The Procter & Gamble Company and Others v Svenska Cellulosa Aktiebolaget Sca and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Hildyard |
| Judgment Date | 08 March 2012 |
| Neutral Citation | [2012] EWHC 498 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC10C01566 |
| Date | 08 March 2012 |
[2012] EWHC 498 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
The Honourable Mr. Justice Hildyard
Case No: HC10C01566
Mr Christopher Nugee QC (instructed by Jones Day) and Mr Stephen Brown (of Jones Day) for the Claimants
Mr Andrew Onslow QC and Ms Catherine Gibaud (instructed by Reynolds Porter Chamberlain LLP) for the Defendants
Hearing dates: 12, 13, 14 October 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This Judgment relates to one of two actions relating to the sale in 2007 by The Procter & Gamble Company ("P&G"), an Ohio corporation, to Svenska Cellulosa Aktiebolaget SCA ("SCA"), a Swedish corporation, of its European tissue towel business (facial tissues, toilet paper and kitchen towels, known collectively within P&G as "Family Care"). These actions were ordered to be tried consecutively by the same Trial Judge. The two actions have a common background and relate to the same contracts; but they raise distinct and very different questions. The second action, which relates to the operation of certain provisions relating to pensions benefits, will be the subject of a separate Judgment.
The question in this action (which was tried first and has been referred to as "the Invoices Action") is whether on its true construction a contract for the supply of goods, at fixed prices expressed in Euros but agreed to be payable in Sterling, provides either expressly or implicitly for an agreed exchange rate; if not, whether it should be re-formed or rectified to provide such a rate; and if not again, what is the exchange rate to be applied.
The contract concerned is dated 1 st October 2007 and called the Transitional Supply and CPN Conversion Agreement ("the TS&CPN"). As its name implies, the TS&CPN provided for the supply of certain products manufactured during a transitional period until the conversion of a proprietary manufacturing process (called CPN Belt technology). The TS&CPN was supplemental to an Asset Sale and Purchase Agreement dated 12 th March 2007 ("the ASPA").
Summary of the parties' respective cases
The case advanced by the Claimants (whom I shall refer to as "P&G") is that there is nothing in the contractual wording of the TS&CPN, whether expressly or implicitly, to displace what they submit is the general rule that the payer must provide enough Sterling (which, it is not disputed, was the agreed currency of payment) to cover the fixed Euro price (which they contend was the currency of account at the invoice date). In support of the general rule they rely on Woodhouse v. Nigerian Produce [1971] 2 QB 23.
The Defendants (whom I shall refer to together as "SCA") contend that there is no such general rule, or at any rate that there is no room for it in this case. They submit that everything depends upon the terms of the contract in question; and that on its true construction the contract must be read as either expressly or impliedly stipulating a precise exchange rate, or should be rectified to do so.
More particularly, SCA's case is that they are entitled under the TS&CPN to discharge the Euro amounts due not only by paying in Sterling, but using a fixed exchange rate of £1 to €1. 49164. This is put in three alternative ways: (1) that this exchange rate was expressly provided for by the TS&CPN; (2) that it is implicit in the TS&CPN read as a whole, and the only interpretation consistent with what SCA's Counsel described as "the clear basic scheme", that this exchange rate would be used for the relevant transactions; and failing (1) and (2), that the TS&CPN was incomplete so that (3) the TS&CPN should be rectified because the use of that exchange rate for the relevant transactions was the objective intention of the parties.
Although this was not quite the way they originally formulated their position in their Skeleton Argument, SCA also came to contend that on true analysis the money or currency of account, as regards the Manchester operation in question, was Sterling and not Euros. Indeed, in closing, and in recognition of the difficulties posed, if the contracts were to be read as requiring payment in a currency different than the currency of account, Leading Counsel for SCA (Mr Andrew Onslow QC) submitted that ultimately the question in the case is, was the money of account Euros or was the money of account Sterling? Leading Counsel for P&G (Mr Christopher Nugee QC) embraced this formulation of the issue and submitted the answer is plain: Euros.
Approach and structure of this judgment
I propose to follow the pattern of the Skeleton Arguments and the oral submissions made to me, and to deal with each of these arguments in turn. That is so even though, as indicated in the course of hearing, in a case such as this, where the dispute is really (and unusually) as to whether a given provision was ever intended to deal with the point in issue at all, and if not, whether one should be interpolated, the dividing line between the first two arguments can become difficult to maintain. That is especially so in light of the speech of Lord Hoffmann in A-G of Belize v Belize Telecom Ltd and another [2009] 1 WLR 1988, clarifying and emphasising that the implication of a term is an exercise in the construction of the instrument as a whole (see especially at para. 19).
Both exercises of construction are subject to the usual rules as to the non-admissibility, for the purposes of construing or interpreting a contract (subject to certain limited exceptions), of evidence of the subjective intention of the parties, previous drafts and the content of previous negotiations, and the subsequent conduct of the parties.
The claim for rectification, however, is obviously different in nature. Its premise is that the true intention of the parties cannot be found in the contract as it stands because the instrument does not reflect their common intention, but requires to be rectified in order that their common intention should be fulfilled.
In this context, both Counsel were at pains to remind me that a sharp distinction needs to be made, and kept in mind, between the evidence admissible in the context of an issue of construction (be it of an express term or as to the implication of a term) on the one hand, and on the other hand in the context of a claim for rectification. I accept of course both the correctness and importance of this reminder: and I have carefully sought to keep out of my mind evidence relevant only to the rectification claim when addressing the issues of construction.
Accordingly, the following statement of the background facts is intended to reflect only matters admissible for the purposes of the exercises of construing the relevant instruments. Subject to one point, it therefore does not include any reference to the negotiations and drafting process which are inadmissible for that purpose, although of course admissible on the question of rectification (which I deal with separately). That one point is that it was common ground that a draft of the TS&CPN annexed to the ASPA when the latter document was signed is admissible, since it became part of the agreed contractual documentation on signature: I accept this.
Factual background relevant for purposes of construction
P&G had 5 manufacturing sites in Europe making "Family Care" products: these were in Manchester (UK), Orleans (France), Lucca (Italy) and Neuss and Witzenhausen (Germany). Its Manchester site was owned by the third Claimant, Procter & Gamble Product Supply (U.K.) Limited ("P&G UK").
The sale by P&G to SCA of its "Family Care" business was on the terms of the ASPA. Although those two bodies corporate were the named contracting parties the ASPA made provision (by clause 11.09) for P&G to procure (not as agent but as controlling ultimate parent) the sale of the defined Assets by whichever of P&G's affiliates actually owned them, and (by clause 11.10) for their purchase by SCA acting as agent for the affiliate of SCA intended to acquire such assets (in the case of the Manchester Assets, the Manchester Buying Affiliate).
The total price of the sale was some €512.5m. The ASPA made provision (by Article 2.01) for the parties to agree the allocation of this aggregate price between the various assets sold as specifically defined in Article 1.06 of the ASPA. These assets included Real Property, Equipment, Inventory and Goodwill, all as expressly defined. It was not disputed that about €110m out of the aggregate was the amount allocated to the Manchester Assets.
The ASPA provided for completion or closing of the sale in stages. Conventional Closing would take place first, at which point the Assets sold, other than the Manchester and Orleans Assets, would be transferred to SCA. Manchester and Orleans Closings in respect of the transfer of Manchester Assets and Orleans Assets would follow later. This was provided, in the case of Manchester Assets, by Article 3.07. The need for this arose because at those two sites P&G had been using certain proprietary paper making technology (CPN Belt Technology) which was stated to be highly secret and valuable, which was not amongst the assets sold, and which therefore had to be removed and replaced with conventional technology (called TAD technology) before SCA itself took over manufacture and supply. The period of deferral depended upon when the removal of the CPN...
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