Foreign Currency Contracts
The purchasing power and, for all intents and purposes, the value of the Jamaican currency has always been measured by Jamaicans by the rate at which it can be exchanged for United States Dollars or British Pounds. There are many practical reasons for this, including the fact that the country relies very heavily on foreign exchange earnings and on trade with foreign creditors for the survival of the economy and comfort of the people. In an era of rapid devaluation of the Jamaican currency, the practice of stating prices of goods and services, including clothing, rental properties, sale properties, construction goods and services, concert tickets and meals, in foreign currency is becoming more widespread. Questions arise as to whether there are any legal restrictions on this practice, as well as, whether the supplier can demand payment in foreign currency.
The short answer is that, there are no legal restrictions on quoting prices in foreign currency. Parties are free to negotiate on the issue of currency in the same way that they negotiate other variables in their contracts. However, a creditor may find that he may have to accept payment in Jamaican dollars, and in some cases contracting parties will find that they are exposed to exchange rate risks associated with currency devaluation or appreciation.
The Bank of Jamaica Act (“BOJ Act”) is the legal instrument which gives validity to the Jamaican currency and approval for foreign currency to be used in the Island. Section 15 of the Bank of Jamaica Act provides that the Jamaican notes and coins are legal tender for the payment of any amount. Put simply, this means that the Jamaican currency is valid when presented for the payment of any debt or the fulfillment of any obligation; such debt or obligation is thereby extinguished to the value of the Jamaican currency presented. Since the Exchange Controls Act was repealed in 1991, there is no question that a purchaser or other debtor may make payments for supplies or services using a foreign currency, specifically Pounds, United States Dollars and Canadian Dollars. There is no longer a restriction on the use of (as distinct from dealing in) foreign currency in the Island.
Can a vendor in Jamaica or subject to Jamaican law insist on payment in a foreign currency?
Section 18 of the BOJ Act allows parties entering into contracts and any other kind of transaction involving money to “make, execute, enter into..” transactions where the currency is either Jamaican dollars or a specified foreign currency. The Bills of Exchange Act recognizes and makes provision for foreign bills, which would include foreign currency cheques and other forms of bills of exchange. Another relevant piece of legislation is The Consumer Protection Act. Section 18 provides that suppliers shall, at any time prior to receiving payment, provide customers with full information concerning the goods being sold, including the price stated in Jamaican dollars. This provision does not have the effect of restricting the display or quotation of prices in foreign currency; neither does it prevent the parties from entering into a contract for the payment for goods and services in foreign currency.
The obligation to pay in accordance with the value of a foreign currency will be recognized and enforced by the courts. Under common law principles applicable to Jamaica, if a foreign currency obligation is payable in Jamaica, the obligation may be met either by paying foreign currency or by paying the Jamaican dollars equivalent. The exchange rate to be applied will be as agreed between the parties or the market rate applicable on the date of payment (if the contract between the parties does not address the issue).
Further, the Court of Appeal in Jamaica decided that if there is a breach of contract by failing to satisfy a foreign currency obligation, the court can render a judgment in foreign currency. However, for the purposes of enforcing that judgment, the amount should be converted to Jamaican dollars. Consequently, the judgment creditor is exposed to the risk of a Jamaican dollar revaluation between the dates of judgment and the issuance of a writ for execution of the judgment debt. Of course, if the Jamaican dollar depreciates during this time period, the judgment debtor would be the person paying more Jamaican dollars to satisfy the judgment debt.
In a transaction that falls under the Bills of Exchange Act a court can convert the foreign currency to Jamaican dollars using the rate of exchange applicable on the date of breach, that is, the date when the bill was payable. Further, if a judgment is obtained in a foreign country and is to be enforced pursuant to the Judgments (Foreign) (Reciprocal Enforcement) Act the currency conversion will be based on the rate prevailing on the date of the judgment of the original court. In these circumstances, the currency risk exposure of the parties may be of greater than usual duration.
In various kinds of commercial arrangements hedging against exchange rate risk may be a relevant consideration. Contract terms for payment in foreign currency need to be drafted carefully to ensure that the intentions of the parties are clearly set out and are enforceable.