General Reinsurance Australia Ltd v HIH Casualty & General Insurance Ltd - [2009] NSWCA 22 - NSWCA 2009 case summary — Zoe

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General Reinsurance Australia Ltd v HIH Casualty & General Insurance Ltd

[2009] NSWCA 22

Court of Appeal (NSW)|2009-02-06|Before: Allsop P, Hodgson JA, Macfarlan JA, Captain Panagos DP, McDougall J, MacFarlan JA

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Source facts

Court

Court of Appeal (NSW)

Decision date

2009-02-06

Before

Allsop P, Hodgson JA, Macfarlan JA, Captain Panagos DP, McDougall J

Source

Original judgment source is linked above.

Judgment (68 paragraphs)

[1]

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:

[3]

(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;

[37]

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).

[46]

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.

[48]

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.

[59]

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."

[65]

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 …)."

[67]

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. **********