Commercial Allocations Of Liability In The International Commodities Trade

The international commodities market is a complex one. The Commercial Court has considered how to allocate liability within that market when it is disrupted by a fraudulent warehouse receipt. In essence, the court deferred to the way in which parties within the industry itself allocated risk as amongst themselves - an emergent order with which the court (sensibly) demurred to interfere. The court considered in particular:

Contractual terms as to good title in commodities The law of common mistake Estoppel, and its use as a 'shield not a sword' Contractual exclusions of liability Natixis S.A. v Marex Financial v Access World Logistics (Singapore) PTE LTD v Lloyds SyndicateP1 - as the name suggests - concerned a complex multi-party transaction in the international metals-trading industry. It also was anticipated to be the first case dealing with issues of risk presentation under the Insurance Act 2015 - on which see below for more.

Natixis concerned a classic commodities-trading situation, involving: (i) the parties to the principal transaction (repos in respect of a large quantity of nickel), (ii) the warehouser, and (iii) insurers.

However, this set-up was tested when it emerged that the relevant warehouse receipts purporting to be from Access World were, in fact, forgeries.

Good title

Marex seemed to be straightforwardly in breach of the contractual term that it had "good title to the Purchased Metal and the full and unqualified right to sell and deliver the Purchased Metal to the Buyer." Marex was required to deliver up genuine warehouse receipts, not simply the document it in good faith considered to be genuine warehouse receipts.

Common mistake

Marex tried to avoid liability by arguing that its contract with Natixis was void by reason of common mistake. Although the court restated the principles governing the law of common mistake, its decision on this point was a straightforward one. This contractual term was a risk-allocation mechanism. The parties had determined at the time of contracting which of them should bear the risk for Marex not having good title to the nickel, and had agreed that it was Marex. It did not matter that Marex had been duped just as much as had Natixis.

The Warehouser - contract and estoppel

Having failed to establish mistake, Marex then sought recourse from the warehouser, Access World. Marex had sent the (forged) warehouse receipts to Access World for verification. Access World was similarly taken in by the...