Cathay Pacific v Lufthansa Technik: Affirming the Judiciary’s Discretion to Award Costs in Foreign Currency

Introduction

In the case of Cathay Pacific Airlines Ltd v. Lufthansa Technik AG ([2019] WLR(D) 337), the England and Wales High Court (Chancery Division) addressed pivotal issues surrounding the awarding of legal costs in a foreign currency. The dispute arose from a prolonged contractual relationship between Cathay Pacific Airlines Ltd ("Cathay") and Lufthansa Technik AG ("LHT"), spanning ten years and involving substantial financial implications. The central legal questions pertained to the appropriate procedural management of the case under the Civil Procedure Rules (CPR) Parts 7 and 8, and more critically, whether costs could be awarded in a foreign currency, namely euros.

Summary of the Judgment

The High Court, presided over by the judge on March 6, 2019, determined that the proceedings should proceed under CPR Part 7 instead of Part 8. The judge declined to enter judgment for Cathay, allowing the case to continue with comprehensive case management directions. A significant portion of the judgment delved into three consequential matters: case management directions, the incidence of costs, and the currency in which costs should be awarded.

Notably, the court addressed the contentious issue of whether costs could be awarded in a foreign currency. After analyzing previous case law and statutory provisions, the judge concluded that awarding costs in euros was permissible. The court emphasized that such an award aligns with the principles established in prior cases like Miliangos v. George Frank (Textiles) Ltd, and the indemnity nature of cost awards. Consequently, LHT was awarded costs summarily assessed at £25,000, expressed in euros.

Analysis

Precedents Cited

The judgment extensively referenced seminal cases that shaped the court’s decision on awarding costs in foreign currencies:

• Miliangos v. George Frank (Textiles) Ltd [1976] AC 443: This landmark case abrogated the prior prohibition on issuing judgments in foreign currencies, establishing that courts could render costs in a currency that accurately reflects the claimant's loss.
• Schlumberger Holdings Limited v. Electromagnetic Geoservices AS [2009] EWHC 775 (Pat): Mann J considered awarding costs in euros but declined due to the "in substance a sterling bill" nature of the costs.
• Actavis UK Ltd. v. Novartis AG [2009] EWHC 502 (Ch): Warren J noted the novelty of awarding costs in a foreign currency but ultimately deferred the decision to the costs judge.
• Elkamet Kunststofftechnik GmbH v. Saint-Gobain Glass France SA [2016] EWHC 3421 (Pat): Arnold J awarded additional costs in euros to compensate for exchange rate losses, setting a nuanced precedent for compensatory payments related to currency fluctuations.

These precedents collectively underscore the judiciary's evolving stance on costs awards in foreign currencies, balancing procedural norms with equitable considerations.

Legal Reasoning

The judge’s reasoning hinged on several key principles:

• Discretionary Powers of the Court: Under Section 51 of the Senior Courts Act 1981 and CPR 44.2, the court has broad discretion to award costs. There was no statutory or rule-based limitation mandating costs to be awarded exclusively in sterling.
• Indemnity Nature of Costs: Cost awards are compensatory, aiming to indemnify the successful party for expenses incurred. Aligning the currency of the award with the actual currency of expenditure ensures fair compensation.
• Overriding Objective: As per CPR 1.2, the court must ensure that procedures are just, proportionate, and efficient. Awarding costs in euros in this case met these criteria by reflecting the true financial loss without necessitating currency conversions.
• Precedential Consistency: The judgment consistently applied principles from The Folias and The Dione, aligning the currency of cost awards with the claimant's financial outlays.

By integrating these principles, the court concluded that awarding costs in euros was not only permissible but also equitable, given LHT’s direct financial engagements in that currency.

Impact

The decision in Cathay Pacific v. Lufthansa Technik has significant implications for future litigation involving international parties:

• Enhanced Flexibility: Courts can now more confidently award costs in foreign currencies, facilitating fairness in international disputes.
• Clarity in Cost Management: Parties are encouraged to clearly specify the intended currency of cost awards in their pleadings, aligning with procedural expectations.
• Precedential Guidance: This judgment serves as a guiding precedent, indicating that the judiciary will consider the substantive loss and practicalities over rigid procedural constraints.

Overall, the ruling promotes a more nuanced and equitable approach to cost awards in the context of global litigation.

Complex Concepts Simplified

Costs as Indemnity

In legal terms, "costs as indemnity" refer to cost awards intended to compensate the successful party for actual expenses incurred during litigation, rather than serving as a punitive measure against the losing party. This ensures that the winning party is reinstated financially to the position they were in before the lawsuit.

Civil Procedure Rules (CPR) Parts 7 and 8

The CPR provides a framework for civil litigation in England and Wales. Part 7 deals with the standard claim procedure, typically involving detailed pleadings and evidence. Part 8 is used for claims that are unlikely to require substantial proof, such as applications for judicial review.

Summary Assessment

A "summary assessment" of costs is a streamlined process where the court assesses and approves claimed costs without a detailed examination of each entry, provided that the claims are reasonable and properly documented.

Conclusion

The Cathay Pacific v. Lufthansa Technik judgment marks a pivotal moment in the adjudication of legal costs within international contexts. By affirming the judiciary's discretion to award costs in a foreign currency, the court has reinforced the principles of fairness and indemnity that underpin cost awards. This decision not only aligns with established precedents but also enhances the procedural flexibility necessary in our increasingly globalized legal landscape. Litigants and legal practitioners alike should take heed of this judgment, ensuring that cost claims in foreign currencies are substantiated and clearly articulated to facilitate equitable resolutions.