Reed Smith In-depth

The High Court has ruled in favour of ABN Amro in connection with claims for losses arising out of the Transmar Commodities Group’s defaults to lenders and subsequent insolvency. On 26 February 2021, some three years after first bringing claims under its marine open cover policy, ABN Amro was awarded an indemnity for its losses suffered in connection with a series of commodity repo transactions with Transmar Commodities Group entities - notwithstanding that no physical loss or damage occurred.

After a turbulent 2020, in which the global commodities and commodities finance markets experienced a large number of defaults and bankruptcies, it is hoped that this important judgment will provide a degree of comfort to commodities finance market participants, namely that the management of risk in commodities through insurance works and that insurers will be held by Courts to stand by agreements in accordance with their terms including, as in this case, where the losses are financial rather than physical.

In this alert we attempt to summarise the ABN Amro case and some of its implications for the commodities and commodities finance sectors. The judgment itself runs to 260 pages and can be accessed in full detail at bailii.org.

Authors: Margaret E. Campbell Elizabeth Farrell Laura-May Scott Charlotte Stewart-Jones Nazanin Tajbakhsh Kyri Evagora

A. What is the decision about?

ABN Amro Bank N.V. (the “Bank”), represented by Reed Smith, obtained judgment in respect of its £35 million insurance claim, relating to losses suffered as a result of the defaults by the Transmar Commodities Group under commodities repo transactions.  The central and most important issue in the case was the scope and extent of cover available under an all risks marine cargo insurance policy which contained a bespoke so-called “Transaction Premium Clause” (the “TPC clause”) which was designed and drafted to provide for financial loss arising from default.

Following a five-week trial in November/December 2020, the judgment of Mr Justice Jacobs was handed down on 26 February 2021 (ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance plc and others [2021] EWHC 442 (Comm)). The court found in favour of the Bank, and against Royal & Sun Alliance Insurance plc (the lead underwriters), 11 of the 13 following underwriters, and the Bank’s insurance broker, Edge Brokers (London) Limited.

The judgment provides guidance to insureds and in particular those engaged in the commodities business, on numerous aspects of the insurance of risks. The judgment addresses the construction of insurance policies, non-disclosure, misrepresentation, non-avoidance clauses and the extent of the insured’s duty to exercise due diligence and sue and labour. It also considers the duties of insurance brokers.