The Supreme Court’s decision in Process & Industrial Developments Limited (Appellant) v The Federal Republic of Nigeria (Respondent) [2025] UKSC 36 establishes that costs orders should ordinarily be awarded in the currency of invoicing and payment, rejecting calls for courts to investigate which currency most accurately reflects a party’s loss.
Background
The appeal arose from a costs order following the successful application by the Federal Republic of Nigeria to set aside two arbitration awards in favour of Process & Industrial Developments Limited. The arbitration awards, dated 2016 and 2017 [§2], had originally granted P&ID sums exceeding US$6.6 billion plus interest, with Nigeria’s total liability surpassing $11 billion by the time of trial [§2]. Nigeria brought a challenge under section 68 of the Arbitration Act 1996 on the grounds of serious irregularity, specifically that the awards were obtained by fraud and were contrary to public policy. The Commercial Court, before Knowles J, upheld Nigeria’s challenge in a judgment dated [2023] EWHC 2638 (Comm), setting aside the awards [§2].
In pursuing the section 68 challenge, Nigeria incurred substantial legal costs, totalling £44.217 million (excluding interest) in relation to an eight-week trial [§1]. These costs were billed by Nigeria’s solicitors in sterling across 116 invoices, and payments were made by Nigeria in sterling between November 2019 and November 2024 [§1, §22]. Following the substantive decision, a dispute arose regarding the currency in which costs should be awarded. P&ID sought to have the costs order denominated in naira, Nigeria’s national currency, citing significant depreciation of the naira against sterling in recent years, particularly after Nigeria ceased pegging its currency to the US dollar in 2023 [§3]. Knowles J delivered an ex tempore ruling on 8 December 2023, awarding costs in sterling [§5], which was subsequently upheld by the Court of Appeal in a judgment dated 12 July 2024 ([2024] EWCA Civ 790) [§6]. P&ID appealed to the Supreme Court on the sole issue of the currency of the costs award.
Costs Issues Before the Court
The central costs issue before the Supreme Court was whether the judge erred in exercising his discretion to award costs in sterling rather than naira [§1]. The court was required to determine the correct legal principles governing the choice of currency for costs orders under the court’s discretionary powers. Specifically, the issue involved the applicability of the test proposed by P&ID, derived from the decision in Cathay Pacific Airlines Ltd v Lufthansa Technik AG [2019] EWHC 715 (Ch) [§4], which suggested that costs should be awarded in the currency that most accurately reflects the loss suffered by the receiving party in funding its litigation. This raised broader questions about the nature of costs awards, including whether they are compensatory in the same manner as damages, and the extent to which the court should inquire into a party’s funding arrangements when determining the currency of costs.
The Parties’ Positions
P&ID argued that the court should adopt a principle akin to that applied in damages cases, such as Miliangos v George Frank (Textiles) Ltd [1976] AC 443 and Owners of the Eleftherotria v Owners of the Despina R [1979] AC 685, where judgment could be given in a foreign currency to reflect the claimant’s actual loss [§7]. P&ID contended that an award of costs is compensatory and designed to indemnify the receiving party against the loss incurred in litigation. Therefore, the currency should be that which most truly represents the underlying loss, which in this case was naira, as Nigeria had allegedly converted naira into sterling to pay its legal fees [§7, §8]. P&ID challenged the Court of Appeal’s distinction between an indemnity against loss and an indemnity against liability, asserting that there was no material difference in this context [§8]. They also dismissed concerns about disproportionate inquiries into funding arrangements, citing Lord Wilberforce’s rejection of similar arguments in damages cases [§9].
Nigeria maintained that the costs order should be in sterling, as its solicitors had billed in sterling and payments were made in sterling [§5, §6]. Nigeria emphasised that an award of costs is a discretionary remedy under section 51 of the Senior Courts Act 1981 and CPR rule 44.2, not a compensatory award for loss [§12-13]. They argued that the court should not embark on an inquiry into how a party funds its litigation, as this could lead to complex and disproportionate satellite litigation [§6, §20]. Nigeria also highlighted practical difficulties, such as the need to apply multiple exchange rates to 116 invoices if costs were awarded in naira, which would complicate the assessment process [§22]. They distinguished the Cathay Pacific case, noting that it involved invoices in euros, but argued that the proposed test of “reflecting loss” was not appropriate for costs orders.
The Court’s Decision
The Supreme Court dismissed the appeal, upholding the award of costs in sterling on the standard basis [§31]. The court provided several key reasons for its decision.
Costs Awards Are Not Compensatory
First, the court fundamentally distinguished costs awards from damages, noting that damages aim to compensate for loss in tort or breach of contract [§11], whereas costs are a discretionary remedy under statute and the CPR, intended as a contribution towards litigation expenses, not a full indemnity for loss [§12-16]. As Lord Hodge and Lady Simler stated: “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” [§16]. The court emphasised that costs orders are based on the liability incurred to legal representatives, not on the actual loss suffered by the party [§15-16].
No Inquiry into Funding Arrangements
Second, the court affirmed that the discretionary nature of costs under section 51 of the Senior Courts Act 1981 and CPR rule 44.2 [§12-13] means that the court is not required to conduct an inquiry into the currency that reflects a party’s loss. Such inquiries could lead to disproportionate and expensive satellite litigation, contrary to the overriding objective of dealing with cases justly and at proportionate cost [§20]. The court stated: “there is no distinction in principle between a person, who in order to pay a solicitor’s invoice expressed in sterling, converts another currency into sterling, and a person who sells gold or valuable paintings to do so” [§19]. In either case, the court does not investigate how the litigant obtained funds to meet its liability to its solicitors [§19].
Clarification of Cathay Pacific
Third, the court addressed the Cathay Pacific case, clarifying that while there is jurisdiction to award costs in a foreign currency, the outcome in that case was correct but its reasoning was flawed [§24]. John Kimbell QC did not err in awarding costs in euros when a German company’s solicitors had billed and been paid in euros. However, “in so far as his reasoning for so doing rested on or was supported by a suggested requirement for an inquiry as to the currency which most truly reflects the loss which the receiving party has suffered, we respectfully disagree” [§24]. The court rejected the “loss reflection” test, noting that such inquiries “could add significantly to the cost of litigation in the English courts” [§24].
The General Rule
The court endorsed a general rule that costs should be awarded 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 [§25]. This reflects the liability incurred by litigating in the English courts and promotes legal certainty [§25]. The court noted that there may be exceptional circumstances where costs are not awarded in the currency of payment—for example, if the parties’ choice of currency is “abusive or otherwise inappropriate,” such as using a currency with which neither party nor their lawyers have a real connection in order to speculate on currency appreciation [§25].
Forward-Looking Guidance
The court added that if it becomes common for parties to pay lawyers in foreign currencies, “it might be necessary to develop practice directions” to ensure proper notice, safeguard costs budgeting mechanisms, and protect paying parties from significant currency fluctuations [§26].
Application to This Case
Finally, the court noted that in this case, Nigeria’s solicitors had billed and been paid in sterling, and the costs assessment would be conducted in sterling, so there was no basis to deviate from the general rule [§27]. The court also dismissed P&ID’s windfall argument, observing in a postscript that “the depreciation of [Nigeria’s] currency internationally has resulted in a substantial diminution of the domestic purchasing power of the naira in Nigeria since 2019 and especially since 2023″ [§29].
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