IBBCO Trading Pty Ltd v HIH Casualty and General Insurance Ltd

[2001] NSWSC 490

CITATION:	IBBCO Trading Pty Ltd v HIH Casualty & General Insurance Ltd [2001] NSWSC 490
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50105/2000
HEARING DATE(S):	30 and 31 May 2001
JUDGMENT DATE:	31 May 2001
PARTIES :	IBBCO Trading Pty Limited (Plaintiff) HIH Casualty and General Insurance Ltd (Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	PW Taylor SC (Plaintiff) No appearance for defendant
SOLICITORS:	Clayton Utz (Plaintiff)
CATCHWORDS:	Claim for indemnity under Export Policy of Trade Credit Insurance - Indemnity denied on basis of alleged dispute between Buyer and Insured - Whether dispute existed - whether Insurer entitled to refuse to indemnify Insured.
LEGISLATION CITED:	Insurance Contracts Act, 1984
CASES CITED:	A & B Taxis Ltd v The Secretary of State (1922) 2 KB 328 Elliott Steam Tug Co Ltd v The Shipping Controller (19220 1 KB 127
DECISION:	Application allowed. Judgment stayed pursuant to leave granted to proceed.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

DATE: 31 MAY 2001

050105/00 - IBBCO TRADING PTY LTD v HIH CASUALTY & GENERAL INSURANCE LTD

JUDGMENT

1    The proceedings were commenced on 3 August 2000 by the plaintiff, IBBCO Trading Pty Ltd (IBBCO) against the defendant, HIH Casualty General Insurance Limited, with which IBBCO is insured under a policy E97/TC/031411 (the Policy) relevantly for the policy period 1 November 1997 to 31 October 1998. A Provisional Liquidator was appointed to the defendant on 15 March 2001. On 4 May 2001 Hunter J granted to IBBCO leave to proceed in these proceedings against the defendant upon the condition that any judgment obtained by IBBCO in the proceedings be stayed until further order of the Court.

2    This matter was listed for hearing on 30 May 2001 for three days. On 30 May when the matter was called on, Mr P W Taylor SC, appeared for the plaintiff and there was no appearance for the defendant. Solicitors for the Provisional Liquidator, Blake Dawson & Waldron, wrote to the solicitors for the plaintiff and to the solicitors formerly acting for the defendant, Minter Ellison in Melbourne and stated the following in a facsimile of 23 May 2001:

We have been instructed to advise you that HIH will not appear at the trial of this action to defend this action. The Provisional Liquidator will consider any proof of debt lodged by your client in due course on the basis of a judgment obtained in these proceedings and reserve all their rights to consider such a proof of debt should it be lodged.

3    These proceedings arise from the denial by the defendant of a claim by IBBCO under the policy. That claim was in respect of a failure by Luxembourg Corp De Lux Meat Corp SA (Delux) to accept and pay for frozen meat goods after delivery pursuant to 18 contracts for sale of the goods which were entered into by IBBCO and Delux in October and November 1997. The goods were shipped CIF for delivery in Koper, Slovenia.

4    IBBCO carries on the business of exporting beef products such as beef and veal, sheep meats, goat, pork, offal, poultry, seafood and dairy products to its customers worldwide.

5    Delux became a client of IBBCO in about 1996. The usual course of dealings between IBBCO and Delux was described in detail in evidence by IBBCO Managing Director, Paul Ronald Ibbotson. Delux usually placed its orders with IBBCO by telephone to either Mr Ibbotson or IBBCO's Export Sales Manager in consultation with Mr Ibbotson. Typically the types of orders placed with IBBCO were for container loads of meat of one particular description or alternatively various descriptions.

6    At the time Delux placed an order, a price was agreed upon as well as the terms and conditions of sale. Delux advised IBBCO of the port of destination as well as the approximate date it required the goods to be shipped. When conditions of sale had been agreed, IBBCO gave an order number or exporter's reference to that order. On or shortly after the day which Delux placed the order, IBBCO would send a confirmation of sale. Delux was not expected to reply to the confirmation of sale although it had the opportunity to do so if it contained any errors.

7    After the confirmation of sale had been faxed to Delux, IBBCO obtained from its suppliers the goods which Delux had ordered. In Australia the monitoring of the products specification in respect of the contracts for supply was carried out by Ausmeat, an independent organisation responsible for quality assurance. Ausmeat conducted a quality control program approved by the Australian Meat and Livestock Corporation. Ausmeat annually licences meat export plants and meat export companies and regularly audits their inspection and export procedures. Meat cannot be exported from Australia by a plant or organisation that is not approved and licensed by Ausmeat.

8    IBBCO suppliers advised it of the net weight in metric tonnes of the goods which they supplied to IBBCO. That information was necessary to determine the total price which was payable by Delux in respect of a consignment. Arrangements were made by IBBCO to ship the consignment to the port of destination which had been designated by Delux. Generally speaking IBBCO used either P & O Nedlloyd (P & O) or Maersk Australia Limited (Maersk).

9    The goods comprising each consignment were inspected by either the Department of Primary Industries and Energy in respect of consignments that were shipped from Australia, or the New Zealand Ministry for Agriculture in respect of consignments that were shipped from New Zealand. The purpose of the inspection was for the relevant government authority to certify that the goods were fit for human consumption. If the consignment passed inspection it was loaded into a refrigerated container supplied by the shipping line which was sealed by the relevant authority and an inspection certificate was issued. The seal placed on the container bore a number which was crossed referenced to the inspection certificate.

10    Once the container had been sealed it was loaded on board the relevant vessel. The shipping line then issued an “on-board” bill of lading in respect of the consignment. The bill of lading bore the date on which the vessel sailed from the port of loading.

11    After IBBCO had received the original bill of lading it raised a commercial invoice and issued a bill of exchange addressed to Delux in respect of the consignment. IBBCO then requested its bank to collect payment from Delux in accordance with its collection instructions. On about the date on which a vessel left the port of loading it was the usual practice of P & O and Maersk to inform IBBCO of the estimated time of arrival of the vessel at the port of destination. When IBBCO received this information it would enter it into its computerised debtor system which generated a reminder on the date of the estimated time of arrival. That prompted IBBCO to contact the shipping line to confirm the actual date of arrival and to send a fax to Delux reminding it that payment was due in respect of a particular consignment. I shall return to this matter of IBBCO’s practice in due course.

12    To enable it to conduct its business effectively, IBBCO on 5 May 1997 accepted a facility from HongkongBank of Australia, now HSBC Bank Australia Limited, (the Bank). That facility comprised an Export Line and Foreign Exchange Line, which were amended from time to time.

13    The Export Line comprised a documents against acceptance facility, an overdraft facility and a bank guarantee facility.

14    The amount which was payable by Delux for each of the consignments was fixed in either United States dollars (US) or Deutsche Mark (DM). Usually a period of more than one month elapsed between the sale date and the date on which Delux was obliged to pay for a particular consignment.

15    The purpose of the Foreign Exchange Line facility was to enable IBBCO to hedge foreign exchange exposures either on a spot or a forward basis. Each time IBBCO entered into a contract of sale with Delux it was IBBCO’s usual practice to enter into a fixed date forward exchange contract pursuant to the Foreign Exchange Line under which IBBCO and the Bank agreed that on a specified future date IBBCO would exchange an amount of US or DM, being the total value of the consignment, for an amount of Australian dollars (AUD) at the exchange rate fixed on the date on which the Forward Exchange contract was entered into.

16    In the usual dealings between IBBCO and Delux a collection procedure developed which was followed in respect of each of the transactions concurrently with the Bank financing each of the transactions. IBBCO requested the Bank to collect payments from Delux in accordance with IBBCO’s collection instructions and the Bank made finance available to IBBCO in accordance with the terms of the facility.

17    Before the Bank would agree to provide IBBCO with financial accommodation in respect of a particular transaction or make collection in accordance with IBBCO’s instructions, it required IBBCO to provide it with collection instructions and a complete set of documents which complied relevantly with the Uniform Rules for Collections, No.522 (Ex. E).

18    In each of the transactions a complete set of documents comprised the bill of exchange issued by IBBCO and addressed to Delux, the commercial invoice raised by Delux, the bill of lading issued by the shipping line, an inspection certificate issued in respect of the consignment and the certificate of insurance evidencing that the consignment has been insured pursuant to a policy of marine cargo insurance. Soon after the vessel carrying a particular consignment had left the port of loading, the Bank was sent a set of Collection Documents in respect of that consignment.

19    In each transaction the collection instruction was contained in the Documentary Collection Form which IBBCO completed and sent to the Bank with the accompanying Export Documents. In each of the contracts the subject of these proceedings there was a special instruction on the Documentary Collection Form, "re-present on arrival of goods if not honoured on first presentation."

20    I should turn now to the particular contracts relied upon in this matter. The contracts were entered into between IBBCO and Delux between 17 October 1997 and 30 November 1997, (Ex. F, Vol 7). The goods ordered in the contracts were all frozen meat products consisting of boneless beef clods and rumps, contracts 1 and 10; bone in steer forequarters and hindquarters, contracts 2- 6 inclusive, to which I will refer as the steers; boneless cow striploins, contracts 7, 12 and 16; boneless beef silversides, contracts 8, 9, 11, 13- 15 inclusive and 17; boneless beef striploins, contract 18.

21    All of the contracts were for delivery to Koper from either Australia or New Zealand. The date of departure and arrival, the ships upon which the consignment left either Australia or New Zealand and the day upon which the consignment arrived at Koper have been helpfully tabulated in the document entitled Appendix A, prepared by Mr Taylor SC’s instructing solicitor, Mr Shankland. The details of the exporter's reference, the description of goods and various other matters pertinent to each of the contracts is also contained in that Appendix. That Appendix is annexed to this judgment. The dates of arrival of the consignments in Koper range between 20 December 1997 and 9 March 1998.

22    Mr Gary Spears, the Manager, Commercial Financial Services of the Bank also gave evidence. He gave evidence in relation to his management of IBBCO’s account with the Bank describing his role as a “relationship" role, in which he had the overall responsibility for managing the Bank's dealings with IBBCO.

23    Pursuant to the facility, the Bank, as the remitting bank, was requested by IBBCO to collect payment in accordance with its instructions. Banque Internationale A. Luxembourg (BIL) was the presenting bank responsible for presenting the bill of exchange to Delux for payment and making export documents available to Delux in accordance with IBBCO's instructions.

24    The terms of delivery and payment in respect of each of the contracts was "sight draft first presentation of documents". There was then the special instruction, at least on the Documentary Collection Form which was “re-present on arrival of goods if not honoured on first presentation”. Article 6 of the Uniform Rules for Collection (Ex. E) provides:

Sight/Acceptances.
In the case of documents payable at sight the presenting bank must make presentation for payment without delay. In the case of documents payable at a tenor other than sight, the presenting bank must, where acceptance is called for, make presentation for acceptance without delay and where payment is called for, make presentation for payment not later than the appropriate maturity day.

25    Mr Spears gave evidence that in accordance with Article 6, BIL was required to present the bill of exchange to Delux for payment “without delay". Having regard to his experience, his evidence in respect of the collections in relation to the bills of exchange is relevant. He said that in respect of bills of exchange which are payable “at sight", it is considered that compliance with Article 6 requires the presenting bank to present the bill of exchange to the drawee within two business days after the presenting bank receives the bill of exchange and the accompanying export documents from the remitting bank.

26    In each of the transactions, BIL acknowledged receipt of the export documents which the Bank had sent to it, either via SWIFT, which is a bank to bank telex, or by airmail. Mr Spears said that in his experience it is usual practice of a presenting bank to inform the remitting bank if it has not been able to present a bill of exchange to the drawee. In this case, BIL did not inform the Bank that such difficulty had been experienced.

27    At IBBCO’s request the Bank discounted the bills of exchange in each of the transactions. The Bank advanced to IBBCO the Australian dollar equivalent of the foreign currency amount stated in the bill of exchange against the security of the export documents. The exchange rate which had been fixed to the applicable foreign exchange contract between the Bank and IBBCO was used to determine the Australian dollar amount which the Bank advanced to IBBCO. The Australian dollar amount which was advanced was credited to IBBCO’s overdraft facility. If Delux dishonoured the bill of exchange, the Bank had a right of recourse against IBBCO pursuant to the facility.

28    As soon as the Bank had agreed to discount a bill of exchange a bill negotiation/remittance advice was generated and was sent to IBBCO confirming that the bill of exchange had been discounted and that the equivalent Australian dollar amount had been credited to IBBCO’s overdraft facility.

29    The effect of the evidence, having regard to the Uniform Rules of Collection, means that the presentation date in respect of each of the contracts is as follows: Contract 1, 20 November 1997; Contract 2, 4 December 1997; Contract 3, 6 January 1998; Contract 4, 4 December 1997; Contracts 5 & 6, 4 December 1997; Contracts 7 & 8, 24 December 1997; Contract 9, 6 January 1998; Contract 10, 13, 14 & 17, 14 January 1998; Contract 11, 6 January 1998; Contract 12, 15 & 16, 23 January 1998; Contract 18, 21 February 1998.

30    The date due for payment by Delux in respect of all of the contracts was no later than the end of February 1998.

31    I should now return to the matter to which I referred earlier and that is the practice that IBBCO adopted of notifying Delux in respect of the time of arrival of the consignment at Koper. If it were to be accepted that by some practice that developed between IBBCO and Delux the date for payment was the date of arrival of the consignments, then those dates would be the date for payment. They are helpfully set out in the Appendix annexed to the judgment and I do not intend to go through them in detail, save as to say that the last of them is 9 March 1998. Whichever approach is adopted - and I am of the view that the former approach is the one to be preferred on the evidence- the date for payment by Delux was no later than 21 February 1998 or alternatively 9 March 1998.

32    It is necessary to detail some of the communications that occurred between IBBCO and Delux by reason of the basis upon which the defendant purported to deny IBBCO's claim. Mr Taylor SC has carefully taken me through a great deal of the evidence in Exhibit F which is the nine volumes of material tendered at the trial. From late 1997, that is, at about a date after which all of the consignments in the first seven contracts had been delivered, Delux through its officer, Klaus Peiper, communicated with IBBCO by facsimile. On 22 December 1997, after a prompt from the plaintiff for payment, Mr Peiper said:

I fully understand your situation but there are unfortunately moments like this when goods arrive late. Goods cannot be used etc etc. I had one of the best years in 1997 but have no money coming in right now. We have over $US1.3million outstanding and will not receive any this year and I cannot and will not chip in more. We have to go through this and early next year the situation will have changed, around the 15th to the 20th. We almost had the same last year.

33    Mr Peiper advised IBBCO that the steers had come in that week and there was no market for them at that time. He advised that the earliest he could move them was 7 January. He referred to an arrangement whereby he would not have to finance the steers to give himself a “breather” from the financial pinch that he seemed to be suffering.

34    On 6 January he wrote again. After New Year’s greetings he advised IBBCO that he was sorry to make it the victim of his problem but said “there is no need not to relax”. He referred to the holidays that were killing him and his company which seems to have included the Ramadan.

35    On 29 January 1998 after a number of requests by IBBCO for payment, Mr Peiper advised IBBCO he had spoken with the veterinarian authorities in Bosnia and referred to the fact that there was no way of importing any bone in beef older than six months. It appears from that facsimile that this was a new requirement valid from 2 January 1998.

36    In the first week of February, probably about 6 February, Mr Peiper, after further requests for payment, said:

Be a little patient with the payments. It is in my vital interest to get loads moving. Due to demurrage which eat up profits at the moment I can't move goods. I am stuck twice with paying demurrage and I can't get my money. We will move more loads out of Koper next week, so you will get the money.

37    On 7 February Mr Peiper informed IBBCO by facsimile, "We go back to normality which means we pay and pick up." On 9 February he confirmed that IBBCO had informed his company that the product had been slaughtered at the beginning of the year 1997. He said, “No-one is arguing the slaughter dates." By this stage problems had developed in relation to the importation of the particular meat product over a specified period since slaughter, at least that is what Mr Peiper informed IBBCO. He then complained he had over a $US1 million in the “game" and he was "financially exhausted."

38    On 19 February Mr Peiper asked IBBCO to “be a little patient- the situation will change soon”. This was after having notified IBBCO some meat had been confiscated as contraband by mistake and a very big investigation by the Veterinary Department and Customs at the destination point was under way. On 2 March 1998 Mr Peiper advised IBBCO that, "from next week on, we'll pick up the documents again." He advised he would not be picking up the documents for the steers.

39    On 13 April, in a lengthy facsimile, Mr Peiper said, after much of the detail about the smuggling investigations, the money problems and the like:

Your question now might be what have I (IBBCO) done wrong. Nothing. All you did you were a victim of circumstances same as us and we have to go through this together. Sorry for that but that's the way it is.

40    Further reference was made to Delux’s lack of funds. And so it went on.

41    It was clear that IBBCO was not receiving any money and Delux, through Mr Peiper, was pleading for patience from IBBCO. At no stage was there any suggestion of any problem with the product. Indeed, the terms of the contract were such that the product would not be sighted until after payment was made and the containers had been released to Delux after payment. However, a peculiar thing occurred during the course of the communications between IBBCO and Delux.

42    On 30 March Mr Peiper sent a facsimile to IBBCO informing it that he was in Bosnia and he needed urgently to know the average weight of each piece and how many pieces were in the carton, "because each customer is asking for the same question." That facsimile is peculiar in this respect. It did not make any mention of the previous financial troubles that were being experienced and it made no complaint at all, about dates of slaughter. The heading on the facsimile was “silverside outsides”.

43    As requested, and overnight, IBBCO responded as follows:

Silversides weight between 7-10kg each and they will fit between 2- 3 silversides per carton. If you require any further information please do not hesitate to ask.

The facsimile then went on to make a further polite but firm request for payment.

44    About six weeks later, on 11 May, still without having made any payment, Delux sought a discount on the silverside. For the first time in the five months of communication, mention was made of the quality of the product. It is to be remembered that IBBCO and Delux had been trading prior to these contracts. In any event, Mr Peiper asked IBBCO what sort of allowance might be able to be given to Delux, apologizing for that "kind of talk". In response to that facsimile, IBBCO called into question any suggestion that there was a problem with quality or indeed that there was a specification.

45    In response, Mr Peiper forwarded a copy of a facsimile which had been forwarded in September 1997, although it is wrongly dated 1998. It refers to silversides with "serious fat layer 1cm and more approximately 10kg etc." By 18 May Mr Peiper was still complaining and was still not paying for any of the goods that had been shipped pursuant to the contracts with IBBCO. The complaints developed into the need that Bosnia had which was "well fat covered quality of good heavy cows or steers."

46    During the period that IBBCO had been receiving these communications from Delux, it kept the defendant, HIH, informed. Indeed, in its response to IBBCO of 9 June 1998, the defendant advised that Delux's claim that there was inferior meat in containers with original seals was “indeed spurious”

47    That reference to “original seals” is a reference to something that happened in May when IBBCO was made aware that some of the seals on the containers had apparently been removed. As a result of some investigations in respect of that matter, IBBCO was advised that in early May Delux's agent, Adria Cargo had, at Delux's request, removed the seals. This had been done without IBBCO’s knowledge and without the knowledge of anyone at the terminal in which the cargo was stored. It is apparent that the basis upon which the agent was persuaded to remove the seals was that Delux would take the containers.

48    HIH advised IBBCO that given Delux's attitude to the containers, it felt that there was no alternative but to re-sell the meat and "hold Delux duly responsible for all losses inclusive of storage and demurrage." HIH advised it would not make any comment in respect of the containers on which the original seals had been broken.

49    In June 1998, pursuant to the instructions given to IBBCO by HIH, Mr Ibbotson began to make inquiries with a view to re-selling all of the 18 consignments. In July 1998 IBBCO gave notice of avoidance of the contracts pursuant to Articles 25 and 64 of the Vienna Convention on the International Sale of Goods. In preparation for the re-sale of the 18 consignments, Mr Ibbotson arranged for a Brazilian inspector, employed with the Australian Quarantine Inspection Service, to carry out a survey of the containers. That inspection was completed on 21 August 1998. During this period IBBCO kept HIH well informed of that was happening.

50    In October and November 1998 a Bulgarian company, BulgarKonserv Ltd, agreed to purchase from IBBCO the 18 consignments. IBBCO issued fresh collection instructions to the Bank pursuant to which IBBCO requested the Bank to collect payment from BulgarKonserv. BulgarKonserv honoured the bills of exchange that had issued in respect of the re-sale.

51    Under the facility that IBBCO had with the Bank, if a bill of exchange had been discounted and was dishonoured, the Bank was entitled to seek reimbursement of the amount it had advanced to IBBCO. In relation to the dishonoured bills, the subject of the original contracts with Delux, the proceeds of re-sale were used by the Bank to progressively retire the dishonoured bills. Once all the proceeds of re-sale had been received, the Bank then retired the unpaid balance of the face value of the dishonoured bills. The total amount outstanding was $US329,288.46. The shortfall was transferred to a fully drawn US dollar loan account and a principal and interest reduction programme was put in place under the facility. That loan was repaid by IBBCO in monthly instalments which were debited to the overdraft account. IBBCO repaid the US dollar loan in full by 30 June 2000.

52    IBBCO also incurred demurrage charges in relation to the meat delivered to Koper. It submitted that those charges would never have been incurred if Delux had accepted the documents on presentation. Instead, after its avoidance of the contracts in July 1998, IBBCO incurred liability for all the demurrage charges levied by the shipping companies, P&O and Maersk.

53    As a result of the problems which IBBCO experienced, it instructed its legal advisers. The detail of at least the fee notes and accounts that were generated in respect of the advice and work that was done by those legal advisors is in evidence.

54    On 7 July 1999 HIH informed IBBCO of its decision to decline to indemnify it in respect of its claim that it had made rather promptly after the problems arose with Delux. It is apparent that the claim was more probably than not lodged in January 1999 and a formal claim was required to be lodged in May 1999.

55    I should turn now to the policy in detail. The relevant portions of the policy are as follows:

1.1 HIH agrees, subject to all limitations, terms, conditions and endorsements:
To indemnify the "Insured" for the direct loss arising from the non-payment of any "Insured Debt" due to the "Insolvency", "Protracted Default" or "Contract Repudiation" of an "Insured Buyer" in the "Approved Countries".
Exclusions
2.1 This policy will not indemnify the "Insured" against any loss in respect of:
2.1.1 Sales Tax, Retention Monies, Interest Charges,
Consequential Damages, Penalties, Government Charges and Taxes.
...

3.2 " Contract Repudiation " shall exist when an "Insured Buyer" fails to accept goods after delivery by the Insured provided that this repudiation is not caused or excused by any breach of condition or warranty by the "Insured", or any other cause which may have been in the control of the "Insured".
3.3 " Despatch " or " Despatched " where used in the Policy shall mean that the goods have irretrievably passed out of the possession and control of the "Insured" by delivery to the first carrier who is to commence the delivery process to the "Insured Buyer."

3.4 " Delivered " means the time during the "Policy Period" at which goods pass from the "Insured" into the physical control of the "Insured Buyer", or legal title to the goods has transferred from the "Insured" to the "Insured Buyer".
...

3.11 " Insured Debt " is an unpaid amount of debt included in "Insurable Turnover" during the "Policy Period" owing to the "Insured" by the "Insured Buyer" under the terms of payment which are within the maximum approved as specified in the "Schedule" to the policy. The "Insured Debt" in all cases cannot be greater than the "Permitted Limit" approved by HIH or justified under any specified "Discretionary Limit".
...
3.13 " Discretionary Limit " as specified in the policy "Schedule" is the level below which justified credit management decisions can be made by the "Insured" based upon the criteria specified in the definition of "Permitted Limit".
...
3.18 " Permitted Limit " means:
3.18.1 The maximum limit of "Insured Debt" approved in writing by HIH for the "Insured" upon the "Insured Buyer", or
...
3.21 " Protracted Default " means the non-payment of an "Insured Debt" for a period of four months commencing on the original due date for payment or the postponed due date for payment as agreed by HIH under the applicable contract for the sale of goods. The "Protracted Default" period shall not commence whilst a dispute exists of any nature between the "Insured" and the "Insured Buyer" over the "Insured Debt", or if for any reason the "Insured Buyer" under any law or regulations having the force of law in the country of the "Insured Buyer", is entitled or obliged to refuse payment of an "Insured Debt".
...
4.8 Claims
4.8.1 The "Insured" shall promptly lodge a claim form with HIH no later than 12 months after the date of the "Insolvency", "Protracted Default" or "Contract Repudiation" of an "Insured Buyer".
4.8.2 Provided all policy terms and conditions have been met HIH will calculate the claim taking into account the "Salvage", any "Maximum Sum Insured", "Excess", the "Insured Percentage" and any applicable "Aggregate First Loss".
...
4.8.4 In the case of "Protracted Default" as soon as the "Protracted Default Period" has expired then HIH will agree to pay the claim within 30 days.
4.8.5 In the case of "Contract Repudiation" HIH will pay the claim 30 days after the "Insured" has resold or disposed of the goods subject to HIH approving the resale or disposal of the goods in writing and provided also that HIH agrees that legal action against the original buyer is not warranted.

56    Additionally in the schedule to the policy Delux Meat was identified with $1 million limit and the note that Luxembourg terms of payment were “Sight Draft Documents against Payment”.

57    As can be seen from the terms of the policy, an indemnity is provided for direct loss arising if there has been non-payment of an insured debt; if the insured debt is within the maximum amount specified in the policy schedule; if the debtor is an “insured buyer” in an “approved country” and the non-payment is due to “protracted default” or “contract repudiation”.

58    On the pleadings, HIH admitted that Delux was an insured buyer and that Luxembourg was an approved country. The defence filed, but not argued, denied that each contract liability of Delux was an insured debt. Mr Taylor SC has carefully argued his client's case and has most fairly put the position in respect of HIH’s defence notwithstanding its absence. It is difficult to understand the basis of the denial in that defence. All of the unpaid contracts’ amounts satisfy the policy definition of insured debt because each of its unpaid debts was within the maximum insured debt approved for Delux by HIH and each was not excluded by any definition or limitation of insurable turnover. The total amount is just above $1 million, each individual contract of course is less than that.

59    I am not persuaded that any problem arises by reason of the total amount of debt being above $1 million. The claim made is for less than $1 million. The defence also denies that Delux’ non-payment gave rise to a protracted default for the purposes of the policy. As can be seen from the clause above, the protracted default clause provides for "non-payment of an insured debt" for a period of four months “commencing on the original due date for payment."

60    It further provides that the protracted default period shall not commence whilst a dispute exists of any nature between the insured and the insured buyer over the insured debt. To deny indemnity by reason of a dispute between IBBCO and Delux in this regard is also something that I cannot understand. The clause, in my opinion, makes it very clear that what is affected is commencement of the period.

61    On any view of the facts in this case there was no real dispute. Even if that is wrong, the dispute in relation to quality of the meat arose in May, many months after the original date. As to the suggested problem with the steers, the terms of the facsimiles from Delux made very clear that such matter arose in early January 1998 by reason of the introduction of something that occurred in the destination country of which neither party was aware. In either instance, I am satisfied that there was no dispute relevant to that clause.

62    I should, however, say that I am also of the view that the correspondence demonstrates a pretence by Mr Peiper for non-payment. It is clear to me that what was driving Delux was its own financial problems and had nothing to do with IBBCO who was both patient and careful in its dealings with Delux. In respect of the suggestion in Mr Peiper's facsimile that he had stipulated a particular type of product, I am also persuaded that I should prefer Mr Ibbotson's evidence on this occasion.

63    Although the fax referring to 1 cm fat was quite properly tendered by IBBCO in these proceedings in the absence of the defendant, I am of the view that that document does not amount to a contractual requirement between IBBCO and Delux in respect of any of the 18 contracts with which I am concerned. The terms of the protracted default clause in this policy, in my view, could not sensibly mean that a dispute about payment prevents a protracted default arising for the purposes of the policy. I agree with Mr Taylor SC, that such a construction would render the clause meaningless.

64    In the absence of a dispute at the time for the due payment the protracted default period commenced. I am satisfied that there is no proper basis in respect of any dispute in relation to the protracted default clause upon which HIH could refuse indemnity of IBBCO.

65    HIH also claimed it was entitled to refuse to indemnify IBBCO on the basis of the contract repudiation clause. IBBCO claims that Delux’ failure to accept the meat constituted contract repudiation for the purpose of clause 3.2 above. Mr Taylor SC submitted that this is because:

1. A failure to accept delivery for the purpose of the policy derives its meaning from the definition of “despatch” and delivered” in clauses 3.3 and 3.4;
2. Goods are taken to have been delivered for the purpose of clauses 3.3 and 3.4 when the goods have passed from the insured to the delivering carrier or when title has passed;
3. “Delivery” for the purpose of clause 3.2 must include delivery effected by the insured tendering the collection documents;
4. This meaning of “delivery” is substantiated by the terms of payment for Delux as described in the policy schedule earlier referred to; and
5. There is no evidence to justify a finding that any conduct of IBBCO caused or excuses Delux failure to accept the goods.
I agree with each of those submissions.

66    In those circumstances, I should say that the suggestion in HIH’s letter dated 14 March 2000 that, "The buyer did not repudiate the contract but repudiated the actual goods involved after taking delivery of the meat and examining the goods supplied", cannot be justified.

67    I am of the view that IBBCO is entitled to the declarations it seeks in its Summons and is entitled to indemnification by the defendant.

68    The policy provides for indemnity for “the direct loss arising from non-payment”. It does not include interest charges or consequential damages. The demurrage costs incurred by IBBCO were in my view a direct loss arising from the non-payment. They are direct costs because they accrued to IBBCO only because Delux failed to take possession of the meat.

69    I have referred to the need for IBBCO having to have the meat stored whilst it dealt with Delux. A reading of the correspondence could lead one only to conclude reasonable conduct by IBBCO in the circumstances. That epithet should also be used to describe its conduct after HIH advised it that it had to re-sell the products. It was necessary and directly a cause of what Delux had done that the refrigerated meat had to be stored so that it was able to be re-sold.

70    Mr Taylor SC submitted that the term “direct loss" arising from non-payment is a wider indemnity than one merely for the amount of the unpaid debt. He helpfully referred me to the Elliott Steam Tug Co Ltd v The Shipping Controller (1922) 1 KB 127 and A & B Taxis Ltd v The Secretary of State (1922) 2 KB 328. I agree with his submissions. I am of the view that the facts demonstrate that the demurrage costs were a direct loss arising from the non-payment.

71    The legal costs incurred are, in my view, also a direct loss arising from the non-payment by Delux. The judgment in respect of whether those costs are a direct loss is not as straight forward as the assessment that I have made in respect of the demurrage costs. However it does seem to me that in the circumstances in which IBBCO found itself with the defaulting contractor and with an insurance company that had proffered to it originally that Delux was operating on a spurious basis, and then embracing its arguments, it was a circumstance in which it needed to consult its legal advisors as a direct result of the non-payment.

72    Accordingly, I am of the view that the legal costs incurred are recoverable.

73    Exhibit F contains all the material upon which the amounts have been quantified and once again have been helpfully detailed in a table. They are summarized as the loss of re-sale in Australian dollars being $542,762. Under the policy 90% is recoverable. That gives a figure of $488,486.00. The amounts insured in respect of demurrage and the costs incurred in respect of P&O at 90% is $143,708. The amounts incurred in respect of demurrage of Maersk in the insured amount reduced to the 90% is $16,499.00 The legal costs at 90% of the total are $13,055. That reaches the total of $661,749.00.

74 IBBCO claims interest on withheld payment pursuant to section 57 of the Insurance Contracts Act, 1984 and Regulation 32. Mr Taylor has helpfully taken me through the minefield contained in Regulation 32 and his instructing solicitor, Mr Shankland, has sworn a further affidavit today. That affidavit sets out the appropriate formula for calculating the interest, should I be persuaded by Mr Taylor SC’s submissions to award it.

75    IBBCO submitted that the refusal by HIH to indemnify it was unreasonable. The approach adopted by HIH, in my view, was unreasonable. It had, from the outset, the capacity to understand the detail of the contracts to which I have just referred. It had the assistance of IBBCO’s Broker, informing it of the detailed background and the relationship between IBBCO and Delux. In a synopsis in a letter of 18 June 1999 the Broker put the persuasive position as to why it was that HIH should not deny cover. Ms Byrne, the Account Manager with the Broker expressed the view that after reading the file from cover to cover, the Broker believed that after the confiscation of the meat in Bosnia, a glut of meat was created in Europe and Delux were no longer able to market the product at a profit as the price dropped dramatically.

76 Apart from the other information available to HIH, Ms Byrne also analysed the motivation and the history of Delux' dealings with IBBCO. I am of the view that any reasonable insurer would have accepted this claim. IBBCO focuses upon a date in July when the amount of money in respect of the US dollar loan facility had been crystalized. That is 23 July 1999. I am of the view that the approach adopted HIH in respect of this refusal was untenable. I am also of the view that it was unreasonable and that interest should be awarded. The interest calculation is contained in the schedule to Mr Shankland's affidavit sworn today. I accept that such calculation is appropriate and I award interest pursuant to section 57 in the amount of $113,870. That is a total figure of $775,619 and I enter judgment accordingly.

77    Pursuant to the leave granted by Hunter J on 4 March 2001, I stay the judgment in this matter until further order of the court. I order that the defendant pay IBBCO’s costs of these proceedings. That order is also stayed.

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Last Modified: 07/05/2001