A group of insurers has lost its bid to avoid paying out US$5.7mn to Switzerland’s Quadra Commodities, after a London appeals court found the trader had an “insurable interest” in several grain cargoes that went missing.

The Court of Appeal last week upheld a March 2022 High Court ruling that Quadra has a valid insurance claim under the misappropriation clause of a marine cargo insurance policy underwritten by XL, Helvetia, Axa, HDI Global and Swiss Re.

Quadra purchased several cargoes of corn, barley and wheat from companies belonging to Ukraine’s Agroinvest Group in 2018 and received warehouse receipts from three storage facilities also owned by Agroinvest, according to the latest judgement.

Quadra also purchased grain from an Agroinvest entity, Linepuzzle Limited, with the intention to onsell it to Agri Finance, in order “to assist with financing of the commodities”.

In January 2019, Agri Finance defaulted on three repurchase payments to Quadra. Later the same month, inspectors sent by Quadra to the three grain elevators were denied access by Agroinvest and employees of the company stopped taking the trader’s calls.

It later emerged, according to the English judgments, that Agroinvest had pledged the same volumes of grain to multiple traders. In April 2019 Agroinvest’s owner Nikolai Kucherenko and his son Vitaliy were placed on a wanted list after allegedly fleeing Ukraine, the Kyiv Post reported.

It is not known whether the grain was still at the elevators when the fraud unravelled. The warehouses were later taken over by the Ukrainian security services.

Last week, three Court of Appeal judges upheld the High Court ruling that Quadra has sufficiently proved that it had an insurable interest in the grains and, on the basis of earlier inspection reports from 2018 and early 2019, grain analysis and other documents, that the grain was stored in the elevators prior to Agroinvest’s collapse.

The grain was co-mingled in silos with that purchased by other traders. While inspectors dispatched to the elevators by Quadra did not take samples, they used a laser meter to measure the volume of grain being held, finding it was unlikely the silos could have false bottoms.

But the insurers had argued that the High Court judge was “plainly wrong” to find that the cargoes existed.

They argued the warehouse receipts issued by Agroinvest contained falsehoods and the inspection reports could not be relied on because the inspectors only viewed the silos from a platform, did not take samples and their reports relied on documents issued by fraudsters.

But Court of Appeal judge Sir Julian Flaux found that “far from being plainly wrong”, the High Court was “plainly right” and there was ample evidence that the goods existed when Quadra purchased them. “That conclusion and the judge’s reasoning are unimpeachable,” he ruled.

“It was never contended that the fraud involved there being no goods at all. Rather… it was integral to the fraud that there was grain in the elevators which could be inspected on behalf of the traders, which matched the amount being purportedly sold to any given trader,” he wrote.

The judge also dismissed the insurers’ contentions that Quadra had not sufficiently identified the goods that formed its insurable interest because they were part of a bulk which was constantly fluctuating.

The appellate court also rejected the insurance firms’ two other grounds of appeal, although they were not determinative of the case.

Axa declined to comment, including on behalf of its subsidiary XL. Helvetia and HDI Global also declined to comment while Swiss Re and Quadra did not respond when contacted by GTR.

Law firm Reed Smith, which represented Quadra, said in a note on the judgement that it “provides welcome clarification on the subject of insurable interest” and “recognised and re-affirmed the trend in cases involving insurable interest that courts will lean towards finding that an insurable interest exists”.

Noting that the court “placed the most reliance on contemporaneous inspection reports when deciding that there were, as a matter of fact, goods in storage corresponding to those which were purchased by the assured”, Reed Smith added that “as a practical matter therefore this suggests that it is useful and even important to conduct inspections and maintain records of them”.

Other Agroinvest creditors and traders including Raiffeisen, TAScombank, Bunge and Delta Wilmar filed legal claims in the Ukrainian courts during 2019, according to media reports from the time.

At least one of the cargoes purchased by Quadra was financed by Zurcher Kantonalbank, according to the March 2022 judgement.