreign currency debts not as a
single legal i ssue governed by a single choice of law rule but as a set of legal
issues that requires the use of several choice of law rules and doctrines.
In Part Two, I examine the manner in which courts have handled
choice of law in foreign currency debts through the evaluation of courts' use
of the choice of law rules and doctrines. I explain that, in most cases, courts
have misused the choice of law rules and that the real explanation for their
attitudes towards the choice of law in foreign currency debts is a d esire to
balance the need for enforcing agreements to the maximum extent possible,
which requires using the party autonomy choice of law rule, and the need for
complying with restrictions, imposed by the forum's law, foreign law, or even
the International Monetary Fund ( IMF) Agreement, (the “IMF Agreement”),
1
that guide courts towards other choice of law rules or doctrines such as lex
loci solutionis.
2
In Part Three, I suggest a better choice of law approach to foreign
currency debt that is based on enforcing the parties' agreement by using the
parties’ autonomy as a basic choice of law rule. However, the use of a party’s
autonomy choice of law rule will be restricted in accordance with the IMF
Agreement whenever the parties’ agreement contradicts the law of a
member state. I explain that this restriction should take place once the
parties’ agreement, at the time of conclusion or at the time of enforcement,
will affect the IMF member state's monetary system.
* Lecturer at the Department of Private International Law, Faculty of Law, Alexandria
University in Egypt. Tulane Law School, S.J.D., 2010; Cornell Law School, L.L.M. 2007;
Alexandria Univ ersity Faculty of Law, L.L.M. 2004 and L.L.B with Honors 2001. The author
would like to acknowledge the insightful comments by Yarot Lafontaine and to thank
Daphne Calderon, Myrel M arin and Paola Medina for their valuable comments and
punctilious corrections.
1
Bretton Woods Agreement, July 22, 1944, 60 Stat. 1401, 2 U.N.T.S. 39, as amended through
June 28, 1990, available at http://www.imf.org/external/about.htm.
2
Lex Loci Solutionis is the Law of the place where the payment or performance of a contract
is to be made. See B
LACK
'
S
L
AW
D
ICTIONARY
911 (6th ed. 1990).
188 U.P.R. Business Law Journal Vol. 3
II. C
HOICE OF
L
AW AND
F
OREIGN
C
URRENCY
D
EBTS
In this part, I survey the choice of law rules and doctrines used by
courts in the selected jurisdictions. Here distinctions must be made among
four separate issues. First, the determination of the debt's nominal value,
which I will refer to as the “Money of Account”, which courts usually
determine via the parties’ autonomy choice of law rule. Second, the actual
payment of the debt is governed by the lex loci solutionis choice of law rule.
Third, the forum's law governs the court's ability to issue j udgments and may
mandate issuing the judgment in the forum's currency, which means that the
court will have to convert the parties’ claims from the foreign currency to the
forum's currency and vice-versa. These “Conversion Rules”, actually reflect
the court's desire to effectuate substantive justice and to overcome its
inability to award any damages beyond interest. Fourth, the effect of the
Foreign Currency Control Rules ( F.C.C.R.) and h ow the courts apply or ignore
Article VIII 2(b) of the IMF Agreement.
3
A. United States
1. Currency of Account
So far no American court has placed any limitation on the parties’
choice of currency in denominating debts. American courts apply the
principle of nominalism
4
to all debts irrespective of the currency used by the
parties. Therefore, an obligation to pay a sum of money in a certain currency
is not affected by the changes that occur in that currency's value.
5
This rule is
applied to debts denominated in both U.S. dollars and foreign currencies. An
example is Strenberg v. West Coast Insurance Co., where the California Court
of Appeals ruled that an insurance policy made in California that required the
insured to pay the premiums in Chinese currency was enforceable even
though the Chinese currency had depreciated in value to such an extent that
it had become worthless.
6
The court did not accept the defendant's argument
that a plaintiff's duty to pay should have been altered in light of the Chinese
currency's depreciation.
7
3
Bretton Woods Agreement, supra note 1.
4
Nominalism me ans that the creditor can discharges his debt by payi ng off the face value of
the amount owed to the debtor regardless of any changes that might occur in the currency's
purchasing power due to inflation or debasement of th e currency itse lf. See Gilbert v. Brett
(Case De Mixt Moneys) (1604) Davis 18 (P.C. of Ireland).
5
Knox v. Lee Parker, 79 U.S. 457, 508 (1870); see also Die Deutsche Bank Filiale Nurnberg v.
Humphrey, 272 U.S. 517, 519 (1926).
6
Sternberg v. West Coast Life Ins. Co., 196 Cal. App. 2d 519, 521 (Cal . Ct. App. 1961).
7
Id. at 526.
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