International Construction Law Review
THE IMPACT OF CURRENCY EXCHANGE FLUCTUATIONS ON CONSTRUCTION CLAIMS
DR FRANCO MASTRANDREA
LLB (Hons), M Sc, Ph D, FRICS, FCI Arb, Barrister
INTRODUCTION
A relevant consideration in the evaluation of construction claims in the international arena, and a potentially significant component of any such evaluation, involves costs or losses resulting from movements in value between currencies. Consider the following example: a Middle Eastern project is delayed by reason of the employer’s breach of contract. As a result, the European main contractor is exposed to a claim (comprising increased costs of raw materials, additional storage, and costs associated with deferring the manufacturing slot) from its Chinese supplier. In addition, the main contractor loses for six months the stage payment that it would have received for delivery of the manufactured goods to site. The price of the main contract is expressed in euros, but the supply claim is incurred in Chinese yuan. The contractor proposed to use its anticipated mark-up within the (now delayed) stage payment to fund in part a subsequent project in which its expenditure is in US dollars. The euro has since the letting of the main contract fallen in relative value against both the yuan and the dollar. The supplier’s additional costs have not been paid through the certification provisions of the main contract. The main contractor seeks recovery of both the supplier’s claims and his own claim for deferred receipt of the stage payment against the employer, including in each case the associated currency exchange losses. The main contract and subcontract are subject to English law.
The illustration shows that currency exchange issues may manifest themselves in two principal ways:
- As a claim for loss suffered in a currency different from the currency in which the tribunal charged with deciding the dispute would ordinarily be likely to require payment of any damages it may award, i.e., the question is one of the denomination and payment of the currency of the award.
- As a claim for a foreign exchange loss (as a result, usually, of the late payment of a sum otherwise due to the claimant).
Such claims may at a more detailed level involve the following considerations:
- The currency of any award.
The International Construction Law Review [2012
294