P&ID sought costs awarded in Nigerian naira rather than sterling following Nigeria’s successful challenge to fraudulently obtained arbitration awards. The Supreme Court held that costs orders should be made in the currency in which the solicitor billed and the client paid, not the currency reflecting the receiving party’s underlying loss.
Background
This appeal arose from a dispute over the currency in which a costs order should be denominated. The Federal Republic of Nigeria (‘Nigeria’) successfully applied to set aside two arbitration awards made in favour of Process & Industrial Developments Ltd (‘P&ID’), which had been obtained by fraud. The underlying awards totalled US$6.6 billion plus interest, with Nigeria’s total liability exceeding $11 billion at the date of trial. Knowles J set aside those awards under section 68 of the Arbitration Act 1996 on the ground of serious irregularity, namely that the awards were obtained by fraud and were contrary to public policy.
In pursuing its section 68 challenge, Nigeria incurred total unassessed costs of £44.217 million (excluding interest) over an eight-week trial in the Commercial Court. Nigeria’s solicitors billed in sterling across 116 invoices, and Nigeria paid in sterling between November 2019 and November 2024. P&ID contended that the costs order should be denominated in naira, Nigeria’s national currency, rather than sterling.
P&ID’s motivation
P&ID’s motivation was transparent: the Nigerian naira had fallen markedly against other currencies, particularly since Nigeria ceased pegging its currency to the US dollar in 2023. As the Court explained:
P&ID submits that if Nigeria were to receive an award of costs in sterling it would gain a substantial windfall at its expense because the sterling sums which Nigeria paid to its solicitors were the equivalent of approximately 25 billion naira when they were paid whereas they are now the equivalent of 95 billion naira.
The Issue(s)
The central question was whether Knowles J erred in exercising his discretion to award Nigeria’s costs in sterling rather than in naira. P&ID advanced the argument that the court should apply a test whereby costs are awarded in the currency which most accurately reflects the loss suffered by the successful party in funding its litigation, relying on the decision in Cathay Pacific Airlines Ltd v Lufthansa Technik AG [2019] EWHC 715 (Ch) and the line of authority from Miliangos v George Frank (Textiles) Ltd [1976] AC 443 and The Despina R and the Folias [1979] AC 685 concerning damages awards in foreign currencies.
P&ID further challenged the distinction drawn by the Court of Appeal between an indemnity designed to compensate against loss and an indemnity against the liability that the receiving party has incurred to its own lawyers, arguing there was no material difference.
The Court’s Reasoning
Costs orders are not compensatory in the same manner as damages
The Supreme Court unanimously rejected P&ID’s arguments. Lord Hodge and Lady Simler (with whom Lord Reed, Lord Stephens, and Lord Richards agreed) drew a fundamental distinction between awards of damages and orders for costs. Regarding damages, they noted:
In relation to tort, the purpose of damages is to place the successful claimant, so far as money can achieve, in the position he or she would have been in if he or she had not been injured by the wrongful act… An award of costs does not perform either role.
The discretionary nature of costs
The Court emphasised that, unlike an award of damages which gives effect to a party’s legal right to reparation, an order for costs is a discretionary remedy under section 51 of the Senior Courts Act 1981 and CPR rule 44.2. The Court stated:
Nobody has an entitlement to an award of costs as of right. The award of costs is a component of the court process itself. The court has a discretion to award costs as section 51 of the 1981 Act states. The court is not addressing loss.
The indemnity principle properly understood
The Court clarified the true nature of the so-called ‘indemnity principle’ in costs:
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.
The indemnity principle simply prevents a party from recovering more than it has incurred as a liability to its own lawyers; it does not entail an inquiry into underlying loss or funding arrangements.
Pragmatic concerns about satellite litigation
The Court identified strong pragmatic reasons against P&ID’s proposed approach. Inquiring into how a litigant funded its legal costs would risk collateral disputes of fact potentially necessitating separate trials. The Court observed:
What is seen as proportionate in the ascertainment of a party’s loss in a trial which determines the parties’ substantive rights is not an indication of what is appropriate or proportionate in the making of an order for costs.
The factual dispute in this very case illustrated the concern: P&ID asserted Nigeria converted naira into sterling as needed, while Nigeria asserted it drew on existing sterling funds. The Court noted this was illustrative of the satellite issues that would arise under P&ID’s proposed approach.
The general rule established
The Court articulated the applicable general rule:
It is consistent with the nature of the court’s costs jurisdiction and with legal certainty that there be a general rule that an order for costs should be made 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.
The Court accepted that a court retains a residual discretion to depart from this rule where the choice of currency is abusive or otherwise inappropriate, for example if a party were to use a currency with which neither it nor its lawyers had a real connection in order to speculate on currency appreciation.
Treatment of Cathay Pacific
The Court acknowledged that the result in Cathay Pacific was not wrong — it was appropriate to award costs in euros where the solicitors charged and were paid in euros — but respectfully disagreed with the reasoning insofar as it rested on an inquiry into the currency most truly reflecting the receiving party’s loss.
The windfall argument rejected
The Court addressed P&ID’s windfall argument in a brief postscript:
Contrary to P&ID’s submission, Nigeria does not enjoy a large windfall from this decision. The depreciation of its currency internationally has resulted in a substantial diminution of the domestic purchasing power of the naira in Nigeria since 2019 and especially since 2023.
Practical Significance
This decision establishes with Supreme Court authority the general rule governing the currency of costs orders in England and Wales: costs should be awarded in sterling or in the currency in which the solicitor billed and the client paid (or has a liability to pay). It decisively rejects the proposition that courts must conduct an inquiry into the currency which most truly reflects the receiving party’s underlying loss when making costs orders, thereby preventing potentially costly and disproportionate satellite litigation over funding arrangements. The judgment draws a clear doctrinal line between the compensatory function of damages and the discretionary, contributory nature of costs awards, reinforcing legal certainty in the costs regime. The Court also noted that if the use of foreign currencies in solicitor-client billing became common, practice directions might be needed to safeguard cost control mechanisms and protect paying parties from significant currency fluctuations.
Verdict: The appeal was dismissed. The Supreme Court upheld the decisions of Knowles J and the Court of Appeal, confirming that the costs order was correctly made in sterling. Nigeria was awarded its costs of the appeal on the standard basis.
Source: Process & Industrial Developments Limited v The Federal Republic of Nigeria [2025] UKSC 36
