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Neutral Citation Number: [ 2023] EWCA Civ 432 |
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Case No: CA-2022-000694 |
IN THE
COURT
OF
APPEAL
(CIVIL DIVISION)
ON
APPEAL
FROM THE HIGH
COURT
OF JUSTICE
BUSINESS AND PROPERTY
COURTS
OF
ENGLAND
AND WALES
COMMERCIAL
COURT
BUTCHER
J
[2022] EWHC 431 (Comm)
B e f o r e :
SIR
JULIAN FLAUX CHANCELLOR OF THE HIGH
COURT
LORD
JUSTICE POPPLEWELL
and
LORD JUSTICE
SNOWDEN
____________________
Between:
____________________
Peter MacDonald Eggers KC and
Sandra
Healy (instructed by Clyde & Co LLP) for the Appellants
Jawdat Khurshid KC and Anna Gotts (instructed by Reed
Smith
LLP) for the Respondents
Hearing dates : 28 February and 1 March
2023
____________________
HTML VERSION OF APPROVED JUDGMENT
____________________
Crown Copyright ©
Sir
Julian Flaux C:
Introduction
- The issues raised by this
appeal
concern whether the claimants,
Quadra
Commodities
SA
(to which I will refer as "
Quadra")
had an
insurable
interest in certain cargoes of grain purchased by them in respect of which they were the victims of a fraud perpetrated by their
sellers
Agri Finance
SA
(and other
companies
in the
same
Agroinvest group) in Ukraine, for the purposes of
Quadra's
claim against the defendants (to whom I will refer as "the
insurers")
under a Marine Cargo Open Policy. The
insurers
appeal
with the permission of the judge, Butcher J, against his Order dated 4 March 2022 entering judgment for
Quadra
on its claim in an amount to be determined, if not agreed.
- The judge gave the
insurers
permission to
appeal
on the four grounds of
appeal
before this
Court
(
set
out below). He refused permission to
appeal
on three further grounds
set
out in the
insurers'
skeleton
argument in
support
of their application for permission to
appeal.
The application for permission to
appeal
in respect of those three grounds was renewed before this
Court
and refused by the Order of Males LJ of 11 May 2022, as confirmed in his judgment on 24 May 2022, following an oral hearing attended by both parties.
Factual background
Quadra
had
significant
dealings in the period 2014 to 2018 with Agri Finance, including a Contract 180524-1 dated 24 May 2018 ("the Agri Finance Contract") which provided for general terms to be applied to
specific
transactions for the
sale
and purchase of grain which would be covered by Addenda to the Agri Finance Contract. From July 2018,
Quadra
also had dealings with another
company
in the Agroinvest group called Linepuzzle Ltd for the principal purpose of asset financing, whereby
Quadra
would buy goods from Linepuzzle and then
sell
them to Agri Finance to assist with financing of the
commodities.
- The Marine Cargo Open Policy had been renewed for annual periods from 1 October 2017 and 1 October 2018 respectively. The judge
set
out at [7] of his judgment the provisions of the Policy of particular
significance.
It is not necessary to
set
out all of those but only the provisions of relevance to the
appeal:
"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.
- As the judge pointed out, by an Endorsement to the Policy, the original French law and jurisdiction clause was replaced by a clause which provided
Quadra
with the option of making the
insurance
subject
to English law and jurisdiction, which it did by its letter before action of 23 December 2019.
- The Agri Finance Contract was governed by English law. The provisions relevant to this
appeal
were:
"… 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.
- The claim concerned three Addenda to the Agri Finance Contract: (i) Addendum 7 dated 17
September
2018 for the purchase of 5,000 mt (+/- 5%) of Ukrainian corn 3rd grade 2018 crop; (ii) Addendum 9 dated 30 October 2018 for the purchase of 6,000 mt (+/- 5%) of Ukrainian corn 3rd grade 2018 crop; and (iii) Addendum 10 dated 29 November 2018 for the purchase of 4,000 mt (+/- 5%) of Ukrainian corn 3rd grade 2018 crop. It is of
some
relevance to the issues on the
appeal
that there was no claim in respect of Addendum 8, a purchase of 8,000 mt (+/- 5%) of Ukrainian corn 3rd grade 2018 crop,
since
all the corn in question was delivered to
Quadra's
order and loaded on a vessel from one of the warehouses of the Agroinvest group on 5 November 2018.
- The Delivery Terms and Conditions and Payment Terms of each Addendum were in accordance with the provisions of the Agri Finance Contract
set
out above. The detail is
set
out in [11] to [13] of the judge'
s
judgment. In each case,
Quadra
undertook to pay 80% of the purchase price against originals of the
seller's
invoice, the Warehouse Receipt and the analysis card issued by the grain warehouse'
s
laboratory. The balance was payable against originals of
shipping
documents for delivered and accepted goods.
Quadra
also concluded three contracts of relevance with Linepuzzle: (i) a contract dated 14 November 2018 for the purchase of 4750 mt Ukrainian wheat, crop 2018, (the "First Linepuzzle Contract"); (2) a contract dated 22 November 2018 for the purchase of 4650 mt Ukrainian wheat, crop 2018, (the "
Second
Linepuzzle Contract"); and (3) a contract dated 11 January 2019 for the purchase of 4150 mt Ukrainian barley, crop 2018, (the "Third Linepuzzle Contract"). Each Linepuzzle Contract provided for payment of 100% of the purchase price against the originals of various documents including the Warehouse Receipt, an Act of transfer of title from
seller
to buyer and a quality certificate issued by the warehouse laboratory. The contracts also provided expressly that title was to pass to
Quadra
upon 100% payment.
- In relation to the Agri Finance purchases, the documentation and the events followed the
same
course
so
that it is only necessary to look in detail at Addendum 7 which is what was done at the hearing of the
appeal.
In purported performance of the contract, Agri Finance presented a Warehouse Receipt dated 24
September
2018 from Zaplazsky Elevator LLC, a
company
in the Agroinvest group, confirming that 5,000 mt of Ukrainian corn 3rd grade 2018 crop was
stored
at its warehouses and the quality was as per an identified Analysis card. The full terms of this First Zaplazsky Warehouse Receipt provided:
"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 Analysis card in question relates to
sample
185 and identifies the goods as 5,000 mt of Ukrainian corn 3rd grade 2018 crop. It contains details of matters
such
as moisture content and impurities. It is
signed
by a named laboratory assistant.
- Also on 24
September
2018, Agri Finance issued an invoice to
Quadra
seeking
payment against the presentation of the First Zaplazsky Warehouse Receipt. The following day,
Quadra
paid 80% of the purchase price by bank transfer. In mid-January 2019,
Quadra
sold
about 800 mt of the corn purchased under Addendum 7 to Olam International Ltd. On about 17 January 2019, 799.1 mt of corn was removed from the Zaplazsky Elevator warehouse on
Quadra's
instructions and transported by wagon to a grain terminal at Yuzhny port.
Quadra
was paid for these goods by Olam. The balance of the corn 4,200.9 mt ("the First Zaplazsky Cargo") is the
subject
of one of the claims under the Policy.
- The details of the Warehouse Receipts issued in respect of the cargoes under Addenda 9 and 10 and the Linepuzzle contracts and the payments made by
Quadra
are
set
out in [19] to [23] of the judgment. 1,000 mt of the corn purchased under Addendum 9 was covered by a Warehouse Receipt from the Bilgorod Elevator warehouse and the goods under the Linepuzzle contracts were covered by Warehouse Receipts from the Izmail Elevator warehouse. All three Linepuzzle cargoes were on-
sold
to Agri Finance but it defaulted on payment.
- Zaplazsky Elevator LLC, Bilgorod Elevator LLC and Izmail Elevator LLC were three entities within the Agroinvest group. The expression "Elevator" is conveniently used to describe both the corporate entity and the grain
storage
facility of the relevant
company,
which comprised grain elevators,
silos
and/or warehouses. Zaplazsky is inland about 170 km from Odessa, Bilgorod is also inland about 80 km from Odessa. Izmail is on the Danube and can be used for loading vessels FOB.
- All the cargoes that are the
subject
of the claim ("the Cargoes") were declared by
Quadra
to the
insurers
in bordereaux
submitted
at the end of the relevant month. For example, the bordereau dated 30 November 2018 included declarations for the corn purchased under Addenda 7 and 9 recorded as
stored
at the Zaplazsky Elevator (and also in the case of Addendum 9 the Bilgorod Elevator). The bordereau has columns headed,
so
far as relevant: "Ref" "Goods" "Qty (MT)" "UP" (presumably Unit Price) "
Insured
Value" and "Entry Date". As an example of how the declarations were made, the declaration for the corn purchased under Addendum 7 has a reference number 18110297-7. This was the purchase contract number, the last 7 indicating these were goods under Addendum 7 but we were told at the hearing that the
insurers
did not receive copies of the purchase contract documentation. The Goods are described as "Corn" and the quantity as 5,000 mt. The price was US$162 per mt,
so
the
Insured
Value is
shown
as $834,300. The Entry Date is
shown
as 24/09/2018, which of course is the date of the Warehouse Receipt. There are also columns for "Exit Date" "
Storage
Premium" and "Total Premium" but they had no entries other than zero total premium on this bordereau.
Quadra
instructed an inspection
company
called Bastico to conduct monthly
stock
monitoring
services
of its grain held at each of the three Elevators consisting of an inspection of documents presented and a visual inspection of the
stock
present. Four monthly inspections at the Zaplazsky Elevator, three monthly inspections at the Bilgorod Elevator and two monthly inspections at the Izmail Elevator are detailed in [26] to [28] of the judgment. In each case, the Elevator provided Bastico with a letter and a Form-36 (an official Ukrainian document noting the quantity and quality of cargo being
stored
for a client)
stating
how much of the particular grain was being
stored
for the account of
Quadra.
No inspection report was produced in respect of the Third Izmail Cargo delivery of which post-dated the 2 January 2019 Bastico Report of its inspection at the Izmail Elevator, because the Bastico inspectors were denied access to the Elevators at the end of January 2019.
- Later in his judgment at [47], the judge
summarised
the effect of the evidence of the witnesses from Bastico who gave evidence at trial. None of those findings is challenged in this
appeal.
Given the
significance
attached to that evidence by the judge and
Quadra,
I will quote it in full:
"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…"
- On 30 January 2019 Bastico inspectors attended all three Elevators in order to inspect their documents and conduct their visual inspection and measurement of cargoes present but they were refused access. At [31] to [39] of the judgment the judge
set
out details of the
subsequent
unsuccessful
steps
taken to obtain delivery of the cargoes and of the emergence of the Agroinvest fraud. Later in the judgment, at [48] and [49], the judge
set
out the nature of the fraud, which was common ground at trial:
"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."
- On 13 February 2019,
Quadra
emailed a notice of loss to its brokers in Paris as required by the Policy. This was transmitted to the
insurers
the following day. On 20 May 2020 the Claim Form was issued claiming an indemnity in respect of each of the relevant cargoes. The claim was
subsequently
quantified at
some
US$5.7 million being
Quadra's
best estimate of market value less applicable deductibles. A claim was also made for alleged breach by the
insurers
of their obligations under
section
13A of the
Insurance
Act 2015. That claim was in due course rejected by the judge and is not the
subject
of the
appeal.
The judgment below
- Having
set
out in detail the factual background which I have
summarised
above, the judge dealt next with the legal principles relating to an
insurable
interest. He cited
section
5(2) of the Marine
Insurance
Act 1906:
"(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."
- He went on at [56] to explain that
section
5(2) indicates three characteristics required for there to be an
insurable
interest:
"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."
- He then quoted extensively from the judgment of Waller LJ in this
Court
in Feasey v
Sun
Life Assurance Corporation of Canada ("Feasey") [2003] EWCA Civ 885; [2003] Lloyd'
s
Rep IR 637. Waller LJ analysed the cases which consider how the requirement of an
insurable
interest interrelates with the definition of the
subject
matter of the
insurance
in four Groups. For the purposes of this
appeal,
it is only necessary to consider Group (1), which Waller LJ elucidated in [76]:
"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 judge then cited the
summary
of the applicable principles
set
out by Waller LJ at [92] of Feasey:
"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. …"
- Having determined that the burden of proof rests on the assured to prove that an
insurable
interest exists, the judge then rejected
Quadra's
argument that the
subject
matter of the
insurance
was the
success
of the
storage
operations,
so
that the case was analogous to Wilson v Jones. He concluded that the Interest Clause (which I quoted in [4] above) provides for
insurance
on all types of property, principally but not exclusively cereals and food products in container, bulk and/or break bulk. At [66] he concluded that the Policy did not cover a
situation
where no property has existed (and thus has not been lost or damaged). There is no
appeal
by
Quadra
from that conclusion.
- The judge then dealt in detail with
Quadra's
contention that, on the basis that the
subject
matter of the
insurance
was property, this case was distinguishable from cases in which there had been no physical loss of goods, because here there had been goods in which
Quadra
had an
insurable
interest which were lost. The judge found at [69] that
Quadra
had
succeeded
on a balance of probabilities in
showing
that goods corresponding in quantity and description to the Cargoes were physically present at the Elevators at the time the Warehouse Receipts were issued. At [70] the judge noted that
Quadra
relied on three categories of evidence: (1) the documentation issued by the Elevators, the Warehouse Receipts and Grain Analysis Cards; (2) the Bastico reports and other inspection reports for the Third Izmail Cargo; and (3)
Quadra's
physical receipt of
some
of the grain
stored
in the Elevators during the relevant period. The judge considered these categories of evidence in turn.
- At [71] the judge rejected the
insurers'
argument that all the Elevator documents were unreliable because of the fraud. Whilst he accepted that it was likely that Warehouse Receipts and
supporting
documentation had been issued to different traders in respect of the
same
grain, he considered the existence of the Warehouse Receipts and
supporting
documentation was
some
evidence of the existence in the Elevators of grain at least corresponding to the amount of the Cargoes. He explained the reason for that conclusion in these terms:
"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."
- At [72] the judge described the Bastico reports as the most important evidence. At [73] he noted the
insurers'
emphasis that the inspectors had not
sampled
the goods, that it was not possible to ascertain the quality of the grain and that the inspector had only
seen
the top of the grain from the viewing platform. He
said
that while these points were true, they did not deprive the inspection reports of
significant
weight. His reasoning for that conclusion was:
"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."
- In relation to the Third Izmail Cargo, the judge accepted at [74] that there was no Bastico inspection report, but there was evidence of the presence of barley in the Elevator as at 7 December 2018, when in relation to the
sale
to the Amius Group,
SGS
observed 5,803 mt of barley 2018 crop and as at 22 January 2019 when 5,726.995 mt of barley was observed by Bureau Veritas on behalf of
Suntrade.
- In relation to the third category of evidence, the physical delivery to
Quadra
of two parcels of goods, the judge
said
at [75] that it relied on the fact that, on or about 5 November 2018, it had taken physical delivery of 7,000 mt of corn (3rd grade 2018 crop) pursuant to Addendum 8 and that on or about 17 January 2019 it had taken physical delivery of about 800 mt of corn (3rd grade 2018 crop) from the Zaplazsky Elevator. At [76] the judge
said
that, whilst he accepted the
insurers'
general point that physical delivery of
some
goods does not
show
what other goods were in the Elevators, he agreed with
Quadra
that these deliveries provided
some
corroborative evidence of the physical presence of goods corresponding to the Cargoes in the Elevators. The judge pointed out that 3,000 mt of the 7,000 mt delivered on 5 November 2018 came from the Bilgorod Elevator, which
supports
the conclusion that there was at least 1,000 mt of corn (3rd grade 2018 crop) in the Bilgorod Elevator three days earlier, when the Bilgorod Warehouse Receipt was issued for that amount. The 800 mt was purchased under Addendum 7 and its physical delivery provides
some
corroboration that there was corn (3rd grade 2018 crop) in the Zaplazsky Elevator when the First Zaplazsky Warehouse Receipt was issued. The judge found at [78] that the
insurers'
Capacity Analysis does not provide evidence that there were not at least the physical quantities of the various grains at the Elevators dealt with in the Warehouse Receipts and inspection reports. The
insurers'
counsel accepted that the Capacity Analysis was neutral as to physical presence of
commodities.
- The judge then considered the issue of whether
Quadra
had an
insurable
interest in the goods, noting that it put forward three bases for contending that it did have an
insurable
interest. The first was that it had paid the price under the purchase contracts. It contended that it had entered contracts with Agri Finance and Linepuzzle to purchase goods which were to be transferred or delivered upon presentation of Warehouse Receipts and had agreed to pay or had paid the purchase price in full in the case of Linepuzzle and as to 80% in the case of Agri Finance. At [81] the judge recorded
Quadra's
submission
that this meant it had a right in relation to the goods in the Elevators derivable from "a contract about the property" in the words of Lord Eldon in Lucena v Craufurd and an
insurable
interest in the unascertained goods for which it had paid, irrespective of whether it had obtained a proprietary or possessory title to the goods or whether there were other potentially conflicting interests in the goods.
- The judge
said
at [82] that he accepted this argument,
saying:
"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."
- The judge went on to
say
at [83] that
support
for that conclusion was provided by the
decision
of the
Supreme
Judicial
Court
of Maine in Cumberland Bone
Company
v Andes
Insurance
Co 64 Me 466 (1874) ("Cumberland Bone"), where the
insured
had purchased fish
scrap
or porgy chum and advanced the price, but left the goods in
storage
with the
seller
unsegregated from other
stock
belonging to the
seller.
The goods were destroyed by fire. The judge noted that the case proceeded on the basis that the property and risk remained with the
seller,
but nonetheless it was held that the
insured
had an
insurable
interest in the goods. The judge quoted a passage from the judgment of Barrows J at 470-1:
"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 judge
said
at [84] that although it was a
decision
of the Maine
Court,
it cited a passage from Arnould which is itself founded on the judgment of Lord Eldon in Lucena v Craufurd and other English cases. The judge also noted that it was cited in the current edition of MacGillivray on
Insurance
Law and had been cited
since
the first edition without adverse judicial comment as authority for the proposition that: "if neither property nor risk has passed, payment or part-payment of the price will give the buyer an
insurable
interest, because if the goods were lost or damaged and the
seller
was insolvent the buyer might not be able to recover the money which he had paid for them." I would add that the passage from Arnould cited by Barrows J
still
appears in essentially the
same
terms at para 11-20 of the current 18th edition (2013).
- At [85] the judge recorded that Mr MacDonald Eggers KC for the
insurers
sought
to distinguish Cumberland Bone on the basis that the
seller
had been acting in good faith and there was no question of fraud on his part, but the judge did not consider that was a material difference and
said
the essential reasoning of the
Court
does not
suggest
the result would have been different if the
seller
had not been acting in good faith.
- Those conclusions meant it was not necessary to decide on the other bases on which
Quadra
said
it had an
insurable
interest but the judge
said
that,
since
they had been the
subject
of extensive evidence and
submissions,
he would
set
out his conclusions in relation to them.
- The
second
basis was that
Quadra
had an immediate right to possession of the goods, which the judge accepted could give rise to an
insurable
interest.
Subject
to the point he came on to in [99], the judge concluded at [91] that
Quadra
had an immediate right to possession of the Zaplazsky Cargoes vis-à-vis the Zaplazsky Elevator pursuant to the terms of the
Storage
Agreement and the Warehouse Receipts issued. At [92] the judge noted that although there was no formal
storage
agreement with the Bilgorod or Izmail Elevators,
Quadra
contended that it had an immediate right to possession under the Warehouse Receipts. This was an issue on which both
sides
called expert evidence of Ukrainian law.
- The judge then
set
out at [93] and [94] the respective evidence of the parties' experts, which concerned whether or not the Warehouse Receipts were valid as a matter of Ukrainian law. At [95], he
said
that he preferred the evidence of Mr Kasyniuk,
Quadra's
expert, including that under Ukrainian law transactions are presumed to be valid unless their invalidity is expressly established by law and non-adherence to formal requirements was not a ground for invalidity under the Civil Code. He concluded that
Quadra
had an immediate right to possession under the Warehouse Receipts themselves, again
subject
to [99].
- At [99] the judge dealt with the argument raised by the
insurers
about conflicting rights to possession, which he rejected:
"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 à 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 à 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."
- The third basis on which
Quadra
contended that it had an
insurable
interest was that it had a proprietary interest in the goods. The judge
said
that, even without considering the difficulties arising from Agri Finance and Linepuzzle having
sold
or purported to
sell
the grain making up the Cargoes to other buyers before
Quadra,
it did not have
such
a proprietary title. He noted that the
sale
contracts were governed by English law and that the provisions of the
Sale
of Goods Act 1979 ("the
SGA")
were applicable to them. He noted that it was common ground that these were
sales
of unascertained goods for the purposes of
sections
16 and 20A of the
SGA,
which he then cited, together with
section
61 defining "bulk" which was also relevant:
"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.'
Quadra's
argument was that it became owner in common of the bulk of which the Cargoes formed part with property in an undivided
share
of the bulk. At [104] the judge noted the
insurers'
contrary arguments, which were (i) that title did not pass because the bulk of which the Cargoes formed part was not identified in any relevant contract or
subsequent
agreement and (ii) that on the true construction of the Agri Finance Contract and the Addenda, title in the Zaplazsky and Bilgorod Cargoes was only intended to pass to
Quadra
on delivery DAT or DAP, not at the Elevators.
- On the first point, the judge noted at [105] that there was no identification of the bulk in the
sale
contracts
so
the question was whether there was a
subsequent
agreement which identified the relevant bulk and
Quadra
relied on the presentation of the Warehouse Receipts against which it paid. The Warehouse Receipts identified a
specified
quantity of grain
stored
at the Elevator'
s
warehouses located at the Elevator'
s
address. The judge
said
that the evidence established that each Elevator had
several
warehouses or buildings and each Elevator
stored
different types and grades of grain which were moved between
silos.
- At [107] the judge referred to the definition of "bulk" in
section
61 and
said
some
help as to what may be regarded as a bulk is provided by the Law Commission Report in 1993 which proposed what became
section
20A. At [4.3] of the Report instances of a bulk are given which the judge
set
out:
"(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 judge
said
the
Singapore
case of RBG Resources Plc (in liq) v Banque Cantonale Vaudoise [2004] 3
SLR
(R) 421 was also instructive. There were two relevant warehouse units operated by Fujitrans. The warehouse receipts referred to metals "Inwarehouse
Singapore"
but did not identify in which warehouse the metals were
stored.
They were held by the High
Court
not to be
sufficient
to identify the bulk. The judge
said
his understanding was that it was
significant
that there was more than one Fujitrans warehouse in
Singapore
and if there had only been one it might have been possible to read that in from the Fujitrans letterhead and the reference to
Singapore.
The judge in that case attached
significance
to the fact that the warehouse receipts did not identify the location of the particular warehouse. The judge considered that in the present case the Warehouse Receipts
stated
only that the particular grain was
stored
at the "warehouses" of the Elevator with no identification of the particular warehouse(
s)
or
silo(s)
in which the goods were
stored
or even where all grain of a particular type was
stored.
Accordingly, the judge considered that there was not the identification of a bulk by reference to the contents of a
specific
space
as contemplated in most of the examples given by the Law Commission and the RBG Resources
decision.
- At [110] the judge noted
Quadra's
contention that the bulk was identified as all the grain of the particular type referred to in the Warehouse Receipt which was in the Elevator as a whole and that the Elevator constituted at least a defined "area" within
section
61(1). Reliance was placed on Bridge: The
Sale
of Goods, 4th edition para 3.53 which the judge quoted.
- The judge considered that it could not be
said
that there was an agreement which identified the bulk as all the grain of the particular type in the Elevator as a whole. There was no reference to any
such
bulk in the Warehouse Receipts which referred only to the amount of the particular Cargo being
stored
and the judge thought there was good reason to doubt Agri Finance or Linepuzzle would have made
such
an agreement given that there was material
suggesting
that it was possible for a trader to agree with the Elevator for
segregated
storage
of its products, which happened with the Kernel
storage
contract. The judge concluded that if
segregated
storage
might occur, Agri Finance/Linepuzzle would not have agreed that all the goods of a particular type within the whole Elevator formed the relevant bulk in respect of which
Quadra
might become an owner in possession.
- The judge also concluded at [112] and [113] that the
insurers
were correct that the Agri Finance Contract and Addenda provided for title to only pass at the
seaport.
Accordingly he rejected the third basis for an
insurable
interest, but given that he had decided that the first and
second
bases
succeeded,
that rejection made no difference.
- The judge went on to consider at [114] to [119] a debate about the meaning of the Interest Clause which has not featured in the
appeal
so
I need
say
no more about it.
- He then considered whether the goods were lost by an
insured
peril and, if
so,
which. He concluded that there was a loss caused by Misappropriation. The fraud involved conduct by Agri Finance / Linepuzzle which was within
sub-paragraphs
1 and 2 of the Misappropriation Clause. There was an actual total loss in respect of the Cargoes in that as he found
Quadra
had been irretrievably deprived of them at the time proceedings were commenced in May 2020. The judge rejected
Quadra's
alternative case under the Fraudulent Documents Clause, on the basis that the physical loss of goods was not caused by acceptance of fraudulent Warehouse Receipts. If there were no relevant goods before
Quadra
received the Warehouse Receipts, then they were not lost by acceptance of those Receipts and if there were relevant goods the acceptance of those Receipts cannot be
said
to have caused their physical loss.
- The judge then went on to consider other issues,
such
as the amount of the indemnity and the claim under
section
13A of the
Insurance
Act 2015 which are not relevant to the issues on this
appeal.
The grounds of
appeal
and Respondent'
s
Notice
- The
insurers
pursue four grounds of
appeal
as to why the judge'
s
decision
is wrong within the meaning of CPR 52.
21(3)(a)
with the permission of the judge:
(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.
- By its Respondent'
s
Notice dated
21
April
2022,
Quadra
seeks
to have the Judge'
s
decision
upheld on three Additional Grounds:
(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
- On behalf of the
insurers,
Mr Peter MacDonald Eggers KC
said
that their overriding point, given the judge'
s
conclusion that the Policy was a contract of property
insurance
only covering physical loss of or damage to
insured
goods, not financial loss, was that goods must exist and must be
sufficiently
identifiable and identified.
- He accepted that
since
the first ground of
appeal
involved a challenge to the judge'
s
findings of fact, for the
appeal
to
succeed
on that ground, it had to be
shown
that the judge was plainly wrong. He did not
shirk
from
submitting
that the judge had been plainly wrong to conclude at [69], on the basis of the three categories of evidence identified at [25] above, that
Quadra
had
shown
on a balance of probabilities that goods corresponding in quantity and description to the Cargoes were physically present in the Elevators at the time that the Warehouse Receipts were issued. Mr MacDonald Eggers KC noted that at [18] to [23] of the judgment, the judge had defined the Cargoes by reference to the Warehouse Receipts and accordingly
submitted
that the goods present in the Elevators had to be goods to which the Warehouse Receipts related.
- Mr MacDonald Eggers KC
submitted,
taking the First Zaplazsky Warehouse Receipt as an example, that the Warehouse Receipts contained two untruthful
statements:
"These Goods are the property of
Quadra
Commodities
SA"
and "This is the only warehouse receipt issued for these Goods" neither of which could be true, given that the essence of the fraud was that the Agroinvest group had issued multiple Warehouse Receipts in respect of the
same
goods to a number of traders. He
submitted
that, in view of these untruthful
statements,
the Warehouse Receipts did not count for anything as evidence of the existence of the goods.
Snowden
LJ asked Mr MacDonald Eggers KC during the course of argument whether he was
saying
that the Analysis card referred to in the Warehouse Receipt
signed
by the laboratory assistant was fraudulent and a complete fiction as well. Mr MacDonald Eggers KC did not really answer the question directly,
saying
only that it had not been proved that there were goods of the description in the Warehouse Receipt or the Analysis card at the Elevator. As
Snowden
LJ pointed out, it must follow that the
insurers'
case was that the Analysis card was also fraudulent and the laboratory assistant was in on the fraud. Mr MacDonald Eggers KC
submitted
that, even if the Analysis card was genuine, it could only go
so
far, because it did not really tell one what
sample
was being looked at.
- Mr MacDonald Eggers KC
submitted
that, were it not for the Bastico inspection reports, the judge could not have relied upon the Warehouse Receipts alone. He
submitted
that the judge had been wrong to rely on the inspection reports and describe them as the most important evidence. When the inspectors attended the Elevators, they were
shown
more documents produced by the Elevators, the letter and the Form-36, which he
submitted
added nothing to the Warehouse Receipts. By reference to the judge'
s
findings at [47] (which I quoted above), Mr MacDonald Eggers KC made
submissions
about the limitations of the inspections and the reports. He did not challenge any of those findings but
said
he relied upon them.
- Because there was
so
much reliance in the inspection reports on documentation issued by the fraudsters, they were of limited use. He emphasised that, because the visual inspection was from the viewing platform and did not involve
sampling,
the inspectors could not assess the grade or year of the grain in question. As to whether the grain beneath the grain which the inspector could
see
was of the
same
quality and description, he made it clear that he was not asserting that different types or years of crop were mixed in any given
silo.
- Mr MacDonald Eggers KC pointed out that, in relation to the Third Izmail Cargo, where there was no Bastico inspection because the inspectors were refused access, the judge relied on two reports by other inspectors of grain in that Elevator. The first was an
SGS
inspection report of a cargo of 5,000 mt of barley on 7 December 2018, 40 days before the relevant Warehouse Receipt was issued and at a time when, on
Quadra's
own case, the fraud was under way. However, as the
Court
pointed out, that report
showed
that
SGS
had conducted
sampling
of the barley in accordance with the relevant GAFTA rules. The
second
report was of an inspection by Bureau Veritas for
Suntrade
of various cargoes, including 5,000 mt of barley at the Elevator on 22 January 2019,
six
days after the Warehouse Receipt was issued. This was a visual inspection without
sampling,
as in the case of the Bastico inspections. Mr MacDonald Eggers KC
submitted
that these two inspection reports did not demonstrate that there were in fact goods correlating with the description in the Third Izmail Warehouse Receipt at the date it was issued.
- In relation to the third category of evidence on which the judge relied, the physical delivery to
Quadra
of two cargoes, Mr MacDonald Eggers KC
submitted
in relation to the 7,000 mt delivered under Addendum 8, that it was only relied upon in relation to the Bilgorod Elevator as
supporting
1,000 mt of corn the
subject
of the claim having been there three days earlier, but the remaining 13,000 mt of corn the
subject
of the claim was
said
to be
stored
at the Zaplazsky Elevator. Likewise, the 800 mt delivered under Addendum 7 was a very
small
quantity compared to the 13,000 mt claimed.
- He
submitted
that the grain present in the Elevators had to be of the
same
quality and description as
set
out in the Warehouse Receipt, for example Grade 3 corn of 2018 crop if that is what was referred to in the Warehouse Receipt and it would not
suffice
if it were in fact Grade 6 corn or 2017 crop. The
Court
pressed Mr MacDonald Eggers KC as to whether he was
saying
that if (leaving aside the fraud) the Warehouse Receipt referred to corn of 2018 crop, but for
some
reason the goods in the Elevator were in fact 2017 crop and they were
stolen
before title passed to the
insured,
the
insured
would have no
insurable
interest in the goods and he answered in the affirmative.
- In relation to the
second
ground of
appeal,
that even if the goods existed, the judge had been wrong to conclude that
Quadra
had an
insurable
interest, Mr MacDonald Eggers KC
submitted
that there could be no
insurable
interest unless the goods were identifiable and identified, that is that, having been unascertained, they were now ascertained or, if they formed part of a larger bulk, the bulk had to be identified. This was because until you know what the
subject
matter of the
insurance
is, it is not possible for an
insurable
interest to attach to that
subject
matter. It was common ground that the goods were not ascertained and, in the context of the issue as to whether
Quadra
had title in them, the judge decided it did not because there was no identified bulk. Accordingly,
Quadra
had no
insurable
interest in any of the bulk in the Elevators. Mr MacDonald Eggers KC accepted that he had no authority to
support
that proposition, but
submitted
that there was no authority either way.
- He
submitted
that the logic which applies to whether or not a person has title in goods applies equally to whether that person has a right to possession in the goods or an
insurable
interest in them. You cannot be
said
to own
something
unless you know what it is and equally you cannot be
said
to have a right to possession of or an
insurable
interest in a thing unless you know what that thing is.
- If the goods in the Elevator were being constantly drawn down and replenished, as was apparently the position here, unless and until the goods the
subject
of the claim were ascertained or the bulk was identified, Mr MacDonald Eggers KC
submitted
that
Quadra
had no
insurable
interest in them even if it had paid the price for goods of the relevant contractual quality and description. He
said
that payment for goods only gave rise to a financial loss. He posited two extremes: that
Quadra
paid for goods referred to in the Warehouse Receipt but no goods existed, in which case there could be no claim under the Policy. This was not controversial. The other extreme would be if
Quadra
paid for all the goods in bin number 427 at the Zaplazsky Elevator,
so
the goods were identified by agreement between the parties, in which case
Quadra
will have or will get title and has an
insurable
interest and a claim under the Policy. The present case was in the middle between those extremes. None of the decided cases dealt with this
sort
of case. Here the goods were not ascertained,
so
even if the Zaplazsky Elevator
says
in the Warehouse Receipt "we hold 5,000 mt of grain for you" and
Quadra
has paid for that quantity, it can deliver whatever grain of that kind it has in
stock
at the time of delivery. Mr MacDonald Eggers KC
submitted
that if, at the time of delivery, there was only 5,000 mt left in the Elevator, and rather than deliver to
Quadra
the Elevator
sold
that cargo to
someone
else,
Quadra
would have
suffered
a financial loss but not a loss of property.
- In relation to the cases concerning an
insurable
interest in goods, he
submitted
that, in each case the goods were plainly identified and identifiable. The identification of the bulk was not in issue. The issue was the nature of the
insurable
interest where the
insured
did not have an ownership interest. Also in none of the cases was there a competing interest for the
same
goods or
subject
matter.
- Lucena v Craufurd concerned a commission that had taken possession of certain Dutch
ships
in the Napoleonic wars which were
insured
for a voyage from
St.
Helena to
England.
When war was commenced against the United Provinces, the
ships
were condemned as prize to the Crown,
so
there was a loss. The question was whether the commissioners had a
sufficient
insurable
interest to recover under the policy. The House of Lords called for the opinion of the judges, the majority of whom concluded there was an
insurable
interest. However, the test adopted by Lord Eldon LC and applied many times
since
was derived from the opinion of Lawrence J who was in the minority in concluding there was no
insurable
interest. Mr MacDonald Eggers KC cited the relevant passages and
submitted
that all the test really indicated was that there was a flexible definition of
insurable
interest. The test talked about the relationship between the
insured
and the property but the property
still
had to be identified, which it was there because it was named
ships.
- Cumberland Bone concerned 150 tons of porgy chum in an undivided bulk, for 40% of which the
insured
had paid with the 60% remaining the
seller's
stock.
After the fire the
insurers
paid the
seller's
claim but resisted that of the
insured,
on the grounds that the
seller
had made no delivery to the
insured,
no property in any
specific
part of the bulk passed to the
insured
and it remained at the
seller's
risk
so
there was no
insurable
interest. The
Court
rejected the
suggestion
that the
insured
had to have a legal title in the property to have an
insurable
interest. Mr MacDonald Eggers KC, having cited to this
Court
the passage from the judgment in that case quoted by Butcher J at [83] of his judgment,
said
that was a case of an identified bulk, albeit undivided between
seller
and
insured,
as the bulk was all that was at the premises.
- Mr MacDonald Eggers KC
submitted
that goods had to be identified, at least in an identified albeit undivided bulk, for
someone
to have a proprietary or possessory interest in them, relying on the
decision
of the Divisional
Court
(Leggatt J as he then was and
Sir
Richard Aikens) in Devani v Republic of Kenya [2015] EWHC 3535 (Admin) particularly at [23] and [57]. He
submitted
that it was difficult to
see
why an advance payment
should
be treated differently in terms of the need for identification of goods for the purposes of an
insurable
interest.
- He focused on the reference in the judgment in Cumberland Bone to
insurers
not being injuriously affected, even if the
insured's
part of the bulk had been
separated,
weighed off and formally delivered. In contrast, in the present case, if Butcher J is right about
insurable
interest, the
same
cargo of 5,000 mt of corn could have been
sold
by the Agroinvest group to
six
buyers, each of whom had paid the price and, according to the judge'
s
analysis, they would all be entitled to a full indemnity under their
insurances.
If the
insurances
were underwritten by the
same
insurers,
they would have to pay out
six
times, which would injuriously affect them.
- Mr MacDonald Eggers KC also referred the
Court
to the
decision
of the House of Lords in Inglis v
Stock
(1885) 10 App. Cas. 263. The case concerned 390 tons (3,900 bags) of
sugar
loaded on an FOB basis on the vessel City of Dublin for carriage from Hamburg to Bristol. The cargo consisted of two consignments, one of 200 tons, the other 190 tons both purchased by the plaintiff, albeit by a different contractual route in each case, ultimately from Drake & Co. Mr MacDonald Eggers KC noted that no other
sugar
belonging to Drake & Co was put on board the vessel,
so
that as the Earl of
Selborne
LC
said
at 266: "the 3900 bags were, therefore,
specifically
separated
from the bulk of the vendor'
s
own
sugar".
The Lord Chancellor
stated
that each bag was distinguished by a mark denoting the percentage of
saccharine
matter and ten bills of lading for parcels bearing marks corresponding with those on the bags were issued and
sent
to Drake & Co. No particular bags were
set
apart or marked as applicable to one contract rather than the other. It was thought
sufficient
to do that when the bills of lading came forward. The Lord Chancellor considered that the plaintiff had an
insurable
interest. Mr MacDonald Eggers KC
submitted
that this was because the bulk, though undivided, was
separated
from the
stock
of Drake & Co and thus identified.
- Mr MacDonald Eggers KC
submitted
that, as a matter of principle, the test for identifying a bulk for the purposes of assessing whether there is an
insurable
interest
should
be the
same
as under
section
20A of the
SGA
because one needs to have
stability
and clarity as to what constitutes an
insurable
interest and for that purpose one needs to identify the
subject
matter of the
insurance.
In relation to the identification of a bulk, Mr MacDonald Eggers KC then made
submissions
about
section
20A, relevant to Additional Ground 2 of the Respondent'
s
Notice. Because, for the reasons given later in the judgment, I have concluded that the judge was correct in his conclusion that
Quadra
had an
insurable
interest on the first two bases for which
Quadra
contends, it is not necessary to consider Additional Ground 2 or to
summarise
the
submissions
made about it.
- In relation to the
second
basis for finding an
insurable
interest which found favour with the judge, the immediate right to possession, which was the
subject
of the third ground of
appeal,
Mr MacDonald Eggers KC
submitted
that the relevant applicable law was English law either because the issue of Ukrainian law was not pleaded,
so
applying the
so-called
default rule English law applies or, even if it was, there is a presumption that, in the absence of evidence of a different foreign law, English law applies. This was the application of the two general rules identified by Lord Leggatt JSC in Brownlie v FS Cairo (Nile Plaza) LLC [2021] UKSC 45; [2022] AC 995 at [108]-[112].
- Mr MacDonald Eggers KC accepted that the issue on which expert evidence was called namely whether the Warehouse Receipts were valid as a matter of Ukrainian law was pleaded. As the
Court
pointed out that arose because
Quadra
was
saying
that the Warehouse Receipts gave it an immediate right to possession to which the
insurers
answered that the Warehouse Receipts were not valid as a matter of Ukrainian law. Mr MacDonald Eggers KC contended that what was not the
subject
of Ukrainian law evidence or pleaded is what would happen if there were competing Warehouse Receipts. He
submitted
that the judge had been wrong to conclude at [99] that the evidential burden in relation to the effect of competing rights of possession rested on the
insurers.
- There ensued a debate at the outset of the
second
day of the hearing as to whether the point Mr MacDonald Eggers KC was
seeking
to argue was open to him in the light of the Order of Males LJ of 11 May 2022 and his judgment of 24 May 2022. There is no need to elaborate on the debate
since
the
Court
was
satisfied
that the point which Mr MacDonald Eggers KC was
seeking
to argue was open to him within the permission to
appeal
granted by the judge.
- Mr MacDonald Eggers KC described the fourth ground of
appeal
as to the practical consequences of the judge'
s
decision
as a reality check particularly in relation to the
second
ground. He emphasised again the oddity of the position if a cargo of 5,000 mt of grain had been
sold
to
six
traders who had all paid for the goods. On the judge'
s
reasoning, they all had an
insurable
interest and a right to an indemnity, which would lead to the
insurers
being injuriously affected in various ways
- On behalf of
Quadra,
Mr Jawdat Khurshid KC
submitted
that only the first and
second
grounds of
appeal
were potentially determinative. The first ground
sought
to challenge the judge'
s
findings of fact that grain corresponding to the Cargoes existed and applying well-established legal principles,
insurers
had to
show
that the judge reached a conclusion which was unsupported by any evidence or which no reasonable judge could have reached. He
submitted
that there was a cogent case for reticence on the part of this
Court
before it reached that conclusion.
- In relation to the categories of documentation on which the judge relied, the first was the Warehouse Receipts. Mr Khurshid KC took the First Zaplazsky Cargo as an example and noted that the First Zaplazsky Warehouse Receipt was on the Zaplazsky Elevator letterhead giving the address of the
site
of its warehouses. There was only one Zaplazsky Elevator facility or
site.
There were a number of different buildings within the
site,
but Bastico inspectors for example would present themselves at the one reception. The Form-36 which was handed to the inspectors at the time of their inspection records that at that date 5,000 mt of corn of Grade 3 2018 crop was being
stored
at the Zaplazsky Elevator to the order of
Quadra.
The
storage
type was described as "General
Storage",
in other words the Zaplazsky Elevator was permitted to
store
the corn in co-mingled fashion rather than
segregated.
The Form-36 in the original Ukrainian was
signed
by four different employees with varying roles.
- Mr Khurshid KC
submitted
that prima facie the Zaplazsky Elevator documentation thus records that goods corresponding in quality and description to the First Zaplazsky Cargo were physically present at the Zaplazsky Elevator at the time that the Warehouse Receipt was issued. He
submitted
that it was far more likely that there was at least one cargo of goods corresponding with the First Zaplazsky Cargo present which the various employees who
signed
the Analysis card and Form-36
saw
or knew about, rather than that no goods existed, in which case they would all be implicated in the fraud. This was also consistent with the nature of the fraud, which was that there were goods but they were
sold
to multiple traders, rather than that there were no goods at all. What was argued by
insurers
was that the Warehouse Receipts were inaccurate as to the rights they conveyed, not as to the goods to which they related. Mr Khurshid KC
submitted
that the Capacity Analysis conducted by the
insurers
showed
that, at the time that the First Zaplazsky Warehouse Receipt was issued, on the basis of the documents, the Zaplazsky Elevator would not have been full or over capacity, but there came a time, maybe in October or November 2018, when there must have been a fraud, on the basis of the documents, because the quantity of goods for which documents were issued exceeded the capacity of the warehouse.
- The
second
category of documentation was the Bastico inspections,
supported
by the oral evidence of two Bastico witnesses. The judge
summarised
the effect of that evidence at [47]. Mr Khurshid KC
submitted
that what is important in that paragraph is that the grain was physically observed to be present by the inspectors in quantities, which were measured using a laser meter, which were larger than the amounts
said
to be being held for
Quadra.
The inspection report for the First Zaplazsky Cargo records in the third column of the table the Bastico inspector'
s
own finding as to the quantity of grain visually inspected based on the measurements taken. Mr Khurshid KC
submitted
that prima facie therefore, the Bastico inspection reports record that goods corresponding in quantity at least to the First Zaplazsky Cargo were physically present in the Zaplazsky Elevator and their quality derived from the Elevator documents.
Similar
inspection reports were issued for all the other Cargoes except the Third Izmail Cargo where the inspectors were denied access but ultimately the position was no different. The relevant Warehouse Receipt and quality report record that, as at 16 January 2019, 4,150 mt of barley 2018 crop was being
stored
at the Izmail Elevator to the order of
Quadra.
The
SGS
Report records that as at 7 December 2018 5,000 mt of barley was physically present which was
sampled
and found within
specification.
Although the report was
some
five weeks before the Warehouse Receipt, according to the
insurers'
own Capacity Analysis of Elevator documentation, no barley exited the Izmail Elevator after the
SGS
inspection on 7 December 2018. Consistent with that, the Bureau Veritas report records the physical presence of 5,726 mt of barley in the Izmail Elevator on 22 January 2019,
six
days after the Warehouse Receipt was issued.
- The third category of documentation related to the two physical deliveries of grain to
Quadra.
The first was 800 mt of corn part of the 5,000 mt comprising the First Zaplazsky Cargo, purchased under Addendum 7, which was dispatched from the Zaplazsky Elevator on 14 January 2019 and delivered to Olam International on about 17 January 2019. The contract with Olam provided for delivery of Grade 3 corn, 2018 crop. Mr Khurshid KC took the
Court
to the documents demonstrating the physical delivery of this parcel. He pointed out that there was no evidence of any complaint from Olam that the goods delivered did not comply with the contractual quality and description. He
submitted
that the judge rightly concluded that this was
some
corroborative evidence that physical goods did exist in the Zaplazsky Elevator at the relevant time.
- The
second
physical delivery was of 8,000 mt of corn of Grade 3 2018 crop purchased under Addendum 8. Mr Khurshid KC took the
Court
to the entries in the bordereaux which
showed
4,000 mt of the corn entering the Zaplazsky Elevator on 10 October 2018 and being
stored
there until 5 November 2018 when it exited loaded on the vessel ATHERINA. 3,000 mt of the corn was
stored
at the Bilgorod Elevator and also exited on 5 November 2018 loaded on that vessel. The balance of 1,116 mt was
stored
at the Aliyagsky Elevator and also exited loaded on that vessel on 5 November 2018. Mr Khurshid KC noted that the judge had accepted that this was corroborative evidence of the presence of corn in the Elevators, particularly of the presence of 1,000 mt of corn in the Bilgorod Elevator three days earlier on 2 November 2018 when the Bilgorod Warehouse Receipt was issued.
- On the basis of these three categories of evidence, the judge concluded that, on the balance of probabilities, the presence of goods in the Elevators corresponding in quality and description to the Cargoes was established. Mr Khurshid KC
submitted
that, in reaching that conclusion, it could not be
said
that the judge had made a finding unsupported by any evidence or which no reasonable judge could have reached.
- Mr Khurshid KC
submitted
that the various objections raised by the
insurers
as regards the reliability of the Elevator documents and the Bastico inspection reports were all carefully considered and rejected by the judge
so
it could not be
said
that the judge had failed to have regard to or to understand the
insurers'
case. The judge correctly recognised that the weight to be attached to a document depends on the purpose for which reliance is placed upon it.
Quadra
did not rely upon the Elevator documents and the Bastico inspection reports to evidence its ownership of the goods, but to evidence the physical presence in the Elevators of grain corresponding to the Cargoes, an important distinction the judge recognised at [72] of his judgment which Mr Khurshid KC
submitted
that the
insurers
continued to overlook.
- As he pointed out, there is no challenge by the
insurers
to the judge'
s
primary findings of fact that the Bastico inspectors were able to conclude by measurement that the total amount of grain present in the relevant
silo
was larger than the amount
said
to be
Quadra's
or that the
silos
were unlikely to have had false bottoms. On the basis of those findings, Mr Khurshid KC
submitted
that the judge'
s
conclusion that the Bastico inspection reports evidence the physical presence in the Elevators of the relevant type of grain corresponding to the Cargoes was and remains irresistible.
- Mr Khurshid KC
submitted
that that finding alone provides a
sufficient
legal basis on which to conclude that
Quadra
had discharged its burden of proving the physical presence of goods capable of being lost for the purposes of a claim under the Policy. He
submitted
that it was
sufficient
to
show
that goods of the relevant type, viz. corn, wheat or barley, were physically present in the Elevators in the quantity
specified
in the Warehouse Receipts, because the
subject
matter of the
insurance
was to be determined by reference to the Policy and the declarations made under it. The declarations only
state
the type of grain and the quantity. He
submitted
that it did not matter if the grain failed to comply with the contractual
specification
as to grade or crop year. That would no doubt have conferred on
Quadra
a claim under the
sales
contract but it would not preclude a finding that
Quadra
had discharged its burden of proving the physical presence of goods capable of being
insured
and of being lost.
- In any event, even if it were necessary to establish the physical presence of grain corresponding to the grade and crop of the Cargoes, Mr Khurshid KC
submitted
that the judge had rightly concluded that it was likely that the Bastico inspectors were
shown
grain of the correct grade and crop as described in the Elevator documentation, for the reasons he gave. In that context it was important to appreciate the nature of the fraud which was common ground at trial. The
insurers
had pleaded that there was in effect a pyramid
scheme
in which multiple Warehouse Receipts were issued for a
single
consignment of goods. Mr Khurshid KC referred the
Court
to the evidence and
submissions
at trial about the nature of the fraud, to which the judge referred at [48] and [49] of the judgment. Accordingly he
submitted
that, whilst the Warehouse Receipts and Elevator documentation may not have been the only
set
of
such
documents issued by the Elevators, there was no evidential basis for depriving the Elevator documentation and the Bastico inspection reports, to the extent that they were based on that documentation, of any weight at all as to their contents.
- On the contrary, as the judge
said,
it was integral to the fraud that there
should
be physical grain present in the Elevators which matched the amount and quality of what had been purportedly
sold
to any given trader, which could be inspected and, if necessary,
sampled
by that trader. Mr Khurshid KC
submitted
that the judge had applied common
sense,
shrewdness
and experience in reaching the conclusion holistically on all the evidence that
Quadra
had
shown
on a balance of probabilities that goods corresponding in quantity and description to the Cargoes were physically present in the Elevators at the time the Warehouse Receipts were issued. His conclusion was undoubtedly
sound.
- Mr Khurshid KC contended that the judgment could also be upheld on the first Additional Ground
set
out in the Respondent'
s
Notice, that
Quadra
had adduced
sufficient
evidence of the existence of goods to discharge its burden of proof and place on the
insurers
the evidential burden of adducing evidence to contrary effect. He relied on the judgment of Buckley LJ in Dunlop Holdings Limited'
s
Application [1979] RPC 523 which although it was a patent
appeal
was
said
to
state
principles of general application at 542-3. He
submitted
that in the absence of any positive plea by the
insurers
that the grain which the Bastico inspectors had observed to be physically present in the Elevators did not in fact exist and in the absence of any evidence from the
insurers
to that effect, it was not incumbent on
Quadra
to come to
Court
armed with evidence directed towards disproving
such
a case. He also
submitted
that
since
the Misappropriation Clause envisaged monthly inspections and
since
Quadra
had instructed Bastico to carry out those monthly inspections,
Quadra
had done everything required of it for the purposes of cover and of discharging its burden of proof.
- In relation to the
second
ground of
appeal,
Mr Khurshid KC
submitted
that the
insurers'
case, that
Quadra
did not have an
insurable
interest because the goods for which
Quadra
had paid and to which it had an immediate right to possession formed part of a bulk which is
said
to be insufficiently identified, was difficult to understand when the whole premise of the issue being addressed was whether
Quadra
had an
insurable
interest in the goods which the judge had found were physically present in the Elevators. That this was the issue was clear from [79] of the judgment and the heading immediately before it: "Did
Quadra
have an
Insurable
Interest in those Goods?", in other words goods which by definition the judge considered were
sufficiently
identified.
- Mr Khurshid KC
submitted
that it was difficult to
see
why the requirements of an English
statute
governing
sale
of goods
should
dictate whether an
insurable
interest under the Policy arises, let alone an
insurable
interest deriving from a Ukrainian law right of possession. Contrary to the
submission
of Mr MacDonald Eggers KC, there was no reason why the logic of Re Goldcorp Exchange Ltd [1995] 1 AC 74 and the test for whether there was a proprietary interest
should
apply to
insurable
interest. Mr Khurshid KC pointed out that, as
set
out in the Law Commission Report from 1993, at that time
commodity
traders were having no problems obtaining
insurance
for goods in bulk. It was the law of property that needed reform, not the law of
insurable
interest which was wide enough already. If it were to be held, as the
insurers
argued in this case, that an
insured
could not have an
insurable
interest in unascertained goods unless the requirements of
section
20A of the
SGA
were
satisfied,
that would be a
significant
restriction on the circumstances in which an
insurable
interest could be held to exist, which would run counter to the direction of travel of the law on
insurable
interest, which has continuously expanded.
- He
submitted
that English
courts
have long recognised their duty to lean in favour of finding an
insurable
interest to exist wherever possible, citing the well-known passage from the judgment of
Sir
William Brett MR in the
Court
of
Appeal
in Inglis v
Stock
(1884) 12 QBD 564 at 571:
"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."
- In a more modern context the
same
point was made by Ward LJ in Feasey at [146]:
"
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].
- Against that background, Mr Khurshid KC
submitted
that the
insurers
would need to identify
some
binding authority in
support
of their proposition that the equivalent to
section
20A of the
SGA
operates to define the circumstances in which an
insured
can have an
insurable
interest in unascertained goods or at least
some
cogent and principled reason for
such
a restriction, but in truth they could do neither.
- Mr Khurshid KC then made
submissions
on the cases on
insurable
interest, culminating in Feasey, which
showed
that those with an
insurable
interest in property include persons with legal ownership of the property including a co-owner or a person with an undivided interest in a parcel of goods, persons with possession of the property and with a right to possession, at least when accompanied by an economic interest. Persons with a right derivable from a contract about the property also have an
insurable
interest in it,
such
as a buyer to whom risk in the property passes or who pays all or a part of the price for the property. All
such
persons were within the ambit of the language of Lord Eldon LC in Lucena v Craufurd as reflected in
section
5(2) of the Marine
Insurance
Act 1906. There was nothing in that language to
suggest
that an
insurable
interest may only attach to
specific
or ascertained goods.
- Mr Khurshid KC
submitted
that any
suggestion
to that effect would be inconsistent with the
decision
in Inglis v
Stock.
He noted that the case concerned two parcels of
sugar
shipped
on the City of Dublin without any allocation of the bags to the respective contracts, it being intended that appropriation would take place upon arrival in
England.
He
submitted
that it was important to note two points about the facts of that case: first that the vessel was a general
steamer
so
that there were other goods on board and
second
that the ten bills of lading for the
sugar
did not appear to identify whether they related to one contract or the other or to identify where the
sugar
was
stowed
on board the vessel.
- The House of Lords affirmed the
decision
of the
Court
of
Appeal
that the buyer had an
insurable
interest because the goods were
shipped
at his risk but
insurers
also argued that there was no
insurable
interest because there had been no allocation of risk between the two contracts. That argument was dismissed by Lord Blackburn in these terms at 274:
"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.
- He
submitted
that the
same
was true of Cumberland Bone. In that case the porgy chum was not
segregated
from the vendor'
s
stock
at his premises. As in Inglis v
Stock,
property in the goods had not passed, but unlike in Inglis v
Stock
the risk had not passed to the buyer. Mr Khurshid KC noted that, as the judge correctly
stated
at [84] of his judgment, the case cites a passage from Arnould which in turn is founded on Lucena v Craufurd and other English cases and it has always been cited in MacGillivray as authority for the proposition that, even if property and risk have not passed, payment or part payment of the price will give the buyer an
insurable
interest. He
submitted
that the case also directly
supports
the proposition that an
insured
may have an
insurable
interest in unascertained goods, irrespective of whether they form part of an identified bulk in the
sense
now required by
section
20A of the
SGA
or whether they form part of an unidentified bulk, in the
sense
that they were located at
some
unidentified location in the vendor'
s
premises. To the extent that it was being
suggested
by the
insurers
that there was
sufficient
identification in Cumberland Bone to
satisfy
the requirements of
section
20A if it had been in force, Mr Khurshid KC
submitted
that it was difficult to
see
how the unidentified
space
in which the porgy chum was
stored
within the vendor'
s
premises differed from the present case where the goods were
stored
in unidentified
spaces
within named Elevators.
- Accordingly, he
submitted
that Cumberland Bone is an authority against the
insurers
on this
appeal.
As for the authorities relied upon by the
insurers,
Devani was not a case about
insurable
interest and when properly analysed, [23] and [57] of the judgment were not authority for the
insurers'
proposition that the requirements of
section
20A of the
SGA
are applicable to a possessory interest. In any event, even if Devani were authority for that proposition and were correct,
Quadra's
right to possession derives from Ukrainian law and not English law. Mr Khurshid KC
submitted
that Goldcorp on which the
insurers
also relied relates to the passing of property between buyer and
seller.
It has nothing to do with
insurable
interest in the context of
insured
and
insurer.
It is well-established and common ground that the passing of property is not necessary for there to be an
insurable
interest. There is
simply
no reason why the logic of Goldcorp
should
apply in the different context of
insurable
interest.
- It followed that
insurers
are unable to identify any authority for their proposition that
section
20A of the
SGA
or its equivalent
should
define the circumstances in which an
insured
may have an
insurable
interest in unascertained goods. Mr Khurshid KC
submitted
that there was no cogent or principled reason for
such
a restriction either and made five points. First that it was well-established that it was not necessary to have a proprietary interest in goods to have an
insurable
interest and as Lord Blackburn recognised in Inglis v
Stock
an undivided interest in a parcel of goods may be described as an interest in goods irrespective of whether or not they are ascertained.
Second
as is clear from Cumberland Bone and the judgment below, the three usual characteristics of an
insurable
interest in property (as
set
out by the judge at [56] of his judgment quoted in [
21]
above) may be present irrespective of whether the property comprises unascertained goods forming part of an unidentified bulk. Third, leaving aside the niceties of
section
20A, it was difficult to understand how it could be
said
that the bulk of which the goods in this case formed a part was insufficiently certain or
speculative.
This ground of
appeal
is premised on goods corresponding in quantity and description to the Cargoes being physically present in the Elevators and on
Quadra
having paid for them and having a right to possession under Ukrainian law. Fourth,
section
20A of the
SGA
imposes requirements between a
seller
and a buyer but does not
seek
to impose requirements between
insurer
and
insured
and there is no reason why the common law
should
do
so.
Fifth the restriction the
insurers
seek
to impose is contrary to the direction in which the law is developing.
- For all those reasons Mr Khurshid KC
submitted
that the
second
ground of
appeal
should
be dismissed. In addition, he
submitted
that it
should
be dismissed because the goods were
sufficiently
identified for the purposes of
section
20A of the
SGA
so
that
Quadra
had an
insurable
interest in the grain because it had acquired a proprietary interest in it. This was Additional Ground 2 in the Respondent'
s
Notice. As I have already indicated, I do not consider it necessary to consider this Additional Ground or the
submissions
made about it.
- In relation to the third ground of
appeal
Mr Khurshid KC
said
that, at [45] of the judgment, the judge had noted that expert evidence on Ukrainian law had been called by both parties as to the validity of the Warehouse Receipts which, as he noted at [92], went to the issue of whether
Quadra
had an immediate right to possession of the Cargoes under the Warehouse Receipts. The judge concluded that
Quadra
did have
such
an immediate right to possession under Ukrainian law and at [99] determined that the
insurers
had failed to
show
as a matter of fact or as a matter of Ukrainian law that
Quadra's
immediate right to possession under the Warehouse Receipts was ousted or ineffective by reason of the existence of competing rights of other parties.
- Mr Khurshid KC
said
that the
insurers'
challenge to the judge'
s
conclusion at [99] could be distilled into four broad points: (i) that
Quadra
had failed to plead as a matter of Ukrainian law that it had an immediate right to possession in the Cargoes, including when there were or might be competing rights in the Cargoes; (ii)
Quadra
failed to discharge its burden of proving that it had a right to possession in circumstances where there might have been competing rights to possession. The judge had been wrong to conclude otherwise and to conclude that the
insurers
bore any burden of proof; (iii) in the absence of any pleaded case of Ukrainian law, English law applies by default or there is a presumption that Ukrainian law is the
same
as English law; and (iv) as a matter of English law it is not possible for the Elevator to give
Quadra
a right to possession which has already been given to
someone
else.
- In answer to these points, Mr Khurshid KC
said
first that the
insurers
were wrong to
say
that
Quadra
had failed to plead that it had an immediate right to possession as a matter of Ukrainian law. He drew attention to the clear and positive plea of
Quadra's
possessory interest as a matter of Ukrainian law in the Amended Reply. The judge had been correct to recognise at [92] of the judgment that the parties had approached this issue as a matter of Ukrainian law. The only positive case advanced by the
insurers
in their Defence was that the Warehouse Receipts had various deficiencies which rendered them invalid or voidable under Ukrainian law. The judge had been right to conclude at [99] (and Males LJ had agreed in [17] of his judgment refusing further permission to
appeal)
that the burden was on the
insurers,
not on
Quadra,
to plead a positive defence as to the effect of other third party rights on
Quadra's
immediate right to possession as a matter of Ukrainian law. The
insurers
had not advanced any
such
positive case that as a matter of Ukrainian law it was not possible for an Elevator to give
someone
a right to possession which had already been given to
someone
else or that there was an equivalent to the nemo dat rule under Ukrainian law. In those circumstances, it was not
surprising
that there was no Ukrainian law evidence as to the effect of third party rights on the right to possession.
- Mr Khurshid KC
submitted
that, given that this was not pleaded by the
insurers
and they put in no evidence about it, it was not incumbent on
Quadra
to come to trial armed with evidence directed to
stablishing
an aspect of the case which had not been put in issue. Having failed to adduce any Ukrainian law on the issue, the
insurers
now
sought
to argue that English law applied by default relying on the
decision
of the
Supreme
Court
in Brownlie. However, Mr Khurshid KC relied on what Lord Leggatt JSC
said
at [116] of that case, that the rationale for applying that default rule was that neither party advanced a case that a foreign law was applicable. If either party pleads that foreign law is applicable to an obligation and that case is well-founded, it is the duty of the
Court
to apply the foreign law. In this case,
Quadra
pleaded Ukrainian law
so
the default rule does not apply.
- The
insurers'
alternative case based on the presumption of
similarity
was also wrong. It would be procedurally unfair to allow
insurers
to rely on the presumption. The Ukrainian law expert reports did not consider the effect of competing third party rights upon
Quadra's
right to possession because the
insurers
did not plead any
such
case by way of defence. Lord Leggatt had recognised at [152] that it would be procedurally unfair to allow
someone
who had adduced evidence of foreign law to rely on the presumption when that evidence of foreign law proved inadequate, referring to the
decision
of Cooke J in Tamil Nadu Electricity Board v
ST-CMS
Electric
Company
Private Ltd [2007] EWHC 1713 (Comm). Mr Khurshid KC
submitted
that it would be equally procedurally unfair to allow the
insurers
to rely on the presumption in this case. Ukrainian law was pleaded and proved in a manner
sufficient
to
satisfy
Butcher J that prima facie
Quadra
had an immediate right to possession. If
insurers
had wished to take an additional point, they
should
have done
so
by reference to Ukrainian law and the gap cannot now be filled by English law.
- Accordingly, what the position was as a matter of English law was irrelevant. In any event, even if it had been relevant, Mr Khurshid KC
submitted
that the
insurers
had
still
failed to establish as a matter of fact that the Elevators had previously granted an immediate right to possession of the Cargoes to
some
other party than
Quadra.
It was not open to the
insurers
now to contend that there were competing third party interests. That was the effect of the Order of Males LJ. All that the evidence as to the nature of the fraud went to
show
was that there were competing interests. It did not
show
that those third parties had rights
superior
to the rights of
Quadra.
- In relation to the fourth ground of
appeal,
Mr Khurshid KC noted that the
insurers
identified two practical consequences of the judge'
s
decision
which were
said
to indicate that it was wrong. The first was that it was alleged that the judge had effectively converted the Policy from a physical loss one to a financial loss one. Unlike Engelhart CTP (US) LLC v Lloyd'
s
Syndicate
1121 [2018] EWHC 900 (Comm) this case was not a case of non-existent goods. In that case it was common ground that no goods were ever
shipped.
The only loss was a financial one. In contrast, in this case the judge found that there was grain corresponding to the Cargoes physically present in the Elevators at the time that the Warehouse Receipts were issued. If there were existing goods, there was no challenge to the judge'
s
finding that they were lost by misappropriation which meant that this was a case of physical not financial loss. It followed that even if others now claim on other policies, that did not alter the nature of the loss under this Policy.
- The
second
practical consequence alleged was that on the judge'
s
findings
insurers
might have to pay
several
indemnities for the full value of one consignment of goods to different
insureds.
Mr Khurshid KC pointed out that there was
simply
no evidence from which the judge could have assessed the prospects of that occurring. What other
insureds
might or might not be able to establish under the terms of their policies on the evidence they might have was rightly not the judge'
s
concern. Even if the matter were approached hypothetically he
submitted
that there could be no principled objection to the payment by the
insurers
of
several
indemnities provided that that is the consequence of the cover they agreed. Given that they received premium from each
insured
for the risk they undertook, it is unremarkable that the law
should
require them to fulfil their contractual obligations. Furthermore,
Quadra's
recovery under the Policy reflects its own interest in the goods, not any loss
sustained
by anyone else
so
there is no question of over-indemnification of
Quadra.
- Mr Khurshid KC did also refer briefly in the context of the fourth ground of
appeal
to Additional Ground 3 in his Respondent'
s
Notice concerning the Fraudulent Documents Clause
submitting
that it contemplated that there may be competing interests in the goods and yet there would
still
be cover under the Policy.
Discussion
Since
the first ground of
appeal
involves an attack on the judge'
s
finding of fact that goods corresponding in quantity and description to the Cargoes were physically present in the Elevators at the time that the Warehouse Receipts were issued, this
Court
would only interfere with that finding if we were
satisfied
that it was unsupported by the evidence or the
decision
was one no reasonable judge could have reached. The much repeated warning that appellate
courts
should
not interfere with findings of fact, unless compelled to do
so,
applies not only to findings of primary fact but also to the evaluation of those facts and to inferences to be drawn from them:
see
per Lewison LJ in Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 at [114] where he also
said:
"In making his
decisions
the trial judge will have regard to the whole of the
sea
of evidence presented to him, whereas an appellate
court
will only be island hopping."
- Applying those principles I am quite
satisfied
that there was ample evidence before the judge from which he was entitled to reach the conclusion he reached. Far from being plainly wrong as Mr MacDonald Eggers KC
submitted,
in my judgment the judge was plainly right. A critical aspect of the evaluation of the evidence which the judge appreciated is the nature of the fraud. It was and is common ground that this involved the issue of multiple Warehouse Receipts for the
same
grain of the contractual quantity and description, which was
sold
to multiple buyers. It was never contended that the fraud involved there being no goods at all. Rather, as the judge
said
at [71], it was integral to the fraud that there was grain in the Elevators which could be inspected on behalf of the traders, which matched the amount being purportedly
sold
to any given trader. Furthermore, there has never been any
suggestion
that the fraud involved passing off as contractual goods grain of an inferior quality or of a different crop.
- Given the nature of the fraud, the judge was correct to conclude in relation to the first category of documents relied upon by
Quadra,
the Warehouse Receipts and corresponding Analysis cards, that whilst they could not be relied upon as evidence that
Quadra
owned the grain in question, they were evidence of the existence in the Elevators at the time of their issue of grain of the quantity and description
set
out in those documents. As Mr Khurshid KC put it, the
insurers
were arguing that the Warehouse Receipts were inaccurate as to the rights they conveyed, not as to the goods to which they related.
- Furthermore, given that the Analysis cards and the Form-36s which the Bastico inspectors were
shown
were
signed
by a number of different employees of the Elevator in question it is likely that they were analysing and examining goods of the relevant contractual quantity and description. As
Snowden
LJ pointed out in the course of argument, the contrary conclusion would involve all the administrative and technical
staff
who
signed
those documents being implicated in the fraud, which
seems
inherently unlikely. It is important to note that the judge did not place excessive reliance on this first category of documents, the Warehouse Receipts and
supporting
documentation, but concluded that it was
some
evidence of the physical existence of goods corresponding to those referred to in the documents.
- In relation to the
second
category, the Bastico inspections, the judge made the detailed findings about these at [47] which I have quoted at [17] above, none of which are challenged by the
insurers.
The judge noted at [72] the
insurers'
objection that the inspectors were reliant on Elevator documents in asserting that the goods they were
shown
were ones in which
Quadra
had or would take title. He
said
that was true but not relevant to the question whether there was a physical quantity of
such
goods in the Elevators. The judge dealt with the
insurers'
submissions
about the limitations of the inspections at [73] and reached the conclusion which I have quoted in [27] above. In my judgment, that conclusion and the judge'
s
reasoning are unimpeachable. Whilst the inspection may have only been visual and may not have involved examination below the
surface
or
sampling,
the inspectors did measure the volume of grain in the Elevator using a laser meter. Furthermore, the nature of the fraud was
such
that it was more likely than not that the grain the inspectors were
shown
corresponded in quantity, grade and year of crop with what
Quadra
thought it was purchasing and that the grain below the
surface
was of the
same
quality as what was visually inspected. Although Bastico did not carry out
sampling,
Agroinvest group could not necessarily have known in advance whether inspectors for particular traders to whom the
same
grain had been
sold
would conduct
sampling,
as
SGS
did on 7 December 2018 in relation to the wheat and barley being
sold
to Amius Group. As the judge
said,
it would have been very risky and likely to lead to early discovery of the fraud if at least one consignment of the relevant type and quality of grain had not been present at the particular Elevator. The judge rightly concluded that the Bastico inspections were the most important evidence.
- The Bastico inspection reports covered all the Cargoes other than the Third Izmail Cargo, but I agree with Mr Khurshid KC that the available evidence leads to the
same
conclusion, that barley corresponding to the contractual quality and quantity was present in the Izmail Elevator when the Warehouse Receipt was issued on 16 January 2019. The
SGS
inspection report, although it was issued 40 days earlier, evidenced the presence of 5,000 mt of barley in the Elevator, which was
sampled
and within
specification.
The
insurers'
own Capacity Analysis of the Elevator documentation
showed
that no barley exited the Izmail Elevator after the
SGS
Inspection on 7 December 2018. This was
supported
by the Bureau Veritas report of an inspection on 22 January 2019, only
six
days after the Warehouse Receipt was issued, which recorded the physical presence of 5,726 mt of barley in the Elevator. On the basis of this material, the judge was entitled to reach the conclusion he did at [74].
- The third category of evidence, the physical delivery to
Quadra
or to its order of two consignments of grain, also clearly
supported
the judge'
s
conclusion that, on a balance of probabilities, the presence of grain in the Elevators at the time of the issue of the Warehouse Receipts was established. The first consignment was the 800 mt of Grade 3 corn, 2018 crop, part of the 5,000 mt First Zaplazsky Cargo purchased pursuant to Addendum 7, despatched from the Zaplazsky Elevator on 14 January 2019 and delivered to Olam International. As Mr Khurshid KC
said,
there was no complaint that the corn delivered did not comply with the contractual quality or description. This was, as the judge found,
some
corroborative evidence that physical goods were in the Zaplazsky Elevator at the relevant time.
- The
second
consignment was the 8,000 mt of Grade 3 corn, 2018 crop purchased pursuant to Addendum 8. The bordereaux entries to which Mr Khurshid KC referred the
Court,
as detailed at [81] above,
showed
this quantity of corn being received at the various Elevators and being despatched from the Elevators on 5 November 2018 and loaded on the vessel ATHERINA. The judge correctly concluded that this was corroborative evidence of the presence of corn in the Elevators, particularly of the presence of 1,000 mt of corn in the Bilgorod Elevator three days earlier on 2 November 2018, when the Bilgorod Warehouse Receipt was issued.
- In my judgment, these three categories of evidence provided ample evidence from which the judge was entitled to conclude that, on a balance of probabilities, grain corresponding in quantity and description to the Cargoes was physically present in the Elevators at the time when the Warehouse Receipts were issued. It follows that the first ground of
appeal
must be dismissed.
- Even if, contrary to my firm conclusion, the
insurers
were right that the evidence upon which the judge relied, particularly the Bastico inspection reports, proved no more than the presence in the Elevators at the time that the relevant Warehouse Receipt was issued of a quantity of the particular grain, corn, wheat or barley, corresponding to the quantity
set
out in the Warehouse Receipt but did not establish, on a balance of probabilities, the grade or year of crop of the grain, that would not give rise to a defence that
Quadra
had failed to
show
that it had an
insurable
interest in grain which was present in the relevant Elevator when the Warehouse Receipt was issued. As noted at [84] above, the
insurers
have not challenged the judge'
s
primary finding of fact at [47(4)] that the Bastico inspectors were able to conclude by measurement by laser meter that the total quantity of grain present in the relevant
silo
was larger than the amount
said
to be
Quadra's
and that the
silos
were unlikely to have false bottoms.
- In those circumstances, I agree with Mr Khurshid KC'
s
submission
that the judge'
s
conclusion that the Bastico inspection reports evidence the physical presence in the Elevators of the relevant type of grain, corn, wheat or barley, corresponding to the Cargoes is irresistible. I also agree that this was
sufficient
to establish that
Quadra
had an
insurable
interest (
subject
to the
second
ground of
appeal)
since,
as
set
out by Waller LJ at [92] of Feasey, quoted at [23] above, the question of what is the
subject-matter
of the
insurance
is to be ascertained from the terms of the contract of
insurance,
the nature of the
insurable
interest is to be discerned from all the
surrounding
circumstances and whether the contract of
insurance
embraces the
insurable
interest intended to be covered is a question of construction. In the present case, the Policy contained the Declaration Clause and a wide definition of interest in the Interest Clause (provisions quoted at [4] above).
Shipments
were automatically covered and
Quadra
made monthly declarations of
shipments
which only identified the grain covered by the
insurance
generically as corn, wheat or barley, without any more
specific
declaration of grade or year of crop. In the circumstances, provided that what was physically present in the Elevators inspected by the Bastico inspectors was generically corn, wheat or barley, which it clearly was, that would be
sufficient
evidence of the physical existence of goods covered by the Policy for
Quadra
to establish an
insurable
interest,
subject
to the
second
ground of
appeal
to which I now turn.
- The point taken by the
insurers
in the
second
ground of
appeal
is that
Quadra
did not have an
insurable
interest in the Cargoes where they did not form part of a bulk which was
sufficiently
identified. Despite the ingenuity of Mr MacDonald Eggers KC'
s
argument, in my judgment this ground is fundamentally unsound. It
seeks
to impose on the relationship of
insured
and
insurer
an additional requirement, beyond anything in the authorities concerning
insurable
interest, that the goods in respect of which the
insured
would otherwise have an
insurable
interest
should
be ascertained in the
same
sense
as required for determining whether or not a buyer has a proprietary interest in goods for the purposes of the
SGA.
- This is not only unsupported by any authority, but confuses the concept of an
insurable
interest as between
insured
and
insurer
with that of a proprietary interest as between buyer and
seller,
in circumstances where the authorities on
insurable
interest establish, as the
insurers
accept, that an
insured
can have an
insurable
interest in goods even though it has no proprietary interest. This additional requirement which the
insurers
seek
to impose is not only contrary to principle, but retrogressive. It goes against the direction of travel of the authorities on
insurable
interest for
some
140 years, from the
statement
of
Sir
William Brett MR in Inglis v
Stock
quoted at [91] above onwards, as indicated by that
statement
and the other
statements
referred to at [92] above, all of which urge the
Court
to lean in favour of finding that there is an
insurable
interest.
- Although Mr MacDonald Eggers KC
sought
to argue that there was no case where the
Court
had held that there was an
insurable
interest where the goods in question were unascertained and formed part of a bulk which was not
sufficiently
identified, this requirement has never been articulated in any of the cases going right back to Lucena v Craufurd and makes no logical or legal
sense,
when
insurable
interest is not dependent on proprietary interest. In any event, contrary to Mr MacDonald Eggers KC'
s
submission,
Cumberland Bone is indeed a case where the
insured
goods were not ascertained or part of an identified bulk. As is recorded in the judgment of Barrows J at 469,
since
the porgy chum was not required by the
insured
until the following
season,
it remained at the
seller's
premises not
separated
from the
seller's
stock.
As Mr Khurshid KC
submitted,
it is difficult to
see
how the facts of that case differed from the present. Although that was a United
States
decision,
it was founded upon principles of English law as regards
insurable
interest
summarised
in Arnould in a passage which remains in the current edition. Furthermore, the case has been cited with approval in every edition of the leading textbook, MacGillivray
since
the first edition in 1912, for the proposition which Butcher J
set
out in [84] of his judgment but which merits repetition: "if neither property nor risk has passed, payment or part-payment of the price will give the buyer an
insurable
interest, because if the goods were lost or damaged and the
seller
was insolvent the buyer might not be able to recover the money which he had paid for them."
- The reason why there is an
insurable
interest in those circumstances is clear.
Such
a case
satisfies
the three characteristics of
insurable
interest identified by the judge at [56] of his judgment, quoted at [
21]
above. The
insured
in Cumberland Bone would be prejudiced by the loss of the porgy chum, in that if the
seller
were insolvent, the
insured
might not be able to recover the money he paid for the porgy chum. The
insured
stood
in a legal or equitable relation to the
insurable
property, the porgy chum,
since
it had purchased it pursuant to a
sale
contract and paid for it and, accordingly, any prejudice it
suffered
through the loss of the porgy chum arose as a consequence of that legal or equitable relation to the property.
- In my judgment, the principle established by Cumberland Bone, as
stated
in the principle
set
out in MacGillivray,
should
now be recognised as a principle of English law, which is not in any
sense
dependent upon the goods being ascertained or part of a
sufficiently
identified bulk for there to be an
insurable
interest. Furthermore, Cumberland Bone is not an isolated or outlying case. Although there may be a debate as to whether Inglis v
Stock
was a case where the goods were an unascertained part of a bulk, it is
striking
that Lord Blackburn at least, in the passage quoted at [96] above, considered that it was not necessary for the goods to be an identified part of a bulk for there to be an
insurable
interest. There is nothing in the judgments in that case to
suggest
that there cannot be an
insurable
interest unless the goods in question are
sufficiently
identified.
- Devani, on which Mr MacDonald Eggers KC placed
some
reliance, is not in any
sense
concerned with
insurable
interest. I also agree with Mr Khurshid KC that Devani is not authority either for the
suggestion
by Mr MacDonald Eggers KC that the test as to whether there is a proprietary interest
should
also be applicable to whether there is a possessory interest. However, even if it were, Devani would
still
be of no relevance to the present case,
since
Quadra's
right to possession derives from Ukrainian law not the
SGA.
That case is certainly not authority for the proposition that the test under
section
20A of the
SGA
for when there is a proprietary interest
should
also be applicable to
insurable
interest. Likewise, Goldcorp is also a case that relates to the passing of property between
seller
and buyer and has nothing whatsoever to do with
insurable
interest as between
insured
and
insurer.
Mr MacDonald Eggers KC'
s
submission
that
somehow
the
same
test
should
apply to whether there is a proprietary, a possessory or an
insurable
interest is not
supported
by those cases, is illogical and, as I have
said,
confuses the question whether a buyer under a
sale
contract has a proprietary interest in the goods with the
separate
question whether the buyer as
insured
has an
insurable
interest.
- I agree with Mr Khurshid KC that, on the basis that
section
20A of the
SGA
is not applicable to the question whether there is an
insurable
interest, it cannot be
said
that the bulk of which the grain in this case formed a part was insufficiently certain or
speculative
for
Quadra
to have an
insurable
interest in it. The premise of this
second
ground of
appeal
is that grain corresponding in quantity and description to the Cargoes was physically present in the Elevators and that
Quadra
had paid for that grain. In those circumstances,
Quadra
clearly had an
insurable
interest in the grain. It follows that the
second
ground of
appeal
must be dismissed.
- Given that the dismissal of the first and
second
grounds of
appeal
is determinative of the
appeal
against the
insurers,
the third and fourth grounds would not lead to the
appeal
being determined in favour of the
insurers
even if they were well-founded, which they are not. However, I will deal with them, albeit more briefly.
- In my judgment, not only was the judge correct to conclude that payment or part-payment of the price of the goods conferred on
Quadra
a
sufficient
insurable
interest, but he was also correct to conclude that
Quadra
had an
insurable
interest in the goods for the additional reason that it had an immediate right to possession of the goods under Ukrainian law, which was the applicable law. The third ground of
appeal
challenged the judge'
s
conclusion on that issue and, in particular criticised his reasoning in [99] of the judgment, which I have quoted at [38] above.
- Contrary to the
insurers'
contention, it is quite clear that
Quadra
had pleaded that it had an immediate right to possession as a matter of Ukrainian law,
so
that that was in issue at the trial, as the judge rightly recognised. However, the only positive case on Ukrainian law pleaded by the
insurers
in response was that various technical and legal deficiencies in the Warehouse Receipts rendered them invalid as a matter of Ukrainian law. There was no case pleaded by the
insurers
that, even if the Warehouse Receipts were valid, they could not confer an immediate right to possession, as a matter of Ukrainian law, in circumstances where the
seller
had already conferred
such
a right to possession of the
same
goods on other third party traders. In my judgment, the judge was correct to
say
that it was incumbent on the
insurers
to plead that positive case and, if they did not do
so,
it was not for
Quadra
to anticipate the point and put forward its own case on it.
- The applicability of Ukrainian law to the issue of immediate right to possession was the
subject
of expert evidence, but
insurers
did not call any expert evidence of Ukrainian law to
support
the proposition now advanced, that
Quadra
could not have an immediate right to possession where there were competing rights of possession of other traders. The
insurers
cannot make good the inadequacies in the expert evidence of Ukrainian law which they adduced by resorting to either of the two general rules identified by Lord Leggatt JSC in Brownlie. The rationale for applying the
so-called
default rule, that English law applies to the issue of whether
Quadra
had an immediate right to possession, is of no relevance here for the reason given by Lord Leggatt at [116] of his judgment.
Quadra
pleaded that Ukrainian law is applicable to the issue of whether it had an immediate right to possession, which, as the judge found was a well-founded case,
so
that it is the duty of the
Court
to apply Ukrainian law, not English law, to that issue.
- Furthermore, the case based on the presumption of
similarity
is equally misconceived.
Insurers
having failed to adduce evidence of Ukrainian law on the issue of whether
Quadra's
immediate right to possession under that law would be defeated by competing rights to possession of other traders, it would be procedurally unfair, for the reason given by Lord Leggatt at [152] of his judgment, to allow the
insurers
to contend now that that issue
should
be determined on the basis that Ukrainian law
should
be presumed to be the
same
as or
similar
to English law and, in particular,
should
be presumed to have a nemo dat rule.
- I also consider that the judge was right to conclude at [99] that, as a matter of fact, the
insurers
had not established that the Elevators had granted an immediate right to possession of the
same
grain to other traders before issuing the Warehouse Receipts to
Quadra.
It cannot
simply
be inferred that that was the case from the nature of the fraud, as Mr MacDonald Eggers KC
seemed
to be
suggesting
in his reply
submissions.
Since
I have concluded that the judge was correct that
Quadra
had an
insurable
interest in all the Cargoes both by virtue of payment or part payment and by virtue of having an immediate right to possession of them as a matter of Ukrainian law, it is not necessary to consider the third basis on which
Quadra
argued that it had an
insurable
interest, that the goods were
sufficiently
identified for the purposes of
section
20A of the
SGA,
so
that
Quadra
had an
insurable
interest in the grain, as it had acquired a proprietary interest in it. This was the
subject
of Additional Ground 2 of the Respondent'
s
Notice. It raises complex issues in relation to whether the grain at any particular Elevator fell within the definition of "bulk" in
section
61(1) of the
SGA
and whether, if it did, that bulk was identified in the Agri Finance Contract or by
subsequent
agreement between the parties in the Warehouse Receipts for the purposes of
section
20A of the
SGA.
- Given that it is not necessary to decide that issue to determine the present
appeal
and anything this
Court
said
about it would be obiter, I consider it better to leave the issues raised by
section
20A of the
SGA
for
decision
in another case where they would be determinative of the
appeal.
In this context, I have in mind the
salutary
observation of Mummery LJ in Housden v The Conservators of Wimbledon and Putney Commons [2008] EWCA Civ 200; [2008] 1 WLR 1172 at [30]:
"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."
- Mr MacDonald Eggers KC effectively recognised that the fourth ground of
appeal
could not
succeed
if the other grounds failed, describing it as a reality check, particularly in relation to the
second
ground. In my judgment, the fourth ground is misconceived for at least two reasons. First, there was no evidence before the
Court
as to whether these or other
insurers
had paid a full indemnity to other
insureds
in respect of the
same
grain and, if
so,
what were the terms of any contract of
insurance
pursuant to which
such
indemnity was paid.
Second,
as Mr Khurshid KC
submitted,
even viewing the matter hypothetically, there could be no principled objection to payment by the
insurers
of
several
indemnities in respect of the
same
grain if that was the consequence of the wording of the contracts of
insurance
which they issued. As he
said,
given that on this hypothesis, the
insurers
will have received the full premium from each
insured
for the risk they undertook, it is unremarkable that the law
should
require them to fulfil their contractual obligations. Furthermore, Mr Khurshid KC is correct that
Quadra's
recovery under the Policy reflects its own interest in the grain, not any loss
sustained
by anyone else,
so
no question could arise of
Quadra
having been over-indemnified.
Since,
if grain corresponding in quality and description to the Cargoes was physically present in the Elevators at the time that the Warehouse Receipts were issued and if
Quadra
had an
insurable
interest in those goods, it was entitled to an indemnity under the Misappropriation Clause, it is not necessary to consider Additional Ground 3 of the Respondent'
s
Notice which relies in the alternative on the Fraudulent Documents Clause. As noted at [109] above, ultimately Mr Khurshid KC only relied upon the clause in
support
of a proposition that the Policy contemplates competing interests in goods.
- For all these reasons, this
appeal
must be dismissed.
Lord Justice Popplewell
- I agree.
Lord Justice
Snowden
- I also agree.
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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2023/432.html