The English Court of Appeal recently upheld a lower Court decision granting judgment in favour of Quadra, the claimant insured, obliging defendant cargo insurers to meet Quadra’s losses.

The case arose out of the Agroinvest grain fraud in Ukraine. Agroinvest and related companies would sell cargo of the same contractual quantity and description multiple times and obtain payment. Agroinvest collapsed in 2019, leaving insufficient cargo available for competing purchasers. Quadra claimed under its cargo policy, which was governed by English law, for its losses.

The issues

There are four key themes to highlight. First, Quadra would not have been able to point to specific cargo that was theirs – the cargo was not segregated into parcels belonging to individual customers but was part of an undivided bulk. The Court held that this and the fact Quadra could not prove ownership was not fatal to the claim.

The Court accepted Quadra’s argument that it had paid for the cargo and had a right of possession (under Ukrainian law) to it. In light of the policy’s broad insurable interest clause, Quadra was entitled to succeed. Lord Justice Flaux, who gave the lead opinion, said, "Grain corresponding in quantity and description to the cargoes was physically present in the elevator, and … Quadra had paid for that grain," Justice Flaux said. "In those circumstances, Quadra had an insurable interest in the grain."

Two, crucial to the judgment was the Court’s acceptance of Quadra’s evidence that the cargo existed, in fact, in reliance on regular stock reports from a Quadra-appointed survey company.

Three, English law has a line of authority that an insured cannot claim loss and damage where cargo has never existed. That line of authority remains unaffected by the Quadra judgment. Most recently, in Engelhart CTP v Lloyd’s Syndicate 1221 [2018], the insured purchased copper ingots in containers. On arrival at the destination, the containers were found to contain slag, not ingots. The insured’s claim under its cargo policy failed – there was no loss or damage to which the policy responded.

Four, the sums involved in Quadra were relatively modest. The judgment gives rise to the possibility of claims by multiple insureds for the loss of the same cargo. The Court found that there can be no objection to insurers having to pay multiple times for the same grain “if that was the consequence of the wording of the contracts of insurance which they issued”.

The judgment has been described as a significant victory for policyholders. However, insurers can take steps to protect their own position. These might include use of a misappropriation exclusion clause or, if granting misappropriation cover, applying a low annual aggregate or low sub-limits and/or imposing regular survey and inspection requirements.