Scipion Active Trading Fund v Vallis Group Ltd

A contractual bailor with possessory rights may recover substantial damages from a bailee for loss of goods without proving that a separate security interest was valid under the law governing the goods. The right to possession arising from a contractual bailment is governed by the law applicable to that bailment. Section 8 of the Torts (Interference with Goods) Act 1977 abolishes the common-law jus tertii rule only for claims within the Act’s definition of wrongful interference; it does not apply to a contractual bailment claim. A contractual provision may also prevent reliance on a third party’s superior title. Damages are assessed by reference to the value of the lost goods at the accepted breach date, subject to mitigation, consequential loss and a contractual exemption.

Scipion financed Mac Z’s copper-trading business and appointed Vallis as collateral manager under a collateral management agreement. Vallis admitted that approximately 1,899 tonnes of copper scrap delivered into its possession had been physically lost through breach of the agreement.

Scipion claimed damages for loss of the security represented by the goods and alternatively for loss of a chance. Vallis argued that Scipion could not recover substantial damages because the Moroccan-law pledge was invalid, and relied on section 8 of the Torts (Interference with Goods) Act 1977. The court considered whether Scipion’s possessory rights as contractual bailor were sufficient, whether the pledge was valid under the Moroccan Code of Commerce, and the proper measure of loss.

1. Possessory claim. Scipion was entitled to sue for the loss of the goods as bailor under the contractual bailment created by the collateral management agreement. A person with possession or an immediate right to possession may recover the full value of goods from a wrongdoer. That principle applies to a bailor and is not confined to an outright owner or pledgee.
2. The right to possession arising from a contractual bailment was governed by the law governing the bailment, here English law. Clause 2.2 of the agreement provided that the goods were held for and to Scipion’s order and precluded Mac Z, and consequently Vallis, from asserting that Mac Z’s interests deprived Scipion of any possessory interest.
3. Section 8 of the Torts (Interference with Goods) Act 1977 did not apply. Section 1 defined wrongful interference exhaustively and did not include a contractual claim for breach of a contractual bailment, even where concurrent tortious liability might be alleged. In any event, section 8 did not override contractual estoppel or an agreed basis of dealing.
4. The alternative estoppel argument concerning the validity of the pledge was unnecessary and was not accepted as clearly established by the recital relied upon. Clause 2.2 nevertheless prevented an assertion that Mac Z had superior title or interest to Scipion during the security period.
5. On the alternative causation issue, the Moroccan-law pledge was invalid. Article 378 of the Code of Commerce required a published list identifying the products capable of being pledged. The repealed 1951 list could not be used, and DOC Article 1174 could not supply the missing list because that would contradict the statutory scheme and make the requirement redundant.
6. The court would have concluded that breach of Article 379 did not itself render the pledge void, because the provision specified no penalty of nullity, and that the document in any event complied with the relevant requirements. The conclusion on Article 378 made this unnecessary.
7. The primary loss was the value of the lost goods at 9 October 2017. Sold remaining goods were valued at their sale dates, and unsold goods at trial, subject to proof of failure to mitigate. The claim was subject to the clause 8.2 exemption for the first 3 per cent of the relevant goods and to a cap represented by the net amount outstanding under the facility. Scipion succeeded in part; further submissions were required on quantification and statutory interest.