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

In deciding costs after declaratory proceedings, success is assessed by substance and reality rather than by identifying which party must pay money. The court should begin with the general rule that the successful party receives its costs, then consider all the circumstances, including partial success, conduct and whether an issue-based or proportionate order is appropriate.

Part 36 is a self-contained code requiring strict compliance, but its provisions must be construed purposively. A claimant’s offer may comply even where the claimant offers to pay the defendant’s costs rather than claim its own. Nevertheless, the prescribed indemnity-costs consequences may be unjust where the claimant was in substance defending liability. The court may instead order standard-basis costs.

The judgment concerned costs and permission to appeal following the court’s substantive determination of contractual issues between The Procter & Gamble Company and Svenska Cellulosa Aktiebolaget SCA and its subsidiary.

The parties disputed which was the successful party, whether costs should be apportioned, whether P&G’s July 2011 settlement offer qualified as a Part 36 offer, the consequences of that offer, and whether payment on account should be ordered. SCA also sought permission to appeal the substantive decision.

1. Successful party. The court held that P&G was, overall, the successful party. In declaratory proceedings concerning contractual construction, the fact that one party must pay money does not necessarily identify that party as the loser. The court must examine who, as a matter of substance and reality, obtained the result which the proceedings were brought to secure. SCA’s counterclaim concerning liability for the whole of the ERBs failed.
2. Pre-offer costs. Applying the principles in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd, the court declined an issue-based order because the issues were inter-related and difficult to segregate. It ordered that P&G recover 80% of its costs up to expiry of the July Offer, reflecting SCA’s success on one issue and wasted costs caused by an abandoned construction and rectification argument.
3. Part 36. Part 36 is a complete and prescriptive code, but strict compliance requires construction of its provisions according to their purpose. It is not confined to monetary claims. P&G’s offer complied with CPR 36.2 even though it offered to pay SCA’s costs and thereby waived P&G’s ordinary entitlement to costs under CPR 36.10(1). The offer therefore opened the gateway to CPR 36.14.
4. Discretion as to consequences. The court held that it would be unjust to impose indemnity costs and interest on costs under CPR 36.14(3). The substance of the dispute showed that P&G was in the position of a defendant seeking to resist liability, and the rationale for specially incentivising claimants to make offers did not readily apply. SCA was ordered to pay all P&G’s post-offer costs on the standard basis. The court stated that the same result would follow under CPR 44.3 if the offer were not a valid Part 36 offer.
5. Final orders. P&G was awarded £375,000 on account of costs. Permission to appeal the substantive decision was granted.

This was a supplemental first-instance judgment following the court’s substantive decision. The judgment records no earlier appellate decision. Permission to appeal the substantive decision was granted to SCA.