Reed Smith In-depth

In our client alert dated 7 March 2022, we reported on the English High Court decision in Quadra Commodities S.A. v XL Insurance and others [2022] EWHC 431 (Comm). The case was one in which the High Court ordered insurers to indemnify a commodity trader for the misappropriation of commodities following the “Agroinvest Group fraud” and bankruptcy. The insurers appealed against the High Court’s decision to the Court of Appeal. The Court of Appeal handed down its judgment on 21 April 2023 (Quadra Commodities S.A. v. XL Insurance & Ors [2023] EWCA Civ 432).

This client alert reports on and summarises the decision of the Court of Appeal, which includes important findings relating to the concept of insurable interest in the context of transactions that are fairly common in commodities trade finance and commodities trading.

The facts in brief

As we reported in our client alert following the High Court’s decision, the assured was a trader of agricultural commodities. It had purchased goods in Ukraine from Agroinvest Group entities under a series of purchase contracts intended to provide pre-export finance to the Agroinvest Group. By January 2019, the assured had entered into purchase contracts under which it had paid 80 per cent of the price towards a number of cargoes stored at various storage locations inland in Ukraine. In return for payment of 80 per cent of the price, the assured obtained warehouse receipts for each purchase confirming the agreed quantity of the agreed quality cargo was in storage.

By February 2019, the ‘Agroinvest Group fraud’ had come to light. It affected several market participants. The goods acquired by the assured had all but disappeared and were lost. The precise details of the fraud remain unclear, but at some point the quantities in the warehouses became insufficient to cover the claims for delivery made not only by the assured but also by other financiers/traders with goods notionally stored at the same storage locations.

The assured advanced a claim under a marine cargo open cover insurance policy (the Policy). but the insurers denied liability. In May 2020, the assured commenced proceedings in the High Court in which it succeeded in its claims for an indemnity and its sue and labour costs. The insurers appealed to the Court of Appeal.

What were the main issues in the Court of Appeal?

The key issues arising before the Court of Appeal can be summarised as follows:

  • Were there actual goods corresponding in quantity and quality to the purchased cargoes physically present in storage at the time the warehouse receipts were issued?
  • Did the assured have an insurable interest in the goods in circumstances where they did not form part of a bulk that was sufficiently identified?
  • Did the assured have an insurable interest in the cargoes by way of an immediate right to possession?
  • Did the practical consequences of the High Court’s decision, namely that, in light of the High Court’s judgment, several insureds could claim for loss of the same cargoes, indicate that the decision must have been wrong?