HIH Casualty and General Insurance (NZ) Limited (in liquidation) v General Reinsurance Australia Limited & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50027/04 HIH Casualty and General Insurance (NZ) Limited (in liquidation) v General Reinsurance Australia Limited & Ors JUDGMENT The proceedings 1 These proceedings are brought pursuant to section 38(4) of the Commercial Arbitration Act 1984 (NSW) seeking leave to appeal from the award of the Arbitrators [The Hon G E Fitzgerald AC QC, The Hon J E Brownie QC and Mr A J Meagher SC] dated 23 February 2004 [the Award] in respect of suggested questions of law. The award 2 The Award dealt with disputes between HIH Casualty & General Insurance (NZ) Limited (in liq) ("HIH (NZ)") and General & Cologne Reinsurance Australasia Limited and Others ("Reinsurers") arising from a quota share treaty of reinsurance (the "Treaty"). HIH (NZ) claims that the Reinsurers had failed to honour their obligations pursuant to the Treaty. The Treaty 3 The Treaty provided for reinsurance to HIH (NZ) for the period commencing 31 March 1999 until at least 30 June 2000. 4 Under the terms of the Treaty, the Reinsurers agreed to accept 60 percent of any one risk up to AUD/NZD$30 million in respect of insurance policies issued or renewed by HIH (NZ) for the class of business described as Trade Credit and Export Credit. 5 While no formal treaty agreement was executed, it was common ground that the terms of that reinsurance are set out in slips dated 22 March 1999 and that it was current at material times (Award [1]). The Policy of insurance issued by HIH (NZ) 6 A policy of insurance described as Domestic Policy of Trade Credit Insurance was issued on 9 June 2000 by HIH (NZ) to Dresdner Bank AG ["Dresdner" or "the Bank"] [the "Policy"]. The Policy was issued to Dresdner and four suppliers of palm oil products as Joint Insureds, being Concordia Trading BV, Alfred C Toepfer International GMBH, Atlantic Oils and Metals (ADM) SA and ADM Europort BV. Both Dresdner and the suppliers were identified as "Insured" under the policy; the policy described "The Insured" as "Dresdner Bank AG (Singapore Branch) and as endorsed" and "Endorsement details" nominated the suppliers as "Joint Insured". However, the policy provided that "claims payable to the Insured will be payable to" the Bank. The claim made by Dresdner 7 A claim made by Dresdner pursuant to the Policy on 9 November 2000 was accepted by HIH (NZ). 8 In February 2004, HIH (NZ) paid Dresdner NZ$7,453,888.34 and is expected to fully pay the claim. In February 2004 HIH (NZ) made an interim distribution to creditors and policyholders, including Dresdner, of 70 cents in the dollar. The liquidation of HIH (NZ) is expected to result in a surplus with all creditors fully paid (Liquidators' sixth report for the period 20 July 2003 to 19 January 2004 pursuant to Section 255 of the Companies Act 1993). 9 The amount claimed by HIH (NZ) from the Reinsurers is made up of 60 percent of US$4,417,289 (which equals US$2,650,373) plus the Reinsurers' proportionate share of costs and expenses incurred in connection with the claim. GCRA, the lead reinsurer on the Treaty, on 12 July 2001 asserted that the Treaty did not respond to the claim by HIH (NZ) on the basis, subsequently rejected by the Arbitrators, that it was a "Bank Guarantee" and excluded under the Treaty. Reinsurers continued to deny indemnity. The arbitration then followed. 10 The issues between HIH (NZ) and the Reinsurers, which were determined by the Arbitrators, were: · Did the Policy cover Dresdner's claim? [Issue A]; · Were the Reinsurers liable to HIH (NZ) under the Treaty in respect of HIH (NZ)'s liability to Dresdner under the Policy. [Issue B]; · Were the Reinsurers estopped from denying that they were liable to HIH (NZ) under the Treaty? [Issue C]; · Was HIH (NZ) entitled to relief against GCRA under sections 52 and 87 of the Trade Practices Act, and section 1041H of the Corporations Law? [Issue D]. 11 The Arbitrators found : · in favour of HIH (NZ) in relation to issue (A); · in favour of Reinsurers in relation to issues (B), (C) and (D). 12 HIH (NZ) did not seek to appeal in relation to issues (C) and (D). 13 Accordingly, the issue for the appeal, if leave is granted, is issue (B) in relation to which the Arbitrators firstly rejected the Reinsurers' contention that the Policy fell within one of the exclusion clauses within the Treaty, that being an exclusion of "Financial or Bank Guarantee Polic[y] - written as such" [Award paragraphs [15] and [16]. The Reinsurers do not contest this finding. Hence the only issue which is the subject of the present application is the Arbitrators' finding that the risk against which the Policy insured Dresdner was not a Trade Credit risk, and so was not within the class of business reinsured under the Treaty. The principles 14 It is convenient to commence by examining the principles which underpin the relevant provisions of the Commercial Arbitration Act 1984 (NSW) ["the Act"]. 15 Section 38 of the Act provides that leave is only to be given if the requirements of that section are satisfied. Even then, an appeal shall only lie on any question of law "arising out of an award" [section 38 (2)]. An alleged error must arise out of the award, not out of the arbitration. 16 Section 38(5)(a) and (b) of the Act provides that the Court shall not grant leave unless it considers that:

"(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement, and

(b) there is: (i) a manifest error of law on the face of the award, or (ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law." 17 The purpose of the amendment to the Act effected by section 38(5) was to further limit intervention by the Courts in the arbitration process, even beyond the restrictions on the ground of leave to appeal imposed by the pre 1990 legislation. 18 In the Second Reading Speech in relation to the 1990 amendments to the Act which gave the Act its present form, the then Attorney-General said:

"One of the major objectives in this uniform legislation is to minimise judicial supervision and review. If arbitration is to be encouraged as a settlement procedure and not as a dry run before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitrator whom they have chosen to decide the matter in the first place." [NSW Parliamentary Debates, 22 November 1990, p. 103878] 19 The policy behind the amendment as explained in Promenade Investments Pty Limited v State of New South Wales 1991 26 NSWLR 203 at 221 and following and as explained by Kirby P in Natoli v Walker [Court of Appeal 26 May 1994, unreported] was

"...to promote the finality of arbitral awards even at the price of denying a party its usual entitlement to the determination of the dispute by a court of law ie the precise assignment of the party's legal rights after a detailed scrutiny of the relevant facts and application of the relevant law." 20 Section 38(5) "constitutes thresholds which must be surmounted by an applicant before leave to appeal can be granted; a particular type of error of law must first be shown to exist, the effect of section 38(5)(b)(i) is that an error of law in an award is no longer enough; it must be `manifest'." 21 As Sheller JA pointed out in Promenade Investments at pages 225-226, if an error of law of the statutory type is found to exist, the threshold is surmounted but the gate to appeal remains closed. In short, even if the requirements of section 38(5) have been satisfied, the question still remains as to whether as a matter of discretion leave to appeal should be granted. [cf Natoli v Walker, per Mahoney JA at pages 3-4] The First Threshold : Section 38(5)(a) 22 The question here is whether "the determination of [the] question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement." 23 If the amount in issue is substantial, this is a relevant factor in determining whether the requirement in section 38(5)(a) is met. And as Mahoney JA made plain in Natoli at page 9, a relevant consideration in determining whether leave to appeal should be granted is the relationship between the costs of the appeal and the significance of the question of law to be determined. The Second Threshold : Section 38(5)(b)(i) 24 What then is an "error of law on the face of the award"? 25 In Promenade, Sheller JA said at page 225:

"The expression error of law on the face of the award' is one of a type well known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word manifest') an error of law. `Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, section 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 (at 151) and Otis Elevators Pty Ltd v Zitis (1986) 5 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71." 26 Kirby P in Natoli said, inter alia, at pages 23-25:

"So convincing is the exposition of Sheller JA in Promenade of the meaning and purpose of the amended legislation, and of the duty of judges to conform to it, that little point is served by detailed re-examination of the matter. But a glance at authority in the United States of America confirms, in analogous contexts, the approach which Sheller JA expounded. For a long time, in that country, Federal and State statutes have limited certain appellate and other curial interventions, to cases of manifest error'...for more than a century, manifest error' tests have been operating in the United States. The judges have generally declined to define what the test precisely means. Typically, they have adopted criteria which refers to whether there was evidence error, obvious, capable of being easily understood or recognised at once by the mind'. See Pettine CJ in DeCosta v Columbia Broadcasting System , Inc et al , 383 Fsupp 326 (1974) (USDC) 339. When the judge finds no such manifest error, he or she is duty bound to avoid entering into the detail of the case. What is in issue is a preliminary impression. It should not require a great deal of argument. The precondition to curial intervention is the easy demonstration that the primary decision-maker was clearly wrong'. Bell v Bell 417 So 2d 115 (1982) (La CA); Flamm v Flamm 442 So 2d 1271 (1983), 1273 (La CA)...

Necessarily, the criterion has been held in the United States to require great deference to be given to the primary decision-maker's findings of fact. See Beaudoin v Hartford Accident and Indemnity Company et al 594 So 2d 1049 (1992) (La CA). If there are two permissible views of the evidence, the fact-finders choice between them cannot be manifestly erroneous' or clearly wrong'. See eg Fredericks v Warren 561 So 2d 209 (1990) (La CA). This is so even if the appellate court feels that the evaluations and inferences which it would draw are different from those which the primary decision-maker has drawn. The existence of two possible views contradicts manifest error'. See Smith v Two "R" Drilling Company Inc 606 So 2d 804 (1992), (La CA) 808. See also Rosell v Esco d/b/a Jolly Elevator Corp, et al 549 So 2d 840 (1989) (La SC). If the only way an error can be shown is by requiring of a court the most elaborate examination of the facts and of the law, this is not a case for which manifest error' can be made out. The object of so providing in a statute is precisely to prevent a court from embarking upon such a detailed scrutiny. Hence the adjective manifest' . Porotto v Fiduciary Trust Co 75 NE 2d 17 (1947) (Mass SC), 20. To the extent that the court does embark upon such an elaborate examination of fact or law, it defeats the achievement of the object of the rule requiring the demonstration of manifest error'.

None of these authorities take the principle in Promenade beyond what was stated by Sheller JA. But they demonstrate that the criterion adopted by our Commercial Arbitration Act is not unique. The problem which it presents is shared by judges in many jurisdictions of the United States. It is clear from reading their authorities that they have accepted the requirement of very considerable judicial restraint where the criterion of `manifest error' obtains. We must do likewise.

This is not to say that the criterion slams the door on judicial intervention or deprives judges, whose jurisdiction is invoked, of the necessity to exercise the discretion thereby conferred upon them...

Obviously, there is a difficulty in the word manifest'. What may be manifest' to one judicial officer may fail to persuade another. The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon building contracts. An objective, not a subjective, test for what is `manifest' is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error. Otherwise, Parliament has taken the decision that it is better for the community as a whole that the parties should be held to their arbitral award. The price of lengthy exploration and reconsideration may prove warranted in a particular case. But, in the administration of justice as a whole, it is not. Expressed in economic terms, the marginal utility of the variations which will be achieved in particular cases is outweighed by the marginal cost of the delays, frustrations, uncertainties, inconvenience and legal and other expenses thereby necessitated..."

"In addition, if there was an error at law, I do not think that it was manifest. It was neither plain in the sense of being obvious nor was it manifest in the sense that there was little or no doubt that error it was." 27 In Gunns Forest Products Ltd v North Insurances Pty Ltd [2004] VSC 155 (7 May 2004) Harper J said in relation to equivalent Victorian legislation, at [2]:

"Those who choose to resolve their disputes by invoking the provisions of the Commercial Arbitration Act must take the good with the bad. They trade litigation, with its strict adherence to justice in accordance with law and its relatively generous rights of appeal, for a species of alternative dispute resolution with its advantages of speed and, possibly, cost - but with more limited rights of recourse to the courts thereafter. In short, they thereby take a step which limits the power of this Court subsequently to intervene." 28 As the defendants have submitted and I accept: · it is clearly established by the authorities, that it is not enough for an applicant for leave merely to create doubt about the correctness of an award. In Ipswich Borough Council v Fisons PLC [1990] 1 Ch 709 at 726F Lord Donaldson of Lymington MR (with whom Woolf and Beldam LJJ agreed) said: "…I think that the Vice-Chancellor applied the wrong test. It is not sufficient that he should have been left in real doubt whether the arbitrator was right. Nor, I would add, does it matter whether the arbitrator's reasons may have been faulty, unless this casts doubt upon his conclusions; it is always possible to arrive at the right answer for the wrong reasons and in such a case leave should never be given." · it follows that a decision on a leave application should be arrived at after only relatively brief argument. The argument for grant of leave should be so strong and so apparently compelling that a fairly rapid examination should disclose that the requirements of the Act have been satisfied. [cf Ipswich B.C. v Fisons Plc [1990] 1 Ch 709 at 722; Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 at 192 per Rogers CJ Comm D] This is not to suggest that in a complex commercial case adversarial argument may not sometimes require time in exposition. The benefit of adversarial argument to elucidate the suggested manifest error of law was adverted to by Sheller JA in Promenade Investments [at 225 - 226]. The plaintiffs suggested background facts/structure of subject transactions summary 29 The plaintiff put forward a suggested accurate summary of the background facts and the structure of the subject transactions in respect of which, subject to some minor adjustments, the following may be put forward as accurate: · APBT purchased palm oil from the suppliers named as Joint Insureds in the Policy. The purpose of the provision of Trade Finance facilities by Dresdner was to assist APBT in its purchase of palm oil. · The payment structure initially contemplated for these trade transactions was that the payment terms were to be cash against full set of documents. The goods were to be delivered FOB. A useful summary of the payment terms and the change to the payment terms is found in the various letters to each of the suppliers written by Dresdner in late May 2000, an extract of which appears in the Award at paragraph [6]. · During late May and early June 2000 the payment terms were changed at the request of APBT (although the goods were still to be delivered FOB). The new arrangements appear from letters that the bank wrote to the suppliers in late May 2000, which stated: "Re : … …

In consideration of your agreeing to the request of our client, Asia-Pacific Bulk Terminal (Holdings) Pte Ltd to change the terms of payment to 180 days sight Documents against Acceptance as evidenced by Bill of Exchange drawn by you and accepted by Asia-Pacific Bulk Terminal (Holdings) Pte Ltd, subject to the condition set forth in the following paragraph, which shall in all respects be overriding, we hereby undertake to purchase the said draft for 100% of the draft value on a sight basis without recourse in which the discount interest will be for the account of our client, Asia-Pacific Bulk Terminal (Holdings) Pte Ltd. We confirm that we will not release the documents to our client unless you receive full payment for 100% of the draft value on a sight basis. In the event the documentation is not in place for the discounting of the bills of exchange under the credit facility to be granted by us to Asia-Pacific Bulk Terminal (Holdings) Pte Ltd, we will only release the shipping documents to them subject to full payment being remitted to you on cash against documents.

The undertaking contained herein shall be of no effect unless and until the documentation referred to above is delivered to us in a form acceptable to us in all respects. Please present the shipping documents to us including the bill of exchange drawn at 180 days sight. This letter of undertaking is only effective for the above Purchase Order only." · The suppliers issued promissory notes or bills of exchange. APBT accepted the notes and bills. The suppliers presented the documents to Dresdner, which in turn purchased the notes and bills on a non-recourse basis. · In late May 2000 Dresdner and APBT entered into a Credit Facilities Agreement pursuant to which Dresdner would discount drafts as a means of assisting in the financing of the purchase by APBT of the products. · It was thereafter proposed that upon maturity of the drafts Dresdner would receive payment from APBT of the value of the drafts upon presenting the bills and notes to APBT. · It was no part of the case that HIH was aware of the terms of the Credit Facilities Agreement. · HIH (NZ) issued as Domestic Trade Credit Insurance a policy to Dresdner and each of the suppliers (the Joint Insureds). The application for insurance was lodged by Dresdner on its behalf and on behalf of the Joint Insureds. · Interim Judicial Managers were appointed to APBT by the High Court of Singapore on 11 October 2000. · On 20 October 2000, Dresdner made demand on APBT (Exhibit 20, p164) and on 28 November 2000 Dresdner made demand on HIH (Exhibit 20, pp 200 - 205), prior to maturity of bills (Exhibit 20, p 203). The claim under the Policy relied upon the insolvency of APBT and sought the face value of the Bills (Exhibit 20 p 202, 203). The claim was accepted by HIH (NZ). In February 2004, HIH (NZ) paid NZ$7,453,888.34 to Dresdner in partial satisfaction of its claim and is expected to have sufficient assets to pay the remainder in due course. · The defendants did not concede at the arbitration that the bills or notes were presented (Exhibit 16, p 6, para 2.6(b)). There was in evidence a chronology of events prepared by Dresdner which asserted presentation of the bills at maturity (Exhibit 20 p 463). 30 I do not understand the defendant to take issue with this summary. 31 Importantly nothing in a summary takes issue with the summary of the principal features of the transactions between the suppliers, APBT and Dresdner provided by the Arbitrator's in the Award (at [17]) in the following terms: · The bank provided "Trade Finance facilities" to the purchaser, APBT, to "finance [its] purchase[s]" of the goods from the suppliers, not to the suppliers. · The bank did not advance money directly to APBT. · The bank paid the suppliers for the bills and notes, not the goods or APBT's obligations under its contracts with the suppliers, which were not assigned to, or secured in favour of, the bank. · The bank paid the suppliers in full for the bills and notes on a non-recourse basis. · APBT had no further obligations to the suppliers, which had no further interest in the transactions. · APBT had no actual or contingent liability to anyone other than the bank. · The bank was at risk that APBT would not satisfy its obligations under the Credit Facilities Agreement with the bank, not that it would not pay for the goods under its contracts of sale and purchase with the suppliers.

The terms of the Credit Facilities Agreement between Dresdner and ABPT 32 The terms of the Credit Facilities Agreement are contained in a letter ( cf Award [4]) from Dresdner to APBT dated 12 May 2000, which provided:

"RE: Credit Facilities We … are pleased to advise our agreement to provide Credit Facility to your company subject to the following terms and conditions:- "1) Amount: USD5,000,000-00 (United States Dollars Five Million Only).

2. Categories: Discounting of Drafts that have been duly accepted by your Company, as Drawee of the Draft

3. Tenor of Drafts: The tenor of individual draft to be discounted shall not exceed 180 (one hundred and eighty) days subject to Clause (5) below.

4. Purpose: To finance the purchase of crude degume sun oil, soya bean oil, sunflower oil and related products from suppliers not related to Asia-Pacific Bulk Terminal (Holdings) Pte Ltd. Accordingly, your Company shall apply all amounts raised by it hereunder in or towards satisfaction of such purpose.

5. Final Maturity: Up to 30 May 2001, subject always to our right to require repayment on demand at any time. The maturity of the Drafts presented to us for discounting shall not exceed 30 May 2001.

6. Discounting Rate: 1.2% p.a. above our cost of funds.

7. Facility Fees: USD25,000 (United States Dollars Twenty-five Thousand) payable by your Company, up-front, upon acceptance of this Facility Letter.

8. Collateral: Insurance policy to be issued by HIH Casualty and General Insurance Limited, Melbourne, Australia ("HIH Insurance") covering default by your Company for an amount of not less than 90% (ninety percent) of the Facility Amount and for a duration covering the lifetime of this Credit Facility. In addition, the insurance policy must show us as the beneficiary and must be in form and substance acceptable to us. The premium of the above-mentioned insurance policy shall be payable by your Company.

9. Payment: All amounts payable by your Company shall be paid at the maturity of the Draft. 10) General Your Company undertakes that its obligations hereunder shall constitute direct and unconditional general obligations and shall rank at least pari passu with its other unsecured borrowings both present and future. … Undertaking:

… 14) Events of Default: If any one or more of the following events shall occur, that is to say: (a) If your Company defaults in the repayment of principal, payment of any interest or other sums due to us or in the payment of any principal or any interest or any other obligation to any third party; (b) If an order is made or an effective resolution is passed for the winding up of your Company, or if your Company stops payment on principal, interest and all other amounts due and payable to us or if your Company ceases or threatens to cease to carry on its business (other than for the purpose of a reconstruction or amalgamation upon terms approved by us); .. then and in any cases and at any time thereafter, all amounts owing to us in respect of the Credit Facility, together with accrued interest and all other sums payable to us hereunder will become due and payable by your Company to us immediately after demand by us and we shall have no further obligation to make available the Credit Facility to your Company. A Default shall be deemed "continuing" unless such default is cured within 15 (fifteen) days.……"

Essential findings of Arbitrators of present relevance 33 The following findings were made by the Arbitrators: · that the primary purpose of the Policy was to insure Dresdner against its risk arising from its "provision of Trade Finance Facilities" to APBT under the Credit Facilities Agreements (Award [11]); · the loss that Dresdner sustained and for which HIH (NZ) accepted its claim under the Policy arose from its "provision of Trade Finance Facilities" to APBT and APBT's subsequent default (Award [11]); · HIH (NZ) correctly accepted Dresdner's claim under the Policy (Award [12]); · the nature of APBT's liability to Dresdner and Dresdner's risk of default by APBT cannot be defined or characterised solely by reference to the bills and notes. Although APBT is liable to Dresdner on the bills and notes, the primary source of APBT's obligations to Dresdner is the Credit Facilities Agreement, which required APBT to pay the face value of the bills and notes not only on maturity but on earlier demand on default and also required APBT to pay the bank interest and "Facility Fees" (Award [24]); · Dresdner's risk arose out of the provision of "Trade Finance", not "Trade Credit", to APBT (Award [25]); · the risk against which Dresdner was insured by the Policy was not a "Trade Credit" risk within the meaning of the Treaty (Award [25]); · the Policy is not a "Trade Credit" policy within the meaning of the Treaty (Award [26]); · HIH (NZ)'s claim failed (Award [32]). The critical reasoning of the Arbitrators 34 In rejecting HIH (NZ)'s submission that Dresdner's risk which was insured under the Policy was a "trade credit" risk, the arbitrators treated with the matter in paragraphs [19] to [25] of the Award. 35 The arbitrators dealt at [18]-[19] with the question of whether or not Dresdner's provision of "Trade Finance Facilities" to APBT for reward under the Credit Facilities Agreement (by purchasing the bills and notes that APBT had accepted from suppliers) constituted trade by first dealing with the definitional question and then treating with the particular facts:

"[18] Trade" is an elastic concept and terms such as "trade credit" and "trade debt" are difficult to define exhaustively. Bowen CJ explained the meaning of "trade" in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 22 ALR 621, 625, in the following, frequently cited passage: "The terms "trade" and "commerce" are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements ( W. & A. McArthur Ltd. v. State of Queensland (1920) 28 CLR 530 at p 547). The word "trade" is used with its accepted English meaning: traffic by way of sale of exchange or commercial dealing ( Commissioners of Taxation v Kirk [1900] AC 588, at p 592 per Lord Davey; W. & A. McArthur Ltd. v State of Queensland (1920) 28 CLR 530. The commercial character of trade was mentioned more recently by Lord Reid in Ransom v Higgs [1974] 1 WLR 1594. His Lordship there said: "As an ordinary word in the English language 'trade' has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services (1974) 1 WLR, at p 1600 ". Moreover, the word covers intangibles, such as banking transactions, as well as the movement of goods and persons, for historically its use has been founded upon the elements of use, regularity and course of conduct ( Bank of New South Wales v Commonwealth (1948) 76 CLR 1, at p 381."

[19] If the bank's provision of "Trade Finance facilities" to APBT for reward under the Credit Facilities Agreement (by purchasing the bills & notes that APBT had accepted from the suppliers) constituted trade, the consideration payable by APBT to the bank for its supply of those "services" might be a trade debt. However, that is not the basis on which HIH advanced its case, which focused on the suppliers' sales of the goods to APBT. Those sales plainly constituted trade and APBT's contractual obligations to pay the suppliers the purchase prices of the goods were trade debts. So were APBT's obligations on the bills and notes that it accepted and used to pay the suppliers while the bills and notes were held by the suppliers. Until they were paid in full by the bank for the bills and notes on a non-recourse basis, the suppliers were trade creditors of APBT and their risks that they might not be paid by APBT were "Trade Credit" risks. However, the suppliers have been paid in full and the material risk under the policy for present purposes was the bank's risk of default by APBT on its obligations under the Credit Facilities Agreement." 36 The arbitrators then proceeded (at [20]-[22]) to examine the manner in which HIH(NZ) had put its case:

"[20] HIH did not submit that the relationship between APBT and the bank was that of trade debtor and trade creditor. It argued that the risk of APBT's default on the trade bills and notes retained its character as a trade credit risk when the drafts were sold and negotiated by the suppliers to the bank for full value on a non-recourse basis and, it seems, that that risk would have continued to retain that character if the bank had negotiated the bills or notes to another party which had no other dealings with APBT. In terms used by HIH in connection with its alternative arguments of estoppel and misleading and deceptive conduct, the policy is a "Trade Credit" policy because there was "an underlying trade transaction" and a "trade credit element of risk".

[21] In its closing submissions at the hearing and its subsequent "Reply Submissions", HIH expressed its argument that the policy is a "Trade Credit" policy because the bank's risk was a "Trade Credit" risk in various ways. "What was being insured was the obligations of [APBT] on the bills and notes", which "were specifically in relation to [its] payment obligations" for the goods that it had purchased from the suppliers. "[T]here still remains a trade credit risk in circumstances where another party other than the seller assumes the risk of non-payment for the goods having purchased bills/notes without recourse". The bank "acquired trade receivables being the bills of exchange and promissory notes arising from the sale transactions between APBT and the suppliers". "The central feature of trade credit insurance is that the insured risk is against the buyer not paying for the goods or services the subject of a trade transaction". "The critical feature for trade credit insurance is the risk of non-payment by the buyer for the goods supplied". "The fact that [the bank] purchased the bills and notes from the suppliers did not change the terms of payment for the goods. The receipt by the suppliers of funds from [the bank] in exchange for [the bank's] purchase of the bills and notes does not mean the trade credit is extinguished."

[22] In summary, HIH's argument that the bank's risk that APBT would default was a "Trade Credit" risk was essentially based on four propositions: first, that the suppliers' risk of default by APBT on the bills and notes were "Trade Credit" risks; second, that the risk of APBT's default on the bills and notes remained a "Trade Credit" risk until they were honoured irrespective of what dealings subsequently occurred or who was involved; third, the payments made by the bank to the suppliers were made in respect of "Trade" debts; and fourth, APBT's obligation to the bank was based on the bills and notes. It was said to follow from these propositions that APBT's liability to the bank was a "Trade Credit" liability and the bank's risk of APBT's default was a "Trade Credit" risk." 37 The arbitrators then dealt with these arguments (at [23]-[25]):

[23] HIH's first and third propositions may be accepted and it may be assumed in its favour that the policy insured the suppliers against a "Trade Credit" risk. It does not follow that the bank's risk after it paid the suppliers was a "Trade Credit" risk. Benjamin's Sale of Goods (6th ed.) at par 15-036 states that where, as here, a draft is negotiated without recourse, the conditional payment by means of the negotiable instrument becomes an absolute payment and the underlying liability of the buyer to the seller is extinguished. In any event, after the bills and notes were purchased by the bank from the suppliers at full face value on a non-recourse basis, the nature of APBTs liability to the bank and of the bank's risk of default by APBT against which it was insured by [HIH] must be determined by reference to their relationship.

[24] That relationship and the nature of APBT's liability to the bank and the bank's risk of default by APBT cannot be defined or characterized solely by reference to the bills and notes. Although APBT is liable to the bank on the bills and notes, the primary source of APBT's obligations to the bank is the Credit Facilities Agreement, which required APBT to pay the face value of the bills and notes not only on maturity but on earlier demand on default and also required APBT to pay the bank interest and "Facility Fees". As we stated earlier [referring back to paragraph 11 of the Award] in concluding that HIH correctly accepted the bank's claim under the policy: "The primary purpose of the policy was to insure the bank against its risk arising from its "provision of Trade Finance facilities" to APBT under the Credit Facilities Agreement . The loss that the bank has sustained and for which it HIH has accepted its claim under the policy arose from its "provision of [those] Trade Finance facilities" to APBT."

[25] The bank's risk arose out of the provision of "Trade Finance", not "Trade Credit", to APBT. In our view, the bank's risk of loss in respect of the provision of that finance on the terms of the Credit Facilities Agreement against which it was insured by the policy was not a "Trade Credit" risk within the meaning of the treaty." The suggested manifest error of law on the face of the Award 38 The plaintiffs proposition in terms of the suggested error has been put in the following terms: · The Arbitrators simply failed to properly identify the risk insured by the Policy. Rather, the Arbitrators focused upon the obligations of APBT to Dresdner pursuant to the Credit Facilities Agreement. Even if it was correct that the "primary purpose" [cf Award [11] and [24]] of the Policy was to insure the bank against its risk arising from the provision of the finance facilities to APBT, that is directed to the wrong question. The real question is: Was the risk of Dresdner insured under the Policy a "Trade Credit" risk? It is submitted that an alternative way of looking at it, is to ask whether or not the loss caused to Dresdner was brought about by APBT's default on bills/notes such that it can be said that a proximate cause of Dresdner's loss was that default, in respect of which Dresdner was insured and HIH (NZ) reinsured. That is, even though it could be said that Dresdner also suffered loss by reason of APBT's default under the Credit Facilities Agreement that does not disqualify Dresdner from cover under the Policy, and equally HIH (NZ) from cover under the Treaty. HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc & Anor (1998) 43 NSWLR 601 at 612. · To answer that question required an analysis of the Policy to identify the risk insured. The Arbitrators do not set out the terms of the Policy and do not analyse the extent or nature of the liability of HIH (NZ) to Dresdner pursuant to the Policy. The Arbitrators only analyse the Policy for the purposes of answering issue (a), ie whether HIH (NZ) correctly accepted Dresdner's claim under the Policy [Award [12]] · The Arbitrators simply failed to determine what was insured by the Policy. What is apparent from the Policy is that the insured debt was the purchase price of the goods constituted by the bills and notes. It is not a policy which responds to a claim or claims for all losses under the Credit Facilities Agreement. The insured risk does not include any obligations to Dresdner other than the purchase price of the goods. Other obligations arising under the Credit Facilities Agreement eg interest and fees are not covered by the Policy. The Policy does not refer to the Credit Facilities Agreement at all, expressly or by implication. · Once it is recognised that the insured debt was APBT's obligation as purchaser to pay the purchase price of the goods as constituted by the bills and notes, and that it is that debt which is insured, it is apparent the reasoning in paragraph 24 of the Award is demonstrably flawed. · It seems that the Arbitrators have drawn too much from the conclusion in [11] of the Award that the "primary purpose" of the Policy was to insure Dresdner against its risk arising from its provision of Trade Finance Facilities, which was a finding made in response to Reinsurers' contention that HIH (NZ) was not liable to Dresdner under the Policy. This finding of "primary purpose" of the Policy being to insure the bank against risk that APBT would default on its obligations arising from the Credit Facilities Agreement(s) has infected the analysis of the subsequent issue ie whether the risk insured by the Policy falls within "Trade Credit". See, for example: paragraph 15, last sentence; paragraph 19, last sentence; paragraphs 24 and 25. · The terms of the Policy determine the nature of the risk insured. It seems that the Arbitrators did not examine the terms of the Policy to ascertain the risk insured. The risk insured was loss suffered by Dresdner by reason of the default by APBT on the bills/notes being the agreed means of payment for specified supplied goods. The bills and notes constitute the promise to pay the suppliers and it is against default on those promises that the insurance protects Dresdner. Dresdner has insured itself against loss arising from the buyer's (APBT) failure to meet its obligations to pay the purchase price for the specified goods, which obligations are evidenced by the bills and notes. · That this is what is insured is apparent from the terms of the Policy. The starting point is the insuring clause - clause 1.1: "1.1 HIH agrees, subject to all limitations, terms and conditions and endorsements: to indemnify the Insured for the Insured Percentage of the direct loss arising from the non-payment of any Insured Debt either due to the Insolvency of, or if there is a Protracted Default by, an Insured Buyer." · The "Insured" is defined in the schedule to the Policy as "Dresdner Bank AG (Singapore Branch) and as endorsed" with the suppliers listed as "Joint Insured" under the endorsement details. The reference to "Insured" in clause 1.1 is in the circumstances of the claim a reference to Dresdner, Dresdner being the claimant under the Policy. The Insured Percentage of direct loss is 90 percent (by reference to the schedule to the Policy). Accordingly, HIH agreed to indemnify Dresdner for 90 percent of the direct loss arising from a non-payment of any Insured Debt either due to the Insolvency of, or a Protracted Default by, an Insured Buyer. · The Insured Buyer is APBT (item 4 under "Endorsement Details" on the Schedule to the Policy, with liability under the Policy limited to a single buyer, APBT). There is no doubt that the failure of APBT to meet its obligations pursuant to the bills and notes was due to either its Insolvency or Protracted Default. · "Insured Debt" is defined at clause 3.11 as follows: "Insured debt is an amount of debt included in the Insurable Turnover during the Policy Period owing to the Insured by the Insured Buyers under the terms of payment which are within the Maximum Terms of Payment. The Insured Debt in all cases cannot be greater than the Permitted Limit approved by HIH or justified under any specified Discretionary Limit." · The Maximum Terms of Payment are specified to be 180 days sight documents against acceptance (referred to in the schedule). The Permitted Limit is defined at clause 3.16 to mean the maximum limit of Insured Debt approved in writing by HIH. This is $4.5 million (see the schedule). The reference to any specified discretionary limit has no application in this case. · The reference to the Insured within the definition of Insured Debt can only sensibly be construed as a reference to Dresdner. The structure of the transaction was such that moneys would be owed by the Insured Buyer ie APBT to Dresdner following Dresdner's purchase of the bills and notes. · "Insurable Turnover" is defined at clause 3.8 as follows: "Insurable Turnover means the aggregate invoice value of goods sold and Delivered and services rendered by the Insured during the Policy Period to Insured Buyer, excluding cash sales where payment is received on or before dispatch of the goods and excluding GST." · The reference to the "Insured" within the definition of Insurable Turnover is a reference to the suppliers. It could only have been intended to be a reference to the suppliers, the suppliers being the suppliers of the goods sold and delivered to APBT. There is no reason why the Insured must be the same party within both Insurable Turnover and Insured Debt. That would reduce a perverse and uncommercial result. To do otherwise would ignore the main object or commercial purpose of the insurance contract, that is the involvement of third party financing of trade receivables. Further, there is no straining of the language to achieve this result: Dresdner and each of the suppliers are Insureds under this Policy. · The Arbitrators did not find that this interpretation was incorrect. They simply did not deal with this point. This interpretation is manifestly correct. · In any event, it is unlikely that the obligations under the Credit Facilities Agreement were APBT's "primary" obligations. If any obligation was the "primary" obligation, it was the obligation of APBT to pay the bills and notes. The Credit Facilities Agreement was based upon the obligation to pay the bills and notes. Whether the terms of the policy may be considered 39 The issue arises as to whether as the plaintiff submits [but the defendant denies] the court may in the present context, proceed upon the basis that the face of the award includes the full terms of the Policy. 40 The plaintiff's contention is that the Arbitrators' error in relation to the characterisation of the risk insured is manifest on the face of the Award. The concept of error appearing on the face of the award is said to extend to documents which are incorporated into the award. Reliance is placed upon the decision in Anaconda Operations Pty Limited v Fluor Australia Pty Ltd [2003] VSC 275 where Dodds-Streeton J at [44] to [50] summarised certain of the principles. 41 Her Honour dealt with the matter inter alia as follows:

[44] In Gianfriddo v Garra Constructions Pty Ltd [1971] VR 289, Smith J held that a mere recital or narrative statement in the award that a specified contract was entered into will not be sufficient to incorporate it into the award. Further, even if the words relied upon are in the portion of the award which expresses the decision or direction by the arbitrator, they will not incorporate the provisions of a contract if they merely state in general terms that there has been a breach of contract or that, because of a specified act or event, the contract is void or has been discharged.

"If however, the decision or direction given is expressed in terms which are to such a degree referential that, without reading a document referred to, it is not possible to understand what has been decided or directed, or not possible to give effect to the decision or direction, then the document should be treated as incorporated in the award. Again, if the decision or direction is expressed to be based upon the wording of a specified clause of a contract, the clause is incorporated ... How matters stand where the decision or direction is expressed to be based not upon the wording or effect of any specified clause, but upon the wording or effect of the contract as a whole, or of the provisions of the contract relating to a particular subject matter, is debatable; but the weight of authority supports the view that in such circumstances the contract, or the relevant part of it, is incorporated." [46] In W J Alan & Co Ltd v El Nasr Export & Import Co [1971] 1 Lloyd's Rep 401, Orr J considered that if a clause were not set out in extenso, or if it were identified only by its subject matter, it would be highly artificial if the court were not permitted to examine the clause. Orr J also confirmed "that as regards an interim award the court is always entitled to look at the relevant documents to see what was submitted to arbitration." [47] In that case, his Honour applied the reasoning of Sachs J in Blackford & Sons (Calne) Ltd v Borough of Christchurch [1962] 1 Lloyd's Rep 349, who there held that if there were an ambiguity in the sense of two equally consistent interpretations of part of the award, the court could look at the order for directions and the pleadings. Further, Sachs J stated: "To my mind, however the court is in any event entitled to look at those documents when seeking to interpret the interim award on a broader ground. As regards an interim award, ... it seems that in a case such as the present the court must normally be entitled to look at those documents in order to see exactly what was submitted to the arbitrators as being the preliminary issues to be decided, so as to ensure that the court's interpretation of the award is correct. The documents in question are to my mind in the circumstances analogous to that submission to arbitration which a court can always look at in relation to any application to set aside a final award." [48] In Robert Salzer Constructions Pty Ltd v Barlin-Scott Air Conditioning Pty Ltd [1980] VR 545, the Full Court of the Supreme Court of Victoria endorsed the reasoning of Smith J in Gianfriddo v Garra Constructions Pty Ltd , and held that a "Schedule of Questions incorporated in the Notice of Dispute... must... be treated as incorporated in the award."

[49] It follows that in assessing whether there is a manifest error on the face of the Interim Award, I am entitled to, and should, consider the documents which are, on applicable principles, incorporated into it, or referred to in the Interim Award in so far as, without reading them, it is not possible to understand what has been decided or directed. 42 In my view it is quite clear that the subject Award presently before the court was expressed in terms which are to such a degree referential that without reading the Policy it is not possible to understand what has been decided. The Policy is incorporated into the Award and may be examined in terms of consideration [on the first limb] of whether or not "manifest error of law on the face of the Award" has been demonstrated. Dealing with the issue 43 As the defendant has submitted in relation to the criticism by the plaintiff that the arbitrators did not embark upon an extensive analysis of the policy, it has been said in a number of cases that it is inappropriate for arbitral awards to be detailed and to engage in close semantic and syntactical analysis: Pioneer Shipping Ltd v BTP Tioxide (The Nema) [1981] Com LR 197 at 200. In Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (unreported, NSW Supreme Court, 9 April 1991) Brownie J deprecated imposing "upon the arbitration system a need for arbitrators to frame their reasons for making awards with a degree of formality which is quite foreign to the spirit of the Act." [Cited in Promenade per Sheller JA at 226]

44 In terms of the proposition that the arbitrators relevant manifest error is shown to have been that they approached the matter by: · eschewing the task of ever construing the Policy for the purpose of determining whether or not the risk insured by that instrument was the risk of liability under the Credit Facilities Agreement; · restricting their analysis of the policy to the question of whether HIH [NZ] correctly accepted Dresdner's claim under the policy,

this proposition is not of substance . 45 That the Arbitrators clearly understood the necessity to ask the right question is apparent from the sundry references to what in fact was the material risk under the Policy for the purposes of the arbitration: cf Award [19]-last sentence; Award [23]-reference to "the bank's risk of default by APBT against which it was insured by [HIH]"; Award [25]-reference to "the bank's risk of loss in respect of the provision of finance on the terms of the Credit Facilities Agreement against which it was insured by the Policy". 46 Likewise the arbitrators in the last sentence of the Award [16] recognised the necessity to decide whether or not the risk against which the Policy insured the bank, was a "Trade Credit" risk 47 Further clear indications of an overall careful examination of the Policy appear from the Award: · at [9] and [10] where reference is made to the definitions of "Insured Debt and "Insurable Turnover"; · at [11] where reference is made to the Policy "being less than perfectly suited to the bank's risk of default by APBT"; · at [11] where reference is made to the indemnity that the Policy provided to the bank and where further reference is made to particular definitions; · at [11] where reference is made to the need to read particular definitions in conjunction with the statement in the Policy "that the 'Business Trade 'covered was "Sale of oil products by Insured Suppliers and the related provision of Trade Finance facilities by Singapore Branch of Dresdner Bank AG". 48 The plaintiffs have not established that the arbitrators relevant manifest error was that they moved in seamless fashion from (1) the existence of the contractual arrangement between the Dresdner Bank and APBT to (2) determining that the risk insured under the Policy was all of the rights and obligations which existed between the bank and APBT. The interest charges issue is dealt with below. 49 It is of course pertinent to recall that the subject exercise concerned one of the proper construction of an insurance policy in which regard it is common ground that in construing the Policy the Court should have regard to the background facts and circumstances to elucidate the parties' objectively discerned intention and purpose in entering into the insurance contract. The relevant principles are sufficiently summarised in the plaintiff submissions which were put to the arbitrators in the following terms:

"There are four main principles of construction applicable to insurance contracts (see Kelly & Ball: The Principles of Insurance Law, Butterworths at 5.0280). These are as follows:

(a) words and phrases used in an insurance contract are normally to be given their ordinary meaning: Robertson & Thomson v French (1803) 4 East 130;

(b) the meaning of words and phrases depends upon the context in which they appear in the contract: Maye v Colonial Mutual Life Assurance Society Limited (1924) 35 CLR 14. For this reason, it is possible for a word or phrase to have one meaning in one part of a contract, and another meaning in another part of the contract: see Ashmore Aged Care Centres Pty Limited v Cigna Insurance Australia Limited (1988) 5 ANZ Insurance Cases 60-860;

(c) construction of words and phrases in an insurance contract must take account of the main object or commercial purpose of the contract: Glynn v Margetson & Co. [1893] AC 351. The policy must be read in its commercial setting in such a way as to fulfil and not restrain its commercial purpose. Recourse to extrinsic evidence might be had in order that the Court should know the commercial purpose of the contract and its origin, context and the market in which the parties were operating: MGICA Limited v United City Merchants (Australia) Limited (1986) 4 ANZ Insurance Cases 60-729 at 74, 349, per Kirby J; see also Johnson v American Home Assurance (1998) 192 CLR 266 at 272;

(d) if the words are ambiguous, construe them contra proferentem i.e. against the interests of the person who prepared the contract: Johnson v American Home Assurance, supra at 275; Manufacturers Mutual Insurance Limited v Stargift Pty Limited (1984) 3 ANZ Insurance Cases 60-615." 50 This was a circumstance in which the exercise clearly included the proper construction of the subject Policy in the relevant context. That context it may be noted, permitted the arbitrators to take into account the terms of the proposal which were incorporated by reference into the Policy, a matter referred to below. 51 At the outset it is appropriate to observe that the arguments put by HIH (NZ) do not appear to give sufficient emphasis in terms of the proper construction of the policy, to the policy schedule identification of "Business Trade" reference to "the related provision of Trade Finance facilities by Singapore Branch of Dresdner Bank AG". 52 As the defendant has rightly submitted, the fact that there may be two plausible views as to the proper construction of the Policy and that the arbitrators may have selected one only of those two plausible views, does not, per se, mean that a manifest error within the meaning of the authorities has been demonstrated. 53 In any event to my mind an entirely logical and respectable approach to the construction issue was taken by the arbitrators. Adopting certain of the defendant's submissions as of substance, the following may be said: · it was open to the arbitrators to hold that the primary purpose of the Policy was to insure Dresdner against its risk arising under the Credit Facility Agreement (the bills/notes being a mechanism for providing finance under the Credit Facility Agreement); · the holding was that the risk which the Policy covered so far as Dresdner Bank was concerned was not a trade credit risk:

"Until they were paid in full by the bank for the bills and notes on a non-recourse basis, the suppliers were trade creditors of APBT and their risks that they might not be paid by APBT were "Trade Credit" risks. However, the suppliers have been paid in full and the material risk under the policy for present purposes was the bank's risk of default by APBT on its obligations under the Credit Facilities Agreement." [Award [19]] [this particular focus upon the relevant timeline appears in a number of places in the Award. It is repeated in the second and last sentences of the Award at [23]]; · that finding was correct. Dresdner's risk did not even come into existence unless and until it paid out the suppliers in accordance with the Credit Facility Agreement. Dresdner's risk was the risk of a banker as financier to its customer. Demand for the debt under the Credit Facility Agreement was liable to be made at any time, not merely upon maturity of the bills. Dresdner made demand on APBT under the Credit Facility Agreement prior to the maturity dates of the bills and notes. Hence, Dresdner treated the amount represented by the bills and notes as claimable by demand under the Credit Facility Agreement and not merely on presentation of the bills and notes.; · the plaintiff's proposition that what was being insured was APBT's obligation on the bills and notes ignores the fact that under the Credit Facility Agreement Dresdner could demand payment at any time without reliance on the bills and notes. It also ignores the fact that the bills and notes (which were not subject to discounting in the usual sense) cannot as a matter of commercial reality be divorced from the Credit Facility Agreement and are in this context essentially a mechanism for better securing a debt to Dresdner, the defences to a payment obligation on a bill being more limited. Further, as the arbitrators pointed out, the plaintiff's argument would also lead to the rather startling conclusion that no matter how often the bills might be discounted in the bills market to purchasers of the bills with no connection whatever with the original transaction, the risk of non-payment would remain a "trade credit" risk; · as the arbitrators correctly stated (Award [23]), where a draft is negotiated without recourse, the conditional payment by means of the negotiable instrument becomes an absolute payment and the underlying liability of the buyer to the seller is extinguished. That proposition is uncontroversial, and is supported by the authority they cite, namely Benjamin's Sale of Goods (6th Ed) at para 15-036. · On that basis, bearing in mind that Dresdner's risk did not spring into existence unless and until it paid the suppliers and that, when it did, the underlying liability of buyer to seller (the trade credit) was extinguished, Dresdner was in truth never subject to a trade credit risk. · Hence, the arbitrators correctly held that after the suppliers were paid out the nature of APBT's liability to Dresdner [and of Dresdner's risk against which it was insured] must be determined by reference to the relationship between Dresdner and APBT, which relationship cannot be defined or characterised solely by reference to the bills and notes. The primary source of that relationship and of APBT's obligations to Dresdner was the Credit Facility Agreement. 54 In relation to the close submissions put by the plaintiff on the present application to the effect that, for example, Clause 2.1 of the Policy provided that the Policy would not indemnify the Insured against any loss in respect of interest charges, it is necessary to stand back to examine just what this means in the present context. As the arbitrators saw the matter, the risk that the insurance policy covered, was the risk that Dresdner would not be repaid its funds by APBT, following Dresdner's having actually paid out the suppliers. Simply because the insurance cover may not have covered the whole of the debt that may at any time be owed by APBT to Dresdner, does not negative the proposition that the risk covered so much of the debt as was referable to the invoice value of the goods in question-hence setting an upper limit. In this regard it was open to the Arbitrators to construe the phrase "an amount of debt" [cf policy definition of "Insured Debt"] as meaning "the amount of a debt". In this regard even had this construction been erroneous, the error would not be a manifest error within the meaning established by the authorities. 55 It is correct to observe that an examination of the Policy, read in the light of the proposal, suggests that the Policy was always only intended to provide insurance cover to Dresdner and not to the suppliers. As I have said this is because the suppliers were never going to be at risk: they would retain the documents until they were paid effectively by Dresdner upon the discounting or purchasing of their bills and notes and their documents, against payment in full. This, it may be thought, is a strong indicator that the true insured was always intended to be Dresdner only: something to be expected given that the relevant terms of the credit facility required by way of collateral that an insurance policy be issued covering default by Dresdner for an amount not less than 90 percent of the facility amount. 56 Finally there is substance in the following further submission put by the defendant pointing up an the inherent difficulty in the plaintiff submissions:

"On the one hand, it is said that Dresdner acquired trade receivables when it purchased the bills and notes. On the other hand, it is said that the insurance market practice is to consider bills of exchange as a separate legal obligation. It seems difficult to reconcile those two statements. But the suggestion that the purchase of a bill involves the purchase of a trade receivable does not take account of the existence of accommodation bills, that is, bills used to raise finance and which may have no connection with any trade. It would be impossible to know in the secondary bills market what the provenance of a bill was and whether it had any original connection with trade at all. The plaintiff's submission could lead to the absurd result that a holder of a bill purchased in the secondary market who had no knowledge of its prior history might unknowingly have the payment obligation under that bill covered by trade credit insurance if it so happened that that holder of the bill had trade credit insurance and the bill had a prior connection with a trade."

Finding in relation to section 38 (5) (b) (i) 57 In my view the plaintiff has not established manifest error of law in the face of the award. If there was an error of law, it was not manifest. It was neither plain in the sense of being obvious, nor was it manifest in the sense that there is little or no doubt that error it was. Dealing with section 38 (5) (b) (ii) 58 The initial question for consideration is whether or not there is strong evidence that the arbitrators made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. 59 As to the meaning of "strong evidence", in Ipswich B.C. v Fisons Plc [1990] 1 Ch 709 at 724, Lord Donaldson MR said:

"So how strong is strong? No meter can be applied or indeed devised. It is a matter of relative values. If the chosen arbitrator is a lawyer and the problem is purely one of construction, the parties must be assumed to have had good reason for relying upon his expertise and the presumption in favour of finality or, to put it the other way round, the strength needed to rebut it will be greater." 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. 62 In this regard it is important to note the very inappropriately completed policy proposal form in this case. 63 The context may often govern the construction. It would seem curious if the term "trade credit" has a meaning so wide as in a context such as the present, would leave a reinsurer potentially liable for a very wide range of risks that could never have been reasonably contemplated when the treaty was entered into. 64 I accept that those considerations make the evidence of Mr Hampshire inherently improbable. 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. Substantial addition to certainty of commercial law 66 In terms of this issue the question is one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between parties: Promenade at 226E-F per Sheller JA. 67 The words "strong evidence" also govern the words "that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law". It is not sufficient that there be merely some evidence that a determination of the question may add to the certainty of commercial law. The evidence must be strong and compelling. 68 Here the evidence of Mr Hampshire is contradicted by the evidence of Mr Bridgman. At most, there is evidence both ways. But that, as I accept, does not constitute strong and compelling evidence, nor the requisite level of satisfaction of the requirement. 69 The basis upon which the plaintiff relies to allege that there is a manifest error of law on the face of the Award, has already been detailed. 70 It is clear that the Award does not purport to offer any comprehensive statement as to the meaning of trade credit. The Award simply determined that in this case the risk under this policy was not a trade credit risk. In this connection, the defendant submits and I accept, that there is no evidence that the policy is a standard form policy in wide circulation, or that even if it were, it is commonly adapted to transactions structured as this one was. 71 Mr Hampshire's evidence does not go to that precise issue; his evidence is of a more general kind. The evidence of Mr Bridgman is however, that the transaction in this case was most unusual from a reinsurance practitioner's point of view. 72 Mr Bridgman's evidence received some support from the evidence given by Mr Sampson at the arbitration. He had been the plaintiff's own underwriter with 23 years' experience in trade credit insurance and gave evidence that he "would not issue a policy where the bank was named as insured" and that "this [transaction] was, quite clearly, quite a radical change from that." [at transcript 41 (MCB19)] 73 The evidence of Mr Bridgman does show that the circumstances of this transaction are, as far as he was aware, unique. His evidence includes:

"It is very unusual for any insurer to write a policy insuring a purchaser's bank against loss resulting from the provision of finance to enable that purchaser to purchase goods." 74 He referred inter alia to (i) the fact that insurance cover was provided to a bank which was financing a purchaser of goods (para 22); and (ii) the means by which Dresdner provided this finance, involving a request to issue a bill of exchange payable in 180 days but simultaneously promising to pay the face value of the bill on presentation (para 20). Finding 75 The determination of the question raised in this application would not add to the certainty of commercial law and accordingly the second limb of section 38(5)(b)(ii) is not satisfied. Short minutes of order 76 The parties should bring in short minutes of order at which time submissions on costs will be taken. I certify that paragraphs 1 - 76 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 29 July 2004

          Susan Piggott
          Associate
  29 July 2004

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