Reed Smith In-depth

Key takeaways

  • Judgments are emerging from courts in common law jurisdictions which increasingly suggest that the courts will uphold trade credit repos as being (a) true sales; (b) a common feature of commodities trading; and (c) of a type that trade credit insurers know about or are deemed to know about when insuring trade credit risks.
  • This alert examines two such recent judgments.


  • Structured trade finance transactions with physical commodities as the underlying assets are common. Such transactions often have the provision of credit as their main or ancillary purpose. In this client alert, we refer to trade finance transactions involving the sale and repurchase of physical commodities as, loosely, trade credit repos.1 The risk of a buyer defaulting under a trade credit repo is often insured in the trade credit insurance market.
  • Questions surrounding the character of trade credit repos are frequently the subject of scrutiny by courts, liquidators and regulators. Such questions are most common in cases of default or bankruptcy, but sometimes arise in cases involving fraud. The courts have shown a tendency to find that trade credit repos involving physical goods which involve transfers of title (including flash title transfers) are true sales.2
  • Different issues arise in cases involving trade credit insurance. A recent spate of cases suggests that trade credit insurers will question cover with respect to trade credit repos involving deferred payments based on allegations of material non-disclosure and misrepresentation.
  • Judgments are emerging from courts in common law jurisdictions which suggest that the courts are increasingly willing to uphold credit insurance claims in connection with trade credit repos.
  • In this client alert, we look at the decisions of the Malaysian and New South Wales courts in Westford Limited v. Archipelago Insurance Limited [2023] (Suit No. WA-22NCC-622-12/2020) and BCC Trade Credit Pty Ltd v. Thera Agri Capital No 2 Pty Ltd [2023] NSWCA 20. Both cases arise from the liquidation of the Phoenix commodities trading group in 2020. Both cases also involve claims under trade credit insurance policies following Phoenix’s non-payment defaults.
  • The courts in these cases considered a wide range of issues. We focus in this client alert on the key points arising from the defences put forward by the trade credit insurers.

Westford Limited v. Archipelago Insurance Limited (Malaysian High Court)


The insured, a commodities trader, Westford Limited (the Insured) took out a trade credit insurance policy with Archipelago Insurance Limited (the Insurer). The Insured entered into trade credit repos. Under those repos, the Insured purchased commodities from third-party suppliers and resold those goods to Phoenix Global DMCC. The insurance was intended to protect against the risk of Phoenix’s non-payment.

The Insured sold commodities to Phoenix with a total value of US$4.96 million. Phoenix failed to pay and so the Insured commenced court proceedings in Malaysia under the trade credit insurance policy.

Avoidance defence: Did the Insured misrepresent the risk?

The Insurer argued that the contracts between the Insured and Phoenix were “disguised financing agreements” rather than genuine trades. The Insurer said that the Insured had failed to disclose its true involvement as a financing intermediary in the transaction, and that such material non-disclosure invalidated the insurance claim.

The court rejected the Insurer’s arguments and held that the trades with Phoenix were consistent with standard commodities trading practice. In making that finding, the court relied on evidence that:

  • Certificates of origin were issued in respect of the goods.
  • The trade credit repo involved the Insured entering into purchase and back-to-back sale contracts in respect of the goods on terms consistent with standard commodity trading practices.
  • There were SWIFTs showing that the Insured paid the supplier for the goods.
  • The Insured had issued invoices demanding payment by Phoenix.
  • Phoenix had acknowledged receipt of the goods and the sums it owed to the Insured.
  • Perhaps most importantly, bills of lading (which are documents of title) were provided by the third-party supplier to the Insured and were then sent on by the Insured to Phoenix.

Coverage defence: Did the Phoenix trades fall within the scope of the policy?

The Insurer attempted a second bite at the cherry. It argued that discrepancies in shipping documents were evidence that, even if the risk was not misrepresented, the transactions with Phoenix were still “disguised financing transactions” and so ineligible for coverage.

In particular, the Insurer argued that the trade credit repos with Phoenix were not covered since they were financings and therefore not arms-length trades, as required by the terms of the policy. The court again rejected the Insurer’s arguments and held that there was no coverage defence because:

  • The Insured had robustly demonstrated its ownership and title to the goods: the bills of lading evidenced a clear and legally sound chain of ownership transfer from the supplier to the Insured, and then to Phoenix.
  • The transactions with Phoenix were at arms-length, with each of the Insured and Phoenix having advanced its own commercial interests in negotiations.
  • The claim was a credit insurance claim as it arose from Phoenix’s non-payment of invoices relating to commodities trades.

The Insurer therefore had no avoidance defence and no coverage defence, and so the insurance claim was successful.