Duty of fair presentation – preliminary observations
Natixis v Marex and Access World [02.10.19]
The High Court has today handed down its highly-anticipated judgment in a case that raised issues of the duty of fair presentation under the Insurance Act 2015.
Marex entered to three purchase and repurchase contracts with Come Harvest Holdings (CHH) for the sale of various parcels of nickel. Marex were the broking intermediary for Natixis bank, who provided financing for the purchases of the nickel. The nickel was purchased by way of transferrable warehouse receipts, originally issued by the warehouse operator Access World. The warehouse receipts transpired to be counterfeit documents and as such neither Marex nor Natixis had title to the nickel they believed they had purchased. Natixis brought a claim under the purchase contracts against Marex for failure to deliver up the nickel. In turn, Marex issued Part 20 proceedings against Access World and its marine cargo insurers for a declaration that the losses Marex would suffer, should Natixis’ claim be successful, be indemnified by insurers under the terms of the policy.
Natixis’ claim was a straightforward one in that Marex failed to deliver the nickel under the terms of the purchase contracts. Mr Justice Bryan found that Marex breached the purchase contracts as:
a) It did not pass title to the nickel to Natixis on receipt by Marex of the payment sums
b) Marex did not have good title (or indeed any title) to the nickel and did not have the full and unqualified right to sell and deliver the nickel to Natixis
c) The nickel was not free of any encumbrance or adverse claim by a third party
d) Marex failed to deliver the nickel to Natixis.
Marex’s defence to the claims on the basis there was a common mistake between Natixis and Marex also failed.
Marex’s claim against Access World
Access World were found to be liable to Marex, to indemnify them for the losses owed to Natixis. However, Access World were entitled to rely upon an incorporated limitation of €100,000 for each warehouse receipt that was examined and authenticated.
Marex’s claim against insurers
Marex argued that they were entitled to an indemnity under the policy by virtue of a “Warrants, warehouse receipts and the like” clause, which purported to cover losses arising from counterfeit warehouse receipts. Insurers argued they were entitled to avoid the policy because Marex failed to present the risk fairly, pursuant to its obligations under the Insurance Act 2015, by failing to disclose material circumstances about its transactions with CHH and its decision to begin trading vast amounts of nickel off-warrant. An insured must make to insurers a fair presentation of the risk, which includes disclosure of every material circumstance which the insured knows or ought to know (sections 3 (3) – (4) Insurance Act 2015).
The test of materiality was laid down in Pan Atlantic v Pine Top Insurance  which noted that a circumstance is material if it would “have an effect on the thought processes of the insurer in weighing up the risk…including all matters that would have been taken into account by the underwriter when assessing the risk.” This duty extends to advising underwriters of any claim, or knowledge of a potential claim, during the renewal process.
Insurers argued that the concerns of the various individuals at Marex prior to and during their trading of the nickel on an off-warrant basis with CHH ought to have been disclosed to insurers when the policy was renewed.
Moreover, insurers argued the formation of the policy on renewal was not agreed. Between 11 January 2017 and 16 January 2017, the lead underwriter and five following underwriters agreed renewal terms on the basis of a “Warrants” clause only (which did not provide cover for counterfeit warehouse receipts) and entered their lines “TBE”. By 19 January 2017, when underwriters were asked to enter their references on the slip, the wording of the policy had changed substantially. Insurers argued that the amended wording that appeared in the final slip had not been agreed and that brokers, Lockton, had failed to properly rebroke the slip.
Preliminary observations under the Insurance Act 2015
Mr Justice Bryan noted that this would have been the first opportunity for the court to consider a number of issues under the Insurance Act 2015. However, this was not to be as, on the thirteenth day of the trial, Marex entered into a confidential settlement agreement with insurers and Marex’s claim against insurers was dismissed. At present, there is no reported English case law which considers the duty of fair presentation under the Insurance Act 2015.
However, Bryan J noted that the contemporaneous correspondence and conversations involving Marex and its brokers remained relevant in the context of the issues that arose for determination as between Natixis, Marex and Access World. The court found that Marex was alive to the risk that the warehouse may be negligent or that the fraudsters may have someone on the inside, or the warehouse and client may be working in concert, and that this is why Marex wanted to obtain insurance cover that would cover losses arising from counterfeit warehouse receipts. However, in view of the discontinuance of the claim, Mr Justice Bryan did not opine on the available evidence in the context of the insurance claim.
Therefore, the insurance market is left waiting for a detailed analysis from the court on the construction of the duty of fair presentation under the Insurance Act 2015.
Kennedys were instructed on behalf of underwriters, MCAP.
Related item: Was 2019 a big year for the Insurance Act 2015?