Introduction
A Singapore diamond wholesaler sold loose diamonds to a Malaysian buyer. Some of the invoices were in United States Dollars (‘USD’). When those invoices went unpaid, the wholesaler sued the Malaysian buyer for USD86,488.10. The buyer argued that the claim was bad because it had not been converted into Malaysian Ringgit (‘RM’).
The buyer’s contention was not accepted by the Malaysian High Court. The claim in USD was allowed. As the case shows, an overseas creditor may sue a Malaysian debtor in a foreign currency, provided that currency is the currency of the contract.
Behind the rule is a principle of fairness: a creditor should not be made to bear the risk of the currency moving while the debtor holds back payment.
Position in England
The starting point is the decision of the English House of Lords in Miliangos, on which the Malaysian decisions discussed below have relied.
Miliangos v George Frank (Textiles) Ltd [1976] AC 443
In Miliangos v George Frank (Textiles) Ltd,1 the House of Lords heard an appeal concerning a Swiss seller who sold yarn to an English buyer. The price was in Swiss Francs (‘CHF’). The buyer did not pay and by the time the case came to court, Pound Sterling (‘GBP’) had fallen against CHF.
Before the House of Lords’ decision in Miliangos, the rule in England was that an English court could only give judgment in GBP.2 A debt in a foreign currency had to be converted into GBP at the exchange rate on the day the buyer should have paid. That rule made a real difference to the seller. A judgment in CHF was worth about GBP60,000. A judgment in GBP was worth only about GBP42,000. The seller would have lost about GBP18,000 simply because the buyer did not pay on time.3
The House of Lords held, inter alia, as follows:
(a)‘justice demands that the creditor should not suffer from fluctuations in the value of sterling‘. The seller’s contract ‘has nothing to do with sterling; he has bargained for his own currency and only his own currency‘.4
(b)The right rule is the one that ‘gives the creditor neither more nor less than he bargained for‘.5
(c)To change the rule ‘would enable the law to keep in step with commercial needs and with the majority of other countries facing similar problems‘.6
(d)The seller was entitled to judgment in CHF.
Miliangos puts the creditor back where the contract put it. The seller bargained for CHF, and the fall in GBP while the buyer held back payment was not the seller’s risk to carry.
Position in Malaysia
Inter Diam Pte Ltd v PJ Diamond Centre Sdn Bhd [2002] 7 MLJ 189
In Inter Diam Pte Ltd v PJ Diamond Centre Sdn Bhd,7 the Malaysian High Court heard an appeal against the refusal of summary judgment. The Plaintiff, a Singapore diamond wholesaler, claimed RM215,479.10 and USD86,488.10 for loose diamonds sold and delivered to the Defendant. The USD claim was pleaded as ‘the sum of USD86,488.10 or its equivalent in Ringgit Malaysia‘.8 The Defendant contended, inter alia, that the USD claim was bad in law as it had not been converted into RM, relying on an earlier Malaysian High Court decision which had held that a claim in foreign currency must be expressed in RM before filing.9
The Malaysian High Court allowed the appeal and held, inter alia, as follows:
(a)On whether that rule was ‘still suitable under the present international economic environment‘, the answer ‘must emphatically be ‘No’‘.10
(b)The parties had agreed that payment for some of the transactions would be in USD, as shown by the invoices, and ‘it would be wrong in principle to allow mere precedents to deny the plaintiffs right to be paid in US dollars‘.11
(c)‘A plaintiff suing under a contract may make a claim in foreign currency provided such currency is the currency agreed upon by the parties to the contract for the purpose of payment under the contract‘. The alternative claim in RM, without stating an RM figure, was also legally proper.12
(d)The earlier decision relied on by the Defendant, ‘if followed, would cause injustice to the plaintiff‘.13
Inter Diam is the clearest statement of the condition. The question is not which currency the creditor would prefer, but which currency the parties agreed for payment.
Devonport Sdn Bhd v Colonial Beach and Spa Resort Sdn Bhd [2023] MLJU 3084
In Devonport Sdn Bhd v Colonial Beach and Spa Resort Sdn Bhd,14 the Malaysian High Court heard a claim for consultancy fees for setting up and operating a resort in Langkawi. Article 3.1 of the Consulting Agreement fixed the monthly fees in USD.15 After trial, the Plaintiff’s claim was allowed. The Defendant complained that judgment in USD would be unfair, as it would make the Defendant liable for foreign exchange losses.
The Malaysian High Court held, inter alia, as follows:
(a)Article 3.1 of the Consulting Agreement designated the currency of payment, and the Plaintiff’s claim was allowed in USD.16
(b)As for the Defendant’s complaint of foreign exchange losses, ‘the simple answer is that had the defendant paid what it owes when due, the risk of the fluctuation in the foreign exchange would not have been felt by it‘.17
(c)An earlier case in which judgment was given in RM was distinguished, as there ‘the innocent stakeholder there ought not to be subjected to the risks of foreign exchange fluctuations‘.18
(d)Judgment was entered for USD187,000.00 and USD184,000.00 in outstanding fees.19
Devonport puts the principle in the plainest terms. The currency risk follows the default. A debtor who pays on time feels no exchange loss, so a debtor who does not pay cannot complain of one. A party who did nothing wrong, such as an innocent stakeholder, is in a different position.
Conclusion
Taken together, these decisions show that an overseas creditor owed money in a foreign currency does not have to convert its claim into RM before suing a Malaysian debtor. Where the parties agreed that payment would be in a foreign currency, the Malaysian courts may give judgment in that currency.
The courts have also recognised that a creditor should not be made to bear the risk of the currency moving while the debtor holds back payment. A creditor should, as far as possible, receive what it bargained for.
The protection, however, is for the currency the parties agreed. If the contract was in RM, an overseas creditor cannot sue in its home currency because it would prefer to.
Ang Jia Hern, Partner, Ang & Lim Partnership
Notes
- Miliangos v George Frank (Textiles) Ltd [1976] AC 443; [1975] 3 All ER 801 (HL). ↩
- The rule came from an earlier House of Lords decision, Re United Railways of the Havana and Regla Warehouses Ltd [1961] AC 1007; [1960] 2 All ER 332 (HL), as described in Miliangos (n 1) 804–805 (All ER). ↩
- Miliangos (n 1) 804–805 (All ER). ↩
- Ibid 811 (All ER). ↩
- Ibid. ↩
- Ibid 812 (All ER). ↩
- Inter Diam Pte Ltd v PJ Diamond Centre Sdn Bhd [2002] 7 MLJ 189 (HC). ↩
- Ibid 192, 194–195. ↩
- Ascot International Pte Ltd v Elevic Trading Sdn Bhd [1996] MLJU 28 (HC), as discussed in Inter Diam (n 7) 195–196. ↩
- Inter Diam (n 7) 196. ↩
- Ibid. ↩
- Ibid 202. ↩
- Ibid. ↩
- Devonport Sdn Bhd v Colonial Beach and Spa Resort Sdn Bhd [2023] MLJU 3084 (HC). ↩
- Ibid [2]–[3], [54]. ↩
- Ibid [54]–[55]. ↩
- Ibid [60]. ↩
- Ibid [63]. ↩
- Ibid [65]. ↩
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