The Procter & Gamble Company & Ors v Svenska Cellulosa Aktiebolaget SCA & Anor

Where a contract states the price in one currency but requires payment in another, the currency of account measures the obligation. The currency of payment does not, without clear contrary wording, alter that measure. Conversion will ordinarily be made at the rate prevailing when payment is due.

Contractual meaning is determined objectively by reading the language in its commercial context. Commercial purpose and good sense assist where wording is reasonably capable of more than one meaning. They do not justify rewriting a carefully drafted agreement or implying a term merely because it would allocate exchange-rate risk more favourably.

The respondents supplied products from manufacturing plants sold to the appellants under a transitional supply agreement. Product prices were calculated and expressed in Euros, while payment for products shipped from the United Kingdom was to be made in pounds sterling. The underlying budget included a sterling-to-Euro exchange rate.

The appellants contended that the agreement contained, or should be read as containing, an implied fixed exchange rate. The High Court rejected the express-term, implied-term and rectification arguments and gave judgment for the respondents in [2012] EWHC 498(Ch). Permission to appeal was limited to the implied-term issue. The central question was whether payment in sterling had to be made using the fixed rate used in calculating the Euro prices.

Appeal dismissed unanimously. Moore-Bick LJ gave the principal judgment. Lewison LJ agreed, and Rix LJ also agreed while adding further reasons.

1. Objective construction. The question was what the agreement, read in its commercial context and against the relevant background, would reasonably be understood to mean. The starting point was the language used by the parties. The court applied the approach explained in A-G of Belize v Belize Telecom Ltd and another [2009] UKPC 10, under which implication spells out the instrument’s meaning rather than adding to it.
2. Currency of account and currency of payment. The distinction identified in Woodhouse A.C. Israel Cocoa Ltd. S.A. and Another v Nigerian Produce Marketing Co. Ltd. [1971] 2 Q.B. 23 applied. An agreement to pay in a currency different from the currency of account does not itself alter the measure of the obligation. Here the Euro was the currency of account and sterling was only the currency of payment. The ordinary nominalist rule therefore required conversion at the rate prevailing on the date of payment.
3. Application to the agreement. The parties had deliberately expressed the prices in Euros, although they knew that many Manchester costs were incurred in sterling. The exchange-rate notation in the budget explained how sterling costs had been converted into Euros for budgetary purposes. It did not establish a fixed rate for later payment. If that had been intended, the parties could readily have expressed the Manchester prices in sterling. The Euro invoices also supported that construction.
4. Commercial sense and implication. The court accepted the principle in Rainy Sky S.A. and Others v Kookmin Bank [2011] UKSC 50 that a commercially sensible construction may be preferred where wording is genuinely ambiguous. This carefully drafted agreement was not reasonably capable of two meanings. The court could not rewrite it to address an exchange-rate contingency that the parties had left unprovided for. Rix LJ added that the resulting currency risk could have been managed by conventional hedging.

• Court of Appeal (Civil Division): unanimously dismissed the appeal and upheld the judgment for the respondents, [2012] EWCA Civ 1413.
• High Court of Justice, Chancery Division: Hildyard J rejected the claims based on an express term, implied term and rectification, giving judgment for the respondents, [2012] EWHC 498(Ch).