CURRENCY CONCERNS 2013 This Article First Appeared in the February 2013 Issue of Port Strategy and Is Reproduced with Their Kind Permission

Ports & Terminals February CURRENCY CONCERNS 2013 This article first appeared in the February 2013 issue of Port Strategy and is reproduced with their kind permission. www.portstrategy.com

The Eurozone debt crisis has prompted those incorporate express English choice of law and involved in port operations to consider carefully jurisdiction clauses, issues may nonetheless the potential consequences of the exit of arise because of two conflict of laws principles. a Eurozone state from the Euro and a re- denomination into a replacement local currency. Applied jurisdiction

Any withdrawing state would be likely to Firstly, there is the internationally recognised enact new laws making compulsory the principle of lex monetae, by which the choice re-denomination of contractual payment in a contract of a particular currency is taken to obligations governed by local law into a new imply a choice of the law of the country of that replacement local currency, as well as requiring currency to determine, where necessary, what payments into that state to be in the new local that currency is or may re-denominate into. currency. The governing law and jurisdiction which applies to such contracts will be In the current context of the risk of re- crucial in determining the impact of such re- denomination into a replacement local currency denomination provisions. (for example, Euros back to Spanish Pesetas), issues may arise as to whether an English court, Contracts governed by express local law and in applying this principle, should regard the jurisdiction clauses will be subject to any local choice of the Euro in a contract as a choice of laws on re-denomination into any new currency, the law of a particular Member State or a choice which will be difficult to avoid as they are of the law of the Eurozone as a whole. likely to trump any currency conversion or re- denomination clauses providing for other harder To avoid such difficulties, currency fluctuation currencies (for example Euro, GB Pounds, or conversion clauses, which provide either US Dollar). However, even where contracts that the contract will be in Euros only or will be converted into other harder outside of the country of the Member contract continuity clauses, which currencies such US Dollars or GB State which is at risk of currency re- maintain the validity of the contracts Pounds on any re-denomination, denomination. It would be sensible to in the event of a Eurozone re- should be incorporated into incorporate such clauses before any denomination. potentially affected contracts. Such re-denomination takes place. clauses should also address what While re-denomination could impact rate of exchange will apply. Revision time contractual obligations, it will also of course affect counter-party and Secondly, there is the principle The prospect of re-denomination investment risks. In that context, known as lex loci solutionis, whereby presents various uncertainties, parties must consider minimising under Rome I Regulation, art 9(3), and parties to potentially impacted their exposure through careful English courts may give effect to contracts may wish to act now to negotiation of their future and existing the overriding mandatory rules of mitigate any future impact. With a contracts, with a particular focus on the law of the place of performance view to avoiding exposures, parties governing law, jurisdiction, currency of a contract (i.e. the “lex loci should consider revising their conversion, validity and place of solutionis”). In doing so, courts have contracts as above so as to avoid performance provisions. the discretion to render performance those EU states which are perceived unlawful if payment of a claim under as higher risk. For more information, please contact a contract in, for example, Euros Costas Frangeskides, Partner, on is unlawful in the country in which In the case of existing contracts, this +44 (0)20 7264 8244 or payment must be made. may be achievable by endorsement. [email protected], or In the case of new contracts, by Ben Atkinson, Associate, on Possible solutions here include express provision. Where necessary, +44 (0)20 7264 8238 or incorporating clauses which require standard market clauses can be [email protected], or your usual payment to be made to a party, such modified for these purposes. They contact at HFW. as a broker or other intermediary, should also consider including

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