The assured, as the Respondent in the Appeal, advanced three additional arguments as to why the High Court decision should be upheld:

• The assured had provided sufficient evidence (i.e. inspection reports) that goods corresponding in quantity and quality were physically present in storage to satisfy its prima facie burden of proof, and therefore the evidential burden of proof had transferred to insurers to adduce evidence to the contrary (which they failed to do).
• The assured had an insurable interest in the goods found to be physically 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 Sale of Goods Act 1979.
• If necessary, to the extent Insurers could establish there were competing interests in each of the cargoes, the assured’s loss would nonetheless be covered by a “Fraudulent Documents” clause in the Policy.

A short summary of the Court of Appeal’s decision

Were there goods corresponding in quantity and quality to the purchased cargoes physically present in storage at the time the warehouse receipts were issued?

The insurers argued that the judge at first instance had placed excessive reliance on certain categories of evidence when concluding that there were goods physically present in storage corresponding to those purchased by the assured and referred to in the warehouse receipts. They argued, among other things, that, because the fraud involved the issuance of multiple warehouse receipts in respect of the same goods to different traders, the assured’s warehouse receipts could not be relied on. As regards periodic contemporaneous inspection reports which the assured put forward as evidence of the physical presence of goods, these were said to have been based on fraudulent information provided by the storage operators.

The assured also relied on the nature of the fraud, but argued that the success of the fraud relied on any one trader being able to inspect goods and find that there were at least enough present to satisfy their interests. The Court of Appeal accepted that it would have been very risky and likely to have led to early discovery of the fraud if at least one consignment of the relevant type of grain had not been present. The assured’s inspectors had measured the quantities in storage using a laser meter and recorded in each case that there was at least as much in stockpile as was meant to be held for the assured. Moreover, the judge at first instance had correctly relied on two physical deliveries of quantities of goods to the assured to fulfil sale contracts as being corroborative evidence of the physical presence of goods. As an additional ground, the assured argued that the burden of proof was on the insurers to show that there were not in fact goods physically present.

The Court of Appeal upheld the High Court’s decision. It found that there was “ample evidence” that goods corresponding to the sale contracts and the warehouse receipts were physically present, and that it was “integral to the fraud” that the goods could be inspected by the various market participants with interests in them. Agreeing with the High Court judge, the Court of Appeal concluded that the most important evidence came from the assured’s contemporaneous inspection reports. Taken together with the wide definition of “interest” in the Policy, this was sufficient, subject to the second issue referred to below, to establish the assured had an insurable interest in the goods in storage.

Did the assured have an insurable interest in the goods in circumstances where they did not form part of a bulk which was sufficiently identified?

The insurers argued that there could be no insurable interest unless the goods were identifiable and identified. Insurers sought to argue that the same logic that applies to whether or not a person has title in goods commingled and forming part of a bulk should apply to whether or not the assured had an insurable interest. This was on the basis that, if a person cannot own goods without knowing what they are, nor can they have a right to possession of them, or an insurable interest in them, without knowing what they are. Insurers argued that, in this case, the goods in the warehouses were constantly being drawn down and replenished, so the bulk forming the assured’s goods could not be said to be sufficiently identified. As a result, in their submission, the assured’s loss was purely financial.

The assured argued that the English courts had long recognised their duty to lean towards finding the existence of an insurable interest, if possible. The case law relied on by the insurers did not support their case and, to the contrary, it was clear that the law relating to property in goods was distinct from the question whether a person has an insurable interest in them. In particular, the assured argued that Cumberland Bone Company v Andes Insurance Co 64 Me 466 (1874), a US case from the Supreme Judicial Court of Maine which was founded on English authority, directly supported the proposition that an insured may have an insurable interest in unascertained goods, irrespective of whether they form part of an identified or an unidentified bulk. Alternatively, if necessary, the assured argued it did have a proprietary interest in the goods because they were sufficiently identified.

The Court of Appeal’s decision on this ground firmly upheld the High Court’s judgment. The insurers’ application of the law relating to proprietary interests to the question of whether the assured had an insurable interest was unsupported by authority and confused separate issues. Finding for the assured, the Court of Appeal held that the principle in Cumberland Bone should now be recognised as a principle of English law. That means that, under English law, even if neither property nor risk in goods has passed to the buyer, payment or part-payment of the price for those goods will give the buyer an insurable interest and such insurable interest “is not in any sense dependent upon the goods being ascertained or part of a sufficiently ascertained bulk”.

Did the assured have an insurable interest in the cargoes by way of an immediate right to possession?

The insurers argued that the High Court’s finding that the assured could also rely on an insurable interest derived from its immediate right to possession of goods by way of the warehouse receipts was wrong, because this issue should be determined as a matter of English law, not Ukrainian law. Although the question of whether the warehouse receipts were valid as a matter of Ukrainian law had been determined at first instance, the insurers argued the High Court had not dealt with what would happen if there were competing warehouse receipts.

The assured submitted that it had, in fact, pleaded a possessory interest as a matter of Ukrainian law in the High Court, and it fell to the insurers to plead there was no such interest as a result of other traders’ interests in the same goods. The insurers had failed to plead this.

On the basis that the Court of Appeal had already found the assured had an insurable interest, this question was not determinative. Nonetheless, the Court upheld the High Court decision and found that the insurers had failed to call evidence of Ukrainian law on this issue and it would be procedurally unfair to allow them to contend on appeal that the issue should be determined by reference to English law.

As a result of all the above, it was not necessary to consider the assured’s additional ground that it had, in fact, had a proprietary interest pursuant to section 20A of the Sale of Goods Act 1979. So in this case, that question went undetermined.

Did the practical consequences of the High Court decision indicate that the decision must have been wrong?

The insurers’ final ground of appeal was a “reality check”, highlighting that, in their view, there would be an unfairness if, as a result of the fraud, the same cargo was sold to, for example, six traders, each of whom had taken out insurance with the same insurers, and those traders were each found to have an insurable interest in the same cargo and a right to an indemnity if it was lost.

The assured submitted that there could be no principled objection to the payment by insurers of several indemnities, provided that that was a consequence of the cover under the various policies they had each agreed. Each assured would have paid a premium, for which the insurers undertook a risk, and there was no question of an over-indemnification of any one insured trader.

The Court of Appeal again upheld the decision of the High Court. This ground relied on the insurers succeeding on the other grounds, which they had failed to do. In any event, the insurers’ argument was dismissed both because there was no evidence that other insurers had paid a full indemnity to other insureds in respect of the same goods and because, in any case, it was unremarkable that an insurer may have to fulfil its contractual obligations to several insured traders.

As a result of the above the question of whether the assured was entitled to an indemnity under the “Fraudulent Documents” clause in the Policy did not need to determined, so that question went undecided by the Court of Appeal.

Significance of the Court of Appeal’s decision

The Court of Appeal’s judgment, upholding the High Court decision in its entirety, provides welcome clarification on the subject of insurable interest.

Firstly, the Court of Appeal recognised and re-affirmed the trend in cases involving insurable interest that courts will lean towards finding that an insurable interest exists.

Secondly, it is now clear that an assured can have an insurable interest in unascertained goods, irrespective of whether they form part of an identified or an unidentified bulk, and regardless of whether the insured had acquired title to the goods or a proprietary interest in part of a bulk of commingled goods.

Thirdly, it is clear that all that is required in order for an assured to have an insurable interest in goods is either:

(a) a right that arises from a contract relating to the goods, such as where a buyer has assumed risk in the goods under a sale contract; or

(b) legal ownership of/title to the goods; or

(c) possession of and a right to possession of the goods (at least when accompanied by an economic interest in the goods); or

(d) payment or part-payment of the price for the goods (whether or not those goods have been ascertained or are part of a sufficiently ascertained bulk).

Finally, upholding the High Court’s decision in this case, the Court of Appeal placed the most reliance on contemporaneous inspection reports when deciding that there were, as a matter of fact, goods in storage corresponding to those which were purchased by the assured. As a practical matter therefore this suggests that it is useful and even important to conduct inspections and maintain records of them.

In-depth 2023-098