Loss and Mitigation in Bailmen; Security Value Irrelevant


Reference:
Scipion Active Trading Fund v Vallis Group Ltd (formerly Vallis Commodities Ltd) [2020] EWHC 1451 (Comm)

Date:
5th June 2020

Court:
Queen’s Bench Division

Facts:

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.


Judge:
Mr Justice Henshaw

Comment:

What did the court decide? 

 

Although the Court concluded that the pledge was, in fact, invalid pursuant to Moroccan Law, that did not prevent Scipion from being able to recover the value of the lost copper scrap from Vallis.

 

The Court concluded that Scipion was entitled to pursue Vallis for the full value of the lost copper scrap by reason of its right as bailor of those goods under the terms of the CMA, without the need to show that the Pledge was valid.

 

Scipion’s position was that its loss was, prima facie, to be measured by the value of the lost goods. However, both parties’ experts agreed that the market value of the lost goods exceeded the amount of the outstanding facility afforded to Mac by Scipion. Thus, and so as to avoid any need to account to Mac for the surplus, Scipion limited its claim to the amount due under the facility plus its consequential loss. In so far as there were any goods that remained available to Scipion at the CMA site, it had to give credit for the value of those goods

 

Henshaw J accepted that position, holding that the correct approach to the quantification of loss was as follows:

 

  • The primary measure of Scipion’s loss was the value of the lost goods;
  • The value of the lost goods was to be taken as at 9 October 2017, that being the date on which Vallis accepted that it was in breach of the CMA;
  • Any goods that remained at the CMA site after that date fell to be valued at the dates on which, and in the amounts for which, they were in fact sold except in so far as Valliss could show Scipion failed to mitigate its loss;
  • Any goods that remained at the CMA site but which had not been sold should be valued at the date of trial.

 

As regards mitigation:

 

  • Scipion did not fail in its duty to mitigate in failing to accept various offers that were made to purchase scrap left at the site. The duty to mitigate did not extend to accepting the best offer to purchase that scrap; but to give proper consideration to the offers received. Scipion could demonstrate, as a matter of evidence, that it had properly and fairly considered offers received to purchase scrap remaining at the site. Any delay in sale did not indicate a failure to mitigate.
  • Scipion did not fail in its duty to mitigate by reason of its inability to recover certain other copper granules removed from the site without authorisation. It had tracked those granules to a Port but had not managed to receive any proceeds of sale. Again, Scipion had taken reasonable steps to attempt to mitigate.
Associated Members:


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