Process & Industrial Developments Limited v The Federal Republic of Nigeria (UKSC/2024/0117)

P&ID sought costs to be awarded in naira following Nigeria's successful challenge to fraudulent arbitration awards worth over $11 billion. The Supreme Court held that costs should be awarded in sterling, being the currency in which Nigeria's solicitors billed and were paid, rejecting the argument that costs should reflect the receiving party's underlying loss.

Facts

Process & Industrial Developments Ltd (P&ID) had obtained arbitration awards totalling US$6.6 billion plus interest against Nigeria. Knowles J set aside these awards under section 68 of the Arbitration Act 1996 on grounds that they were obtained by fraud and were contrary to public policy. Nigeria incurred total unassessed costs of £44.217 million in pursuing this successful challenge. Nigeria’s solicitors billed in sterling and Nigeria paid in sterling.

The Currency Dispute

P&ID argued that costs should be awarded in naira (Nigeria’s national currency) rather than sterling. Due to significant depreciation of the naira, particularly since Nigeria ceased pegging its currency to the US dollar in 2023, the sterling sums paid were equivalent to approximately 25 billion naira when paid but would now be equivalent to 95 billion naira. P&ID contended this would give Nigeria a substantial windfall.

Issues

The central issue was whether Knowles J erred in awarding Nigeria’s costs in sterling rather than naira. P&ID argued that the court should apply a test whereby costs are awarded in the currency which most accurately reflects the loss suffered by the receiving party in funding its litigation, relying on Cathay Pacific Airlines Ltd v Lufthansa Technik AG [2019] 1 WLR 5057.

Judgment

The Supreme Court unanimously dismissed the appeal. Lord Hodge and Lady Simler delivered the joint judgment with which Lord Reed, Lord Stephens and Lord Richards agreed.

Costs Orders Distinguished from Damages

The Court held that costs orders are fundamentally different from damages awards:

An order for costs is not intended to provide compensation for loss in the same way as awards of damages in tort or for breach of contract.

The Court emphasised the discretionary nature of costs orders:

In contrast to an award of damages by which the court is giving effect to a party’s legal right to reparation, an order for costs is a discretionary remedy.

The Nature of the Indemnity Principle

The Court clarified the limited scope of the indemnity principle in costs:

The task of the court making a costs award is to identify the reasonable amount which the party ordered to pay costs should pay, which is not the same as the sums which the receiving party has paid its lawyers and excludes the costs of funding the litigation, such as the cost of borrowing or the sums paid to commercial litigation funders.

Purchas LJ was cited approvingly:

The expression ‘legal costs’ has ‘a restricted meaning which could almost be described as conventional in a certain pragmatic sense’. An award of costs is no indemnity. It is a statutorily authorised award of a contribution toward the costs incurred in litigating in the courts of England and Wales.

Pragmatic Considerations

The Court identified pragmatic reasons against inquiring into funding arrangements:

If the court had to inquire into how a litigant had funded the sums which it paid to its lawyers, there would be a risk of collateral disputes of fact which might necessitate a separate trial.

The General Rule

The Court established a clear principle:

It is consistent with the nature of the court’s costs jurisdiction and with legal certainty that there be a general rule that an order for costs should be made in sterling or in the currency in which the solicitor has billed the client and in which the client has paid or there is a liability to pay.

The Court acknowledged potential exceptions where currency choice might be abusive or inappropriate.

Implications

This judgment clarifies that costs orders are not designed to compensate for loss in the same manner as damages. The decision provides legal certainty by establishing that costs should ordinarily be awarded in the currency of billing and payment. The Court rejected the approach in Cathay Pacific insofar as it suggested a requirement to inquire into the currency most truly reflecting the receiving party’s loss. The judgment also noted that if foreign currency costs orders became common, practice directions might be needed to protect paying parties from significant currency fluctuations and maintain effective costs control mechanisms.

Verdict: Appeal dismissed. Nigeria awarded costs in sterling on the standard basis. The Court held that Knowles J did not err in exercising his discretion to award costs in sterling, being the currency in which Nigeria’s solicitors billed and in which Nigeria paid.

Source: Process & Industrial Developments Limited v The Federal Republic of Nigeria (UKSC/2024/0117)