Trade credit insurance is a vital component of trade finance, providing protection to businesses against the risk of non-payment from buyers. A recent judgment from the Singapore International Commercial Court (SICC) has shed light on the conditions and scope of coverage under trade credit insurance policies. In the case of Marketlend Pty Ltd and another v QBE Insurance (Singapore) Pte Ltd [2025] SGHC(I) 1, the SICC addressed several key points of practical significance, offering clarity to insurers and trade finance participants.
QBE Insurance (Singapore) Pte Ltd issued a multi-buyer trade credit insurance policy to Novita Trading Limited, agreeing to indemnify Novita for non-payment arising from the sale and shipment of goods on deferred payment terms to named buyers. Marketlend Pty Ltd provided financing to Novita for these trades, supported by a trust with Australian Executor Trustees Limited as a joint insured under the policy. Marketlend and AETL brought proceedings against QBE in relation to eight claims submitted by AETL under the policy.
The key issue in the case was the existence of an Insured Debt, which the Claimants were required to prove on a balance of probabilities. The Court emphasized the need to demonstrate an actual physical sale and shipment of goods by Novita to its buyers, distinguishing it from ‘paper’ or fictitious trades. Despite relying on Lloyd’s vessel reports and IMB reports as evidence of genuine trades, the Court found that these reports only confirmed the physical shipment of goods and did not establish Novita’s involvement in the transactions.
Furthermore, the acknowledgements of debt from Novita’s buyers and the sale contracts between Novita and its insured buyers raised doubts about the authenticity of the trades. The Court noted inconsistencies in the sale contracts and Novita’s lack of cooperation in supporting the claims, leading to the conclusion that the trades were not genuine. QBE’s own investigations also revealed discrepancies in the sales chain, casting further doubt on the legitimacy of Novita’s transactions.
One of the conditions precedent to liability under the policy was the insured’s obligation to provide documents and information requested by the insurer, including correspondence related to the transmission of invoices, bills of lading, and shipping documents. The Court emphasized the insured’s duty to cooperate with the insurer in investigating and handling claims, highlighting the importance of providing necessary documentation to support claims under the policy.
In conclusion, the SICC’s judgment in Marketlend Pty Ltd and another v QBE Insurance (Singapore) Pte Ltd clarifies the requirements for proving an Insured Debt under a trade credit insurance policy. The case serves as a cautionary tale for businesses engaging in trade finance, emphasizing the importance of transparency and cooperation in insurance claims. Insurers and trade finance participants can draw valuable lessons from this case to ensure compliance with policy terms and conditions, ultimately safeguarding their interests in international trade transactions. The insureds’ failure to provide the necessary documents constituted a breach of conditions precedent under the Policy. Additionally, the Court determined that the fictitious nature of the trades conducted by Novita was material to the risk that a prudent underwriter would be willing to take on. Had this fact been disclosed, QBE would not have accepted the risk. Novita’s failure to disclose this information was not only a breach of a condition precedent to the right to claim under the Policy but also gave QBE the right to avoid the Policy on the grounds of material non-disclosure. Furthermore, Novita’s misrepresentation of its trades meant that QBE was entitled to avoid the Policy based on false pre-Policy representations.
In another aspect, Novita had assigned its rights under the insurance policy to Marketlend without obtaining QBE’s consent, as required by the Policy terms. This failure to obtain consent entitled QBE to avoid liability under the Policy. The court’s determination that there was no evidence of QBE’s written consent to the assignment was detrimental to the claims made by Marketlend and AETL.
This ruling is significant for the trade credit insurance industry and the invoice financing market, highlighting the risks associated with fictitious trades. Financiers should not assume that trade credit insurance covers fictitious transactions, as demonstrated in this case. The use of false bills of lading to create the illusion of a trade flow is a concerning practice, and there are often indicators of fraudulent transactions, such as contracts that do not align with market terms.
When filing claims, insured parties must fulfill the policy terms, which in this instance required evidence of actual physical shipment of goods, not just the sale of goods. The SICC noted that an intermediate trader may have constructive possession of goods through holding original bills of lading, even without physical possession.
The collapse of traders utilizing invoice financing programs has led to numerous disputes between insurers and financiers worldwide. These programs are susceptible to fraud, buyer collusion, and impersonation, potentially impacting coverage under trade credit insurance.
In conclusion, this case underscores the importance of full disclosure, compliance with policy terms, and the verification of trade transactions in the trade credit insurance and invoice financing industries. Insurers and financiers must remain vigilant against fraudulent practices to protect their interests and maintain the integrity of the insurance market.