New South Wales Supreme Court CITATION : McGuid t/as ABS Gulf v Export Finance & Insurance [2000] NSWSC 277 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50144/99 HEARING DATE(S) : 31.3.00, 4.4.00, 5.4.00 JUDGMENT DATE : 31 March 2000 PARTIES : Sarwat McGuid t/as ABS Gulf v Export Finance & Insurance Corporation JUDGMENT OF : Hunter J COUNSEL : Plaintiff: N Cotman SC Defendant: R Dubler SOLICITORS : Plaintiff: Colinard & Co Solicitors Defendant: Minter Ellison DECISION : Short minutes of order to be brought in THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST HUNTER J FRIDAY 31 MARCH 2000 50144/99 SARWAT McGUID t/as ABS GULF v EXPORT FINANCE & INSURANCE CORPORATION REASONS FOR JUDGMENT 1 The plaintiff in these proceedings is an exporter of goods under a supply contract with a Moroccan entity and in relation to which the plaintiff took the precaution of effecting a policy with the defendant known as an unfair calling policy. The nature of the indemnity provided by that policy is evidenced in the affidavit of Alexander Ivantsoff sworn 24 March 2000 and is in the following terms: " INDEMNITY 1. EFIC agrees, subject to the terms of the Policy, to indemnify the Exporter for a percentage of the amount of any loss hereinafter defined arising from a call being made under the Bond by reason of events or circumstances beyond the Exporter's control, after the date of the Contract and which result in the Exporter making a Bond Payment." 2 The bond referred to was a performance bond provided by a Moroccan bank and secured by National Australia Bank on the instructions of the plaintiff. Limitations on the insurer's liability, so far as is relevant, are to be found in clause 2 of the policy as follows: "2. Notwithstanding anything contained in the Policy EFIC shall not have any liability for loss arising from a Bond Payment :- (1) (a) If there has been a material failure by the Exporter to comply with any term or condition of the Contract or if there has been any indication by the Exporter to the Buyer that there will be such a failure, or (b) If there is a failure by the Exporter to comply with any law (including any order, decree or regulation having the force of law) insofar as that law affects the obligations of the Exporter under the Contract, provided that the Exporter shall not be deemed to have failed to have complied with any such law EFIC in the exercise of its absolute discretion determines in writing that any such law has the effect of preventing the Exporter from completing the Contract or is harsh or unconscionable, unless such failure has occurred or been indicated by reasons solely of events or circumstances beyond the Exporter's control, after the date of the Contract." 3 There has been a call upon the bond arising out of the circumstances, which is common ground, as I understand the issues, that the plaintiff failed to supply the goods under the subject contract. In those circumstances, it is not particularly surprising that the insurer, against whom the claim was made under the policy following upon a call on the subject bond, invoked the operation of clause 2 of the policy and in turn the provisions of clause 6(2) which is in the following terms: "6. (2) Where, in the opinion of EFIC, a call under the Bond in respect of which a Bond Payment has been made, was due to the failure of the Exporter to comply with a term or condition of the Contract or of any indication by the Exporter that there would be such a failure or of failure by the Exporter to comply with any law (including any order, decree or regulation having the force of law) so far as that law affects the obligations of the Exporter under the Contract, then loss shall not be payable in respect of such Bond payment until the Exporter has satisfied EFIC , in such manner as EFIC may in its absolute discretion determine (including, if so required by EFIC, the institution of legal proceedings), that there has been no failure by the Exporter to comply with a term or condition of the Contract or any indication that there would be such a failure and that there has been no failure by the Exporter to comply with any law (including any order, decree or regulation having the force of law) insofar as that law affects performance of the Contract." 4 The consequence of that is that the insurer has asserted that an opinion was formed, within the meaning of clause 6 (2) of the policy, that the demand on the subject bond was made due to the failure of the plaintiff to comply with the terms of the supply contract: and the insurer, again pursuant to clause 6 (2) of the policy, has required the plaintiff to institute legal proceedings to prove that there has been no failure on its part to comply with the terms of the supply contract. As a result of the judgment of this Court those proceedings may only be taken in Morocco. 5 The plaintiff disputes the validity of clause 6(2) and alternatively the bona fides of the opinion said to have been held by the insurer and the bona fides of the requirement that he, the plaintiff, take legal proceedings in Morocco to determine that he had not failed to comply with a term or condition of the contract. 6 The way in which the plaintiff has proceeded against the defendant raises an issue in paragraph 13 of the contentions, that the supply contract was repudiated by the purchaser, thereby excusing the plaintiff from any obligation to perform. The raising of this issue has given rise to an application by the defendant for an order under Pt 31 of the Supreme Court Rules for the separate determination of issues raised by it based upon the operation of cl 2 and 6 (2), in particular, of the policy. 7 The gravamen of the application is that such a separate determination would avoid this Court embarking upon a determination of the issues raised in paragraph 13 in particular; namely that the subject supply contract had been repudiated by the purchaser. I think there is considerable merit in that application, although its determination will not necessarily bring the proceedings to an end. The attraction I find in the application lies in the ambit of the facts upon which the plaintiff would seek to rely in challenging the operation of clause 6 (2) of the policy and in particular the bona fides of the opinion and requirement of the insurer under that clause. 8 Put briefly, if I understand the plaintiff's case, he says that this is not a case of a dispute between exporter and purchaser over the quality of goods, the subject of the contract. The plaintiff does not dispute that he refused to supply goods under the supply contract. He asserts that he had every right not to supply those goods as a result of the failure on the part of the purchaser to provide letters of credit to facilitate payment for the goods. On that basis the plaintiff would challenge firstly whether clause 6 (2) has any work to do and, further, if it does, the bona fides of the opinion and requirements made by the insurer under that clause. Further, it seems to me that if the plaintiff is successful in that challenge to the operation of clause 6 (2) of the policy, then that will be an end of the proceedings. 9 I think the likelihood is compelling that, if the plaintiff is unsuccessful, then that will also result in the proceedings being brought to an end. There are issues, as presently raised by the defendant, based on allegations of non-disclosure which wouldn't be necessarily resolved by a separate determination of the clause 6 (2) question. However counsel for the defendant has offered an undertaking in relation to that defence which I think removes that issue in the event that the matter proceeds by way of separate determination as sought by the defendant. 10 The course I propose to follow is to list this matter for further directions at 9.30m on 4 April with a view to enabling the parties to bring in short minutes of order for a separate determination of the clause 6 (2) questions and for the provision of the requisite undertaking in relation to the non-disclosure issue. The short minutes should also include directions for the further conduct of the matter with the view to an early listing of the matter for hearing. The costs of the application I think may properly be dealt with on the basis they be costs in the cause. oOo Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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