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This week we received a unanimous judgment in our client’s favour from the Court of Appeal in E D & F Man Capital Markets v Straits, upholding the judgment of Calver J at first instance.
The appellant in the case, Straits (Singapore) Pte Ltd (“Straits”), was party to a dishonest conspiracy to injure ED & F Man (“MCM”) by unlawful means, being the provision of what purported to be (but were not) original warehouse receipts. MCM paid some US $284 million to acquire these warehouse receipts, which proved to be worthless. Meanwhile it had unknowingly sold them on to ANZ Commodity Trading Pty Ltd (“ANZ”) and, as a result, incurred a liability to ANZ when it was discovered that the warehouse receipts were forged. In the event, MCM settled its liability to ANZ in a settlement agreement.
In the Commercial Court, Straits were found liable for the tort of unlawful means conspiracy. Mr Justice Calver ruled in MCM’s favour on the basis of res inter alios acta, that MCM’s sub-sale to ANZ was structured as a separate principal to principal transaction. Therefore, the settlement agreement was not a benefit making good part of the loss suffered by MCM under its contracts, but an independent agreement settling liability under the separate transaction with ANZ.
The issue before the Court of Appeal was whether MCM was entitled to recover from Straits the US $284m which it paid in order to acquire the worthless receipts or whether the true measure of MCM’s loss was the amount payable by MCM under its settlement agreement with ANZ.
Males LJ proposed that the court adopt the following structured approach to assessing whether a benefit is collateral:
While considering stage 1, Males LJ noted that identification of the relevant transaction depends on an analysis of all the relevant circumstances in any particular case. The fact that the parties chose to conclude contracts on a principal to principal basis was an important consideration which often may be decisive, though it was outweighed in this case. The Court of Appeal therefore held that a settlement of MCM’s liability to ANZ for a reduced figure would not have been regarded as res inter alios acta if that was what the settlement agreement achieved.
However, the Court of Appeal determined that the settlement agreement between MCM and ANZ actually involved the reorganisation of the terms upon which the parties to the agreement were going to conduct litigation against the fraudsters. It was far removed from a simple release of ANZ’s claim in return for payment.
Therefore, in dismissing the appeal, the Court based their decision upon avoided loss, in that the settlement agreement did not avoid or reduce MCM’s loss.
MCM was represented by Huw Davies KC and Katharine Ratcliffe from Essex Court Chambers, instructed by the team from Clyde & Co comprising of John Whittaker, Bethan Lovett and Merve Danagoz. John Robb from Essex Court Chambers also acted at first instance and at the written stage in the Court of Appeal.