Scipion Active Trading Fund v Vallis Group Ltd

INTRODUCTION

The Claimant (“Scipion”) makes what it describes as a precautionary application to amend its Reply, pursuant to liberty to apply granted during oral submissions in reply at the trial before me from 20 January to 4 February 2020.

The application arose from a number of developments during the recent course of the case, which I describe in section B below. At the end of oral closing submissions on the case as it then stood on 4 February 2020, I adjourned the trial in order to allow the Claimant to put forward, and the Defendant (“Vallis”) to respond to, a properly formulated draft amended Reply. Following circulation of that document on 7 February 2020 along with supporting evidence and a skeleton argument, the parties agreed and I approved a timetable for service of further evidence and skeleton arguments. It was also agreed that, despite the application being contested, I should deal with it on the papers.

As a result of that process, the application for permission is supported by the first and second witness statements of Mr Andrew Preston, a partner in the Claimant’s solicitors Preston Turnbull LLP, and opposed by the fourth witness statement of Mr Jonathan Moss, a partner in the Defendant’s solicitors DWF Law LLP. Each party has also filed a skeleton argument, and Scipion has filed a further skeleton argument in reply.

BACKGROUND

Scipion sues Vallis for the alleged loss of about 1,900 MT of copper scrap from a production and storage facility at Skhirat, Morocco (“the Site”)that was held as security for a loan made to Mac Z Group SARL (“Mac Z”). 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”).

Pursuant to a facility agreement dated 18 July 2016 (“the Facility”), Scipion provided an uncommitted revolving copper borrowing base facility to Mac Z in the aggregate amount of US$ 10 million. The purpose of the Facility was to finance the purchase by Mac Z of copper stock (defined as “Goods”) for processing into copper products (“Products”) for sale to third-party buyers. Mac Z was required to ensure that the Borrowing Base Value (defined in clause 1.1 as the value of Goods, Products, and

The CMA included the following key provisions:

“[Appointment]

2.1

SCIPION hereby appoints [Vallis] as its agent for the purposes of receiving and taking into [Vallis]’s custody the Goods and Products, at the [Site], for and on behalf of SCIPION with the intent and understanding that such appointment shall be for the purposes of, amongst other things, creating a pledge, or charge (as the case may be) over the Goods and Products in favour of SCIPION…[Vallis] agrees to act as follows:

(a)

to control and supervise the Goods and Products solely and exclusively in accordance with SCIPION’s written

instructions;

(b)

to receive, store and hold the Goods and Products in the [Site] at all times subject to the sole authority and direction of SCIPION subject to the limited agency created in favour of [Vallis] by SCIPION and;

(c)

to carry out the services detailed in this Agreement (including the services detailed in Appendix I).

2.2

[Mac Z] acknowledges and confirms that the Goods and Products shall be held in the name of SCIPION for the account of [Mac Z] until the end of the Security Period and until such time, [Mac Z] have no equitable or proprietary rights or interests in such Goods and Products, and such Goods and Products are held for and on behalf of SCIPION and to SCIPION’s order…

2.3

…[Mac Z] and [Vallis] undertake at all times to immediately notify SCIPION should they know of any circumstance that may lead to the attachment, seizure, distress, detention, arrest or other interference whatsoever of or with any

Goods and/or Products in the [Site]

“[Services]

3.1

[Vallis] undertakes to use all due care and skill in the provision and performance of its services…

[Release of Goods and Products]

6.1

[Vallis] shall not release or allow the release of any Goods from the [Site] unless it has received prior written instructions from SCIPION to release the Goods for further processing into Products in the [Site] in the format prescribed in Appendix VI….

[Indemnity]

1(b) [Vallis] shall indemnify SCIPION and keep SCIPION fully indemnified against all losses, damages, liabilities, costs (including all legal costs on a solicitors-and-clients’ basis) and/or expenses of any nature whatsoever, howsoever incurred or sustained by SCIPION arising out of or in connection with any default by [Vallis] in either failing to provide the services in conformity with the provisions of [the CMA]…

There were various amendments and addenda to the CMA which are not relevant for present purposes.

At the same time as entering into the Facility and the CMA, Scipion entered into a number of other agreements to secure performance of Mac Z’s obligations. These included a Pledge over Goods and Products Agreement(“the Pledge”), in which Mac Z purported to grant Scipion a pledge over the Goods, Work in Progress and the Products at the Site to secure full repayment and performance by Mac Z under the Facility. The Pledge provided that Scipion entrusted custody of the said Goods, Work in Progress and Products to Vallis. The validity of the Pledge is in issue and was the subject of Moroccan law expert evidence. The security documents also included a pledge of certain collection accounts, an assignment of Mac Z’s rights under contracts for the sale of Products between Mac Z and third party buyers, a corporate guarantee from Mac Z’s Moroccan parent company, Mac Z SA (now in liquidation), and a personal guarantee by the managing director of Mac Z, Mr Lamdouar, of its obligations under the Facility.

On various dates in 2016 and 2017, Scipion advanced sums totalling around US$ 10 million to Mac Z under the Facility.

However, on 9 October 2017 Vallis’s acting supervisor at the Site reported a discrepancy between the amount of scrap copper recorded in Vallis’s daily report to Scipion (1,970.556 MT) and what he could see visually at the Site. In due course a report by Vallis’s auditor dated 10 November 2017 noted Goods apparently missing from the Site estimated at 1,899.114 tonnes with a value of US$11,324,118.

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 was 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 claims 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))

Further or alternatively, Scipion claims 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” (ReAmended Particulars of Claim § 33)

Scipion also alleges 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.

Until after the first week of trial, 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.

However, the position changed after the first week of trial, when Vallis’s solicitors wrote to Scipion’s solicitors on 27 January 2020 setting out admissions by Vallis to the effect (broadly) that there had been a physical loss of 1,899.114 MT of copper scrap which had been delivered into Vallis’s possession at the Site, and that that physical loss was caused by a breach by Vallis of specified provisions of the CMA as pleaded in Scipion’s Re-Amended Particulars of Claim.

All other issues remained in contention, including the validity of the Pledge and questions relating to mitigation.

It is necessary now to set out in more detail the course of events with a direct or indirect bearing on the issue of the validity of the Pledge, starting with the parties’ original statements of case, because it is that issue which has ultimately given rise to the present application for permission to amend.

The ‘brief details of claim’ in Scipion’s Claim Form alleged that a large quantity of the Goods had disappeared without Mac Z having paid for them, that Vallis had breached duties under the CMA and as Scipion’s agent and fiduciary, and that Scipion claimed damages including the value of the lost goods.

Scipion’s original Particulars of Claim included pleas that:

Vallis’s evidence is that when it pleaded its original Defence it did not have a copy of the Pledge. Its original Defence included the following key points:

“At the time of the relevant events, it is denied that there was any pledge (or charge) over any of the Goods and Products which has been duly registered in Morocco in favour of the Lender and/or the Defendant otherwise makes no admissions as to whether the Facility was in fact secured by way of pledge or (charge) as is alleged by the Claimant in these proceedings”. (Defence § 5(7)

“Insofar as any balance due has been left unsecured, in circumstances where the Claimant had not duly registered any such pledge over any Goods and/or Products at the Site in Morocco, it is denied that cause of any loss of security and/or benefit of the pledge was any breach by the Defendant of the CMA.” (Defence § 54(3)(c))

Vallis’s Defence also included:

In its original Reply, Scipion pleaded inter alia that:

“As to paragraph 5(7), and as the Defendant is aware (since it assisted in the remittance of funds to pay the registration fee), the pledge was registered in the relevant public registry on or about 30 October 2017. Therefore if the reference to ‘the time of the relevant events’ is a reference to the time of the Loss of Goods, it is admitted that the pledge was not registered in the relevant public registry at that time but it is denied, if such be alleged, that there was no valid pledge (or charge) over any of the Goods and Products at that (or any other material) time.” (Reply § 6) and repeated that plea in response to § 54(3)(c) of Vallis’s Defence.

Scipion also denied that the Goods and Products were not pledged in its favour prior to the registration of the pledge (Reply § 8). Separately, Scipion specifically pleaded a contractual estoppel to the effect that CMA clause 9.3 precluded Vallis from disputing

At the 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?”

That formulation is consistent with the view that what was in substance in issue between the parties at that stage was whether the pledge was invalid because it had not been registered at the date of the loss.

Moroccan law expert evidence was served as follows:

The Moroccan law experts considered not merely what the effect of late registration was 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.

Vallis did not at this stage amend its Defence to plead a case to that effect, though it points out that Scipion must have been on notice from the contents of the experts’ reports, by mid August 2019 at the latest, that Vallis was likely to do so in the future.

On 16 September 2019, Scipion’s then solicitors Clyde & Co served draft amended Particulars of Claim. Vallis indicated on 25 September that it consented to the amendments provided Vallis could serve any amended Defence within 14 days. A consent order was signed accordingly.

However, on 2 October 2019 Scipion’s solicitors indicated that the Amended Particulars of Claim had not yet been filed because Scipion wished to make a slight amendment to the date of valuation, and would be seeking Vallis’s agreement to a further consent order in due course.

A Pre Trial Review took place on 4 October 2019, at which Vallis formally reserved its position pending receipt of the revised form of Amended Particulars of Claim. Vallis on 14 October asked when that document would be served, and on 9 December requested that it be served by 5pm on 10 December in view of the trial start date of 20 January.

On 11 December 2019 Scipion served a further witness statement relating to quantum, and draft Amended Particulars of Claim (a) to plead that the CMA constituted a bailment of the Goods and Products to Vallis on the terms of the CMA, (b) to update the credit given by Scipion in the light of further sales of the Goods that remained following the loss and (c) to add two claims for consequential loss. Scipion explained that there had been delays in obtaining evidence in relation to the updated quantum of its claim.

There were then discussions about the terms of a further proposed consent order, as part of which Vallis explained that it envisaged amendments to its Defence which “if not purely consequential, are required to bring the case in line with evidence already served”. Scipion replied that it would consent to Vallis’s proposed wording for the consent order, and that it expected Vallis’s amendments would be either consequential or to bring its case in line with evidence already served, “on the understanding that any such amendments will not jeopardise the date fixed for trial”, reserving Scipion’s position if Vallis served an Amended Defence that put the trial date at risk.

By consent order dated 18 December 2019 permission was given to Scipion to serve its Amended Particulars of Claim, which was deemed to have occurred on 11 December 2019, and for Vallis to serve an Amended Defence by 8 January 2020. The latter date appears to have been an error, the agreed date for the Amended Defence having in fact been 27 December 2019.

In any event, on 27 December 2019 Vallis served its 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 Goods and Products 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:

These amendments were made nine working days before Scipion’s written opening for trial was due. Scipion did not seek an adjournment of the trial or permission to make consequential amendments. However, in its written opening dated 9 January 2020 it stated:

“Vallis’s Moroccan law expert does, however, cite other reasons (now adopted by Vallis in its Amended Defence §5(7A)) for contending that the pledge is not valid as a matter of Moroccan law. But the validity of the Pledge, as a matter of Moroccan law, is irrelevant. That is because the Goods and Products held by Vallis to Scipion’s order were at all times, and remain, available to Scipion to secure sums outstanding under the Facility pursuant to the terms of the CMA (and clause 2.2 thereof in particular), a tri-partite agreement to which Mac Z is a party.* Moreover, at all times since October 2017, Scipion has exercised control, and a right of disposal, of the remaining Goods and Products the majority of which have been sold to Mac Z (who have never challenged Scipion’s rights over those Goods). The validity of the Pledge as a matter of Moroccan law is thus a red herring.”

The footnote to this paragraph read:

“The CMA gave rise to a pledge under English law: see, for example, Official Assignee of Madras v Mercantile Bank of India [1935] AC 53 at 58-59. It is an implied term of an English law pledge that the pledgee has the right to sell the pledged assets on default by the pledgor, and to retain such of the proceeds as covers the secured obligation: Beale & others, The Law of Security and Title-Based Financing (3^rd Ed.) para 5.09.”

Vallis in its written opening dated 10 January 2020 declined to address this point on the basis that Scipion had not pleaded the existence of, or any case relying on, an English law pledge.

On 20 January 2020 Scipion served Re-Amended Particulars of Claim updating the position on quantum and a detailed interest calculation, but did not make any amendment arising from the issue about the validity of the Pledge.

At trial, Scipion alluded briefly in oral opening to the points made in its skeleton argument quoted in § 37 above. Vallis in its oral opening adhered to its position that those points had not been pleaded, nor had permission to amend been sought, and so the points were not open to Scipion. The Moroccan law experts were cross-examined about the validity of the Pledge.

In its written closing dated 3 February 2020 (exchanged with Vallis’s of the same date), Scipion made submissions to the effect that the Pledge was valid under Moroccan law. In addition, Scipion in substance advanced the arguments for which it now seeks permission to amend, in the following paragraphs which I quote in full as a convenient way of setting out Scipion’s proposed case:

“69.

As a matter of English law, Vallis cannot say that Scipion is not entitled to substantive damages on the grounds that it had no security interest in the Goods because the Pledge was invalid under Moroccan law.

70.

The measure of loss recoverable by a pledgee who has been deprived of the pledged goods is the full value of the goods at the date of the wrongful seizure, not merely the value of the pledgee’s security interest in the goods: Swire v. Leach (1865) 18 CB (NS) 479 …, approved by Lord Collins MR in The Winkfield [1902] P 42 at 57 ….

71.

This measure of loss reflects the general principle that a possessory interest in goods is sufficient to claim substantive damages for loss or damage to the goods, and the correlative principle that it is irrelevant that the claimant may have to account to a third party for some or all of the damages recovered: see The Winkfield at 54; The Jag Shakti [1986] 1 AC 337 at 345 …; The Sanix Ace [1987] 1 Lloyd’s Rep. 465 at 468-469...

72.

Moreover, by reason of the relationship of bailment between them on the terms of the CMA, Vallis is precluded from denying that Scipion had sufficient interest in the Goods to recover the damages claimed. In The Winson [1982] AC 939 at 959 …, Lord Diplock said that it “follows from the existence of the legal relationship of bailor and bailee as a matter of general principle of the law of bailment, which may also be described as hornbook law, that as between [the bailors and the bailees] the latter as bailees were estopped from denying the title to the goods of the former as their bailor …”.

73.

That general principle of the law of bailment is

reinforced in the present case by the specific terms of the CMA.

By Recital (A) to the CMA … it was “hereby agreed by theParties that the requisite security in favour of SCIPION over theGoods shall be created by the delivery of the Goods into thecustody of VCL who shall hold the Goods as an agent of SCIPION for the purposes of creating the requisite security in favour of SCIPION” and by clause 2.2 of the CMA … “MZG acknowledges and confirms that the Goods and Products shall be held in the name of SCIPION for the account of MZG until the end of the Security Period and until such time, MZG have noequitable or proprietary rights or interests in such Goods andProducts …” (emphasis added). Those provisions amounted to an agreement that the basis for the transaction covered by the CMA was that Scipion (and not Vallis) had all equitable and proprietary rights in the Goods, which would include such security rights as would be conferred by a valid Art.378 pledge under Moroccan law. Vallis is therefore precluded from denying Scipion’s claim to damages on the basis that Scipion did not in fact have such rights: see the discussion of “contractual estoppel” in Credit Suisse International v. Stichting Vestia Group [2014] EWHC 3103 (Comm) at [301]-[310] ...

74.

It will not have escaped the Court’s notice that there would be highly unpalatable consequences if Vallis could escape liability to Scipion on the grounds of the invalidity of the Pledge. If the Goods were lost without wrongdoing on the part of Mac Z, and Mac Z were to claim against Vallis for their loss, Vallis would be able to defend Mac Z’s claim on the basis that under the CMA (and particularly clause 2.2) Mac Z had no possessory, equitable or proprietary rights to the Goods. The result would be that, even though Vallis’s admitted breach of the CMA caused the loss of almost 1,900 MT of scrap copper, Vallis would not be liable to pay substantive compensation to anyone. In the words of Hobhouse J in The Sanix Ace at 471, “This reduces their argument to absurdity”.

75.

Scipion has measured its loss by reference to the value of the benefit which it would otherwise have had by reason of Vallis holding the Goods to its order as security for Mac Z’s indebtedness under the Facility, which limits its claim to the sums to which Scipion is entitled under the Facility (and avoids the possibility of Scipion recovering from Vallis any excess over and above the sums outstanding under the Facility, for which excess it is common ground Scipion would have to account to Mac Z ). However, as Vallis itself correctly observed at para.140 of its opening skeleton, the applicable measure of loss is a matter of law for the Court. The fact that Scipion has framed its claim by reference to the Facility debt secured on the Goods to avoid an over-recovery does not mean that it is necessary for Scipion to establish the validity of the Pledge under Moroccan law to recover the sums claimed.”

THE APPLICATION TO AMEND

The application to amend was made during oral closing argument on 4 February 2020, in the course of which the following occurred:

The substantive amendment which Scipion now seeks to make is the expansion of § 40 of its Reply as follows:

“As to paragraph 54(3)(c) paragraph 6 above is repeated. Furtherand in any event, the Claimant does not need to establish thevalidity and/or enforceability of the Pledge Agreement in orderto recover damages for the loss of the Goods calculated as set outin paragraph 32(f) of the Re-Amended Particulars of Claim. TheClaimant’s possessory rights as bailor of the Goods against theDefendant as bailee entitle the Claimant to such damages.Further or alternatively, by reason of the bailment relationshipbetween the Defendant and the Claimant, the Defendant cannotassert that the Claimant had insufficient interest in the Goods toclaim such damages. Further or in the further alternative, byreason of Recital (C) and/or clause 2.2 of the Agreement, theDefendant cannot assert that the Claimant had insufficientinterest in the Goods to claim such damages. The Claimantotherwise joins issue with this paragraph.”

WHETHER PERMISSION TO AMEND IS NEEDED

As a preliminary matter, Vallis submits that Scipion is no longer entitled to argue that permission is unnecessary, because (a) the court effectively ruled on that point in the exchanges referred to in § 42 above, and/or (b) by making its oral application to amend Scipion abandoned any argument that permission to amend was not required. Vallis says Scipion is therefore barred from advancing the argument by principles of res judicata, estoppel or abuse of process.

I do not accept those submissions. My indication to Scipion’s counsel was no more than that; and on a fair reading of the transcript, I consider that Scipion (as in my view it was entitled to) preserved its right to argue that the application was precautionary only.

Scipion submits that it is not necessary for it to amend in order to advance this case, or at least that it was reasonable for Scipion to have taken that view, because:

Vallis contends that permission to amend is required, for a number of reasons.

First, Vallis says that (contrary to Scipion’s submission) it is not currently common ground on the statements of case that there was a relationship of bailment between Scipion and Vallis. Paragraph 5 of Scipion’s Amended Particulars of Claim alleges:

“The Claimant entered into a collateral management agreement with the Borrower and the Defendant dated 13 July 2016 (“the Agreement”) pursuant to which the Defendant was appointed collateral manager and agent of the Claimant to inter alia receive, take into custody, control and hold the Goods and Products at the Borrower’s production and storage facility at Skhirat, Morocco (the “Site”) for the purposes of the Pledge over

Goods and Products … referred to in paragraph 4 above. In thepremises, and for the avoidance of doubt, the Agreementconstituted a bailment of the Goods and Products to theDefendant on the terms of the Agreement.”

In § 12 of its Defence, Vallis admitted this allegation “save that … [t]here was no bailment on terms of any Goods and Products insofar as the same were not in fact received into the Defendant’s custody and control at the Site.”

Vallis argues that it was not thereby admitting a relationship of bailment with the Claimant, as opposed to with Mac Z. However, as Scipion points out, Vallis in both its written and oral openings at trial proceeded on the basis that there was a bailment relationship between Scipion and Vallis. In its written opening Vallis expressly accepted, by reference to the allegation and admission quoted above, that because the CMA was a contract for the bailment of the Goods and Products to Vallis, it followed that if Scipion established a physical loss of Goods, then Vallis had the legal burden of proving that it took reasonable care of the Goods or that any failure to do so did not contribute to the loss (citing Volcafe Ltd v Compania Sud America de Vaporesa SA [2019] AC 358 at §§ 8-10). That proposition necessarily involved treating the admission in Vallis’s Defence as an admission that it was bailee for Scipion. Similarly, in oral opening Vallis said “It is accepted, and it is the law, that it is for Scipion as bailor to prove the quantity of goods that were delivered to Vallis under the terms of its bailment” (Day 1 pp 83-84). That reflects what is in my view the fair reading of the statements of case.

Secondly, Vallis contends that in order to bring a claim in bailment, Scipion would have had to plead material facts that are not pleaded in its current statements of case, including that (a) Scipion held a possessory (as opposed to a security) interest in the Goods lost; (b) that a bailment relationship existed as between Vallis and Scipion (i.e. not between Vallis and Mac Z), and (c) the fact that Scipion is now relying on that bailment relationship so as to preclude or estop Vallis from asserting that Scipion had insufficient interest in the Goods lost to claim substantial damages.

As part of this, Vallis alleges (citing passages from Palmer on Bailment (3^rd ed.) chapter 43 that Scipion would have to plead the terms on which Vallis as contractual bailee is alleged to have assumed possession, and “the bailor’s interest in the goods; … the essential feature of the relationship between the bailor and bailee, viz the latter’s possession of goods to which the bailor has a superior title [and] … (as far as possible) the circumstances in which the bailee assumed possession” (citing Palmer §§ 43-018 and 019). Similarly, Palmer § 43-020 indicates that even if the terms ‘bailor’ and

However, I consider that insofar as the matters referred to in the two preceding paragraphs above are matters of pure fact, as opposed to legal conclusions or arguments, they were in substance pleaded by Scipion’s allegations relating to the terms of the CMA summarised in § 20 above. As Scipion says, the propositions on which it seeks to rely for the first two portions of its proposed amendment rely on legal incidents of

Thirdly, Vallis says Scipion needs to amend because its existing case on causation is premised on the validity of the Pledge. In my view Vallis is correct on this point. Both of the existing pleas in Particulars of Claim §§ 32(b) and 33, quoted in §§ 12 and 13 above, are premised on Vallis’s breach causing Scipion to be “unsecured” and losing the benefit of the Pledge. (Scipion has a separate claim that Vallis’s late notification of the loss of the copper scrap meant Scipion lost the opportunity to take more immediate steps to investigate and/or mitigate the loss and/or to protect its rights, but that claim is not material for present purposes.)

Moreover, the whole of § 32 of Scipion’s existing Particulars of Claim is founded on the allegation in § 32(b). Most materially, the loss and damage plea now to be found in § 32(f) arises “In the premises”, i.e. by reason of the foregoing subparagraphs, of which §32(b) contains the only allegation of causation. I do not accept Scipion’s point that no amendment is needed because the measure of loss is a matter for the court: Scipion’s current pleading makes a case on causation based squarely on loss of security.

As a result, in order to advance a claim that is not dependent on having become unsecured, as Scipion now seeks to do, it is in my view necessary for Scipion to amend.

Fourthly, as regards the plea of what might loosely be called ‘contractual estoppel’ set out in the final sentence of the proposed Amended Reply § 40, Vallis says Scipion needs to plead as material facts the facts (a) that the CMA contained Recital (C) and clause 2.2 and (b) that Scipion is relying on these terms being included in the CMA so as to preclude or estop Vallis from asserting that Scipion had insufficient interest in the Goods lost to claim substantial damages. The generic wording in Scipion’s Particulars of Claim that it will refer to the terms of the CMA for “its full terms and effect” is insufficient. I am not sure that points (a) and (b) are correctly to be characterised as unpleaded material facts, but I consider Vallis to be correct on its general point by reason of its fifth contention, to which I now come.

Fifthly, Vallis makes the point that it is essential to the conduct of a fair trial that each side should know in advance what case the other is making, and it is the function of a statement of case to give that advance notice: see e.g.

Whether or not new material facts are strictly involved, Scipion’s existing statements of case did not in my view give Vallis fair notice that Scipion would advance either (a) a claim in bailment for damages recoverable independently of any loss resulting from loss of security (in particular the security provided by the Pledge) or (b) an argument that Vallis was precluded by the terms of the CMA from denying the validity of the Pledge. Further, (a) at least is properly to be regarded as a ‘positive case’ within paragraph C.1.1 of the Commercial Court Guide, and is distinct from Scipion’s existing case on causation.

For these reasons, I consider that permission to amend is required.

WHETHER PERMISSION TO AMEND SHOULD BE GRANTED

Principles

An appropriate starting point for the principles to be applied on contested applications to amend is Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ 14, [2011] 1 WLR 2735, in which the claimant applied to amend to introduce what the trial judge described as “a completely new case” on the first day of a trial that had already been adjourned once (§§ 18-23, 28). Reversing the trial judge’s decision to allow the amendment, Lloyd LJ (with whom Elias and Patten LJJ agreed) said at § 72:

“As the court said [in Worldwide Corporation Ltd v GPT Ltd [1998] CA Transcript No. 1835], it is always a question of striking a balance. I would not accept that the court in that case sought to lay down an inflexible rule that a very late amendment to plead a new case, not resulting from some late disclosure or new evidence, can only be justified on the basis that the existing case cannot succeed and the new case is the only arguable way of putting forward the claim. That would be too dogmatic an approach to a question which is always one of balancing the relevant factors. However, I do accept that the court is and should be less ready to allow a very late amendment than it used to be in former times, and that a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position, that of the other parties to the litigation, and that of other litigants in other cases before the court.”

In Hague Plant Ltd v Hague [2014] EWCA Civ 1609 the Court of Appeal upheld a challenge to a refusal to permit re-amendments to particulars of claim on the grounds (amongst other things) that they were too late notwithstanding that no trial date had yet been fixed. Briggs LJ (with whom Christopher Clarke LJ and Sharp LJ agreed) said this on subject of ‘lateness’ of amendments:-

“33.

I consider that the judge was entitled to approach the relevance of lateness in this way. Lateness is not an absolute but a relative concept. As Mr. Randall put it, a tightly focussed, properly explained and fully particularised short amendment in August may not be too late, whereas a lengthy ill-defined, unfocussed and unexplained amendment proffered in the previous March may be too late. It all depends upon a careful review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of its consequences in terms of work wasted and consequential work to be done. A fair reading of the judgment as a whole shows that this is how the judge took lateness into account. When dealing with specific matters sought to be introduced he never said merely that it was ‘too late’ but rather that the manner of pleading it, or the lack of satisfactory explanation for it not having been pleaded earlier meant that it was being introduced at too late a stage: see for example paragraphs 83, 118, and 124 of the judgment.

34.

Lateness, used in this way, is a factor of almost infinitely variable weight, when striking the necessary balance in determining whether or not to permit amendments……”

…

“42.

The judge’s main reason for refusing permission to amend upon proportionality grounds was, as I have sought to explain, mainly based on his apprehensions about the further, duplicative and otherwise unnecessary work to which they would expose the defendants and the knock-on consequences in terms of increasing the weight, cost and duration of the trial and of further case management ahead of it. Mr Parker submitted that the judge was not entitled to reach that conclusion without a detailed analysis of the extra work which would be required: Ground 4. I emphatically disagree…..A judge is, in my view, perfectly entitled to apply both his general and particular experience to these questions without spelling out, in analytical detail, the reasons for his conclusions about the increased cost and burden, both to the parties and the court, threatened by a substantial proposed re-amendment…..”

I agree with Vallis that this reference to proportionality supports the view that the court should have regard to all the matters mentioned in CPR rule 1.1(2) so as to deal with the case “justly and at proportionate cost” in accordance with the overriding objective:

“(2)

Dealing with a case justly and at proportionate cost includes, so far as is practicable—

(a)

ensuring that the parties are on an equal footing;

(b)

saving expense;

(c)

dealing with the case in ways which are proportionate—

(i)

to the amount of money involved;

(ii)

to the importance of the case;

(iii)

to the complexity of the issues; and

(iv)

to the financial position of each party;

(d)

ensuring that it is dealt with expeditiously and fairly;

(e)

allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and

(f)

enforcing compliance with rules, practice directions and orders.”

In Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm) the claimant applied two weeks before trial to amend the particulars of claim. It was conceded that the unamended claim was unsustainable and that the proposed amendments “wholly change the nature of the case” (§ 32). The lateness of the application led to the trial date being vacated. Carr J considered a number of authorities (including Swain-Mason and Hague Plant) and summarised the relevant principles as follows:

“Drawing these authorities together, the relevant principles can be stated simply as follows:

(a)

whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;

(b)

where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;

(c)

a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;

(d)

lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;

(e)

gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;

(f)

it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;

(g)

a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so.” (§ 38)

In CIP Properties (AIPT) v Galliford Try Infrastructure Limited [2015] EWHC 1345 (TCC) permission was sought for extensive amendments to the claimant’s case that would necessitate the adjournment of a trial date that Coulson J concluded it was imperative to maintain (see §§ 11 and 13). Coulson J provided the following further summary of the relevant principles:-

“In summary, therefore, I consider that the right approach to amendments is as follows:

(a)

The lateness by which an amendment is produced is a relative concept (Hague Plant). An amendment is late if it could have been advanced earlier, or involves the duplication of cost and effort, or if it requires the resisting party to revisit any of the significant steps in the litigation (such as disclosure or the provision of witness statements and expert's reports) which have been completed by the time of the amendment.

(b)

An amendment can be regarded as ‘very late’ if permission to amend threatens the trial date (Swain-Mason), even if the application is made some months before the trial is due to start.

Parties have a legitimate expectation that trial dates will be met and not adjourned without good reason (Brown (Footnote: ¹)).

(c)

The history of the amendment, together with an explanation for its lateness, is a matter for the amending party and is an important factor in the necessary balancing exercise (Brown; Wani (Footnote: ²)). In essence, there must be a good reason for the delay (Brown).

(d)

The particularity and/or clarity of the proposed amendment then has to be considered, because different considerations may well apply to amendments which are not tightly-drawn or focused (Swain Mason; Hague Plant; Wani).

(e)

The prejudice to the resisting parties if the amendments are allowed will incorporate, at one end of the spectrum, the simple fact of being 'mucked around' (Worldwide), to the disruption of and additional pressure on their lawyers in the run-up to trial (Bourke (Footnote: ³)), and the duplication of cost and effort (Hague Plant) at the other. If allowing the amendments would necessitate the adjournment of the trial, that may be an overwhelming reason to refuse the amendments (Swain Mason).

(f)

Prejudice to the amending party if the amendments are not allowed will, obviously, include its inability to advance its amended case, but that is just one factor to be considered (Swain-

Mason). Moreover, if that prejudice has come about by the amending party's own conduct, then it is a much less important element of the balancing exercise (Archlane (Footnote: ⁴)). (§ 19) (Footnote: ⁵)

The most recent authoritative statement is in Nesbit Law Group LLP v Acasta European Insurance Co Ltd [2018] EWCA Civ 268 at [41] per Vos C (with whom Sharp and Hamblen LLJ agreed):

“The principles relating to the grant of permission to amend are set out in Swain-Mason and in a series of recent authorities. The parties referred particularly to Mrs Justice Carr’s summary in

Quah Su-Ling v. Goldman Sachs International [2015] EWHC 759 (Comm) at paragraphs 36-38 of her judgment. In essence, the court must, taking account of the overriding objective, balance the injustice to the party seeking to amend if it is refused permission, against the need for finality in litigation and the injustice to the other parties and other litigants, if the amendment is permitted. There is a heavy burden on the party seeking a late

amendment to justify the lateness of the application and to show the strength of the new case and why justice requires him to be able to pursue it. These principles apply with even greater rigour to an amendment made after the trial and in the course of an appeal.”

As regards the concept of lateness Stuart-Smith J observed in Vilca v Xstrata Limited, Compania Minera Antapaccay S.A. [2017] EWHC 2096 (QB) at § 26:

“As will be seen below, the term ‘very late amendment’ has subsequently become almost a term of art, meaning an application made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. I shall adopt that meaning. Elsewhere it has been said that ‘lateness’ is a relative concept. I agree, and would add that the natural elasticity of language and its use in the authorities shows that an amendment may be regarded as ‘late’ either because it could have been brought forward earlier or because it is brought forward at a time that is liable to disrupt the efficient conduct of the proceedings or both. The infinite variety of circumstances in which amendments may be brought forward means that there is a broad spectrum of potential impacts if an amendment is allowed, which is not dependent solely on chronological timing, and which may fall anywhere between the negligible and the devastating. In this broader post- CPR approach to amendments, the Court is not limited to considering the effect on the parties and whether any potential prejudice may be satisfactorily compensated in costs, though there is no reason why those may not be relevant considerations in appropriate cases. The Court will also have regard to the impact on the administration of justice in terms of potential disruption to the case in which the amendment is brought forward and in terms of the wider interests of the Court, other litigation and other litigants.”

Vallis notes that Stuart-Smith J also made the following observations about the relevance of previous decisions, with which I respectfully agree:

“Equally, both sides recognise that the circumstances in which amendments may be put forward are infinitely variable and that each contested application for permission to amend will require an exercise of the Court's discretion that takes into account the particular facts of the case in hand. There are many authorities directly on the issue of amending before or during trial. To the extent that they provide statements of principle, they are useful for those who come after; and I shall refer to those that were cited to me that appear most useful for that reason. Otherwise, previous decisions are essentially illustrations of exercises of the Court's discretion in different circumstances that may be illustrative but are otherwise seldom compelling.” (§ 22)

Scipion’s explanation for the timing of its application to amend is, in essence, that (a) the need to amend arose from Vallis’s new case on the validity of the Pledge under Moroccan law, which was not pleaded until 27 December 2019, and (b) Scipion took the view that the propositions it wished to advance in response to that new case (over and above taking issue with Vallis on the applicable Moroccan law) were propositions of law based on facts which were common ground, and which therefore did not require an amendment to its statements of case.

Whilst in principle Scipion could have advanced the case which it now seeks to advance right from the outset of the litigation, Vallis does not suggest that it would have been unreasonable for Scipion to do so only following and in reaction to Vallis’s new case (developed in its expert evidence) as to the invalidity of the Pledge. In other words, it is not suggested that Scipion ought to have put forward its proposed alternative case prior to service of the Moroccan law experts’ supplementary reports on 19 August 2019. Rather, Vallis makes the point that Scipion “could have chosen to protectively plead the alternative claims when it became aware of the disputed Moroccan law expert evidence”.

The main area of contention in terms of timing is thus whether Scipion should have sought to plead its proposed alternative case either:

In the ordinary course, one might have expected Vallis itself to amend its case to reflect its expert’s position on the validity of the Pledge at some stage during the weeks following 19 August 2019. As Scipion points out, Vallis was under an independent obligation to plead its new case on Moroccan law (see e.g. Dicey, Morris & Collins, The Conflict of Laws (15th Ed) at 9-003), and Commercial Court Guide § C1.3(f): “Any principle of foreign law or foreign legislative provision upon which a party’s case is based must be clearly identified and the basis of its application explained”). In the absence of any opposition to applications to amend, the result might have been an amendment by Vallis in (say) September or October and a responsive amendment by Scipion some time before the end of term.

As it was, Vallis chose, with Scipion’s acquiescence, to defer amending to reflect its new case on Moroccan law until after receipt of Scipion’s proposed amendments in respect of unrelated matters. Scipion in turn did not get round to serving those proposed amendments until the beginning of December. The overall result was that Vallis’s new case was not pleaded until shortly before Scipion’s written opening for trial was due. The better route would have been for Vallis to amend on the Moroccan law issues, and for Scipion to respond, reasonably promptly after completion of the expert evidence and without awaiting draft amendments on other issues. To that extent both parties bear

Against that background, however, it would not have been unreasonable for Scipion then to take the position that it would not make any consequential amendments until after receipt of Vallis’s amended case; and nor was it entirely unreasonable to take the view that, having already pleaded the bailment relationship and the key terms of the CMA, it need not plead points of law or argument as distinct from new material facts.

However, as I have concluded above, Scipion would nevertheless in my view have been wrong to take the view that it could advance the arguments it now seeks to advance without giving Vallis notice of them in pleaded form. Given that those arguments did not appear in Scipion’s written or oral opening but only in its closing, one possible inference is that Scipion’s thinking on these issues developed during the course of the trial, and that it was in fact only by the stage of closings that Scipion’s own approach crystallised. At any rate, viewing the matter objectively, it appears to me that following conclusion of the expert evidence Scipion ought:

However, (ii) above might fairly be criticised as a counsel of perfection, and I note that Vallis in its skeleton argument for the present application goes only thus far: “It is (at least) questionable in this case whether it was sensible for Scipion to adopt a “wait and see” litigation strategy, particularly after Scipion knew there was a dispute between the Moroccan law experts”.

As a result, the main focus should be on Scipion’s failure to advance its proposed new case in pleaded form following service of Vallis’s Amended Defence on 27 December 2019. As Vallis says, Scipion – legally advised throughout – was already in possession of all relevant facts and evidence enabling it to make the proposed amendments (which are themselves brief) within a short space of time of receipt of the Amended Defence, and the proposed amendments could and should have been made before skeleton arguments were due to be served and before the trial commenced (or at least by 20 January when Scipion made minor, unrelated amendments to its case). For the reasons already outlined, I do not find wholly satisfactory the explanation that Scipion did not do so because its alternative case was based purely on propositions of law.

Nonetheless, the proposed amendment is put forward in response to an amendment made by Vallis at a relatively late stage of the proceedings, and I do not read the authorities cited earlier as meaning that a failure to provide a satisfactory explanation (in the sense of being accepted by the court as sufficient) for each and every part of any delay in seeking permission to amend is necessarily fatal to any application to amend. Such a rule would be liable to create injustice: to take an extreme example, an amendment that could properly have been made by date x but which is in fact put

Scipion accepts that its amendment application is made late, though it submits that it is not a “very late” amendment in the sense used in the case law summarised above. It will not result in the trial date being lost, and (Scipion says) will merely require Vallis to respond substantively to points of law. In effect, it will require a short prolongation of the trial.

Vallis argues that, coming after oral closing submissions, the present amendment application ought to be equated with a ‘very late’ application, and that the only reason why it did not result in the trial date being lost or any earlier adjournment is because Scipion chose not to advance its proposed new alternative case (or apply to amend) any earlier than in its written closings. However, I do not accept the logic of those submissions. It is true that the application is in chronological terms very late. It did not, though, result in the trial date being lost; and the possibility that it would have done so, had it been made earlier, does not appear to me a reason to equate it to an amendment that does result in loss of a trial date. Had the amendment been put forward in, say, mid January, then it might or might not have resulted in the trial date being lost. That would likely have depended on the exact implications in terms of evidence, or whether it would in fact have led Vallis to apply to join Mac Z as Vallis now postulates. But on the footing that Scipion could not fairly have been subject to serious criticism had it promulgated its amendment in mid January, the resulting hypothetical loss of trial date has no obvious bearing in circumstances where the trial has in fact now taken place (other than any resumed hearing resulting from the amendment should permission be granted).

Prejudice to Scipion

If permission to amend is refused, and the court determines (contrary to Scipion’s case) that the pledge is invalid under Moroccan law, there is a risk that Scipion’s claim for damages will fail. That would prima facie be an unjust result in circumstances where it is common ground that there was a physical loss of 1,899 MT copper scrap caused by Vallis’s breaches of the CMA, and where Scipion’s proposed amendments could provide a good answer in law to Vallis’s case on Moroccan law. I do not accept Vallis’s suggestion that the prejudice to Scipion is limited because Scipion can continue to pursue Mac Z and its director: the evidence indicates that there is no reason to believe Mac Z has assets against which to enforce, and that seeking to enforce the personal guarantee of Mr Lamdouar would be unlikely to achieve anything.

Vallis suggests, first, that had Scipion amended earlier then there are a number of specific steps it could have taken which are now no longer open to it. In particular, it says:

However, the following two factors in my view lessen the force of those objections.

First, it is questionable whether any of the substantive points Vallis puts forward would require factual investigation or the joinder of Mac Z:

Secondly, point (iii) above is of more general application. Such steps and investigations as Vallis might realistically take in response to Scipion’s proposed new claim, including any question of joining Mac Z as a party, are no less available than they would have been following an amendment by Scipion in January 2020 (or even in autumn 2019). In formal terms, the trial has not concluded, and in practice if the court can be persuaded that Vallis should in fairness have time to investigate particular matters, then it would make provision accordingly.

Vallis will also incur further cost if permission to amend is granted, will have to deal with the issues in a piecemeal fashion, and it will take longer to achieve finality in the litigation. These factors weigh against permitting the amendment. On the other hand, there is some force in Scipion’s point that Vallis’s complaint about being ‘mucked around’ lacks force in circumstances where for 27 months Vallis denied (or put Scipion to proof of) almost every constituent element of Scipion’s claim, including whether there had been any physical loss of 1,899 MT of copper scrap, and adduced expert evidence in support of a positive case that it had not acted negligently; but then on Day

Vallis makes the point that it was “entitled to conduct this litigation to date based on the risks it faced on the case as advanced by Scipion. It cannot be assumed that Vallis would have conducted it in precisely the same way had Scipion advanced the case which it now wishes to adopt by way of amendment at any earlier point in time”. That is correct in principle. On the other hand, any relevant change in approach to the litigation would need to be one that Vallis would have made since whatever stage in January 2020 Scipion might reasonably be expected to have put forward its amended case: and Vallis’s evidence does not specify any difference this would have made. It does not say, for example, that had Scipion at that stage advanced its proposed alternative case then Vallis would have refrained from admitting liability at the end of the first week of trial. (Had Vallis’s evidence said so, it would then have been necessary to consider

Vallis further submits that the proposed amendment, if successful, would mean that the time and money spent on evidence of Moroccan law would have been wasted. However, that would be a consequence of the lateness of the amendment only if, had Scipion made the proposed amendment earlier, Vallis would have conceded the point thus rendering the Moroccan law issues irrelevant. There is no reason to believe that would have been the case.

A prolongation of the trial process, in the way which Scipion’s amendment would necessitate, would cause further disruption to Vallis, the court and other court users, and that is an important factor to take into account. It is mitigated by the fact that an earlier amendment would still have necessitated the issues being addressed, at a commensurately longer trial.

Vallis accepts that if the proposed amendments had been properly pleaded then Scipion will probably be able to satisfy the court that they have sufficient prospects of success to meet the threshold for an application to amend; but says the proposed amendments in paragraph 40 of the draft Amended Reply are not properly pleaded because:

In my view, the proposed alternative case is sufficiently pleaded. The first two new points, based on bailment, advance a case that Scipion is entitled to damages by reason of the loss of the Goods independently of the need to demonstrate the validity of the Pledge, thus standing in substance as an alternative causation case to that currently pleaded. The third new point is that Vallis is contractually precluded from denying the validity of the Pledge, such that the existing causation plea continues to apply.

I do not consider that, as Vallis suggests, the practical consequences of allowing the amendment (including, on Vallis’s case, any potential difficulties in investigating and involving Mac Z) would place Vallis on an unequal footing with Scipion. Scipion’s amendment, albeit put forward later by a matter of weeks than it arguably should have been, is ultimately responsive to Vallis’s amended case on the validity of the Pledge.

A further consideration is whether allowing the amendment would be consistent with principles of proportionality in all the circumstances, including the amount at stake. The amount at stake, though not large by Commercial Court standards, is still a significant sum of money. Bearing in mind that Vallis’s amended case on Moroccan law has the potential to be fatal to Scipion’s claim, I do not consider that it would be disproportionate to grant permission to amend.

CONCLUSIONS

Weighing up all these various considerations, I have come to the conclusion that I should grant permission to amend. Subject only to the question of whether the application should have been made at some stage in January rather than during closing submissions, I consider there to be good reasons for the point having arisen at an advanced stage of the proceedings. The prejudice to Vallis and to other court users from the amendment having, to that degree, been put forward late is limited for the reasons set out above, and in my judgment is outweighed by the prejudice to Scipion if it is not allowed to advance the discrete but potentially important propositions set out in its draft Amended Reply, which are in essence propositions of law.

I shall hear submissions from the parties on the appropriate directions to be made in light of this ruling.

I am grateful to the parties’ counsel and solicitors for their clear and helpful evidence and written submissions on this application.