In July 2011, I wrote a short piece that was published in the National Creditor-Debtor Review about collecting foreign currency debts in British Columbia, using a statute called the Foreign Money Claims Act. The article highlighted some of the concerns that creditors faced between 2008 and 2011, when the value of the Canadian Dollar dropped by almost 25%, and then rebounded. You can read the entire article here (starting at page 25).
Fast forward to April 2014 and it appears that currency markets are relatively volatile once again: from a high of $1.03 (against the U.S. Dollar) in September 2012, to a low of $0.89 in March of this year.
For a small business that conducts transactions in a foreign currency, a significant change in the value of the Canadian Dollar could lead to a situation where currency risk becomes more than just the “cost of litigation”. Where a company is owed a debt in a foreign currency but the value of the Canadian Dollar is changing
, that company may not want to convert the amount owing into Canadian Dollars for the purposes of pursuing a lawsuit. The Foreign Money Claims Act provides a mechanism for allowing the creditor to maintain the debt in the foreign currency, while pursuing the debtor in a British Columbia court.
The test that the Court will apply under the Foreign Money Claims Act is whether the creditor would only be “truly and exactly compensated” if the amount of the debt is measured in the foreign currency. If the difference between the two currencies is not significant in relation to the amount of the debt, then the Court might order that the amount of the debt be converted to Canadian Dollars (as of the date that the debt arose) and paid in Canadian Dollars.
On the other hand, if the two currencies have fluctuated significantly since the debt arose, the Court might rule in favour of the debt continuing to be measured in the foreign currency. In that case, the debtor will be ordered to pay (in Canadian Dollars) an amount sufficient to satisfy the debt, as measured in the foreign currency on the date of judgment.
In an environment where the value of the Canadian Dollar may have changed by 13% or 14% between the time the debt arose and the time that judgment is rendered, the application of the Foreign Money Claims Act could result in better recovery for the creditor at the end of the day.