ULC

Foreign Money Claims Act Summary

The necessary engagement of Americans in international trade has increased the amount of business conducted by Americans in foreign currency. Also, more travel to foreign countries by Americans, and more travel to the United States by citizens of other countries, increases the number of tort claims that can be expressed in foreign currency, or in both foreign currency and dollars. When a business deal goes bad, the losses are appropriately taken in the currency that is the foundation of the deal. Injuries suffered may, also, be most appropriately compensated in a foreign currency, depending upon where the losses were suffered and where damages accrued. Yet the general rule in the United States requires judgments on all claims to be stated and paid in dollars. A number of states fix the payment of judgments in dollars by statute.

Requiring that judgments be always in dollars does not accord with the international character of much litigation, and is contrary to the rules that pertain in most countries, which do recognize judgments in foreign currency—including dollars. So it is appropriate for the United States to join the rest of the world with respect to the payment of judgments. However, to do so, the law must also select appropriate rules for converting a judgment in a foreign currency to dollar value. The Uniform Foreign-Money Claims Act (UFMCA) reverses the rule that all money judgments must be valued in dollars, and provides the rules for fair conversions of foreign money judgments into dollar amounts.

UFMCA allows any claimant to assert a claim in foreign money. It also allows any opposing party to contest such a claim, and to assert and prove that a different money should be the basis for the claim. How does a court determine the money to be used? UFMCA establishes some basic alternative standards. If a specific money is regularly used between the parties as a matter of usage or course of dealing, it can be asserted as the currency to be used in assessing damages in an action. If a specific currency is used for valuing or settling transactions in a particular commodity or service by trade usage or common practice, it can be the currency used in the litigation. Lastly, if a loss is ultimately felt or incurred by a party in a specific currency, that money can be used to establish the price of a claim. By hearing evidence as to any of these basic standards, the court determines what money shall be used to value a claim.

The parties themselves can establish the money that is appropriate. UFMCA permits parties to agree to the money that will govern the transaction between them. They can also agree to settle a claim in any currency that they choose. If there is a contract specifying payment in a certain currency, that currency is the proper money for payment of any claim under that contract.

But conversion between dollars and a foreign currency remains a problem. American litigants will ordinarily have dollars with which to satisfy judgments against them. Foreign defendants may prefer to pay in dollars, as well. Since the dollar is actively traded in international money markets, it is not rare for dollars to be available to foreign entities.

If currencies remained at fixed values with respect to each other, there would be no problem. However, currencies fluctuate against each other in an international market. We hear that the dollar goes up or down against the pound, the euro and the yen, as a part of the normal business news every day. Anybody who travels out of the United States is aware of these fluctuations as he or she exchanges dollars for the foreign currency of choice. If judgments are to be converted from another currency to dollars, what is the fair time to value the exchange?

With respect to judgments, there are three possibilities, the day a person suffers a loss (breach day), the day the judgment is rendered by a court (judgment day), or the day the judgment is actually paid (payment day). If the breach day or the judgment day are chosen as the date of conversion, then currency fluctuations between the chosen date and the date of payment are at the risk of the claimant. After a conversion date that is either the breach day or the judgment day, if the dollar drops against the currency in which the judgment is stated, the claimant gets less value on payment day. Conversely, if the dollar rises against that currency, the claimant gets more value on payment day.

Rather than subject the claimant to that risk of currency fluctuation, UFMCA establishes payment day as the proper date for making the conversion. We assume that the claimant is being paid in the currency that is appropriate. He or she should get the value that is inherent in a judgment stated in that currency. Conversion to dollars on payment day conforms most closely to that principle. Payment day is, also, the day of conversion in the law of the major participating countries in international trade.

Whether to pay in dollars or in the foreign currency is, in fact, at the option of the judgment debtor under UFMCA. If dollars are chosen, the rate of exchange is the bank-offered spot rate on the conversion date, which is the basically the free market rate of exchange on the day preceding the day of payment.

Judgments in a law suit are not the only money awards that UFMCA will govern. Arbitration awards are, also, subject to this Act. Another kind of proceeding that may require conversion from a foreign currency to dollars is a "distribution proceeding." This is defined as "a judicial or nonjudicial proceeding for an accounting, an assignment for the benefit of creditors, a foreclosure, for the liquidation or rehabilitation of a corporation or other entity, for the distribution of an estate, trust, or other fund in or against which a foreign-money claim is asserted."

To convert foreign money to dollars in a "distribution proceeding," the selected date is the day the proceeding is initiated. The kinds of actions that are "distribution proceedings" involve distributing money from an established fund to those persons entitled to it. There are no losses that may fluctuate in value. Therefore, value established at the time the distribution is asked for is the fair value.

UFMCA serves the goals of permitting claims in foreign currency and of establishing a fair conversion to dollars. These are its principal purposes. However, there are some other issues that must be covered, and UFMCA covers them. The right to pre-judgment interest and the rate of interest are treated as substantive law regarding the right to recovery under the conflict of laws rules that pertain in a state. A court might choose the law of the foreign jurisdiction, therefore, in deciding the right to pre-judgment interest and the rate to be applied if there is a right to pre-judgment interest. However, the interest on a judgment is at the same rate as any other judgment under the law of the state rendering the judgment.

A judgment of a court in another jurisdiction that is expressed in terms of a foreign currency is enforceable, and may be converted into dollars under UFMCA at the judgment debtor's option, even though the jurisdiction in which the judgment is rendered does not provide for such a conversion. Such a judgment is to be enforced as any other foreign judgment is enforced.

UFMCA provides for temporary valuations of foreign money claims in dollars for the purposes of taking certain provisional steps in an action, such as seizing or restraining assets pursuant to a writ of attachment, assessing costs of litigation, or determining the amount of a surety bond. The time for making a temporary valuation is the banking day next preceding the filing of the application for the specific process of the court, and the rate is the bank-offered spot rate of exchange prevailing on that day.

Sometimes a foreign country will revalorize its currency, such as Brazil did in recent history. If a foreign money claim is stated in the old currency, then a rate of exchange must be stated for conversion into the new currency. The rate under UFMCA is the rate of conversion officially established by the issuing country.

These are the basic issues addressed in UFMCA. The United States is preparing itself for a greater and more competitive role in international trade. UFMCA is a measure that states can adopt as part of the general preparation for assuming that improved role. Uniformity is essential for that role to be fully assumed in the administration of civil justice in the states.