Failure to specify currency exchange rate proves costly
When drawing up contracts of sale across different countries it is essential to specify in advance the currency and exchange rate to be used.
Confusion over these issues can prove costly, as one firm discovered in a recent case before the Court of Appeal.
The case involved the sale of various goods together with industrial plants in Manchester and Orleans in France.
The contract stipulated that payment was to be made in sterling in relation to products shipped from the UK, and in euros for products shipped from France.
The contract also showed the budgeted cost of production at each plant. These costs were all expressed in euros with a notation that read, “£/euro exchange rate of 1.49164”.
The buyer then considered that this would be the exchange rate to be used and made its payments on that basis. However, the seller insisted that payment should be made at the prevailing exchange rate at the time of payment, which meant it would receive a higher price.
The court ruled in favour of the seller, saying that there was no implied term in the contract providing for a fixed rate of currency exchange. The Court of Appeal upheld that decision.
It held that, in the absence of a specific clause relating to exchange rates, it had to rely on the language used in the contract to construe what both parties had intended. On that basis, there was nothing to suggest that a fixed rate should be used.
Please contact Jon Alvarez if you would like more information about the issues raised in this article or any aspect of contract law.