E D & F Man Capital Markets Limited v Come Harvest Holdings Limited & Ors.

As Mr Lewis emphasised, and as Lord Steyn pointed out in Smith New Court at pages 283 and 284, the overriding rule is that damages are intended to compensate the victim for the defendant’s wrongdoing, “the orthodox and settled rule [being] that the plaintiff is entitled to all losses directly flowing from the transaction caused by the deceit”. Thus:

“There is in truth only one legal measure of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendants.”

The principles stated by Lord Browne-Wilkinson in the same case, which I have already set out, give effect to this overriding compensatory rule in cases where the alteration of position consists of the acquisition of property. In particular, they are sufficiently flexible to accommodate cases where assessing damages at the date of acquisition would fail to do so. They are not, however, an exhaustive statement of the law of damages applicable when a fraudulent statement has caused a claimant to acquire property which it would not otherwise have acquired. Other principles, for example as to mitigation of damages, including the principle that damages cannot be recovered for a loss which has been avoided (e.g. British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Company of London Ltd [1912] AC 673, 679), may also have a role to play.

A structured approach would first require the court to identify “the transaction” which has caused the claimant to acquire the property in question. Only then is it possible to identify any benefits received as a result of that transaction, as distinct, for example, from benefits received as a result of some other transaction. Benefits received as a result of some other transaction may be regarded as res inter alios acta or, to adopt the term used in the modern cases, collateral, although that term has generally been used in the context of avoided loss, which I would regard as a distinct matter. The next step is to identify any benefits received as a result of the transaction, which may require a decision to be made as to the date at which any benefits should be valued. In most cases those first two steps will be sufficient to assess the loss which the claimant has suffered and thus to arrive at the damages figure which it is entitled to recover. However, a further question may sometimes arise, whether the claimant has avoided that loss, either in whole or in part. When considering that last question, no account will be taken of benefits which are res inter alios acta or collateral. Broadly speaking, a key test for whether a benefit is collateral is whether its receipt arose independently of the circumstances giving rise to the loss.

This approach can be seen in the cases cited to us. I propose to concentrate on the tort cases concerned with deceit. Although a number of cases were mentioned to us which are concerned with whether sub-sales should be brought into account in assessing damages for breach of contract, I do not find these cases of assistance: the measure of damages in contract is different, as Lord Steyn pointed out in Smith New Court itself at pages 281G-282A:

“The logic of the decision in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 justifies the following propositions.

(1)

The plaintiff in an action for deceit is not entitled to be compensated in accordance with the contractual nature of damage, i.e. the benefit of the bargain measure. He is not entitled to be protected in respect of his positive interest in the bargain.

(2)

The plaintiff in an action for deceit is, however, entitled to be compensated in respect of his negative interest. The aim is to put the plaintiff into the position he would have been in if no false representation had been made.

(3)

The practical difference between the two measures was lucidly explained in a contemporary case note on Doyle v Olby (Ironmongers) Ltd: G.H. Treitel, ‘Damages for Deceit’ (1969) 32 MLR 556, 558-559. The author said:

‘If the plaintiff’s bargain would have been a bad one, even on the assumption that the representation was true, he will do best under the tortious measure. If, on the assumption that the representation was true, his bargain would have been a good one, he will do best under the first contractual measure (under which he may recover something even if the actual value of what he has recovered is greater than the price)’.”

The specific issue in Smith New Court concerned the date at which the benefit derived by the claimant from the acquisition of shares should be assessed. By the time the claimant came to sell the shares their value had fallen below their market value at the date of their acquisition. The House of Lords held that to treat the claimant as having obtained the benefit of the value of the shares at the date of acquisition was unrealistic: on the facts of that case, it could not have realised that value by selling the shares in the market at the date of acquisition, because it was “locked in”, having bought the shares for a particular purpose and at a price which precluded it from sensibly disposing of them before it had in fact done so. Accordingly, to apply the “date of transaction” rule would not provide full compensation and it was necessary to value the benefit at the later date when the shares had been sold. The position would have been different if the claimant had not been “locked in”. In that event, it would have been free to sell the shares in the market and any decision not to do so, for good or ill, would have been its own decision and for its own account. It should be noted that the case was concerned with the first two steps to which I have referred. No question of avoided loss arose for consideration.

In OMV Petrom the defendant had contracted to supply cargoes of “Iranian Heavy” or “GOSM” crude oil to the claimant, but had in fact supplied a bespoke blend of various crude oils which resembled Iranian Heavy and GOSM, creating a suite of false documents in order to deceive the claimant. It was common ground, for the purpose of Lord Browne-Wilkinson’s third principle, that the claimant had received a benefit in the form of the blended oil which it had received. The issue was how that benefit should be valued. The claimant contended that it should be valued by reference to the market value of the blended oil at the date of acquisition, saying that a purchaser of such oil, knowing what it was actually buying, would have obtained a discount (which the judge assessed as US $1 per barrel) to reflect the risk that blends of uncertain characteristics would cause damage to the refinery. The defendant contended that, as such damage had not in fact occurred, this method of valuation was inappropriate and that the valuation should be by reference to the relative yields of refined products obtained from the blends delivered, compared with the yield that would have been derived from Iranian Heavy or GOSM oil.

This court accepted the claimant’s submission. After setting out Lord Browne-Wilkinson’s summary of principles, Lord Justice Christopher Clarke continued:

“38.

As is apparent from that summary the basic measure of damages is the price paid less the benefits received as a result of the transaction which will, in a case where property is acquired, be or include its value at the date of acquisition – which, for present purposes was, by agreement, taken as the bill of lading date.

39.

In my view there is, in this case, no sufficient reason to take a different date and good reason not to do so. The purpose of the flexibility of approach about the valuation date to which Lord Browne-Wilkinson referred was to ensure that the person duped should not suffer an injustice by failing to recover full compensation in the type of circumstances to which he referred. There is no need to adopt such an approach in order to relieve the fraudster from the general rule as to damages, especially if to do so means that the person defrauded ends up paying more than the cargo was worth at the time that he bought it. This is particularly so in the light of the observations of Lord Blackburn in Livingston v Rawyards Coal Co [1880] 5 App.Cas 25 at 39 that when damage is done maliciously or with full knowledge that the person doing it was doing wrong ‘you would say everything would be taken into view that would go most against the wilful wrongdoer’.

40.

The crude oil the subject of these proceedings was a commodity bought in the oil trading market. That does not mean that there was a regular market for the sale of the 32 different bespoke blends with a ready supply of buyers and sellers. On the contrary these cargoes were unique and had to be valued by a calculation of the total CIF value of the component crudes discounted on account of the risks and uncertainties involved in buying these odd cargoes which were a mixture of crude oils, condensates and fuel oil. The amount by which the price paid exceeded a price calculated on that basis constitutes the measure of the buyer’s loss, representing, as it does, the amount that he has overpaid on account of the seller’s deceit. That loss arose when on account of the deceit he acquired the property, for which he had to overpay. The fact, if such it be, that, afterwards, none of the risks to which the discount related materialised cannot alter the fact that the buyer was induced to pay too much when he did so.”

Accordingly OMV Petrom demonstrates that the purpose of adopting a flexible approach to the date on which a benefit should be valued is to ensure that a claimant receives full compensation, and not to benefit a fraudster. The loss which the claimant had suffered was the overpayment which it had made when purchasing the oil. As a matter of fact, that loss had been incurred at the date of the transaction when the claimant overpaid for what it was buying. The loss had not been avoided in any way thereafter and, as a result, no question of avoided loss arose for consideration.

Such a question did arise in Swynson, although this was not a fraud case and was not concerned with the acquisition of property. Rather, it was a claim by a lending company against a firm of accountants in which the claimant had made three loans to a borrower in reliance on a negligently prepared report. By the time that damages came to be assessed, however, two of the loans had been repaid, so that the loss on these loans (i.e. the amount of funds advanced) had in fact been avoided. The issue was whether that avoidance of the loss should be disregarded as res inter alios acta in circumstances where the repayment had been funded by the claimant’s own shareholder as part of a refinancing exercise. These were, therefore, rather special facts, far removed from the present case. The Supreme Court held that the avoidance of the loss should not be disregarded. Lord Sumption stated and applied the relevant principles in these terms:

“11.

The general rule is that loss which has been avoided is not recoverable as damages, although expense reasonably incurred in avoiding it may be recoverable as costs of mitigation. To this there is an exception for collateral payments (res inter alios acta), which the law treats as not making good the claimant’s loss. It is difficult to identify a single principle underlying every case. In spite of what the latin tag might lead one to expect, the critical factor is not the source of the benefit in a third party but its character. Broadly speaking, collateral benefits are those whose receipt arose independently of the circumstances giving rise to the loss. Thus a gift received by the claimant, even if occasioned by his loss, is regarded as independent of the loss because its gratuitous character means that there is no causal relationship between them. The same is true of a benefit received by right from a third party in respect of the loss, but for which the claimant has given a consideration independent of the legal relationship with the defendant from which the loss arose. Classic cases include loss payments under an indemnity insurance: Bradburn v Great Western Railway Co (1874-5) LR 10 Ex 1. Or disability pensions under a contributory scheme: Parry v Cleaver [1970] AC 1. In cases such as these, as between the claimant and the wrongdoer, the law treats the receipt of the benefit as tantamount to the claimant making good the loss from his own resources, because they are attributable to his premiums, his contributions or his work. The position may be different if the benefits are not collateral because they are derived from a contract (say, an insurance policy) made for the benefit of the wrongdoer: Arab Bank Plc v John D Wood Commercial Ltd [2000] 1 WLR 857 (CA), at paras 92-93 (Mance LJ). Or because the benefit is derived from steps taken by the Claimant in consequence of the breach, which mitigated his loss: British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Ltd [1912] AC 673, 689, 691 (Viscount Haldane LC). These principles represent a coherent approach to avoided loss. In Parry v Cleaver [1970] AC 1, 13, Lord Reid derived them from considerations of ‘justice, reasonableness and public policy’. Justice, reasonableness and public policy are, however, the basis on which the law has arrived at the relevant principles. They are not a licence for discarding those principles and deciding each case on what may be regarded as its broader commercial merits.

12.

On the judge’s findings, the loss recoverable by Swynson from HMT was that which arose from its inability to recover (i) the 2006 loan which it had made to EMSL on the strength of HMT’s reports about Evo’s financial strength, and (ii) the 2007 and 2008 loans which it made in a reasonable but unsuccessful attempt to mitigate the loss arising from the 2006 loan. So far as the 2006 and 2007 loans were concerned, that loss was made good when EMSL repaid them. The fact that the money with which it did so was borrowed from Mr Hunt was no more relevant than it would have been if it had been borrowed from a bank or obtained from some other unconnected third party. There was nothing special about the fact that Mr Hunt provided the funds, once one discards the idea that HMT owed any relevant duty to him. The short point is that the repayment of the 2006 and 2007 loans cannot be treated as discharging them as between Swynson and EMSL, but not as between Swynson and HMT.

13.

If, in December 2008, Mr Hunt had lent the money to Swynson to strengthen its financial position in the light of EMSL’s default, the payment would indeed have had no effect on the damages recoverable from HMT. The payment would not have discharged EMSL’s debt. It would also have been collateral. But the payments made by Mr Hunt to EMSL and by EMSL to Swynson to pay off the 2006 and 2007 loans could not possibly be regarded as collateral. In the first place, the transaction discharged the very liability whose existence represented Swynson’s loss. Secondly, the money which Mr Hunt lent to EMSL in December 2008 was not an indirect payment to Swynson, even though it ultimately reached them, as the terms of the loan required. Mr Hunt’s agreement to make that loan and the earlier agreements of Swynson to lend money to EMSL were distinct transactions between different parties, each of which was made for valuable consideration in the form of the respective covenants to repay. Thirdly, as the Court of Appeal correctly held, the consequences of the refinancing could not be recoverable as the cost of mitigation, because the loan to EMSL was not an act of Swynson and was not attributable to HMT’s breach of duty.”

There is a danger in picking out isolated sentences from this passage, as both counsel sought to do to some extent in argument before us. What emerges clearly, however, is the principle that collateral benefits (res inter alios acta) must be treated as not making good the claimant’s loss, and that there is no single principle underlying every case. The broad principle (“Broadly speaking …”) is that collateral benefits are those whose receipt arose independently of the circumstances giving rise to the loss, and the critical factor is the character of the benefit, but these are criteria which will sometimes be easier to state than to apply to the facts of any particular case. It is apparent, however, that it is no bar to treating a benefit as one arising out of the transaction, and therefore making good the claimant’s loss, that the benefit was obtained after the transaction in question: inevitably, the repayment of the loan which made good the claimant’s loss was made after the funds had been advanced, which is when the loss was suffered. This principle of the law of mitigation is distinct from the application of Lord Browne-Wilkinson’s statement of the principles concerning the valuation of benefit at the date of the transaction in fraud cases concerning the acquisition of property.

Avoided loss was also considered in Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC [2020] UKSC 24, [2020] Bus LR 1196. This was a competition law case where the relevant issue was whether the overcharging by the credit card company had been avoided as a result of being passed on to customers. It was not, therefore, a case concerned with the acquisition of property. The Supreme Court held that, in principle, a loss which had been passed on to customers had been avoided:

“215.

We are not concerned in these appeals with additional benefits resulting from a victim’s response to a wrong which was an independent commercial decision or with any allegation of a failure to take reasonable commercial steps in response to a loss. The issue of mitigation which arises is whether in fact the merchants have avoided all or part of their losses. In the classic case of British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 689 Viscount Haldane described the principle that the claimant cannot recover for avoided loss in these terms: ‘when in the course of his business [the claimant] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account …’ (emphasis added) Here also a question of legal or proximate causation arises as the underlined words show. But the question of legal causation is straightforward in the context of a retail business in which the merchant seeks to recover its costs in its annual or other regular budgeting. The relevant question is a factual question: has the claimant in the course of its business recovered from others the costs of the MSC, including the overcharge contained therein? The merchants, having acted reasonably, are entitled to recover their factual loss. If the court were to conclude on the evidence that the merchant had by reducing the cost of its supplies or by the pass-on of the cost to its customers (options (iii) and (iv) in para 205 above) transferred all or part of its loss to others, its true loss would not be the prima facie measure of the overcharge but a lesser sum.”

This reasoning shows that the question whether action which diminishes loss “arises out of the transaction” as distinct from being independent or collateral is a question of causation, a point also made by Lord Justice Phillips in another competition case concerned with the passing on of losses, Allianz Global Investors GmbH v Barclays Bank Plc [2022] EWCA Civ 353.

Mr Davies submitted that it is inherent in Lord Browne-Wilkinson’s formulation of the principles applicable in this type of case that the relevant transaction is confined to the transaction between the claimant and the fraudster, that is to say the purchase transaction which the fraudster has induced and which results in the claimant having acquired the property in question. I do not accept this submission. Identification of the relevant transaction was not an issue in Smith New Court and Lord Browne-Wilkinson’s principles, including the third principle that the claimant must give credit for any benefits which he has received as a result of the transaction, do not address that issue.

In my judgment identification of the relevant transaction must depend on an analysis of all the relevant circumstances in any particular case. Here, the starting point is that the parties chose to conclude contracts principal to principal. That is an important consideration, which cannot be dismissed as a technicality. I would accept that it will often be decisive, but it is capable of being outweighed by other factors.

In the present case, when the substance of the parties’ dealings is considered, it is so outweighed. In substance this was a single transaction, in effect a package deal, in which, as all parties understood, CH/MW would offer to enter into contingent repo transactions for the nickel represented by a warehouse receipt referred to in a PMA Letter; MCM would offer that warehouse receipt and PMA Letter to ANZ; and if ANZ was willing to finance the transaction, MCM would conclude contracts more or less simultaneously with CH/MW on the one hand and ANZ on the other. The effect of the PMA Letters was that both contracts were in practice for the sale of specific goods, i.e. the nickel represented by the identified warehouse receipts. The fact that those letters were addressed, not to MCM, but to ANZ demonstrates the reality of the situation. Mr Riley was right to regard MCM, although contracting as a principal, as in effect a middleman whose interest in the transaction was to earn its brokerage fee. This was underlined by the fact, although this is not critical, that MCM was able to arrange matters so that it was not required to pay CH/MW until it had received funds from ANZ.

Just as there was a single transaction, there was here a single fraud. ANZ was the victim of the fraud by CH/MW in which Straits participated as much as MCM was. But if the “transaction” is confined to the contract between MCM and CH/MW and the involvement of ANZ is ignored, absurd consequences result. MCM would be entitled to recover damages of US $284 million, focusing only on the price it paid to CH/MW for which it received no value and ignoring the US $291 million which it received from ANZ. But ANZ, which has been equally defrauded, would then have its own claim against Straits to recover the US $291 million which it had been induced to pay. Although Mr Davies said that this would not be a problem because in practice ANZ would look to MCM for recovery, ANZ would not necessarily do so. If Straits were good for the money, ANZ would be entitled, and might choose, to sue it. As Mr Davies accepted, there could therefore be a situation, at any rate theoretically, in which Straits found itself liable to pay US $284 million to MCM and a further US $291 million to ANZ.

That would indeed be an absurd result. The object of this fraud was to deceive ANZ into paying for the false warehouse receipts, in the knowledge that it would pay MCM, and that MCM (acting innocently, and after deducting its profit) would pass on the proceeds to the fraudsters. The money paid out by ANZ was for all practical purposes the same money as was paid out by MCM. As a matter of legal causation, on each occasion the fraud induced both contracts, the contract between CH/MW and MCM and also the contract between MCM and ANZ. This further way of looking at the matter confirms, in my view, that this was a single transaction involving both MCM and ANZ, in effect what the judge and the parties referred to as Model B.

The next step is to identify the benefits received by MCM as a result of this composite transaction. At the date of the transaction, MCM paid out US $284 million but received US $291 million. It had, therefore, made its profit of US $7 million from the transaction. However, it had also incurred a liability to reimburse ANZ the US $291 million which it had received. One way of looking at the matter might, therefore, be to treat the money received from ANZ and the concomitant liability to reimburse that money as self-cancelling, leaving MCM with a loss of US $284 million. But that would be too narrow a view. The US $291 million paid by ANZ was money which MCM had actually received. The liability which MCM had incurred was just that, no more than a liability. As any business person will know, there is a world of difference between having money in your bank and having a good (or even unanswerable) claim to recover the same amount of money from a third party.

Accordingly the better view is to regard the benefit received by MCM from the transaction as consisting of US $291 million which was subject to a liability to ANZ to reimburse that amount. At the date of the transaction, therefore, and in the absence of the Settlement Agreement, MCM’s loss was US $284 million, as Mr Lewis acknowledged, not on the basis simply that that was what it had paid under the CH/MW transaction(s), but because the transaction(s) taken as a whole left it with a liability to ANZ of c. US $291 million against which its profit of US $7 million fell to be offset; but that was subject to the possibility that some or all of that loss might be avoided, depending on how the position developed as between MCM and ANZ.

Straits’ submission is that part of the loss was avoided: by the Settlement Agreement MCM succeeded in reducing its liability to ANZ from US $291 million to US $X million, and therefore avoided the loss which it had suffered to the extent of the difference between these two figures. If the Settlement Agreement had done no more than settle ANZ’s claim for US $291 million for the lesser sum of US $X million, I would have accepted that submission. Once the relevant transaction is identified as including ANZ as well as MCM, a settlement of MCM’s liability to ANZ for a reduced figure cannot be regarded as res inter alios acta or collateral. It would be a settlement between participants in the transaction which reduces, and to that extent avoids, the loss which MCM has suffered because MCM’s loss comprised its liability to ANZ. As in Swynson (see at [13]) the settlement would “discharge the very liability whose existence represented [MCM’s] loss”. If MCM were entitled then to recover US $284 million from Straits, it would be left with a profit of US $ (284 – X) million which it would never have achieved if the warehouse receipts had been genuine or if the transaction had not occurred. That would offend the overriding compensatory principle for assessing damages.

Further, to award damages of only US $X million to MCM would not mean that Straits had avoided the full consequences of its fraud. ANZ would also have a claim. While it would have to give credit for the US $X million dollars which (on this hypothesis) it had recovered from MCM, there would be no reason why it should not sue Straits for the balance of its loss.

However, it is quite clear from the Settlement Agreement that this is not a fair analysis of what that agreement did. Although the Settlement Agreement did provide for payment of US $X million by EDFM and for the release of ANZ’s claim to recover the “Relevant Loss” (i.e. the US $291 million which it had paid to MCM), this was in two respects only a long stop provision. First, the payment would only be made at some time a considerable way in the future, referred to as the “Maturity Date”. In the 2020 version of the Settlement Agreement the Maturity Date was defined by reference to a formula which made it difficult or impossible to know when the payment would have to be made, save that it would not be made for at least two years from the date of the agreement. That formula was replaced in the 2022 version by a calendar date, 30^th September 2025. Second, the “Payment Amount” was not US $X million, but US $X million less a number of deductions. One of these deductions consisted of recoveries made by MCM against third parties, including but not limited to CH, MW and individuals associated with them. These third parties therefore included Straits.

Even pausing here, it is apparent that any attempt to assess damages by reference to what is payable under the Settlement Agreement would be hopelessly circular. In order to put a figure on the “Payment Amount” it is necessary to know what recoveries have been made by MCM against Straits; but if the measure of Straits’ liability is the “Payment Amount”, the exercise becomes impossible.

Other provisions of the Settlement Agreement, in both its 2020 and 2022 versions, make provision for the pursuit of litigation against the fraudsters and the sharing of recoveries. Thus clause 9.1 provided:

“9.1

Collective interest

It is in the collective interest of the Parties to maximise the recovery of money in respect of the Relevant Loss from litigation recoveries which to the extent received will constitute Recoveries, and the Party shall act accordingly. To the extent permitted by law and the extent that documents are subject to common interest privilege, the Parties shall cooperate with each other and shall provide all necessary documents and information as the Parties may reasonably request from each other in order to be able to pursue the ANZ Litigation Recoveries and the MCM Litigation Recoveries (as defined below).”

Clause 10 imposed a contractual obligation on MCM to pursue litigation:

“Recovery against Third Parties by MCM

10.1

Recovery

MCM will use best endeavours to pursue recovery of the Relevant Loss, including but not limited to recovery from the following:

(a)

Come Harvest;

(b)

Mega Wealth; and

(c)

the directors, employees, agents and ultimate beneficial owners of the persons referred to in Clauses 10.1(a) and 10.1(b),

(the MCM Litigation Recoveries).

10.2

Action

The actions to be taken by MCM will include but not be limited to direct claims for money against the above referenced entities. The obligation to bring proceedings is subject to obtaining legal advice that the intended proceedings have good prospects of success on the balance of probabilities. …”

Clause 13.7 dealt with the treatment of “EDFM Recoveries”, a term which included the “MCM Litigation Recoveries” referred to in clause 10.1. Its effect was that for any such recovery received prior to the Maturity Date, EDFM would pay the amount received to ANZ after deducting its reasonable costs; for any recovery received on or after the Maturity Date, EDFM would deduct its reasonable costs and pay ANZ 50% of the balance. Accordingly the Settlement Agreement incentivised MCM to achieve maximum recovery before the Maturity Date as any recovery achieved would effect a dollar for dollar reduction in the “Payment Amount” which would be payable when the Maturity Date arrived. Indeed, if MCM were able to make a full recovery, nothing would be payable on the Maturity Date. After the Maturity Date, in contrast, recoveries received would be shared equally between EDFM and ANZ, although by that time of course the “Payment Amount” would have been paid.

The Settlement Agreement dealt also with wider issues between the ANZ group and the ED&F Man group, but it is unnecessary to describe these.

The drafting of the Settlement Agreement is complex, perhaps necessarily so, but on any view it is far removed from a simple release of ANZ’s claim in return for payment. It is better regarded, to borrow and adapt what Lord Justice Rix said in Mobil North Sea Ltd v PJ Pipe & Valve Co [2001] EWCA Civ 741 (Footnote: ¹), as a reorganisation of the terms upon which the parties to the agreement were going to conduct litigation against the fraudsters. Here, MCM undertook a contractual obligation to pursue the fraudsters for the full amount of the loss suffered by ANZ.

The defendant in Mobil was a subcontractor under a contract for the supply of valves for a North Sea gas project. The project was operated by Mobil, who entered into a head contract with Fluor Enterprises, and Fluor in turn subcontracted with the defendant. The valves supplied were defective and had to be replaced. Claims were brought against the defendant for the cost of replacement by both Mobil and Fluor, but the defendant sought the dismissal of Fluor’s claim on the grounds that it had made a settlement agreement with Mobil under which it avoided all the loss which it claimed.

The application to dismiss Fluor’s claim failed on a number of grounds, one of which was that the settlement agreement had not avoided the loss at all. After referring to textbook and case law dealing with the principle that there can be no claim for loss which has been avoided, Lord Justice Rix (with whom Lord Justice Aldous and Lord Justice May agreed) said:

“32.

… In the present case the act of mitigation of the alleged breach by PJ Pipe was the replacement of the pipes. That was all done by March 1998. The later settlement agreement was not an attempt at mitigation; it was merely a reformulation of the relations between Mobil and Fluor and, once the compromise of Fluor’s TIC claim is excluded, it could well be referred to – as my Lord, Lord Justice Aldous, did in the course of argument – as being simply a reorganisation of the terms upon which those two parties were (or were not) going to conduct litigation against PJ Pipe.”

In my judgment the same reasoning applies here.

Mr Lewis objected that this analysis of the Settlement Agreement is not open to MCM on this appeal. He pointed out, correctly, that there is no Respondent’s Notice seeking to support the judge’s decision on other grounds and that in the court below the judge was offered a limited “menu” (see [34] above) which did not include this particular dish. While that is true, it does not follow that this point is not open to MCM. Rather, the true position is that it is Straits which needs to show, as part of its own case, that the loss of US $284 million suffered by MCM as at the date of the transaction was subsequently avoided. This court must be entitled to evaluate that submission in the light of what the Settlement Agreement actually provides and cannot, in my judgment, be constrained to assess damages on the basis of an artificial and erroneous view of its purpose and effect.

The conclusion that the Settlement Agreement did not avoid or reduce MCM’s loss makes it unnecessary to decide whether Straits should be permitted to withdraw a concession made below and to amend its grounds of appeal to contend that the Settlement Agreement avoided MCM’s loss in its entirety because the “Payment Amount” for which it provided was to be made by its parent company, EDFM, and not by MCM itself. If the Settlement Agreement did not avoid or reduce MCM’s loss, it does not matter whether the “Payment Amount” was to be paid by MCM or EDFM. I will therefore deal with the point briefly.

While it is unsatisfactory that the unredacted 2020 version of the Settlement Agreement was only disclosed on the eve of trial, it is apparent that over the course of the five week trial the Straits legal team had an opportunity to and did analyse the document. That enabled them to advance their case that the damages should be limited to US $X million, and to make the apparent concession that the deductions from the figure of US $X million required in order to arrive at the “Payment Amount” could be ignored. But they did not at any stage suggest that MCM’s claim for damages should fail altogether on the ground that the loss had been avoided because the “Payment Amount” was an obligation of EDFM and not of MCM and, in the course of closing submissions, it was conceded that no point was taken on any distinction between EDFM and MCM. Mr Lewis submitted that the concession at that stage made no difference to the way in which the trial was conducted, as by then it was too late for MCM to adduce evidence to meet the point. Accordingly, he submitted, the point was one of law on which Straits should be permitted to withdraw its concession and advance the submission on appeal, in accordance with the approach taken in cases such as Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337, [2019] 4 WLR 146.

I would reject that submission. It is clear that the trial was conducted on the basis that there was no significance attached to the fact that the “Payment Amount” was to be paid by EDFM. If there was such significance, particularly for what would have been a potential “killer point” knocking out the entire claim, I would expect it at least to have been notified to MCM and the judge and not saved as a trump card to be played only in closing submissions. If it had been notified, it may well be that MCM would have had an answer to it which could have been explained by evidence. Moreover, I would not accept the premise that, by closing submissions, it was too late for MCM to adduce evidence. If the point had been raised by Straits in its closing submissions, even at that late stage I would have expected the judge to give MCM an opportunity to meet it rather than to dismiss the entire claim (especially a claim against a participant in a fraud) on this ground. This is especially so in the light of the fact that it was evident from the redacted version of the Settlement Agreement, disclosed a year before trial, that the settlement payment was to be made by EDFM, not MCM, albeit that with the redactions it was difficult to understand the structure of the payment obligation. I would therefore refuse permission to appeal on this new ground.

I note in passing that Mr Lewis did suggest, logically as his primary submission, that the point was already open to Straits on the basis of its existing ground of appeal, but in my view that submission was hopeless. The existing ground, even if in somewhat general language, must be understood together with the skeleton argument which accompanied it (which did not mention this point), on the basis of which permission to appeal was given, and in any event could not reasonably have been understood as going back on a concession expressly made in the court below.

As it is, however, the point does not matter in view of my conclusion on avoided loss.

For these reasons, which differ from those of the judge, I would dismiss the appeal. In doing so, however, I would observe that the issue of quantum with which we have been concerned, and on which the submissions made to us have been somewhat different from those made to the judge, took up no more than one relatively small part of the trial. I would pay tribute to the judge’s thorough and impressive judgment, in particular on the liability issues on which permission to appeal was refused.