Quadra Commodities SA v XL Insurance Company SE & Ors

Factual and Procedural Background

The appeal concerns whether the Plaintiff had an insurable interest in certain grain cargoes purchased, which were subject to a fraud perpetrated by their sellers, Company B and related entities within the same group in Ukraine. The Plaintiff brought a claim under a Marine Cargo Open Policy against the Defendant insurers. The judge, Judge Butcher, entered judgment for the Plaintiff, and the Defendants were granted permission to appeal on four grounds, with three additional grounds refused permission to appeal.

The Plaintiff had dealings with Company B under a contract dated 24 May 2018 and with another group company for asset financing. The Marine Cargo Open Policy covered shipments of cereals and grains, including provisions for fraudulent documents and misappropriation. The contract and policy were governed by English law following an endorsement.

The claim concerned three addenda to the main contract, involving purchases of Ukrainian corn, with warehouse receipts issued by storage companies within the Agroinvest group. The Plaintiff declared the cargoes to the insurers and arranged monthly inspections by an inspection company, Bastico, which conducted visual inspections and document reviews at the storage facilities.

In January 2019, the Plaintiff took physical delivery of some grain and subsequently claimed indemnity under the policy for losses due to misappropriation connected with a fraud involving multiple warehouse receipts issued for the same grain parcels. The Defendants challenged the existence and identification of the goods, the Plaintiff's right to possession, and the practical consequences of the judgment.

Legal Issues Presented

1. Whether the Plaintiff had an insurable interest in the cargoes of grain under the Marine Cargo Open Policy.
2. Whether goods corresponding in quantity and description to the cargoes were physically present in the storage facilities at the time the warehouse receipts were issued.
3. Whether the Plaintiff had an immediate right to possession of the goods under Ukrainian law.
4. Whether the goods formed part of a sufficiently identified bulk to confer an insurable interest.
5. The practical consequences arising from the judge’s decision on insurable interest and indemnity.

Arguments of the Parties

Defendant's Arguments

• The Plaintiff failed to prove that goods corresponding to the cargoes physically existed in the storage facilities at the time the warehouse receipts were issued.
• The warehouse receipts contained untruthful statements due to the fraud, thus they could not be relied upon as evidence of existence or ownership of the goods.
• The inspection reports were of limited evidential value because inspectors did not sample the goods and relied heavily on fraudulent documents.
• Goods must be identified or ascertained to confer an insurable interest; unascertained goods or goods forming part of an unidentified bulk do not qualify.
• The Plaintiff did not have an immediate right to possession of the goods, especially considering competing rights of other parties.
• The practical effect of the judge’s decision would cause multiple indemnities for the same goods, which is unfair and incorrect.

Plaintiff's Arguments

• The Plaintiff adduced sufficient evidence from warehouse receipts, inspection reports, and physical deliveries to prove the physical presence of goods corresponding to the cargoes.
• The warehouse receipts and related documentation, although subject to fraud, evidenced the physical presence of the grain in the storage facilities.
• The Bastico inspection reports, including measurements of grain volume, were reliable and the most important evidence supporting existence of the goods.
• The Plaintiff had an insurable interest by virtue of payment under contracts and an immediate right to possession under Ukrainian law.
• The requirement that goods form part of a sufficiently identified bulk for insurable interest is not applicable to insurance contracts and would unduly restrict insurable interests.
• The practical consequences argued by the Defendants do not negate the Plaintiff’s right to indemnity under the policy.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the evidence holistically, emphasizing the nature of the fraud which involved multiple warehouse receipts issued for the same grain but did not deny the physical existence of grain in the storage facilities. The court found that the warehouse receipts and supporting documents, while unreliable for ownership, provided some evidence of the presence of grain corresponding in quantity and description to the cargoes.

The Bastico inspection reports were considered the most important evidence. Despite limitations such as lack of sampling and reliance on elevator documents, the visual inspections and laser measurements supported the presence of the grain. The court found it unlikely that the inspectors were shown false quantities or grades of grain given the risk of early detection of the fraud.

Physical deliveries made by the Plaintiff corroborated the presence of the grain. The court rejected the Defendants’ argument that the goods must be ascertained or form part of an identified bulk under the Sale of Goods Act to confer an insurable interest, distinguishing insurable interest from proprietary interest.

The court held that payment or part-payment under the purchase contracts gave the Plaintiff a legal or equitable relation to the goods sufficient for insurable interest, consistent with established authorities. The Plaintiff’s immediate right to possession under Ukrainian law was also upheld, with the court rejecting the Defendants’ contention that competing rights defeated this interest, especially given the lack of evidence and pleading on that point.

The court declined to decide on the proprietary interest under section 20A of the Sale of Goods Act, considering it unnecessary and potentially obiter dicta. Practical concerns raised by the Defendants regarding multiple indemnities were dismissed as speculative and not a basis to overturn the judgment.

Holding and Implications

The court DISMISSED the appeal, affirming the judgment in favor of the Plaintiff.

The holding confirms that a purchaser who has paid for goods and has an immediate right to possession under applicable law has an insurable interest in those goods for the purposes of marine cargo insurance, even if the goods are unascertained or form part of a bulk not identified as required for proprietary title under the Sale of Goods Act.

This decision clarifies that insurable interest is a broader concept than proprietary interest and does not require identification of goods to the same extent. The ruling underscores that evidence of physical presence, supported by inspection reports and documentation, suffices to establish existence of goods for insurance claims, notwithstanding underlying fraud.

No new precedent was set regarding the application of section 20A of the Sale of Goods Act, as the court left that issue open for future determination. The decision primarily affects the parties by affirming the Plaintiff’s entitlement to indemnity under the policy.