New South Wales Court of Appeal CITATION: General Reinsurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liquidation) [2009] NSWCA 22 HEARING DATE(S): 6 February 2009 JUDGMENT DATE: 26 February 2009 JUDGMENT OF: Allsop P at 1; Hodgson JA at 92; Macfarlan JA at 93 DECISION: Appeal dismissed with costs. CATCHWORDS: INSURANCE – reinsurance – construction of underlying insurance treaty – "trade credit insurance" – whether supply of goods by financier on credit is within scope of trade credit insurance treaty - SALE OF GOODS – passing of property – intention of parties – characterisation of commercial arrangements – construction of invoices and bills of lading - WORDS AND PHRASES – "trade credit insurance" CATEGORY: Principal judgment Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (In liquidation) [2000] HCA 252; 202 CLR 588 Associated Midland Corporation Limited v Bank of New South Wales (1984) 51 ALR 641 Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Cutten and Harvey v Sun Alliance Life Assurance Ltd (1986) 4 ANZ Ins cas 60-742 Gibbs v Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39; 214 CLR 604 Gould v Curtis [1913] 3 KB 84 Hallstroms Pty Limited v The Federal Commissioner of Taxation (1946) 72 CLR 634 CASES CITED: HIH Casualty & Gen Re (NZ) Ltd (in liq) v General Reinsurance Australia Ltd [2004] NSWSC 659 Joseph v Law Integrity Insurance Co Ltd [1912] 2 Ch 581 Marac Life Assurance Ltd v Commissioner of Inland Revenue (1986) 4 ANZ Ins cas 60-735 National Mutual Life Association of Australasia Limited v Federal Commissioner of Taxation (1959) 102 CLR 29 Sewell v Burdick (1884) 10 App Cas 74 Sonenco (No 87) Pty Limited v Commissioner of Taxation (1992) 38 FCR 555 Sun Newspapers Ltd v The Federal Commisisoner of Taxation; Associated Newspapers Ltd v The Federal Commissioner of Taxation (1938) 61 CLR 337 The 'Captain Panagos DP' [1985] 1 Lloyd's Rep 625 SC Boyd et al, Scrutton on Charterparties and bills of lading, 20th ed (1996) TEXTS CITED: Schmitthoff's Export Trade, 9th ed (1990) Uniform Customs and Practice for Documentary Credits 500 PARTIES: General Reinsurance Australia Ltd HIH Casualty & General Insurance Ltd (in liquidation) FILE NUMBER(S): CA 40191/2008 COUNSEL: G Nell SC, M Izzo (Appellant) F Gleeson SC, T Menigan (Respondent) SOLICITORS: Allens Arthur Robinson (Appellant) Blake Dawson (Respondent) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 50134/2006 LOWER COURT JUDICIAL OFFICER: McDougall J LOWER COURT DATE OF DECISION: 2 June 2008 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40191/2008 ALLSOP P HODGSON JA MACFARLAN JA 26 February 2009 GENERAL REINSURANCE AUSTRALIA LTD v HIH CASUALTY & GENERAL INSURANCE LTD (IN LIQUIDATION) Judgment 1 ALLSOP P: The appellant, General Reinsurance Australia Limited ("Gen Re"), appeals from orders made by a judge in the Commercial List (McDougall J) to the effect that Gen Re was obliged, as reinsurer, to pay the respondent, HIH Casualty & General Insurance Limited (In Liquidation) ("HIH"), as reinsured, sums under a quota share reinsurance treaty in respect of a class of insurance business described in the slip as "Trade Credit and Export Credit". 2 The issues below and on appeal were (1) whether the underlying primary insurance written by HIH in favour of Suncorp Metway Limited ("Suncorp"), as insured, was a "Trade Credit" policy within the scope of the treaty's class of business (it being agreed that it was not "Export Credit" insurance); and (2) whether Suncorp's claims fell within the terms of the policy issued by HIH (to which I will refer, following the primary judge and the parties on appeal, as the "Suncorp policy"). 3 The primary judge answered both these questions in the affirmative and concluded that the quota share treaty responded to HIH's claims for reimbursement of its liability to Suncorp under the responding Suncorp policy. I agree with the conclusions of the primary judge, though not with all aspects of his Honour's reasoning. Thus, for the following reasons, the appeal should be dismissed. 4 At the outset, it is appropriate to recognise and acknowledge the clarity and quality of assistance given to the Court by counsel and solicitors from both sides. Background 5 The resolution of the issues is best approached from an understanding of the background to the writing of the Suncorp policy. 6 From 3 December 1997, Suncorp provided Daewoo Australia Pty Limited ("Daewoo Aust") commercial funding under a trade finance facility for the lesser of USD 10 million and AUD 15 million. This facility was to last for a year and was secured by a parent company guarantee (from Daewoo Corporation) and a fixed and floating charge over the assets of Daewoo Aust. In performance of this facility, Suncorp issued letters of credit at the request of Daewoo Aust. Suncorp apparently became disenchanted with Daewoo Aust's performance of its obligations and Daewoo Aust came to desire the release of the charge. In the words of the primary judge at [19] and [21] of his reasons: "[19] … Suncorp was prepared to [release the charge], on conditions including that at the time of release it 'also exit the relationship'; and that the charge not be released 'prior to full repayment of outstandings, which is expected to occur by the end of October 1998'. Notwithstanding the desire to 'exit the relationship', Suncorp apparently remained prepared 'to consider an application for the provision of alternate Trade facilities to the Daewoo Group, subject to the Bank's exposure being satisfactorily protected through retention of control over items funded (non-specialised), suitable Bank L/c's etc.'. Suncorp communicated those views to Daewoo Australia by letter dated 3 September 1998. …. [21] Thereafter, Daewoo Australia sought release of the fixed and floating charge, with the continuance of trade finance facilities 'on an unsecured negative pledge basis'. At that point, Suncorp appears to have been unwilling to renew the facility. It advised Daewoo Australia 'to seek alternative financing arrangements post 31/10." A Suncorp file note dated 1 October 1998 reflects an appreciation 'that Daewoo is experiencing severe cash flow pressures and have utilised the proceeds of sale [of goods purchased utilising letters of credit issued by Suncorp] for working capital purposes or have experienced a downturn in sales and provided overly generous terms of payment to its debtors'." 7 From October or November 1998, Suncorp began to investigate a commercial arrangement with Daewoo Aust elements of which were as described by the primary judge at [22] of his reasons: "[22] … (1) Suncorp could obtain trade credit insurance in respect of amounts provided (to use a neutral word) by it to or for Daewoo Australia; and (2) the amount payable on any claim would be 100% of Suncorp's actual out-of-pocket costs notwithstanding that the policy provided for a 10% retention (or, conversely, indemnity only up to 90% of the amount of any claim)." 8 A broker was retained to seek to obtain suitable insurance. The primary judge recounted, at [24]-[26] of his reasons, Suncorp's dealing with Daewoo Aust at this time: "[24] On 5 November 1998, Suncorp advised Daewoo Australia 'that facilities have been extended for fourteen (14) days pending finalisation of a suitable insurance policy to underwrite the trade finance facilities currently in place with your company'. The letter noted also that 'we are currently having conversations with QBE Insurance with regards to a suitable policy…' and that once that policy had been negotiated 'we will provide a new Letter of Offer for the revised facility…'. [25] The letter stated that '[o]nce the facility has been put in place, we would envisage that the Fixed and Floating Charge … can be released immediately.' [26] While all of this was happening, Suncorp extended the term of the December 1997 facility by a month, to 30 November 1998." 9 At this point, it is worth emphasising, as is perhaps obvious, that Suncorp's interest in an insurance policy was as a form of security for its financial accommodation to Daewoo Aust. This purpose was openly and honestly pursued. It can be accepted (as the primary judge did and as HIH did below and on appeal) that the legal structure and rights and obligations ultimately put in place were to effect, in a broad substantive commercial sense, security for financial accommodation by Suncorp to Daewoo Aust. No impropriety of any kind in this was suggested. 10 In November 1998, the broker wrote to Suncorp outlining a transaction structure using trade credit insurance which, ordinarily, could not be obtained for more than 90% of the value of the insured debt. The elements of the structure were set out and discussed by the primary judge at [27]-[29] of his reasons: "[27] … (1) on receiving instructions from Daewoo Australia, Suncorp would order goods from a supplier; (2) the goods would be shipped and the supplier would invoice Suncorp at sight; (3) Suncorp would invoice Daewoo Australia at 180 days after shipment for the goods, fixing the price at 111% of the price charged by the supplier to Suncorp; (4) Suncorp would pay the supplier direct; and (5) if Daewoo settled Suncorp's invoice on its due date, the amount payable would be rebated back to the price actually paid by Suncorp to the supplier. [28] The price uplift was designed to ensure that if Daewoo Australia defaulted and Suncorp made a claim on the policy, indemnity at the rate of 90% of the amount invoiced by Suncorp to Daewoo Australia would provide Suncorp with recovery in full of the amount paid by it to the supplier. [29] The proposal contemplated that Suncorp would derive revenue not from the mark-up on cost price reflected in its invoices to Daewoo Australia, but from interest charged and paid 'up front'." 11 Against this background, on 29 March 1999, Suncorp and Daewoo Aust made a written agreement styled as a "Trade Finance Agreement" in which Suncorp was referred to as the "Bank" and Daewoo Aust was referred to as the "Borrower" providing for a facility of the lesser of AUD 18 million or USD 10 million. Substantially contemporaneously (though not sent to Suncorp by HIH until 13 April 1999) HIH wrote the Suncorp policy (described in HIH's letter of 13 April 1999 as a "Domestic Policy of Trade Credit Insurance"). The policy period was 23 March 1999 to 31 March 2000. 12 HIH was aware of the underlying structure. The evidence revealed that the broker, Zuellig Credit & Financial, had developed the structure with at least one other financier and involving two possible insurers (HIH and QBE). There was no suggestion that any aspect of the structure (including the uplift in price to allow for 100% recovery) was not disclosed to HIH. Further, it is clear from the correspondence from the broker to Suncorp that the first step in the structure was that (on receiving instructions from Daewoo Aust) Suncorp would order goods from a supplier, in all likelihood another Daewoo entity. 13 Whilst HIH can be taken to have been aware of the substance of the arrangements between Suncorp and Daewoo Aust, Gen Re was not. On 18 December 1998, it had bound itself to the quota share treaty slip as to 40% (later written down to 30.5%). For Gen Re to be obliged to respond, the claim of Suncorp must fall within the Suncorp policy and, if it does, the Suncorp policy must answer the description of Trade Credit insurance. It should be noted that the treaty had no detailed terms and conditions; nor was it asserted that it picked up any of the terms of the underlying Suncorp policy. The issue of what were the limits of the class of insurance called "Trade Credit" insurance was left at large, to which issue some expert evidence was directed. I will come to this presently. The Trade Finance Agreement 14 Before turning to the terms of the Trade Finance Agreement, it is helpful to appreciate an essential proposition of Gen Re on the appeal. This proposition was that whilst the broker's summary of the transaction contemplated sales from supplier to Suncorp and from Suncorp to Daewoo Aust in a form of a string of contracts, this was not in fact achieved in practice in the events that occurred. Gen Re submitted that in fact the supplier, a Daewoo subsidiary in Hong Kong ("Daewoo HK") sold the goods in question direct to Daewoo Aust and no title to them was ever obtained by Suncorp to them. If Gen Re be correct in this proposition, arguably, the Suncorp policy itself would not respond and, even if it did, it would be responding to a class of risk that might not be trade credit risk. I will come to these arguments in due course. First it is necessary to examine the Trade Finance Agreement. 15 No case of sham was argued. It was accepted that the agreement, properly construed and interpreted, reflected the legal relationship between the parties: Suncorp and Daewoo Aust. As will be seen, however, Gen Re sought to characterise this legal relationship with its constituent rights and obligations, in the circumstances, as reflecting financial risk, rather than trade credit risk. 16 The primary judge set out the terms of the agreement conveniently at [32]-[35] of his reasons: "[32] The background to and purpose of the trade finance agreement were set out in the recitals: RECITALS A As part of its business, the Borrower [Daewoo Australia] wishes to acquire goods from Suppliers for the purpose of onsale to its customers. B The Borrower has requested the Bank [Suncorp] to make and afford certain trade finance accommodation to the Borrower. C The Bank has agreed to the request of the Borrower on certain terms and conditions including execution of this Agreement. [33] Clause 3 set out conditions precedent, including to the operation of the agreement at all and to drawings under it. Neither party placed any reliance on cl 3. [34] Clauses 4, 5, 6 and 7 set out how the facility would operate. They provided that: (1) Daewoo Australia might enter into contracts to buy goods from suppliers (cl 4.1); (2) every time Daewoo Australia did so, it would request the supplier to issue an invoice to Suncorp, and would request Suncorp to issue a letter of credit to the supplier for the purchase price (cl 4.3); (3) property in the goods would pass to Suncorp once Suncorp paid the supplier (cl 4.7); (4) when Suncorp received an invoice from a supplier, it would invoice Daewoo Australia for the relevant goods at the amount of 111.12% of the purchase price stated in the supplier's invoice (cl 5.1); (5) Daewoo Australia would pay each of Suncorp's invoice by its due date (cl 5.2) and if Daewoo Australia did so, it need pay only the actual price paid by Suncorp to the supplier (cl 5.5); (6) title in goods the subject of invoices from Suncorp to Daewoo Australia would pass from Suncorp to Daewoo Australia at the later of the time when Suncorp obtained title to the goods under cl 4.7 or the time when Suncorp issued its invoice to Daewoo Australia in relation to the goods (cl 5.6); (7) it was a condition precedent to the provision of facilities under the agreement that Suncorp have appropriate trade credit insurance in place, for which Daewoo Australia would pay the premium (cls 6.1 and 6.2); and (8) Daewoo Australia would pay interest to Suncorp on the amount of each amount drawn down pursuant to a letter of credit. All interest was payable in advance on or before any drawdown (cl 7.1). 35 I set out in full those clauses of the agreement that I have summarised above, together with clause 4.2 (on which Mr Nell laid some stress) 4. NATURE AND OPERATION OF FACILITY 4.1 Purchase Contracts The Borrower will enter into Purchase Contracts with Suppliers in relation to Goods. 4.2 Borrower Responsibilities The Borrower acknowledges and agrees that the Borrower will be responsible for and will satisfy itself in respect of the following matters: (a) the terms and conditions of all Purchase Contracts; (b) all matters relating to the condition, quality, fitness, safety or otherwise of the Goods; (c) shipment or transportation of the Goods to the Borrower's customers; (d) insurance with respect to the Goods generally and, without limitation, while in transit; (e) the payment of any excise import duties, customs duties or other duties, Taxes or other taxes of any nature in relation to the Goods and, without limitation, any GST payable in relation to the supply of Goods by the Borrower to its customers. 4.3 Suppliers' Invoices (a) The Borrower will request Suppliers to issue Suppliers' Invoices to the Bank for the Purchase Price denominated in an Available Currency, but provided the Purchase Price will not exceed the purchase price payable for the Goods under the relevant Purchase Contract. (b) The Borrower will request the Bank to issue Documentary Letters of Credit in favour of Suppliers for the Purchase Price (denominated in an Available Currency) of the Goods under the Suppliers' Invoices in accordance with the provisions set out later in this document. 4.7 Property in Goods The Borrower agrees that upon the Bank making payment to a Supplier under a Documentary Letter of Credit, the Bank will be beneficially entitled to the Goods in respect of which the Documentary Letter of Credit has been issued and property in those Goods will pass to the Bank. 5 BANK INVOICES 5.1 Issue (a) The Borrower and the Bank agree that the Bank will upon receipt of a Supplier's Invoice (in respect of which a Drawdown is requested) or, if acceptable to the Bank in its discretion, a copy of the Supplier's Invoice, issue a Bank Invoice to the Borrower in respect of the relevant Goods the subject of the Supplier's Invoice. (b) The Bank Invoices will be: (i) in an amount equal to 111.12% of the Purchase Price (denominated in the Relevant Available Currency) of the relevant Goods; and (ii) payable on the Payment Date requested by the Borrower in the relevant Drawdown Notice, but provided the Payment Date shall not be later than the Maximum Payment Date. 5.2 Payment of Bank Invoices In consideration of the Bank agreeing to issue Documentary Letters of Credit in accordance with this document, the Borrower undertakes and agrees to purchase the Goods referred to in the Bank Invoices from the Bank by making payments to the Bank of the amounts payable under the Bank Invoices in the Relevant Available Currency on or before the Payment Dates specified in the Bank Invoices. 5.5 Satisfaction The Bank agrees that if in respect of any Bank Invoice, the Borrower pays to the Bank the amount of the Purchase Price which was payable under the relevant Supplier's Invoice (in respect of which the Bank Invoice was issued), on or before the relevant Payment Date, the Bank will accept that amount in satisfaction of the Borrower's obligation to pay the amount of the Bank Invoice under clause 5.2. 6 INSURANCE 6.1 Bank Condition The Borrower acknowledges and agrees that as a condition precedent to the Bank agreeing to issue Documentary Letters of Credit or provide any other facilities in accordance with the provisions of this document, the Bank requires to obtain, and at all times until all Outstanding Accommodation has been paid and satisfied to the satisfaction of the Bank, maintain the Insurance in relation to the obligations and liabilities of the Borrower to make payment of the Bank Invoices. 6.2 Payment of Premiums The Borrower agrees that it will: (a) pay and continue to pay at all times during the Availability Period and until all Outstanding Accommodation has been paid and satisfied to the satisfaction of the Bank, all premiums relating to the Insurance; and (b) produce to the Bank confirmation of payment of the premiums in a form satisfactory to the Bank. 7 CALCULATION AND PAYMENT OF INTEREST 7.1 Interest on Outstanding Principal The Borrower shall pay interest on the Outstanding Principal in relation to each Documentary Letter of Credit and such interest shall be paid in advance on or before the Drawdown Date relating to the relevant Documentary Letter of Credit or on such later date as the Bank agrees to in its discretion. The Borrower will not be entitled to any refund if the Outstanding Principal is paid or satisfied prior to the Payment Date. " 17 Thus, whilst the commercial financing purposes of the arrangement appear clearly from the recitals, the mechanism chosen by the parties to effect that financing was by way of the segmented and connected transactions found in the detail of the agreements, which, HIH submitted, reflected the structure that had been brought forward by the broker. The Suncorp Policy 18 The primary judge described the relevant content of the Suncorp policy at [44]-[48] of his reasons: "[44] The Suncorp policy was issued on 23 March 1999. The cover provided by it extended up until 31 March 2000. The insured was named as Suncorp, and the business of Suncorp was described as 'Confirming Bank'. It was common ground that this description was erroneous. There is no evidence that any relevant activity of Suncorp (i.e., in relation to the trade finance agreement or its other dealings with Daewoo Australia) fell within the activities that might be carried on by a confirming bank. [45] The insuring clause reads as follows: Insuring clause 1. HIH agrees, subject to all limitations, terms, conditions and endorsements: To indemnify the 'Insured' for the direct loss arising from the non-payment of any 'Insured Debt' due to the 'Insolvency' or 'Protracted Default' of an 'Insured Buyer' in the 'Approved Countries'. [46] Each of the apostrophised terms is defined. So far as they are relevant, the definitions are as follows: 3.6 'Insured Buyer' is any person or entity carrying on business with the 'Insured' in any of the 'Approved Countries' under a 'Permitted Limit' or 'Discretionary Limit.' This however shall exclude: (i) Government Department, (ii) Public Authorities, (iii) Nationalised Undertakings, (iv) Associated and/or Subsidiary Companies of the 'Insured', (v) 'Permitted Limits' or 'Discretionary Limit' where the limit is Nil. 3.8 'Insured' is the person or entity specified in the "Schedule" to the policy. 3.9 'Insured Debt' is an unpaid amount of debt included in 'Insurable Turnover' during the 'Policy Period' owing to the 'Insured' by the 'Insured Buyer' under the terms of payment which are within the maximum approved as specified in the 'Schedule' to the policy. The 'Insured Debt' in all cases cannot be greater than the 'Permitted Limit' approved by HIH or justified under any specified 'Discretionary Limit'. [47] In turn, and either immediately or mediately, those definitions call up other definitions: 3.2 'Delivered' means the time during the 'Policy Period' at which goods pass from the 'Insured' into the physical control of the 'Insured Buyer', or legal title to the goods has transferred from the 'Insured' to the 'Insured Buyer'. 3.7 'Insurable Turnover' means the aggregate invoice value of goods sold and delivered by the 'Insured' during the 'Policy Period' to 'Insured Buyers', excluding cash sales where payment is received on or before dispatch of the goods. [48] A limit endorsement forming part of the Suncorp policy included the following: (1) HIH would only be at risk in respect of Daewoo Australia as insured buyer; (2) the limit of the policy was $11,112,000.00; and (3) the limit was 'subject to a valid and enforceable guarantee from Daewoo Corporation'. It was common ground that such a guarantee was given. " 19 As made clear by the endorsement referred to in [48] of his Honour's reasons, the Suncorp policy was only intended to deal with one "Insured Buyer", Daewoo Aust. 20 Central to the debate on appeal was whether, in the events that happened, Suncorp did in fact take title to the relevant goods from supplier Daewoo HK and pass that title on to Daewoo Aust in a second sale transaction. This legal fact was essential for the application of the definition of "Delivered" in the Suncorp policy because of the fact that the goods were at no time under the physical control of Daewoo HK, Suncorp or Daewoo Aust. Thus, for the Suncorp policy to respond, legal title to the goods in question had to pass from Suncorp to Daewoo Aust. The Treaty; Trade Credit Insurance; and the Expert Evidence 21 As I have said, there was no definition of the relevant class of business to which the phrase "Trade Credit" (insurance) related. Each side led expert evidence. 22 The primary judge discussed the negotiations, broking and terms of the treaty at [7]-[14] of his reasons: "[7] HIH entered into the field of trade credit insurance in 1997. It secured the services of Messrs Lindsay Weate and Charles Wright as joint managing directors of its trade credit division. Both those gentleman had had substantial experience in the negotiation and management of trade credit insurance. They worked with Mr Ray Gosling, who was the reinsurance manager for the HIH group of companies. [8] At some stage, Messrs Weate, Wright and Gosling had a meeting (or, it may be, meetings) with Mr Lindsay Self, the general manager – treaty of the operations of Gen Re (then known as General and Cologne Reinsurance Australasia Limited). [9] There was some controversy in the evidence as to how many meetings took place and what was said at each meeting. There was also some controversy as to when a particular meeting, said by Mr Weate to have occurred in about August 1998, in fact took place. It is not necessary to resolve those controversies. As to the date: it is clear that, whenever the meeting occurred, it was before the treaty was concluded. As to the matters discussed: on Mr Self's evidence, either Mr Weate or Mr Wright referred to the facts that banks were becoming more involved in trade transactions, and that HIH might be seeking to provide trade credit insurance to banks. Mr Self said that he 'was not particularly surprised to hear Messrs Weate or Wright refer to banks in the context of trade credit insurance', because HIH had indicated in previous meetings that it might be seeking to provide trade credit insurance to banks. Mr Self 'was aware that banks were interested in export and domestic trade business', although he said that if trade credit insurance were to cover a bank as an insured, a 'special acceptance' would be needed. In this context, Mr Self defined a 'special acceptance' as 'a request by a reinsured to allow an underlying risk or category of risks to be included within the coverage of a reinsurance treaty in circumstances where, had that request not been made and granted, the risk or risks would have been excluded from coverage by a term in the treaty .' (my emphasis). [10] To the extent that there appears to be some inconsistency between this aspect of Mr Self's evidence and the common ground that I have pointed out at [5] above, it does not need to be pursued; and I accept that there may well be a credible explanation that Mr Self, if asked, could have given. [11] The reinsurance effected by the treaty was placed on HIH's behalf by a broker, MBR Reinsurance Pty Limited (MBR). The terms of the treaty are found in a slip prepared by MBR and accepted on various dates and for varying percentages by the reinsurers. (The slip was over-subscribed, and the percentages were 'written down': in the case of Gen Re, from 40% to 30.5%. Nothing turns on this.) [12] The slip noted at the end, but before the acceptances, that MBR had provided the reinsurers with an 'information package as supplied by HIH'. Although Mr Gageler placed some reliance on the information package, nothing of present moment turns on it. [13] The slip stated the following: (1) The reinsured were the parent company of the HIH group and its operating subsidiaries including HIH (i.e., the present plaintiff). (2) The period of cover was from midnight on 31 December 'in respect of Policies made or renewed during the period'. Although the end date of the period was not specified, it appears to have been common ground in these proceedings that the period of the slip was the calendar year 1999. (3) The class of business reinsured was specified as 'Trade Credit and Export Credit'. (4) The exclusions included: · 'Bonding'; · 'Commercial or Residential Mortgage Insurance'; and . 'Financial or Bank Guarantee Policy – written as such'; (5) The treaty was governed by Australian law. (6) The wording was '[t]o be agreed'. [14] It was common ground that no further terms were negotiated, and that there was a binding contract of reinsurance on the terms expressed in the slip together with such terms (if any) as might be implied into the treaty. " 23 At [5] and [6] of his reasons, the primary judge discussed the approach of the parties to the meaning of the phrase "trade credit insurance": "[5] In very general terms, the parties accepted that the denotation of the phrase 'Trade Credit Insurance' included the following: (1) a policy of insurance, issued to a supplier of goods or services who sold those goods or services on credit, that covered the supplier against the risk of non-payment; and (2) a policy of insurance issued to a financier who at the request of the supplier had paid the amount owed to the supplier, assumed the payment risk that hitherto had been borne by the supplier, and thereby 'stood in the shoes of the supplier' vis a vis the buyer in respect of that payment risk. [6] As HIH propounded its case in opening, it said that Suncorp was a financier in the second or alternatively a supplier in the first of those categories. However, in his closing submissions in reply, Mr Gageler SC (who appeared with Mr Mehigan of counsel for HIH) accepted that Suncorp did not fall into the second category. Before a financier could fall into the second category, the supplier must have supplied goods or services on credit, thereby giving rise to a credit risk that the financier could assume. Mr Gageler accepted that, on the evidence in this case, the supplier of the goods in question did not sell them on credit terms." 24 On appeal, Mr Nell SC, who appeared with Mr Izzo for Gen Re, sought to identify paras (1) and (2) in [5] as exhaustive of the content of the phrase "trade credit insurance", or, at least that the case had been fought on that basis. An examination of the expert evidence and the approach of the primary judge to deciding the case deny both propositions. 25 HIH called a Mr Jeremy Hampshire who was an insurance broker with over 20 years of experience working in the field of trade credit and political risk insurance in London and Hong Kong. He prepared a report in which he identified two questions asked of him: "(a) As a matter of insurance industry practice, what, if anything, was understood by 'trade credit' insurance in 1999/2000? (b) If there was an understanding as to that term, is the Suncorp Policy (being HIH's insurance policy No AUD99/TC/161903 issued to Suncorp-Metway Ltd for the policy period 25 March 1999 to 31 March 2000) an instance of trade credit insurance as understood by the insurance industry in 1999/2000?" (His evidence as to the second question was rejected as being a matter for the court. No issue was raised on appeal about this ruling.) 26 Based on his experience, Mr Hampshire said, amongst other things, the following in his written statement ("TCI", being a reference to trade credit insurance): "TCI is utilised by all kinds of companies throughout the world, operating in the textiles, construction, manufacturing, electronics and finance sectors. Within the finance sector, financial institutions obtain TCI in respect of a variety of transactions, including trade finance, factoring, forfaiting and project finance. In addition, a number of TCI policies were issued to what is commonly known as a 'confirming house', ie financial institutions that would buy or finance accounts receivable. Since the late 1990's there have been an increasing number of TCI policies issued that directly insure banks financing trade transactions, although the volume of such business as compared to the total TCI market is only about 5-10%. While I was at Aon London (1992/3-1999), approximately 5% of Aon's TCI clients were financial institutions, including banks." 27 Gen Re called Mr David Thomas, who was an underwriter with significant experience in trade credit insurance. In direct response to the paragraph in Mr Hampshire's statement containing the passage quoted above, he said the following in his written statement: "Policies insuring financial institutions would only fall within the class of insurance 'trade credit insurance' if they insured those institutions against the risk of non-payment for goods or services supplied by the insured (i.e. the financial institution) on credit. A policy does not (and did not in 1999) fall within the class of insurance policies known in the Australian insurance industry as 'trade credit insurance' merely because the risk insured has some connection with trade (for example, trade finance or project finance)." 28 Mr Hampshire then stated the following in a statement in reply: "Mr Thomas agreed with my view that TCI policies can insure financial institutions against the risk of non-payment by the buyer for goods or services supplied to it by the financial institution on credit. The present risk falls within this description: the HIH policy insures Suncorp against the risk of non-payment for goods supplied by it to Daewoo Australia on credit." 29 The meaning and significance of this evidence was debated on appeal. Before coming to that, it should be noted that there was a debate at trial about the extent to which in 1998 and 1999 trade credit insurance was offered to or taken out by financiers who provided financial assistance to suppliers by assuming the credit or payment risk previously assumed by them. At [40] and [41] of his reasons the primary judge said the following: "[40] There was a difference between the experts as to whether, in 1998 and 1999, trade credit insurance was offered to or taken out by financiers who provided financial assistance to suppliers by assuming the payment risk borne by those suppliers (for example, by factoring the supplier's trade debts or by confirming a foreign letter of credit procured by the buyer to be given to the supplier). Mr Franklin and Mr Hampshire said that they had had actual experience in Australia of trade credit insurance being given to such financiers, although each accepted that it was a relatively small part – some 5 or 10% - of the total volume of trade credit insurance. That evidence was also supported by the evidence of Mr Weate. Mr Thomas did not deny that trade credit insurance was not so provided to financiers at the relevant time. His evidence was that he had no experience or knowledge of it. [41] To the extent that it is necessary to express a view, I prefer the evidence of Messrs Franklin and Hampshire (supported by that of Mr Weate) on this point. Firstly, as I have tried to indicate, what they said was not directly controverted by Mr Thomas. Secondly, the evidence of Mr Thomas on this point was undercut to a substantial extent when he was shown a publication produced by his employer at the time, Swiss Re, which made it plain that trade credit insurance could be taken out by financiers in certain circumstances. Although that publication seems to have been produced in July 2000, there is nothing either in it or in the evidence of Mr Thomas relating to it to suggest that the extension of credit trade insurance to financiers was an entirely novel development as at July 2000. I note also, although it is not decisive, that the evidence of Mr Self to which I have referred at [9] above is at least not inconsistent with (in fact, I think, supports) the evidence of Messrs Franklin & Daw." 30 Mr Nell submitted, correctly, that these conclusions related to what the primary judge referred to at [5 (2)] of his Honour's reasons (at [23] above) which was abandoned at trial by HIH: see [6] of his Honour's reasons (at [23] above). 31 The primary judge did not make a finding, in terms, to the effect that trade credit insurance extended to circumstances where a financial institution (as supplier) was insured against the risk of non-payment for goods supplied by it on credit (the first of the alternatives referred to in [5] of his Honour's reasons). That conclusion was, however, implicit in his Honour's ultimate approach and clearly encompassed within his reasoning. This can be seen, first, in the primary judge's conclusions at [51] and [52] of his Honour's reasons: "[51] There is no doubt that the Suncorp policy is capable of being a policy of trade credit insurance. That is what it is called. When the insuring clause is read in conjunction with the definitions of the defined terms contained within it, it is clear that the policy may afford indemnity to the insured against loss arising from the non-payment of a debt owing for goods or services supplied on credit. [52] The real point in relation to the first issue was not the general nature of the Suncorp policy but whether, having regard to the business relationship between Suncorp and Daewoo Australia as documented in the trade finance agreement and carried on pursuant (or purportedly pursuant) to that agreement, Suncorp in fact provided trade credit to Daewoo Australia." 32 Implicit in this conclusion was the proposition that trade credit insurance was wide enough to encompass non-payment of goods supplied by a financier on credit, if supplied in the extended sense of the word "Delivered" in the Suncorp policy. 33 On appeal, Gen Re contested that assumption. In my view, his Honour was correct. There was no suggestion that the HIH policy and, in particular, its scope derived from the definition of "Delivered" was unusual. Subject to the debate about the evidence of Messrs Hampshire and Thomas, it accords with commercial common sense that the concept of "supply" includes delivery of title without the need for a financial institution to take and pass physical control to the buyer. 34 That trade credit insurance extended to insurance covering the risk assumed by a financier (here Suncorp) which supplied goods on credit can be seen in the rejection by the primary judge of one of the arguments of Mr Nell as to why Suncorp did not provide trade credit to Daewoo Aust, which argument was set out at [53 (1)] of the primary judge's reasons as follows: "(1) Suncorp was not a dealer in goods of the kind acquired by Daewoo Australia pursuant to the trade finance agreement, and did not carry on any trade either in relation to the supply of those goods or by way of supply of goods generally". 35 The primary judge rejected this argument at [56]-[61] of his reasons: "[56] Although there was no direct evidence on the point, I am prepared to accept that the ordinary business activities of Suncorp do not (and in 1999 did not) include the purchase and on-sale of goods such as monoethylene glycol, pure lead ingots or prime hot rolled steel billets. [These being the goods the subject of the three sales.] [57] Mr Nell submitted that trade credit insurance was in substance the insurance of trade receivables. This, he submitted, indicated that the receivables must be those arising, or payable, in the course of trade. He submitted further that in this context 'trade' indicated a business of trading in goods or services of the kind in question, and not merely a one-off or isolated transaction. [58] In this context, Mr Nell pointed out that trade credit insurance is generally written over a trader's book of receivables. He did however accept that, as the experts had said, trade credit insurance could cover a single customer of the trader; and that, as also appears from the expert evidence, there are other possibilities (of trade credit insurance extending to less than the entire book of receivables) as well. [59] Mr Gageler submitted that there was no reason in principle, and no reason found in the expert evidence, why trade credit insurance should be available only to traders. He submitted that it was sufficient if a receivable became owing to the insured in the course of conduct of the insured's business, whether or not that business ordinarily comprehended the supply of the goods and services in question. In this case, Mr Gageler submitted, Suncorp was acting in the normal course of its business – the business of providing finance – and the debts in question became owed to it through those business activities. [60] None of the experts supported in terms the proposition that trade credit insurance was available only for receivables in respect of the supply of goods or services by a person whose ordinary business, or trade, was the supply of those goods or services. Nor was such a proposition put to any of the experts (or, for that matter, to Mr Weate). Indeed, I think, the evidence of Mr Thomas suggests that trade credit insurance may not be so limited. He accepted that trade credit insurance was defined in the Swiss Re publication to which I have referred at [41] above: insurance providing 'companies with coverage for outstanding commercial receivables, protecting against risk of buyer default or insolvency'. The phrase 'outstanding commercial receivables' is apt to denote the debts owed by Daewoo Australia to Suncorp in respect of which HIH paid Suncorp's claim under the Suncorp policy. [61] Thus, I conclude, there is no necessary restriction in the phrase 'trade credit insurance' limiting the availability of such insurance in the manner suggested by Mr Nell. I do accept however that it is necessary that the insured debts arise in the course of a business. In this case, I think, that qualification is met (notwithstanding the somewhat unusual way in which the debts arose) substantially for the reasons given by Mr Gageler (see [59] above)." 36 The above discussion and conclusions of the primary judge, especially the contents of [60] and the last sentence thereof, reflect the view of his Honour that the evidence supported the conclusion that trade credit risk and trade credit insurance were sufficiently ample expressions to encompass the risk of a financial institution for non-payment by a buyer from it in circumstances where the financial institution did not in the ordinary course of its business trade in such goods or trade in goods generally and in circumstances where it passed title in a sale contract to the buyer. 37 This conclusion is supported by the evidence referred to by his Honour and also by the apparent plain reading of the exchange between Mr Hampshire and Mr Thomas referred to earlier. Gen Re, submitted, however, that this exchange should be viewed in context and did not support the apparent conclusion that the experts were agreed in accordance with what appeared to be the clear terms of Mr Thomas' evidence. 38 Gen Re argued that the paragraph of Mr Thomas' evidence which I have earlier quoted was limited by an earlier paragraph concerned with the enforcement of security by the financial institution. I do not agree. Mr Thomas' statement makes clear that he was responding to para 23 of Mr Hampshire's first statement, and the width of the evidence in that paragraph. In this context I do not see how the words of Mr Thomas' report can be limited, otherwise, perhaps, than by the content of the word "supply". 39 Gen Re pointed out that in the experts' joint report Mr Thomas' views were inconsistent with the extract earlier cited. The following was contained in the joint report: "Mr Thomas says that the relationship between Suncorp-Metway Ltd and Daewoo Australia Pty Limited is one of lender (bank) and borrower and as such is not a trading relationship which is validly able to be covered under a policy of trade credit insurance. The Trade Finance Agreement attempts to create a form of trading relationship between Suncorp-Metway Ltd and Daewoo Australia Pty Ltd to enable a policy of trade credit insurance to be issued in a situation where the substance of the transactions was the provision of finance by a lender to a borrower. … Mr Thomas believes that a domestic trade credit policy should not have been issued to Suncorp-Metway Ltd by HIH. The way the Trade Finance Agreement was put in place and the documentation that purports to create a trading relationship between Suncorp-Metway Ltd and Daewoo Australia Pty Limited constructed was, in an artificial manner, designed solely to overcome the fact that HIH would not have issued a policy to Suncorp-Metway Limited as a financier." 40 The difficulty with these views of Mr Thomas is that they have within them the theme of artifice. No sham was asserted. However, it is not easy to reconcile them with the extract earlier quoted, other than by limiting "supply" to circumstances where the financial institution also carries on business as in the ordinary course of trade or a supplier of the goods in question. This was the argument of Gen Re referred to in the primary judge's reasons at [53 (1)] and rejected at [56]-[61]. 41 Whilst, on one view, the earlier extracts from the statements of Messrs Hampshire and Thomas appear to reveal a measure of consensus, the joint report does reveal a difference in approach. The recognition of that difference in approach, however, is not sufficient to throw into doubt the conclusions drawn by the primary judge at [51], [52] and [56]-[61] and the implicit conclusion of his Honour, in accordance with the apparently clear meaning in the extract earlier quoted from Mr Thomas' statement, that trade credit insurance included coverage for risk of non-payment for goods supplied by a financial institution to a buyer on credit. 42 If supply includes passing title (as I think it should) and if supply is not restricted to supply in the ordinary course of trade of selling goods or goods of that description (as the primary judge concluded at [56]-[61] and correctly in my view), the ultimate question on appeal becomes whether Suncorp took title (from Daewoo HK) and passed title to Daewoo Aust. The Events in Question and the Central Factual Issue: Did Suncorp Receive and Pass Legal Title to Daewoo Aust? The facts and the approach of the primary judge 43 The primary judge examined the facts concerning three shipments of goods in April 1999 and concluded that Daewoo HK passed title to Suncorp which in turn passed title to Daewoo Aust in a sale on credit. Daewoo Aust defaulted on payment. His Honour therefore concluded that the circumstances fell within the Suncorp policy which was trade credit insurance making Gen Re liable for its share. 44 Gen Re attacked the primary judge's conclusion and reasoning. The primary judge set out at [53] the four principal arguments put forward by Gen Re as to why Suncorp did not provide trade credit to Daewoo Aust. I have already set out [53 (1)] (at [34] above) and referred to how the primary judge dealt with it. The balance of Gen Re's arguments set out by the primary judge at [53] of his reasons were: "(2) when the acts done by Suncorp and Daewoo Australia in performance of the trade finance agreement were examined, it was clear that Suncorp did not sell the goods in question to Daewoo Australia; (3) alternatively, Suncorp did not sell goods to Daewoo Australia on credit; the substance and effect of the arrangements documented by the trade finance agreement was that Suncorp provided finance to Daewoo Australia to enable it to acquire goods from suppliers; and (4) Suncorp did not acquire title in the goods in question, and did not give title in those goods to Daewoo Australia." 45 As the primary judge said at [54]: "[54] It will be seen that the second, third and fourth points overlap. Further, the fourth point is really a restatement of the second issue." 46 These arguments substantially reflected what was put on appeal. It is necessary, however, to examine what in fact occurred, the primary judge's analysis of the events in question and the criticisms made by Gen Re as to that analysis. 47 The claim on HIH and in turn on Gen Re involved payment for three shipments of: (a) 8,297.35 metric tonnes of monoethylene glycol shipped from Bandar Imam Khomeini, Iran to Ulsan, Korea for USD 2,987,046; (b) 10,998 metric tonnes of pure lead ingots shipped from Tianjin, China to Inchon, Korea for USD 3,959,280; and (c) 14,998.85 metric tonnes of prime hot rolled steel billets shipped from Vladivastok, Russia to Zhangjigang Port, China for USD 2,924,775.75. 48 The sailing dates for each vessel were originally late March. They were apparently revised to 17, 19 and 29 April 1999. The carriage was undertaken by ships apparently independent of Daewoo. 49 There was no evidence of any specific arrangement between Daewoo Aust and Daewoo HK which may have reflected any arrangement contemplated by cl 4.1 of the trade finance agreement. The primary judge said at [67] of his reasons: "[67] … Presumably, Daewoo Australia entered into 'Purchase Contracts' with Daewoo Hong Kong as contemplated by cl 4.1 of the trade finance agreement." No complaint was made by the appellant about this conclusion. Rather, it emphasised that this was the only true sale transaction. 50 On 30 March 1999, Daewoo Aust applied for three letters of credit each in a sum sufficient to cover the above purchase price for payment to Daewoo HK (the nominated beneficiary) for each of the shipments. The nominated documents required to be produced for payment under each letter of credit included: (a) commercial invoice in triplicate; and (b) marine shipped on board bill of lading, to order of the shipper endorsed in blank and marked freight prepaid. (These requirements were indicated by the ticking of pro-forma boxes.) (c) Under the heading "Other documents" the following appeared: "Charter party B/L acceptable. C/O is not required. Beneficiary's statement that that the original full set of B/L has been sent to the applicant directly by DHL. T/T Reimbursement is allowed." (The abbreviation "C/O was not explained in the evidence. I assume it to have been a reference to certificate of origin.) (d) Under an inserted typed clause also entitled "other documents" the following appeared: "One photocopy of clean bill of lading made out to the order marked freight prepaid and notify: Kohap Ltd, Seoul, Korea." 51 At this point, it should be noted that Gen Re placed significant emphasis on the fact that the bills of lading (as documents of title) were to be sent by the shipper Daewoo HK to Daewoo Aust, thereby reflecting what was said to be a direct sale between them. 52 Three letters of credit were established on 15 April 1999. The applicant was stated to be Daewoo Aust, the beneficiary to be Daewoo HK; tenor was at sight. Terms were CNF Ulsan, CNF Tiajin and C and F Zhangjiangang Port. The documents required were stated to be: beneficiary's commercial invoice in triplicate, a full set of clean on board ocean bills of lading made out to order endorsed in blank and marked freight prepaid. Additional documents were one photocopy of clean bills of lading made out to order marked freight prepaid and notifying three individual parties (as notify parties). The letter of credit also stated that the invoice was "to indicate applicant as [Suncorp]". 53 Three invoices dated 15 April 1999 were issued by Daewoo HK. They related to the three shipments in question. The invoices were apparently in a standard form with relevant typed information inserted. The invoices referred to the late March sailing dates. Importantly, adjacent to the line identified as "on account & risk of Messrs" a full reference to Suncorp was typed in. There was no other heading or reference on the forms that could be taken to be a reference to the purchaser. Also, adjacent to the phrase "Insurance effected by" (referring in this context to cargo insurance of the goods) there was typed "Ultimate Buyer". 54 On 16 April 1999, the advising bank in Hong Kong, Korea Exchange Bank, was notified of the establishment of the letters of credit. 55 By three commercial invoices dated 20 April 1999, Daewoo Aust invoiced Daewoo UK for the three shipments. The sailing dates were now the April dates that I have identified. Each invoice identified Daewoo UK under a printed box entitled "for Account & Risk of Messrs". 56 By facsimile on 21 April 1999, Daewoo HK informed Daewoo Aust that Suncorp had received documents for the three letters of credit. Payment was sought for the following day. 57 On 22 April 1999, Daewoo Aust sent three drawdown notices under cl 4.6 of the Trade Finance Agreement identifying a drawdown date of 22 April and requesting the precise invoice sums (USD 2,987,046, USD 3,959,280 and USD 2,924,775.75). 58 On 22 April 1999, Suncorp sent three "Import Schedules" to Daewoo Aust noting various discrepancies in the documents presented for the purposes of the letters of credit. In each case, commercial invoices (in triplicate) and a single copy ("cc", presumably a photocopy) of the bill of lading had been received. Apart from other discrepancies (some typographical) the original set of the bills of lading were not presented. These discrepancies were accepted by Daewoo Aust. Thereafter, on 22 April 1999, Suncorp made payment under the three letters of credit to Daewoo HK. 59 By invoices dated 22 April 1999, Suncorp invoiced Daewoo Aust for the goods with payment dates 20, 22 and 24 September 1999. The sums invoiced were uplifted to 111.12% of Daewoo HK's purchase price as anticipated in cl 5.1 (b)(i) of the Trade Finance Agreement. 60 On or after 22 April 1999, Daewoo Aust sent to Suncorp three signed bills of exchange in the amounts of Suncorp's invoices. The bills were dated 22 April 1999 with maturity dates conforming with the payment dates in September 1999. 61 On 22 April 1999, Daewoo Aust sent three invoices to Daewoo UK identifying credit terms (treating the invoice prices under its sales invoices as principal debts) at 7% interest with a 0.3% handling fee, payable on 20, 22 and 24 September 1999 (the dates of the maturity of the three bills of exchange drawn on Daewoo Aust and provided to Suncorp). 62 Daewoo Aust defaulted on the bills of exchange. 63 The gist of the submissions by Gen Re before the primary judge was set out at [78] of his Honour's reasons: "[78] Mr Nell submitted that when the facts were examined, there was never a sale by Suncorp to Daewoo Australia. In truth, Mr Nell submitted, what had happened was that the goods were sold by Daewoo Hong Kong to Daewoo UK on credit, financed by Daewoo Australia with the assistance of Suncorp. Alternatively, Mr Nell submitted, the substance of the transaction was that the goods were sold by Daewoo Hong Kong to Daewoo Australia (financed by Suncorp) and on-sold by Daewoo Australia to Daewoo UK ." 64 The analysis of the primary judge was as follows. The use of marine or ocean bills to the order of the shipper Daewoo HK gave that company the power to reserve title (by deciding when to send them and to whom to make them out to): reasons [79]. The bills did not come into Suncorp's possession (though a copy did), but Suncorp received the invoices from Daewoo HK. The primary judge stated in [80] of his reasons: "[80] … Those invoices stated that the goods were shipped on the account and risk of Suncorp. It is open to infer that by those words, and in the overall factual context, Daewoo Hong Kong was intending to transfer title in the goods to Suncorp upon payment." The primary judge concluded at [81] to [84] of his reasons that he should infer as a matter of fact from the invoices and their payment that there were contracts of sale between Daewoo HK and Suncorp. Reliance was placed on Associated Midland Corporation Limited v Bank of New South Wales (1984) 51 ALR 641 at 643-644 and Sonenco (No 87) Pty Limited v Commissioner of Taxation (1992) 38 FCR 555 at 595-596. This was reflective, he found, of the arrangements contemplated by the Trade Finance Agreement, especially cl 4.7. 65 The primary judge rejected the argument that any momentary vesting of title in Suncorp should be ignored or disregarded. 66 In discussing the possible existence of a countervailing analysis, the primary judge recognised the broad commercial aim of the Daewoo group. At [94] of his reasons his Honour said: "[94] Presumably, in the circumstances of this case, the basic intention of the Daewoo Group was that goods should be supplied from Daewoo Hong Kong to Daewoo UK, and that title to the goods should vest in Daewoo UK. The Daewoo Group appears to have appreciated that this ultimate intention could be facilitated, or effected, through Daewoo Australia because it had available financial resources. There is no reason, from the perspective of the Daewoo Group, why achievement of the basic objective – sale of the goods, and transfer of title, from one company to the other – should not be effected through a series of transactions (involving a chain of title) rather than one overarching transaction. From the perspective of the Daewoo Group, if the achievement of that basic objective involved the taking of a number of steps, in the course of which title to the goods was passed from one entity to another, there is no reason to impute to the individual members of the Daewoo Group any intention other than that those steps would be carried out and that title would pass accordingly." This can be perhaps restated as the Daewoo group using Daewoo Aust's facility with Suncorp to purchase these three cargoes and place their ownership ultimately in Daewoo UK. This much can be accepted. 67 In dealing with an argument of Gen Re based on cl 4.1 of the Trade Finance Agreement to the effect that there was an existing contract for the sale and purchase of the goods between Daewoo HK and Daewoo Aust, his Honour said the following at [99]: "[99] I do not think that this analysis is correct. "Clause 4.1 must be looked at in the context of all relevant provisions of the trade finance agreement. To my mind, those provisions make it clear that once Suncorp accepted an application to establish a letter of credit in respect of any particular purchase, it became the purchaser of those goods. There are a number of legal mechanisms that might give effect to that result: including agency, trust and novation. If it were necessary to express a concluded view, I would prefer the analysis of novation. On that analysis, once Suncorp agreed to establish an unconditional letter of credit in respect of goods, and once the supplier of those goods agreed to invoice Suncorp for them, whatever contract may have existed between the supplier and Daewoo Australia was discharged in consideration of the making of a fresh contract between the supplier and Suncorp. Where the transactions are intra-group (as all three were) that analysis seems to me to be supported by the considerations to which I have referred at [86] and [94] above." I have already set out [94] of his Honour's reasons. At [86] he dealt with knowledge within the Daewoo group as follows: "[86] It seems to me that if the intention of the Daewoo group were to finance its activities in the way I have outlined, then one could infer that the group would be aware of the way in which that financing would be effected. Thus, it might be possible to infer that companies within the group knew – at least in outline, or substance - of the arrangements between Suncorp and Daewoo Australia documented in the trade finance agreement, and intended that those arrangements should have effect. The availability of that inference is supported by the fact that Daewoo Corporation (the parent corporation of the group) was asked to confirm, and did confirm, that its guarantee of the obligations of Daewoo Australia extended to obligations undertaken or to be undertaken by Daewoo Australia pursuant to the trade finance agreement." 68 Having found that Daewoo HK sold to Suncorp and that Suncorp on-sold on credit to Daewoo Aust his Honour found that the Suncorp policy responded, there being an "Insured Debt". The submission on appeal and the resolution of the appeal 69 The notice of appeal was extensive covering seven pages. The submissions however were more tightly focussed. I do not propose to deal with each ground of appeal, but rather deal with the substance of the arguments as put on appeal. The arguments really collapse into the proper approach to be taken to the facts, in particular as to whether Daewoo HK sold, or passed title to, the goods to Suncorp (which on-sold or passed title to them to Daewoo Aust) or whether Daewoo HK sold or passed title to the goods to Daewoo Aust directly. Thus, the central issue was: Did Daewoo HK sell to Suncorp? If so, did Suncorp on-sell to Daewoo Aust? 70 The importance of there being no suggestion that the arrangements were a sham is that the legal structure of the terms of the arrangements can be taken to reflect the parties' true intentions: Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (In liquidation) [2000] HCA 25; 202 CLR 588 at 605-609 [33]-[42]. If the documentation of the arrangements reveals the sequential sales propounded by HIH, then that is the fact. 71 That does not mean, of course, that for other purposes those legal relationships might not be characterised by reference to some other criterion. For instance, if the primary commercial purpose was one of financial accommodation, it might be concluded that the arrangements are in economic substance a financing transaction or one involving a financial risk. This would not deny the legal (and factual) reality that the parties had chosen to formulate their mutual rights and obligations (in their financing arrangement) by reference to the documentation and contracts entered. The process of characterisation is an exercise based on a criterion or criteria, often as simply stated as economic substance or business reality. Examples are common: economic substance over legal form in the approach to accounting issues; and the "character" of the advantage gained by an expenditure in a revenue context: Sun Newspapers Ltd v The Federal Commissioner of Taxation; Associated Newspapers Ltd v The Federal Commissioner of Taxation (1938) 61 CLR 337 at 359-363; Hallstroms Pty Limited v The Federal Commissioner of Taxation (1946) 72 CLR 634 at 646-648. 72 In this context, Gen Re relied on what was said by Einstein J in HIH Casualty & Gen Re (NZ) Ltd (in liq) v General Reinsurance Australia Ltd [2004] NSWSC 659 at [60], [61] and [65]: "[60] The Award, as I accept, accords with commercial common sense, insurance and reinsurance are clearly all about risk assessment. There are different categories or types of risk. It is important that reinsurers be held liable only for risks which in substance and reality are the types of risks they can reasonably be taken to have accepted when a policy is ceded. [61] It is inappropriate that reinsurers should be held liable for risks which may be 'dressed up' as trade credit risks, but which in reality are the risks of a banker or financier vis-à-vis its customer, risks which involve different considerations and assessment. … [65] As the defendant submitted the position for which the plaintiff contends appears to be commercially unrealistic. It ignores the substance of the risk insured by the policy. It also ignores the fact that the bills and notes were not the exclusive basis for characterising the relationship between Dresdner and APBT." 73 The process of properly characterising the class of business as discussed by Einstein J will often be important for attribution of risks or primary cover to reinsurance policies or for the application of statutes: eg whether policies are life insurance or some form of investment cover: National Mutual Life Association of Australasia Limited v Federal Commissioner of Taxation (1959) 102 CLR 29 at 42-43; Joseph v Law Integrity Insurance Co Ltd [1912] 2 Ch 581; Gould v Curtis [1913] 3 KB 84; Marac Life Assurance Ltd v Commissioner of Inland Revenue (1986) 4 ANZ Ins cas 60-735; Cutten and Harvey v Sun Alliance Life Assurance Limited (1986) 4 ANZ Ins cas 60-742; and in the field of marine insurance: Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 242-243; Gibbs v Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 22; 214 CLR 604 at 646-648 [121]-[131] and 664-668 [185]-[200]; and The 'Captain Panagos DP' [1985] 1 Lloyd's Rep 625 at 631-632. 74 As Windeyer J said in National Mutual Life v FCT at 42: "…. Whether or not a particular transaction is denoted by some description is a question which not infrequently arises in connexion with enactments which dictate conditions governing transactions of that description, or which impose fiscal burdens such as stamp duties of different amounts upon instruments of different descriptions. In the absence of express statutory definition these questions necessarily turn upon what is the accepted connotation of the description in question — in the present case, its meaning in 'common parlance among such persons as were conversant with insurance' (per Hamilton J in Gould v Curtis …) and 'as understood commonly in the business world, by insurance companies, and by other people' (per Cozens-Hardy MR in the same case …)." 75 Here, if the expert evidence had required the conclusion that insurance in terms covering the risk of non-payment for the supply of goods was not trade credit insurance if the commercial substance and purpose of the transaction was to provide financial accommodation, then the above process of characterisation would become important. Here, however, the primary judge concluded, in accordance with the evidence, that trade credit insurance included covering risks of non-payment to a financial institution pursuant to a credit sale by it. 76 It is therefore necessary to turn to the attack on the primary judge's conclusion that Suncorp supplied the goods to Daewoo Aust, in the sense of passing title to it. 77 It was submitted that there was no evidence as to the existence of any agreement or arrangement between Daewoo HK and Suncorp. To the contrary, it was submitted, cl 4.1 of the Trade Finance Agreement raised an inference of a contract between Daewoo HK and Daewoo Aust, which was consistent with Recital A to that agreement. 78 This submission fails to recognise the reconciliation and harmony between the Trade Finance Agreement and the facts. That the supplier (Daewoo HK) had an arrangement or contract to sell to Daewoo Aust encompasses the notion of selling to Daewoo Aust or its nominee. The fact that Daewoo HK did invoice Suncorp is evidence of a direction. Certainly, the letters of credit direct the invoice to Suncorp, and importantly, as the "applicant": see the direction in the letters of credit ([52] above). Thus, the invoice was to be made out to Suncorp as if it were the applicant for the letter of credit (in the position of buyer). The invoice was made out "on account and at the risk of" Suncorp. No other words on the invoices identified the purchaser. The commercial invoice is a crucial document in international sales and trade which, amongst other things, will identify the purchaser: see generally Schmitthoff's Export Trade, 9th Ed (1990) ch 6. If, as argued by Gen Re, all the steps that occurred can be explained by Suncorp's provision of finance through letters of credit one would have anticipated the invoices presented for payment under the letters of credit to be made out to the buyer of the goods who applied for the letter of credit, here Daewoo Aust. See Uniform Customs and Practice for Documentary Credits 500 Art 37A (ii). A deliberate, and documented, decision was made that the invoices should be made out to Suncorp, as if it were the applicant under the letters of credit. The invoices were so made out. 79 Though, of course, risk and title can be separated, the phrase "on account and at the risk of" in circumstances where there is no other place to identify the buyer is powerful evidence that the invoice is directed to Suncorp as buyer. 80 That Suncorp paid the invoice can, of course, be explained by the process of the letter of credit. Nevertheless, it was paying an invoice made out to it, in circumstances where it understood the intention (certainly of it and Daewoo Aust) that it would receive free ("beneficial") title: see Trade Finance Agreement, cl 4.7. 81 The inference to be drawn is not so much that there was (in other unproved documents or communications) a pre-existing contract between Daewoo HK and Suncorp; but rather, given the lack of evidence of communication between Daewoo HK and Suncorp and given the background arrangements between Daewoo Aust and Suncorp that the delivery of the invoices to Suncorp on its own account and its payment of the price amounted to a contract between the two commercial parties. As such it would not be a novation of any pre-existing arrangement. It was the creation of the legal relationship, at the request of Daewoo Aust, between what can be taken to be in commercial terms its supplier and its financier, with the clear commercial intention of on-sale to it by the financier (all as reflected in the Trade Finance Agreement). 82 These conclusions are supported by the discussion by Gibbs CJ (with whom Mason, Wilson, Deane and Dawson JJ agreed) in Associated Midland Corporation Ltd v Bank of New South Wales (1984) 51 ALR 641 at 643-644. The primary judge legitimately drew assistance from this case. 83 Though the payment was under a letter of credit, the indebtedness of the applicant for the credit (Daewoo Aust) was to be eliminated by the payment for the on-sale to it by Suncorp. Further, as between Daewoo HK and Suncorp, the former was paid by the latter for an invoice directed to the latter in its personal capacity. 84 As between applicant for and issuer of the letter of credit here (Daewoo Aust and Suncorp, respectively), the terms of the Trade Finance Agreement are not to be ignored. Though in a sense Suncorp was paying Daewoo HK as issuer of the letter, it was doing so in furtherance of the Trade Finance Agreement under which (vide cl 4.7) it was to take full (beneficial) title to the goods. This negated any suggestion that its title was limited or special cf Sewell v Burdick (1884) 10 App Cas 74. The nature of the title received by a financier (even if taking as consignee or indorsee of a bill of lading) will depend upon the intention of the parties: Sewell v Burdick; SC Boyd et al, Scrutton on charterparties and bills of lading, 20th ed (1996) at 187. Here, the requests in the letters of credit to Daewoo HK to make the invoices out to Suncorp as applicant for the credit, Daewoo HK doing so in the terms "on account and at the risk of" Suncorp, and the clear intention of Daewoo Aust and Suncorp at cl 4.7 of the Trade Finance Agreement all negate the limitation of any property in Suncorp to that of a pledge or other security interest. Daewoo HK can be taken as offering to sell the goods to Suncorp by directly invoicing it (having been requested to do so by the letter of credit and, one would naturally infer, having been otherwise requested to do so). Daewoo HK was intending to divest itself of title by sale. Given that Daewoo Aust (to whom the bills of lading were sent) and Suncorp had a commercial relationship in which the latter provided the former with financial accommodation, the nature of any title to be held by Suncorp rested on their mutual intention. That intention was to be found in unequivocal terms in the Trade Finance Agreement, especially cl 4.7. 85 Gen Re submitted that the failure to deliver (or to intend to deliver) the original bills to Suncorp tells against Suncorp taking title. I do not agree. First, receipt of the bills (endorsed in blank and therefore having the character of a bearer bill: Scrutton p 184) would not mean that anything other than limited on special property was to be taken by Suncorp: Sewell v Burdick. Again, it would depend on the underlying intention. 86 Secondly, bills of lading are not only documents of title but also receipts and, in the usual course, necessary for the collection of the cargo. Here Suncorp was a financier, and the "ultimate buyer" (the term used on Daewoo HK's invoice) not being Suncorp might conveniently receive the bills. If, as it appears to have been the case, that Daewoo HK was the shipper, the in-house nature of the sale arrangements tended to tell against the need to use bills of lading as the method of title transfer. 87 Thirdly, in all the circumstances of the Trade Finance Agreement, the intention was clear that Suncorp was to take title, notwithstanding the instructions and actions concerning the bills of lading. 88 Gen Re also placed emphasis on the fact that the commercial profit derived by Suncorp from its participation in the arrangement did not come from any mark up on the on-sale, but from interest provided for under cl 7 of the Trade Finance Agreement. Whilst this is a factor which reinforces the financial substance or character of the arrangement, it does not undermine the legal and factual conclusions to be drawn from the parties' conduct otherwise in accordance with the underlying Trade Finance Agreement which was plain as to the intended sequential passing of title. 89 The primary judge's conclusions about novation were not central to his reasoning. Whilst I do not conclude that he was wrong, I have doubts about his conclusion that all companies in the Daewoo group had knowledge of Daewoo Aust's finance arrangements with Suncorp. The better way, in my view, of analysing the arrangements and the participation of Daewoo HK is as I have expressed it above. 90 For the above reasons, the attacks on the primary judge's conclusions fail. 91 In my view, the appeal should be dismissed with costs. 92 HODGSON JA: I agree with Allsop P. 93 MACFARLAN JA: I agree with Allsop P. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.