A Seller’s Stitch Up! Is there Marine Insurance Cover for the Purchaser?

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By Maurice Lynch, Special Counsel

In contracts for the sale of goods, there is often a seller and a purchaser who are both based in different countries, have not previously met each other, and have not had an extensive prior course of dealings. Transactions taking place in these circumstances are ripe for the seller to defraud the purchaser by:

  1. Contracting with the purchaser to supply and ship goods on a certain date;
  2. Receiving payment from the purchaser for these goods prior to their shipment; and
  3. Failing to ship the goods to the purchaser.

Our recent experience has seen instances of such fraud in respect of international contracts for the sale of goods particularly from both Asian and South American countries.

With the seller usually “going to ground” when the purchaser does not receive the goods, and the purchaser having arranged marine insurance for the goods in transit, the purchaser often tries to make a claim under its marine cargo policy for the loss they have suffered as a result of the non-delivery of the goods.

Generally, the purchaser will not have a right to indemnity  where the policy incorporates the Institute Cargo Clauses (A) because the duration clause 8 provides that the insurance cover does not attach until the time the goods are first moved in the warehouse for the purpose of immediate loading onto the conveying vehicle for the commencement of transit. This requires the physical movement of goods with the intention to proceed on the transit.

Clearly, if the seller does not move the goods from their warehouse or have the goods at all, and they are never given to an inland carrier who is responsible for delivering them to a port of loading, then no cover attaches under the marine cargo insurance policy.

There is also no cover if the seller ships either empty boxes, or different goods. This is because under an “all risks of loss or damage” cover, the purchaser must prove that there was (i) loss or damage to goods during transit, and (ii) that this loss or damage was caused by an accident or fortuity which occurred during transit. In these circumstances, the fortuity in question (the actions of the seller) did not occur during transit but occurred prior to transit, or in fact, the transit never commenced.

If the purchaser can prove the goods were actually shipped but not delivered, and can provide shipping documents supporting this fact, then there is a claim under the marine cargo insurance policy. However, if they cannot provide proof of shipment, the purchaser’s only avenue of recovering the loss suffered is to pursue a claim against the seller.

For further information, please do not hesitate to contact us.

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