05/06/2020

Collateral manager liable for loss of copper scrap

Scipion Active Trading Fund v Vallis Group Limited [2020] EWHC 1451 (Comm)

The Commercial Court has delivered judgment on a claim for breach of a Collateral Management Agreement (CMA) following the loss of about 1,900 MT copper scrap from a production and storage facility in Morocco at which the Defendant was the collateral manager.

The copper was held, or intended to be held, by the Defendant as security for a loan made by the Claimant to Mac Z Group SARL and was subject to a pledge granted by Mac Z to the Claimant which was governed by Moroccan law.

Part way through the trial, the Defendant admitted there was a physical loss of copper that had been delivered into its possession at the site which was caused by breaches by it of obligations owed to the Claimant under the CMA. The Defendant contended, however, that the pledge was invalid under Moroccan law with the result that its breach of the CMA did not cause the loss claimed.

Mr Justice Henshaw held that the pledge was indeed invalid under Moroccan law (because the Moroccan administration did not publish a list of categories of goods that may be subject to the particular type of pledge as required by the Moroccan Code of Commerce in force at that time) but accepted that the Claimant was entitled to recover the value of the lost goods by reason of its possessory rights as bailor of those goods on the terms of the CMA.

In so holding the judge made number of findings of wider interest including that:

• The bailment relationship on the terms of the CMA (which was common ground) arose by Mac Z, as owner of the goods, bailing them to the Defendant, and the Defendant as bailee attorning to the Claimant and agreeing to hold the goods on the Claimant’s behalf (following the analysis in Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53, 58 and Impala Warehousing [2015] EWHC 811 (Comm) at [58]).
• The right to possession involved in a bailment is governed by the law governing the bailment which, in the case of a contractual bailment, or a ‘bailment on terms’, means the law governing the contract (not the lex situs).
• The relationship between bailor and bailee precludes the bailee from denying the title to the goods of the bailor including, as an incident of that right, the bailor’s right to possession.
• The abolition in section 8 of the Torts (Interference with Goods) Act 1977 of the rule (sometimes called jus tertii) that a defendant in an action for wrongful interference is not entitled to show that a third party has a better right than the claimant is confined to claims in tort and does not apply to claims in contract for breach of a contractual bailment.

As regards the measure of loss, the Court accepted that the Claimant was entitled to damages equal to the value of the lost goods on the date on which they were lost (approximately US$10.5 million), plus statutory interest, subject to a deduction of 3% pursuant to a contractual exemption. In order to avoid any need for the Claimant to account to Mac Z for a surplus, the Claimant limited its claim to the amount outstanding under its loan to Mac Z, net of recoveries made to date, less the value of the remaining goods. As regards the latter recoveries the Court held that the Claimant did not fail to mitigate its loss by delaying sale or otherwise failing to recover a proper value for the goods.

Michael Collett QC and Malcolm Jarvis appeared for the Claimant, instructed by Preston Turnbull LLP.

Read the judgment.