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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Quadra Commodities SA v XL Insurance Company SE & Ors [2023] EWCA Civ 432 (21 April 2023) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2023/432.html Cite as: [2023] 2 All ER (Comm) 909, [2023] Lloyd's Rep IR 455, [2023] EWCA Civ 432, [2023] WLR(D) 505, [2024] Bus LR 435 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
BUTCHER J
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE POPPLEWELL
and
LORD JUSTICE SNOWDEN
____________________
QUADRA COMMODITIES S.A. |
Claimant/ Respondent |
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- and - |
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XL INSURANCE COMPANY SE AND OTHERS |
Defendants/Appellants |
____________________
Jawdat Khurshid KC and Anna Gotts (instructed by Reed Smith LLP) for the Respondents
Hearing dates : 28 February and 1 March 2023
____________________
Crown Copyright ©
Sir Julian Flaux C:
Introduction
Factual background
"Interest
On goods and/or merchandise and/or cargo and/or interest of every description incidental to the business of the Assured, or otherwise, including duties and taxes applicable and increased value howsoever arising, the property of the Assured or for which the Assured have or assume a responsibility to insure, whether contractually or otherwise, or for which the Assured receive instructions to insure prior shipment or prior to known or reported loss or accident, consisting principally of but not limited to cereals, grain, soybean, pulses, maize and food products in container, bulk and/or break-bulk.
Chapter 5 Particular Conditions
Fraudulent Documents
This policy covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or their Agents and/or Shippers of fraudulent shipping documents, including but not limited to Bill(s) of Lading and/or Shipping Receipts and/or Messenger Receipt(s) and/or Warehouse Receipts and/or other shipping document(s).
This policy is also to cover physical loss of or damage to goods insured caused by utilisation of legitimate Bill(s) of Lading and/or other shipping documents without the authorisation and/or consent of the Assured or their Agents and/or Shippers.
Misappropriation
This insurance contract covers all physical damage and/or losses, directly caused to the insured goods by misappropriation.
By misappropriation is exclusively understood:
1. The use or disposal of the insured goods, in bad faith, by a contracting party (either suppliers and/or customers) of the assured and/or the policy holder or by the servant of a contracting party, with or without the involvement of the storage manager, contrary to the purpose for which he has received the insured goods, or in disregard of the instructions given to him by the assured/policy holder and/or by any other natural and/or legal person authorised to give such instructions;
2. The physical or legal delivery, in bad faith, of the insured goods to any natural and/or legal person by a contracting party of the assured and/or the policy holder or by the servant of the contracting party, when this contracting party or this servant was aware or reasonably should have been aware that this natural and/or legal person was not entitled to the delivery of the insured goods.
The risks covered under this clause will start at the time the Policy holder and/or affiliated companies assume an interest in the cargo and/or are in possession of a document of title and shall end when this interest finally ceases. The present clause shall benefit exclusively to the Policy holder and/or affiliated companies and shall prevail notwithstanding other provision agreed in the Policy.
The above clause is subject to SMA and/or CMA and/or monthly external audit to be performed by a reputable surveyor
The above clause is limited to
USD 10,000,000 any one loss when a SMA or CMA is performed by a reputable surveyor
USD 4,000,000 any one loss when a monthly external audit is performed by a reputable surveyor
Notwithstanding the above sub-limit, the above clause is subject to USD 10,000,000 annual aggregate
The above clause is also subject to the following deductible: 10% of the loss with a minimum of USD 100,000 and a maximum of 500,000
Chapter 6 Insured Value / Contingency
Declaration clause
All shipments and storage operations are automatically covered unless as otherwise specified in the conditions of the present policy.
The Insured will provide:
- A monthly declaration in respect of shipments (including inland transit where applicable)
- A monthly storage declaration based on the market value per location at the end of the month for all commodities.
" DELIVERY TERMS AND CONDITIONS
Delivery of Goods is made by rail cars and/or by trucks.
DAT [Delivered at Terminal] sea trade port, Ukraine at buyer's option (to be specified in addendums to the contract), hereinafter referred to as 'Place of Delivery', acc Incoterms-2010
The title of ownership for the Commodity is transferred from the Seller to the Buyer at the moment when the Commodity is accepted at the Place of Delivery.
PAYMENT:
Period of transferring goods at internal warehouses from seller to buyer. To be specified in addendums to the contract.
"Ref. Storage agreement No. ZE-13-1 dd 13.07.17
WAREHOUSE RECEIPT
We, Zaplazsky Elevator LLC (Warehouse), hereby confirm that as of 24.09.2018 there are 5 000,000 (say: five thousand MT 000) of Ukrainian Corn crop 2018 stored at its warehouses, located at 66521, Molodizhna str., 97, v Soltanivka, Lubashivsky district, Odessa Region, Ukraine.
Quality as per the Analysis card No. 185 dd 24.09.18.
These Goods are the property of Quadra Commodities SA and we acknowledge that they are financed and pledged to Zurcher Kantonalbank.
Furthermore, the Warehouse irrevocably undertakes to release Goods only against prior written instruction from Zurcher Kantonalbank, as the Goods are held to its order for East Oils Ukraine LLC's account (the Forwarder).
This is the only warehouse receipt issued for these Goods and we hold the original of this document at Zurcher Kantonalbank disposal until Goods are fully released and undertake to remit the same warehouse receipt to Zurcher Kantonalbank upon request.
[signed by Valentin Perun 'Director' of Zaplazsky Elevator]"
"The evidence of Ms Natalie Gonchar and of Mr Alexander Gonchar, in relation to the Bastico inspections, was to the following effect:
(1) That each of the Zaplazsky, Bilgorod and Izmail Elevator sites had comprised multiple individual warehouses. Commodities stored in those Elevators are not usually segregated by owner. The Elevators stored different grains, and different grades of particular grains, and the evidence indicated that these grains and grades may have been moved between silos.
(2) That six Bastico inspectors were involved in the various inspections of the Elevators in relation to the Cargoes with which this case is concerned. Alexander Gonchar conducted the inspections of the Zaplazsky Elevator on 8 October and 12 November 2018 and attended again on 30 January 2019 when he was refused access.
(3) The inspections consisted of the inspector being shown a letter from the Elevator declaring the quantity and quality of cargo stored on behalf of Bastico's client (in this case Quadra), and a corresponding Account Book Form-36. The inspector was then shown grain which was said by the Elevator to include the grain referred to in those documents.
(4) The inspector would examine the grain shown. Certainly, in the case of the inspections carried out by Mr Gonchar, this involved a visual inspection from a viewing gallery at the upper level of the elevator. What was shown was a co-mingled bulk of grain. Quadra's grain was not segregated, and the total amount of grain in the elevator was larger than the amount said to be Quadra's. The inspector did not take samples. It was not possible for the inspector to ascertain the quality of the grain. What the inspector did do was to use a laser meter in order to determine the volume of grain in the elevator. The inspector did not examine whether the grain below the top layer, which he could see, was the same. Mr Gonchar did, however, consider it unlikely that the elevators had had false bottoms.
(5) The inspections would take about three hours, and were carried out during daylight hours.
(6) Once the inspection had been completed, the inspector would give the resulting information to Ms Gonchar, who would draw up the inspection report. Ms Gonchar herself did not attend the Elevators. In the reports the identification of the silo(s) at an Elevator in which the relevant goods were located came from information which was provided by the Elevator.
(7) Each of the Bastico Inspection Reports bore a statement that Bastico did not 'guarantee or make any representation about i) the accuracy and authenticity of all the documents submitted to us; ii) the ownership of and title to the Goods; iii) quantity and quality of the Goods "
"48. The evidence of Mr Scott [an investigator instructed by the insurers] included the following:
'In essence, I understand from my investigations that the Agroinvest Fraud was a scheme whereby Agroinvest Group would obtain grain, corn and sunflower seeds from local farmers, which were stored in a number of elevators, that the group owned throughout the Odessa region of Southern Ukraine and the fraud was then perpetrated by the Agroinvest Group pledging and/or selling the same parcels of agricultural commodity products to multiple traders, via the issuance of fraudulent warehouse receipts. It is apparent from my enquiries, with trade and industry sources in Ukraine and also from press articles, that the same parcel of grain or seeds may have been pledged and/or sold many times over to different traders.'
49. It was, in effect, common ground between the parties at the trial that, although the details were unknown, this was how the fraud had occurred. In simple terms, the Elevators owned or operated by the Agroinvest group issued multiple warehouse receipts in respect of the same goods to different buyers. Some reports suggest that up to five or six warehouse receipts may have been issued with respect to the same grain. When it came to the point of executing physical deliveries against those warehouse receipts, there was not enough grain to go around. In January 2020 the President of the UGA estimated the total losses at about US$80-120 million."
The judgment below
"(2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof."
"The 'definition' of insurable interest in s. 5(2) is not an exhaustive one. What s. 5(2) does indicate is three characteristics, the presence of which will normally be required for there to be an insurable interest, namely: (i) the assured may benefit by the safety or due arrival of the insured property or be prejudiced by its loss or damage or detention, or in respect of which he may incur a liability; (ii) the assured stands in a legal or equitable relation to the adventure or to any insurable interest in such adventure; and (iii) the benefit, prejudice or incurring of liability must arise in consequence of the legal or equitable relation of the assured to the property or adventure."
"76 one can place the cases in groups. Group (1) are those cases where the court has defined the subject matter as an item of property; where the insurance is to recover the value of that property; and where thus there must be an interest in the property real (sic) or equitable for the insured to suffer loss which he can recover under the policy. Within this group are Lucena v Craufurd (1806) 2 Bos and PNR 269 The subject was certain identified ships; the perils insured against were the loss of those ships; the Commissioners had no interest legal or equitable in the ships but a mere expectation. That expectation could not be insured therefore the subject did not embrace the insurable interest. Also within this group is Anderson v Morice (1875) 10 CP 609; (1876) 1 App Cas 713. Rice was the subject matter of the policy; if uninsured the plaintiff would have suffered no loss from any destruction of the rice since they were never at the plaintiff's risk; the loss of profits might have been insured but were not. Therefore, the plaintiff could not recover. In Macaura v Northern Assurance Company Ltd and others [1925] AC 619 the subject matter of the insurance was identified timber owned by a company; a shareholder in the company had no interest in the timber whatever in that even without insurance the shareholder would suffer no pecuniary loss from destruction of the timber as such. Any loss suffered would have been as shareholder and his profits as shareholder were not the subject of the insurance. It was however recognised in Macaura that it would have been possible so to describe the subject of the insurance as to embrace the insurable interest in profits, and approval was given to Wilson v Jones (1867) LR 2 Ex 139 "
"The principles which I would suggest one gets from the authorities are as follows: (1) It is from the terms of the policy that the subject of the insurance must be ascertained; (2) It is from all the surrounding circumstances that the nature of an insured's insurable interest must [be] discovered; (4) The question whether a policy embraces the insurable interest intended to be covered is a question of construction. The subject or terms of the policy may be so specific as to force a court to hold that the policy has failed to cover the insurable interest, but a court will be reluctant so to hold. (5) It is not a requirement of property insurance that the insured must have a "legal or equitable" interest in the property as those terms might normally be understood. It is sufficient for a sub-contractor to have a contract that relates to the property and a potential liability for damage to the property to have an insurable interest in the property. It is sufficient under section 5 of the Marine Insurance Act for a person interested in a marine adventure to stand in a "legal or equitable relation to the adventure." That is intended to be a broad concept. "
"This is because of the nature of the fraud which the evidence, including in particular the Defendants' evidence, indicated had been committed. As I have said, it was the basis of this fraud to put it in simple terms - that the same grain should have been sold several times over. It was integral to that fraud that there should have been grain in the Warehouses, which could be inspected on behalf of traders, which matched the amount of grain which was being purportedly sold to any one trader. Were there not, then the fraud was likely to unravel at a very early stage."
"I consider that the inspectors were able to assess the volume of grain in the silo they were looking at. Mr Gonchar rejected the idea of there being false bottoms. While it is the case that the Bastico inspectors did not examine below the surface, or take samples, I consider that it is more likely than not that what they were shown corresponded to what they were told was the quantity, grade and/or year of harvest of the grain in question. That is so, because either there was not a fraud at the time of the inspection; or, if there was a fraud, then it was the basis of that fraud that there should be an amount of a relevant commodity which could be sold multiple times. Given that various different inspection companies might be involved for the multiple traders to whom the same grain was sold, and given that some of those inspectors might seek to take samples as for example SGS did on 7 December 2018 in relation to wheat and barley at the Izmail Elevator which was being sold to Amius Group it would have been very risky, and likely to lead to early discovery of the fraud, if at least one amount of the relevant type and quality of grain had not been present."
"Even if, as a result of the fraud, there were competing interests in those goods, Quadra might be prejudiced by the loss or damage to the goods which there were in the Elevators. If the goods were lost then Quadra could not assert whatever rights it had to get possession of the goods. Even if there were competing claims, the loss of the goods would or might be prejudicial. The three usual features of an insurable interest in property, which I have set out in paragraph 56 above are, in my judgment, present. Quadra, by virtue of the contracts and the payment under them stood in a 'legal or equitable relation' to the property, recognising that that is a 'broad concept'. Further, for the reason I have given, it might benefit from the safety of that property or be prejudiced by its loss; and that benefit or prejudice arose in consequence of the contracts it had entered into and paid under."
"If it were essential to the existence of an insurable interest that the assured should have a legal title to the property upon which the insurance is affected, the case would present a different and perhaps more difficult question. But such is not the law. An equitable interest suffices. Chancellor Kent lays down the law thus: "The interest need not be a property in the subject." "It does not necessarily imply a right to or property in the subject insured. It may consist in having some relation, to or concern in the subject of the insurance which relation or concern may be so affected by the peril as to produce damage."
The result is that a person so circumstanced that he is interested in the safety of a thing, derives a benefit from its existence and suffers prejudice from its destruction, has an interest in that thing which is the lawful subject of insurance.
Mr Arnold [sic] in his Treatise on Insurance, vol. 1, p. 229, premising that "it is very difficult to give any definition of an insurable interest", states it, "as the fair result of the cases, that, in order to have an insurable interest, it is not necessary to have an absolute vested ownership or property in that which is insured; it is sufficient to have a right in the thing insured, or a right derivable out of some contract about the thing insured of such a nature that the party insuring may have benefit from its preservation and prejudice from its destruction." We think that the plaintiffs under the facts here developed had such an interest in the subject of insurance. Maddox [the seller] was holding it in good faith in trust for them. It is true that so long as Maddox was solvent the plaintiffs might not lose by the destruction of the property. But the same is true of every mortgagee or pledgee. We fail to see how the insurers could be injuriously affected, suppose it true that the agent understood that the part belonging to the plaintiff had been separated, weighed off, and formally delivered. It does not appear that the risk they assumed was changed or affected."
"The Defendants' essential argument against the conclusion that Quadra had an immediate right to possession was that the Ukrainian law experts had not considered the case of where some other party might have a right to possession of the same goods vis ΰ vis the Elevator; and that here, because of the possibility that there might be other parties which had rights to possession (and perhaps superior rights to possession) against the Elevators in respect of the goods, it could not be said that Quadra had an immediate right to possession. In my view, on this point, the burden of proof, at least evidentially, must be on the Defendants. Quadra has established that, under the Zaplazsky storage agreement and/or under the Warehouse Receipts, it had an immediate right to possession vis ΰ vis the Elevators. If it is to be said that that right did not exist, or was ousted or ineffective by reason of the existence of other such rights, then that would have to be shown as a matter of fact and Ukrainian law. That has not been shown by the Defendants. It has not been established that other parties had possessory titles to the relevant goods, still less that they were superior to Quadra's."
"16. Subject to section 20A below, where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained.
20A Undivided shares in goods forming part of a bulk
(1) This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met-
a) the goods or some part of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and
b) the buyer has paid the price for some or all of the goods which are the subject of the contract and which form part of the bulk.
(2) Where this section applies, then (unless the parties agree otherwise), as soon as the conditions specified in paragraphs (a) and (b) of subsection (1) are met or at such later time as the parties may agree
a) property in an undivided share in the bulk is transferred to the buyer, and
b) the buyer becomes an owner in common of the bulk.
For the purposes of this section payment of part of the price for any goods shall be treated as payment for a corresponding part of the goods.
61(1) In this Act, unless the context or subject matter otherwise requires, -
'bulk' means a mass or collection of goods of the same kind which
(a) is contained in a defined space or area; and
(b) is such that any goods in the bulk are interchangeable with any other goods therein of the same number or quantity.'
"(a) A cargo of wheat in a named ship
(b) A mass of barley in an identified silo
(c) The oil in an identified storage tank
(d) Cases of wine (all of the same kind) in an identified cellar
(e) Ingots of gold (all of the same kind) in an identified vault
(f) Bags of fertiliser (all of the same kind) in an identified storehouse
(g) A heap of coal in the open at a specified location."
The grounds of appeal and Respondent's Notice
(1) Ground 1: the existence of the goods
There were no goods corresponding in quantity and quality (i.e. description) to the Cargoes physically present in the Elevators at the time the Warehouse Receipts were issued.
(2) Ground 2: the identification of the goods
Further or alternatively, Quadra did not have an insurable interest in the Cargoes in circumstances where they did not form part of a bulk which was sufficiently identified.
(3) Ground 3: the immediate right to possession
Further or alternatively, Quadra did not have an immediate right to possession and therefore did not have an insurable interest in the Cargoes.
(4) Ground 4: the practical consequences
Further or alternatively, the important practical consequences which flow from the Judge's decision indicate that it is wrong.
(1) Additional Ground 1: the existence of the goods
Quadra adduced sufficient evidence of the physical presence in the Elevators of goods corresponding in quantity and description to the Cargoes to satisfy its prima facie burden of proof and place the evidential burden upon Insurers to adduce evidence to contrary effect. Insurers failed to adduce any such evidence, with the result that Quadra succeeded in discharging its burden of proof.
(2) Additional Ground 2: a proprietary interest in the goods
Quadra had an insurable interest in the goods found physically to be present in the Elevators by virtue of having acquired a proprietary interest in the bulks of which those goods formed part pursuant to section 20A of the SGA.
(3) Additional Ground 3: the Fraudulent Documents Clause
If necessary, and to the extent Insurers can establish or it is to be assumed that there were competing interests in each of the seven Cargoes, the loss would (in those circumstances) be covered under the Fraudulent Documents Clause in the Policy.
The parties' submissions
"In my opinion it is the duty of a Court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer."
"Insurance business is no longer conducted in the coffee shop. It is now a massive market and, for contracts between commercial men to be respected, the law should march with the times. I wish, therefore, to go as far as I possibly can to find for Steamship."
To like effect is what was said by Mance J in The Capricorn [1995] 1 Lloyd's Rep 622 at 641 and by Butcher J in his judgment in the present case at [80].
"I am quite unable to perceive why an undivided interest in a parcel of goods on board a ship may not be described as an interest in goods just as much as if it were an interest in every portion of the goods."
Mr Khurshid KC submitted that the case was decided long before section 20A of the SGA was enacted, at a time when a buyer could not have a proprietary interest in unascertained goods forming part of a bulk irrespective of whether the bulk was identified, yet the fact that the goods were unascertained did not detain the House of Lords on the question of insurable interest.
Discussion
"It is unnecessary to decide the issue for the purpose of disposing of the appeal. In general, it is unwise to deliver judgments on points that do not have to be decided. There is no point in cluttering up the law reports with obiter dicta, which could, in some cases, embarrass a court having to decide the issue later on."
Lord Justice Popplewell
Lord Justice Snowden