This judgement dealt with a trade credit insurance policy issued by the insurer.
Trade credit insurance is a business insurance product which indemnifies a seller against losses from non-payment of a commercial trade debt. The insurer usually pays an agreed percentage of an invoice or a receivable that remains unpaid because of protracted default, insolvency or bankruptcy.
The particular policy insured performance of a guarantee given in respect of “supply chain finance” provided by the insured to a UAE company and its wholly owned Australian subsidiary.
The facility was guaranteed by a British Virgin Islands’ parent company.
The finance was to be Sharia-compliant using a “Murabaha” facility where, rather than charging interest, or Riba, which is prohibited under Islamic law, finance is provided by a “profit-disclosed” sale where the seller discloses its original purchase cost and the profit it will be charging to the buyer.
After the finance facility was established the insured advanced a considerable amount of money for draw downs. Two months later the guarantor went into liquidation. None of the funds advanced by the insured were repaid.
It became apparent that, unknown to both the insured or insurer at the time of the advances, some of the documents provided in support of the drawdown requests were a sham. The insured was a victim of a fraud practised by its customer. It also appeared that the Murabaha facility provided by the insured was not, in fact Sharia-compliant.
The insurer unsuccessfully denied liability on the basis both of the fraud and non-Sharia-compliance.
On a proper construction and interpretation of the policy, the court held that notwithstanding the fraud (of which the insured was not a perpetrator) and the Sharia non-compliance, there was no material default as contemplated by the policy. The fraudulent, dishonest or criminal acts of the counterparty or the guarantor was consistent with the construction of the policy entitling the insured to an indemnity for loss arising from such an event. That conduct fell within the insuring clause.
Thera Agri Capital No 2 v BCC Trade Credit t/a the Bond & Credit Co  NSWSC 669