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

Where a contract fixes the amount payable in one currency but requires payment in another, the currency of account remains the currency in which the obligation is measured. Unless the contract provides otherwise, payment must be made in the currency of payment at the prevailing exchange rate when payment falls due.

A court should not infer a fixed exchange rate merely because the contract uses a budgetary exchange rate for calculating prices. Implication requires the term to be what the instrument, read as a whole against its background, would reasonably be understood to mean. Rectification corrects an instrument that fails to record a common intention; it does not add a term reflecting one party’s uncommunicated belief.

The claim concerned the construction of a transitional supply agreement made in connection with the sale of a European tissue towel business. Prices for products manufactured in Manchester were fixed in Euros, while payment was to be made in Sterling. A budget document contained an annotation recording a £/Euro exchange rate.

The defendants contended that the annotation, read with the agreement, fixed the exchange rate for invoicing. Alternatively, they sought rectification on the basis of a common intention to use that rate. The central issues were whether the agreement expressly or impliedly fixed an exchange rate and, if not, whether it should be rectified.

1. Construction. The agreement fixed the prices in Euros and required payment for Manchester products in Sterling. The Euros were therefore the money of account and Sterling the money of payment. The ordinary consequence was that the payer had to provide sufficient Sterling to meet the Euro obligation at the market rate when payment was due.
2. The annotation stating “£/Euro exchange rate 1.49164” appeared in the firm plant budgets. Its function was to explain how Sterling costs had been translated into Euro budget figures and to facilitate calculation and audit of the final transfer prices. It was not an operative term regulating future invoicing.
3. No fixed rate could be inferred or implied. The contract was carefully drafted, the currency issue was foreseeable, and the proposed term would materially reallocate exchange-rate risk. Commercial fairness or a supposed basic scheme could not justify improving the contract.
4. Rectification. The entire agreement clause did not exclude the equitable jurisdiction to correct words which failed to express a shared intention. However, rectification required convincing proof, producing a high degree of conviction, that the instrument failed to record the parties’ common accord. The evidence showed only that the defendant’s negotiator mistakenly believed that Sterling payment meant Sterling pricing. That uncommunicated belief was insufficient.
5. The claim for rectification was rejected. The court adjourned questions concerning any currency-loss damages, the form of order and costs.