Foreign Exchange Issues In Damage Quantification: Part I – Basic Concepts

International trade is an increasingly important part of the Canadian economy, as this picture clearly shows:

As a result, it is not uncommon for litigation to involve the quantification of financial remedies across multiple political and monetary boundaries. How does one take foreign exchange rates – and more specifically, fluctuations in foreign exchange rates between the date of initial wrongdoing and the trial date – into account? In the next two posts, I will consider the following five examples, through which I hope to illustrate some basic concepts:

A US-based company, Manifest Destiny Inc. ("MDI") has a contract to sell $1M (USD) of specialized goods to a Canadian firm. The Canadian firm breaches the contract, and MDI is unable to make the sale (or to mitigate its loss). The exchange rate at the time of breach was $1 USD = $1.25 CDN; it is now $1 USD = $1 CDN. Gordon C. Canuck ("Mr. Canuck"), an executive working for a Canadian subsidiary of a US-based public company is wrongfully terminated. As a result, the stock options to which he would have been entitled as of July 2009 did not vest. He sues for wrongful dismissal, and is successful. His damages are assessed as the difference between the exercise price ($1 USD per share) of the options and the market value of the stock on July 2009 ($10 USD per share). The trial occurs in 2011, and an award for damages is granted shortly thereafter. Nancy Nascar, ("Ms. Nascar") a US resident, is injured in a motor vehicle accident in Canada, and will never be able to work again. She sues the motorist who collided with her, and seeks to recover her future loss of income. Maple Leaf Technologies Inc. ("MLT") infringes a patent by manufacturing goods in Canada and selling them in the United States. Most of the firm's operations are in Canada. Under Canadian law, the patent owner – a US based firm, Stripes and Stars Inc. ("SSI") – may sue for either damages on its lost sales, or an accounting of the defendant's profits from the infringing sales. Stick and Puck Ltd. ("SPL") a Canadian firm that manufactures products in Canada and sells them in the United States, suffers a fire in its factory. It sues the electrical contractor to recover its lost profits. SPL does a steady volume of business in the US, and in order to reduce its exposure to fluctuations in foreign exchange rates, it typically enters into forward contracts to sell USD and purchase CDN. The Law

You may be asking at this point, why not...