THERA AGRI CAPITAL NO 2 PTY LTD V BCC TRADE CREDIT PTY LTD

[2022] NSWSC 669, New South Wales Supreme Court, Justice Rees, 31 May 2022

Insurance (trade credit) – Assured agreed to finance purchase of commodities using Sharia-compliant Murabaha arrangement – Borrower used sums to purchase different commodities – Murabaha arrangement not followed – Whether insurers liable for bad debt under trade credit policy

The assured, TA, agreed to provide supply chain finance to PG (a UAE company) and its Australian subsidiary PA to fund the shipment of grains and pulses from Australia to India and South-East Asia. The facility was guaranteed by PC, the British Virgin Islands parent company of PG and PA. As the charging of interest was prohibited by Sharia law, it was agreed that the parties would use a Murabaha scheme under which PG would select grains and pulses from a third party vendor, the invoice would be sent to TA and paid by PG as agent for TA. Thereafter, PA would purchase the goods from TA at a higher price. TA was insured by BCC under a trade credit policy which indemnified TA for losses. In the event, and known to BCC, the goods were purchased by PG using funds provided by TA on receipt of invoices showing the sales had taken place. Some AUS$7.3 million was provided in four drawdowns. PG defaulted on the loans and PC defaulted on the guarantee, the companies becoming insolvent. It later transpired that there had been fraud by PG, in that the transactions did not exist and the sums had been used to purchase other goods from companies in Dubai and Singapore. The financing was therefore not Sharia-compliant BCC denied liability under the policy, arguing that what had occurred fell outside the policy definitions of "Deferred Sale Price" and "Advanced Payment".