Australian trade finance platform Marketlend has reached a settlement with Bond & Credit Company (BCC) in a landmark case over cover for commodity trades, GTR can reveal.
Court records show Marketlend has discontinued proceedings against BCC and its parent company Tokio Marine, and sources familiar with the case have confirmed an agreement was reached in March.
The dispute was the first of several brought against the insurer by the Sydney-headquartered lender, and the first settlement in any of those cases.
It stems from debts owed to Marketlend by Singapore-based commodity trader Kams, which was wound up through insolvency in September 2020 having repaid only A$1.4mn of A$3.1mn due under a supply chain finance facility.
Marketlend filed a claim with BCC seeking reimbursement of 90% of that amount under a policy initially agreed in 2018, but the insurer refused to pay out.
BCC argued Marketlend had not established it had “physical control of the goods” being traded, which included maize, soybeans and cashews purchased from fellow trader Quantum Impex. As a result, the loss suffered did not relate to a “shipment” of goods as defined under the policy, it said.
Having title to goods through documentation alone is not sufficient, and Marketlend’s loss was due to “its own failure to take reasonable care”, the insurer added.
However, Marketlend said BCC was aware it is a financing provider rather than a company that physically handles goods, and that it is normal practice for traders to agree back-to-back sales of commodities – including while in transit – without ever taking physical possession.
If actual possession of the goods was required for the insurance policy to be valid, Marketlend says that would render BCC’s cover “substantially, if not entirely, worthless”, and that providing such a policy would amount to “misleading or unconscionable conduct” under Australian law.
Marketlend chief executive Leo Tyndall tells GTR: “We see a lot of positives, especially being able to get the first settlement in these cases.”
BCC declined to comment when contacted.
Despite the settlement, proceedings are continuing against Chief Trade Credit Insurance, which brokered the policy.
Marketlend argues Chief Trade failed to ensure the policy provided adequate cover for its needs, and should have advised that its wording appeared to require actual possession of the goods being traded, court documents show.
The broker therefore “failed to make its own adequate assessment of Marketlend’s insurance needs”, it alleges.
Chief Trade says in a defence filed in February it was either “not required to do any of those things” or “did each of the things it is alleged not to have done”, and denies the balance of Marketlend’s arguments.
It adds Marketlend staff should have been in a position to take reasonable care in assessing whether cover was adequate, and that the lender’s losses arise from its own failure to do so.
The broker did not respond when contacted by GTR.
Other cases brought against BCC by Marketlend are continuing. The trade finance platform is seeking reimbursement for non-payment by several traders, including Blue Ribbon, Green Trees, Longview, Max Arabian, Pritt & Co, Prosperity Enterprises and Welta.
Disputed amounts range from US$2.67mn to US$8.46mn.
There have so far been no judgements in any of those cases, but in May 2022, an Australian court ordered BCC to pay a claim of A$7.2mn filed by trade financier Thera Agri Capital Management.
The court rejected the insurer’s argument that the relevant transactions were not compliant with the terms of the policy in place.
Marketlend is also litigating against insurance giant QBE. GTR revealed in February the lender had filed a winding-up order against QBE’s Malaysian arm, after a court issued a default judgement requiring the insurer to pay out on a claim totalling US$9.38mn.
QBE has responded by alleging the commodity trades underpinning those claims were fictitious or fraudulent. Both parties have agreed to set the default judgement aside and QBE has obtained a temporary injunction against the winding-up order.