Inflation & Currencies
Inflation
Inflation presented particular problems for the courts, particularly in the 1970s to early 1980s. With the return of inflation in the 2020s, the issues are likely to arise to a greater extent again.
Periods of inflation have had a severely negative effect on lump-sum compensation awards made in the past. Awards for future nursing care may prove grossly inadequate following periods of inflation.
In many cases, pre-trial interest and post-trial interest may be sufficient to remediate the effects of inflation. See the chapter on interests in civil liability claims.
Personal Injury Cases
Where the claim for damages is for a monetary loss, the courts have taken different approaches to the rise and fall in the value of money. The general position is that loss is measured on the basis of the value of money at the time of the breach.
In personal injury cases, the courts have been prepared to take account of inflation and base the assessment on the position at trial where appropriate, for example, in the case of non-pecuniary losses and personal injury. Damages for pre-trial loss quantifiable in money terms may, in principle, carry interest to the date of trial.
In England and Wales, the pre-trial loss for pain and suffering has been held to bear interest. Damage for future loss in earnings does not carry interest. They are effectively a discounted value of the future loss.
Value Changes and Mitigation
In the case of many contracts, particularly for the sale of goods, the normal measure applies. The market value of the goods or property is measured at the time of the breach. The “innocent” party is obliged to try to find a buyer or seller of the goods as appropriate.
In the case of failure to deliver goods in breach of contract, the claimant is obliged to mitigate. This will usually require him to go into the market and purchase a replacement if possible. Equally, the “innocent” seller should seek a resale.
Where the general obligation to mitigate applies, the damages are not increased by a subsequent increase in the market value, even if due to inflation. The claimant must seek a substitute upon the breach.
Mitigation Limits Goods
Mitigation requires reasonable steps only. In many types of cases, there will be limits to what is expected of the “innocent” party against whom the breach has been committed.
Where the purchaser has prepaid for the goods in advance of the breach, he is not required to seek a replacement, as he has incurred the expenditure. Accordingly, he is entitled to claim damages in respect of any increase in value between the date of the breach and the earliest time he should have brought the case to judgment.
In some cases, the buyer may be entitled to specific delivery of the goods because they cannot easily be replaced. In these cases, the innocent buyer is compensated for the loss of value of goods by reason of failure to deliver goods or by late delivery. The award for the value of the goods may substitute for interest in this case so that no further award of interest is required.
The same may apply in the seller’s case, where goods can not readily be re-sold.
Mitigation & Land
Mitigation principles apply to the sale and purchase of land. However, land is often unique and is not as readily replaced. It is usually less affordable.
In the case of a purchaser of land, it appears that he need not, upon the seller’s default, buy other lands in replacement until such times as he has taken steps to enforce the contract, during such time when he could reasonably have taken steps or until such time as he receives damages, if inflation makes it too difficult to repurchase.
Where there has been a substantial fall in value between the time the claim/cause arose and that date of judgment, damages may be awarded at the market value of the goods at the time of judgment, provided the claimant does not unreasonably delay in bringing an action.
The measure of damages is not less than the normal measure where the market value has decreased before the time of judgment if the claimant can show that he would have sold the goods before the market fell. If the market has increased, the increase in market value may be added as consequential loss up to the time that the actions should reasonably have been brought to judgment.
Foreign Currency
Traditionally, states granted judgment in their own currency. In the 1970s, the House of Lords and later the Irish courts reversed the historic rule due to conditions of inflation.
The basic rule is that loss is calculated at the date of the breach, both in the cases of tort and breach of contract.
The foreign currency judgment must be converted into domestic currency in order to enforce it. Commonly, this will be the date of judgment. The courts in England have favoured the date of payment as opposed to the date of breach or date of judgment.
Similar issues arise in relation to foreign judgments. The proper law of the contract is a matter of interpretation. It may determine the currency in which judgment is to be given. However, this is not necessarily so.
The money of account or money of payment need not necessarily be that of the proper law of the contract.