The UK government yesterday announced that it would not agree to a formal currency union between an independent Scotland and the rest of the UK.
One of the most interesting issues for those involved in long term commercial contracts and outsourcing agreements made under Scots law or involving a party (or parties) established in Scotland is how any change in the currency used in Scotland might impact on contracts currently in place and denominated in Sterling.
Would the customer be obliged to continue to pay the Sterling amount or would monetary values be redenominated into the currency adopted by an independent Scotland? If the latter, how would that amount be calculated? Which party would bear the foreign exchange risk?
My colleague Charles Livingstone had an excellent article in the Scotsman newspaper on this, summarising the issues. You can read the article by following this link. The issues are also summarised in this Brodies Blog post.
As the article concludes, whether the issue arises and how it would be dealt with will ultimately depend on both the outcome of the referendum and what currency arrangements an independent Scotland ultimately adopted.
In the meantime, organisations contemplating entering into long term or high value outsourcing and commercial contracts or looking for certainty in relation to their current contracts may wish to think now about the steps that can be taken now to make their preferred currency outcome more likely.
If you’d like to discuss this, including what can be added to your contracts to encourage a particular outcome, please get in touch.
On February 14, 2014