Mini-summary
The Commercial Court delivered its Judgment in a claim for damages arising out of a Collateral Management Agreement following the loss of a large amount of copper scrap from a storage facility In Morocco. The Defendant held the copper scrap as security for a loan made by the Claimant to a third party. The Defendant admitted physical loss of the copper; but asserted that the Claimant had not suffered loss because the security was invalid as a matter of Moroccon law. The Commercial Court rejected that argument and held that the Claimant was entitled to recover damages equivalent to the market value of the lost copper, measured as at the time of the loss, because of its possessory rights as bailor.
Scipion Active Trading Fund v Vallis Group Ltd (formerly Vallis Commodities Ltd) [2020] EWHC 1451 (Comm)
What are the practical implications of this case?
Although much of the Judgment is fact sensitive, Henshaw J’s Judgment does contain a number of findings and propositions of law which are likely to be of more general application and thus of primary interest to commercial litigators.
Firstly, on the facts of this case, a bailment relationship arose on the terms of the CMA because: Mac – as ultimate owner of the scrap copper – had bailed that scrap to Vallis; and in turn Valliss (as bailee) had transferred possessory rights to Scipion; albeit that Valliss had agreed to hold the goods on Scipion’s behalf. In those circumstances, Scipion could be considered a bailor with possessory rights.
As Scipion’s claim to recover the value of the goods lost arose in the law of bailment, the law applicable to the governing contract (here the CMA) was applicable; and not the law applicable to the Pledge. Thus, the fact that the Pledge was invalid as a matter of Moroccon law did not have a negative effect on the ability to recover a loss that arose in the law of bailment.
In such circumstances, the correct measure of damages is the value of the lost goods on the date that they are lost, plus statutory interest.
What was the background?
Scipion Active Trading Fund (“Scipion”) commenced a claim against Vallis Group Ltd (“Vallis”) for damages which it alleged it had suffered following Vallis’ breach of a Collateral Management Agreement (“CMA”) which had resulted in the loss of approximately 1,900 MT of copper scrap from a production and storage facility situated in Morocco.
Vallis was the collateral manager of that site and its obligations were governed by the CMA. However, the CMA was a tripartite agreement to which Mac Z (“Mac”) was also a party. Under the terms of the the intention of creating security for a loan made by Scipion to Mac (the “Facility”): that stock was subject to a pledge granted by Mac to Scipion which was governed by Moroccan law.
In October 2017 Vallis reported a loss of copper scrap from the site; and ultimately Vallis gave Scipion notice of termination of the CMA on 30 November 2018.
Despite having denied any loss of copper scrap in its pleaded case, part way through the trial Vallis admitted that there had been a physical loss of copper stock that had been in its possession at the site. Vallis similarly admitted that such loss was caused by its breach of obligation under the CMA.
However, Vallis contended that as the pledge was invalid under Moroccan law its breach of the CMA did not cause the losses now claimed by Scipion.
Scipion, however, contended that it was entitled to recover substantial damages from Vallis without having to establish that the Pledge was valid under Moroccan Law: (a) by virtue of its possessory rights; and/or (b) by reason of its position as bailor; and/or (c) because Vallis was estopped under the terms of the CMA from denying that Scipion had sufficient rights in relation to the lost copper in order to recover significant damages.