Scipion Active Trading Fund v Vallis Group Ltd (formerly Vallis Commodities Ltd)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henshaw |
| Judgment Date | 05 June 2020 |
| Neutral Citation | [2020] EWHC 1451 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000176 |
| Date | 05 June 2020 |
[2020] EWHC 1451 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building,
Fetter Lane
London, EC4A 1NL
THE HONOURABLE Mr Justice Henshaw
Case No: CL-2018-000176
Michael Collett QC and Malcolm Jarvis (instructed by Preston Turnbull LLP) for the Claimant
David Edwards QC and Nichola Warrender (instructed by DWF Law LLP) for the Defendant
Hearing dates: 20–23, 27, 29 and 30 January and 4 February 2020
Additional written closing submissions received 17 and 23 April 2020
Draft judgment circulated to parties 28 May 2020
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.
| (A) INTRODUCTION | 3 |
| (B) PROCEDURAL HISTORY | 4 |
| (C) FACTUAL BACKGROUND AND CMA TERMS | 6 |
| (1) Contractual and security arrangements | 6 |
| (2) Regular operations | 12 |
| (3) Discovery of the loss | 13 |
| (4) Subsequent events | 14 |
| (5) Mitigation steps taken by Scipion | 14 |
| (D) WITNESSES | 15 |
| (E) CAUSATION: CLAIM BASED ON POSSESSORY RIGHTS | 17 |
| (1) Authorities: claims by possessors/bailors | 19 |
| (2) Authorities: estoppel | 22 |
| (3) Application to the present case: Scipion's possessory rights | 23 |
| (a) The parties' key submissions | 23 |
| (b) Governing law | 26 |
| (c) Effect of bailment on CMA terms | 28 |
| 30 | |
| (e) Conclusion | 35 |
| (4) Application to the present case: estoppel as to Pledge validity | 35 |
| (F) CAUSATION: VALIDITY OF PLEDGE UNDER MOROCCAN LAW | 37 |
| (1) The relevant question | 37 |
| (2) Key provisions of the Pledge | 37 |
| (3) Overview of relevant provisions of Moroccan law | 42 |
| (4) Grounds on which Vallis alleges the Pledge was invalid | 44 |
| (5) Absence of list contemplated by Article 378 of the Code of Commerce | 44 |
| (a) Reference to the 1951 list | 46 |
| (b) Reference to DOC to identify products covered by Article 378 | 51 |
| (c) Valid pledge under DOC? | 60 |
| (d) Conclusion on this issue | 64 |
| (6) Compliance with Article 379 requirements/Pledge over future goods | 64 |
| (7) Conclusion | 68 |
| (G) CAUSATION: CONTROL IN PRACTICE AND LOSS OF A CHANCE | 68 |
| (H) MEASURE OF LOSS | 69 |
| (1) Scipion's claims and the parties general submissions | 69 |
| (2) Date of assessment of loss/duty to mitigate | 71 |
| (3) Consequential losses and interest under the facility | 75 |
| (I) SPECIFIC ISSUES AS TO VALUATION AND MITIGATION | 76 |
| (1) Maroc Telecom scrap | 78 |
| (a) July 2018 Mac Z offer | 78 |
| (b) July 2018 Petroforce offer | 79 |
| (c) June 2019 offer | 79 |
| (d) July 2019 offer | 82 |
| (e) MTB offer | 83 |
| (f) Overall position on offers received | 84 |
| (g) Value of the remaining unstripped Maroc Telecom scrap | 84 |
| (2) Lost granules in late October 2017 | 89 |
| (3) Anode sale in December 2017 | 90 |
| (J) CLAUSE 8.2 EXEMPTION | 91 |
| (K) CONCLUSIONS | 92 |
(A) INTRODUCTION
This judgment follows the trial of a claim by the Claimant (“Scipion”) for the alleged loss of about 1,900 mt of copper scrap from a production and storage facility at Skhirat, Morocco (“the Site”) held, or intended to be held, as security for a loan made to Mac Z Group SARL (“Mac Z”).
The Defendant (“Vallis”) was the collateral manager of the copper stock at the Site pursuant to a collateral management agreement dated 18 July 2016 between Scipion, Mac Z and Vallis (“the CMA”).
The main part of the trial took place from 20 January to 4 February 2020, and included two significant developments, both described in more detail later but in outline as follows.
First, after week 1 of the trial Vallis in substance admitted breach, leaving only questions of causation and loss to be determined. These included, however, significant issues relating to the validity of a pledge over the copper scrap goods and resulting products, governed by Moroccan law, which Mac Z had granted in favour of Scipion, as well as issues relating to the correct approach to the assessment of loss and to mitigation.
Secondly, Scipion submitted at trial that it was entitled to recover from Vallis regardless of the validity of the pledge. This led eventually to the grant of permission for Scipion to amend, in the circumstances outlined in section B below and described in more detail in my judgment at [2020] EWHC 795 (Comm), and to additional written closing submissions served on 17 and 23 April 2020.
For the reasons set out in this judgment, Scipion's claim succeeds to the extent indicated below. I shall hear further argument to the extent necessary on any further matters of quantification arising from my conclusions.
(B) PROCEDURAL HISTORY
I set out below an overview of the procedural history. Further details of the history, particularly in relation to the pledge issue and title to sue, are given in my judgment on permission to amend mentioned in § 5 above.
The claim was commenced on 12 March 2018 and Scipion served Particulars of Claim on 17 April 2018.
Scipion's case, in brief, was and is that there was a physical loss of about 1,900 mt from the Site (or, at least, that Vallis was precluded from denying this), which was caused by Vallis's lack of care in breach of the CMA. Alternatively, if there were merely a paper loss (i.e. the records inflated the amount of copper stock by 1,900 mt), then Vallis breached its management duties under the CMA, which caused Scipion to make advances to Mac Z that it would not otherwise have made.
Scipion claimed that:
“By reason of the Defendant's breaches of the Agreement, the balance due to the Claimant by the Borrower and/or Guarantor under the Facility, as detailed in paragraph 32(a), has been left unsecured and the Claimant has lost the benefit of the Pledge over the Goods and Products to secure performance of the Facility by the Borrower and/or Guarantor.” (Re-Amended Particulars of Claim § 32(b))
The pledge referred to was a Pledge over Goods and Products granted by Mac Z in Scipion's favour on 18 July 2016 (“ the Pledge”).
Further or alternatively, Scipion claimed for:
“the loss of the chance to secure performance of the Facility by [Mac Z] and/or Guarantor pursuant to the Pledge of the Goods and Products held by the Defendant under the Agreement” (Re-Amended Particulars of Claim § 33)
Scipion additionally alleged that Vallis's late notification of the loss of the copper scrap meant it lost the opportunity to take more immediate steps to investigate and/or mitigate the loss and/or to protect its rights.
Vallis's Defence was served on 29 May 2018. Vallis did not admit any loss of the goods (whether a physical or paper loss) and contended that Scipion had failed to discharge its burden of proof, drawing attention to apparent uncertainties in Scipion's case. It disputed Scipion's construction of the CMA and, in any event, relied on its systems and procedures to deny any breach of duty. Further, Vallis disputed causation and loss, in particular based on the alleged invalidity of the Pledge and failure to mitigate.
Vallis's Defence indicated that Vallis did not have a copy of the Pledge, but made non-admissions in relation to it, and also contained a positive denial that Vallis was responsible for the loss of any security and/or the benefit of the Pledge in circumstances where no such pledge had been registered in Morocco.
Scipion in Reply pleaded that the Pledge had been registered on 30 October 2017 (after the date of loss) and that the lack of earlier registration did not mean no valid pledge or charge existed.
At a CMC on 1 August 2018 Popplewell J gave permission for expert evidence to be served sequentially on “ whether as a matter of Moroccan law there was a valid pledge (or charge) over the Goods and Products at the Site (Issue 20)”. The reference to Issue 20 was to the List of Issues:
“20. Was the Facility secured by way of pledge (or charge) prior to the registration of it in the public registry on or about 30 October 2017 and, if not, were any sums advanced under the Facility a breach of a condition precedent and/or did the Goods and Products at the Site form part of the Borrowing Base under the Facility?”
Moroccan law expert evidence was served as follows:
i) first report of Mr Hajji (Scipion's expert) served on 17 May 2019;
ii) first report of Ms Fassi-Fihri (Vallis's expert) served on 19 June 2019;
iii) Joint Memorandum completed on 19 July 2019; and
iv) supplemental reports by Mr Hajji and Ms Fassi-Fihri served on 19 August 2019.
The Moroccan law experts considered not merely the effect of late registration on the validity of the Pledge, but also the anterior question of whether there was a valid pledge at all, with Ms Fassi-Fihri positively opining that there was not.
A Pre Trial Review took place on 4 October 2019.
On 27 December 2019, and as foreshadowed in correspondence, Vallis served an Amended Defence making consequential amendments to the Defence and a number of non-consequential amendments. One of the consequential amendments was to admit that the CMA constituted a bailment of the relevant goods to Vallis on the terms of the CMA (save insofar as the goods and products were not in fact received into Vallis's custody and control at the Site). Vallis's non-consequential amendments included:
i) a new §5(7A) denying, for the first time,...
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