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

[2023] NSWCA 20, New South Wales Court of Appeal, Justice of Appeal Macfarlan, Justice of Appeal White and Acting Justice of Appeal Basten, 20 February 2023

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, Thera, 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 Thera and paid by PG as agent for Thera. Thereafter, PA would purchase the goods from Thera at a higher price. Thera was insured by BCC under a trade credit policy which indemnified Thera for losses. In the event, and known to BCC, the goods were purchased by PG using funds provided by Thera on receipt of invoices showing the sales had taken place.