Commercial Division Blog
Rejecting Official Exchange Rate, Court Finds That There is a Question of Fact Regarding Proper Exchange Rate Between Venezuelan Bolivars and US Dollars
On May 29, 2018, Justice Crane of the New York County Supreme Court issued a decision in Diaz v. Galopy Corporation International, N.V., Index No. 656721/2016, granting summary judgment in lieu of complaint recognizing a money judgment issued by a Venezuelan court, but finding that there was a question of fact regarding the exchange rate that should be used, explaining:
Plaintiffs motion presents the interesting question of what exchange rate the court should apply to the Venezuelan judgment. Plaintiff seeks recognition of the Venezuelan Judgment in US dollars, in the amount of one million, seven hundred nineteen thousand, five hundred sixty-one dollars and fifty-seven cents (US $1,719,561.57). Plaintiff argues that this sum is the equivalent amount of the Venezuelan Judgment expressed in US dollars at the rate of exchange prevailing on October 21, 2016, the date of entry of the Venezuelan Judgment. Plaintiff takes the position that the applicable rate of exchange is the "official" exchange rate that the government of Venezuela sets.
. . .
Defendant argues that should the court convert the Venezuelan Judgment into US dollars, the court should convert at the true market rate, rather than the so called "official" rates. Defendant contends that the "official rates" do not represent true rates of exchange because they are used for limited purposes and are inaccessible to the Venezuelan public generally. Defendant's experts describe Venezuela's "official" exchange rate as "blocked." A blocked currency is a currency that cannot freely be converted to other currencies on the foreign exchange market as a result of exchange controls. It is mainly used for domestic transactions and does not freely trade on a forex market, usually due to government restrictions." Both of defendant's experts describe the realities of the legal and black market exchanges in Venezuela. They discuss how the DICOM exchange rate is effectively "blocked" because it is a rigged exchange rate set by a government they describe as corrupt. In reply, plaintiff argues that the court must look to Venezuela's "official" rate of exchange because alternative rates of exchange that defendant proposes are illegal, other "black market" exchange rates are illegal, and would subject plaintiff to criminal charges.
Judiciary Law § 27 requires that: "(a) Except as provided in subdivision (b) of this section, judgments and accounts must be computed in dollars and cents." In turn, subsection (b) states:
In any case in which the cause of action is based upon an obligation denominated in a currency other than currency of the United States, a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation. Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment or decree.
Because recovery can be rendered only in the currency of the forum, courts are required to ascertain a figure in that currency representing the equivalent value of the amount of foreign funds in question.
Occasionally, determining the rate of exchange representing that equivalent value becomes problematic due to the political climate in the original jurisdiction. Where local currency restrictions would prevent a party from converting its money into dollars, New York courts have been disinclined to employ "official" exchange rates, seeking instead to appraise realistically the relative values of the currencies.
Like this case, Hughes involved a "blocked" currency (Hughes Tool Co., v United Artists Corp., 279 AD 417,421, 110 N.Y.S.2d 383 [1st Dept 1952]; ajf'd, 304 NY 942). Refusing to apply certain official exchange rates, the Hughes court reasoned that:
it will not do to sacrifice justice to the easy way of resorting, as a substitute for a free market, to an official rate of exchange that has been established for other purposes and does not apply to transactions in controversy.
The Hughes court noted that it was plaintiff's burden to:
establish the application [sic] rates of exchange as much as it is to prove the other necessary elements of damage. Proof of the so called [sic] 'official' rate of exchange does not sustain the burden, where it also appears that the foreign currency is blocked for the purpose in suit.
Thus, the Hughes court ignored the official rate of exchange and remanded the case for a trial for plaintiff to demonstrate other methods of ascertaining the values here of these blocked foreign currencies.
Here, plaintiff has not met its burden to establish the applicable rate of exchange under Hughes merely by describing the "official" rates or by decrying unofficial rates as "illegal" in Venezuela. Defendant raises an issue of fact in opposition to plaintiff's motion by its experts who describe the realities of the exchange markets in Venezuela. Indeed, defendant's experts have made a prima facie showing that the Venezuelan currency is blocked, that plaintiff has failed to refute. Plaintiff's expert does not dispute that the exchange rate defendant propounds reflects more accurately the true market rate for exchanging bolivars to dollars. Plaintiff also does not contest defendant's showing that ordinary people cannot exchange bolivars for dollars at the DICOM rate.
Finally, the exchange rate in effect on the date of the New York judgment's entry is the applicable rate. Section 27(b) states that "a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation." The statute then immediately follows with the words "Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of judgment or decree." Given its placement, the term "Such judgment" refers back to the judgment in the immediately preceding sentence, (i.e. the New York judgment).
Accordingly, it is
ORDERED that plaintiffs motion for summary judgment in lieu of complaint against defendant is granted only to the extent of recognizing the Venezuelan Judgment, and is otherwise
denied without prejudice to bringing a new motion under the correct applicable exchange rate; . . . .
(Internal quotations and citations omitted).
A key element in commercial litigation is proving damages. As this decision shows, sometimes even seemingly simple damages issues, like currency exchange rates, can be complicated. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client have questions regarding proving damages.