Fictitious trades and trade credit insurance claims

In trade credit insurance, documentation is critical. See how QBE dismantled a multimillion-dollar claim by demonstrating the trades never took place.

When we get called in to investigate or litigate a trade credit insurance (TCI) claim, the scene of the crime tends to be the same. Either the insured or the buyer has disappeared or has been wound-up; the documentation supporting the claim is threadbare and it is unclear if the parties were involved in a genuine physical trade. In short, there are more questions than answers.

There is much unhappy litigation across the world involving trade credit insurance in particular what is required by an insured to demonstrate its claim. Much more than just mere document submission, some policies may typically require the insured demonstrate that it was involved in a physical shipment of goods. In the first case of its kind in Singapore, BlackStone & Gold acted for QBE in dismantling a multimillion-dollar claim by demonstrating that the insured were not just unable to demonstrate that it was involved in a physical shipment of goods as required under the policy, but that its alleged trades were actually fictitious.

Anatomy of a suspicious claim

The requirement of a physical shipment of goods under a TCI policy was the subject of a recent case before the Singapore International Commercial Court (“SICC”) in Marketlend Pty Ltd and another v QBE Insurance (Singapore) Pte Ltd [2025] SGHC(I) 1. We successfully acted for QBE, leveraging our expertise as specialist trade lawyers and litigation counsel, in defeating Marketlend’s TCI claims and establishing that the trades put forward were fictitious.

QBE Insurance (Singapore) Pte Ltd (“QBE”) issued a multi-buyer TCI policy to Novita Trading Limited (“Novita”) (the “Policy”) pursuant to which it agreed to indemnify Novita in respect of non-payment arising out of its “sale” and “Shipment” of goods on deferred payment terms with named buyers. Marketlend Pty Ltd (“Marketlend”) financed Novita for these trades through invoice financing facilities.

Sometime in 2020, Novita’s buyers (from different countries and dealing with different product types) defaulted on their payment, leading to Novita submitting a claim in respect of all eight buyers. What was submitted to justify the claim of close to USD 10 million was just an invoice, sales contract, and a photocopy of the bill of lading.

Shortly after submitting the claim, Novita itself went unresponsive to RFIs issued by QBE in respect of the claims, at which time Marketlend stepped in to pursue the claim. The circumstances surrounding the widespread defaults—and the inability of Novita to corroborate the trade—gave rise to concern, leading QBE to investigate the relationships between Novita and its buyers and the physical movement of the goods from the shipper stated in the bills of lading to the receiver.

As a result of its investigations, QBE concluded that the trades submitted were fictitious or otherwise did not come under the terms of the Policy.

Marketlend and the trustee of the funding vehicle, Australian Executor Trustees Limited (“AETL”), were joint insureds under the Policy. They commenced proceedings against QBE in relation to eight claims that AETL submitted under the Policy concerning purported trades conducted by Novita.

Piecing together the actual physical shipment

Marketlend insisted it had satisfied the definition of Insured Debt by providing the invoice, contract, and a photocopy of the bill of lading. It alleged that the trades must have been genuine because the eight buyers had acknowledged the debt. Incredibly, however, Marketlend was unable to get anyone from Novita or the eight buyers to corroborate the trade before the court. These entities and the individuals behind them appeared to have vanished when the time came for them to explain their alleged trade.

QBE’s position was that Marketlend had failed to demonstrate an “actual physical sale and shipment” of goods required by the definition of Insured Debt. QBE also went further to state that the trades not only failed to meet the definition of Insured Debt but were also fictitious.

Through its investigations, QBE had reconstructed the entire sales chain for goods under two of Novita’s alleged trades. The confirmations provided by the shipper to the receiver of the cargo and all intermediate parties showed that the underlying goods were traded to the exclusion of Novita or its alleged buyers. For example, QBE established that one of the purported trades done by Novita and Sealoud was actually done by PT Timah-Indometal-Viant-Ningbo.

Actual physical sale and shipment not proven

The Claimants (i.e., Marketlend and AETL) were required to prove the existence of an Insured Debt on a balance of probabilities, which in the Court’s view required showing an actual physical sale and shipment of goods by Novita to its insured buyers; and was to be distinguished from a ‘paper’ trade or a fictitious trade. On the evidence, the Claimants were unable to prove the existence of an Insured Debt in respect of the claims.

The Claimants relied on Lloyd’s vessel reports and IMB reports as evidence of Novita having conducted genuine trades. The Court, however, found that these reports only showed that physical goods were duly shipped on board various vessels and transported to various destination ports. They did not, however, “even begin to show” that “Novita was itself involved in shipping those goods at the port of loading or otherwise involved as an intermediate buyer/seller in the purchase in or onward sale of the goods”. Further, the Court noted that the mere fact that Novita came into possession of copies of bills of lading was irrelevant for demonstrating that Novita’s alleged trades were genuine—particularly given the lack of evidence from Novita explaining its possession of the copy bills of lading.

Novita’s alleged buyers’ acknowledgments of debt to Marketlend were also inconclusive regarding the genuineness of their trades with Novita, as dishonesty could not be ruled out; and the fact that the buyers did not give evidence meant their credibility could not be assessed.

The Court also took note of several features of the sale contracts between Novita and its insured buyers which were inconsistent, based on expert evidence, with market practice for the relevant commodities. These included the absence of any shipment period or delivery date, the incorporation of inappropriate standard form contracts, the requirement of presentation of packing lists for bulk cargoes (which do not require packing lists), and the lack of detailed specifications of the agricultural commodities being transacted. Novita’s refusal to cooperate with the Claimants to support the Policy claims was further found to support QBE’s case that the alleged trades were not genuine, and the Court was prepared to draw an adverse inference from Novita’s refusal to give evidence or otherwise assist the Claimants at the trial that the trades were not genuine.

On the totality of the evidence before it, including the reconstructed trade flows which demonstrated that Novita was not involved in the trade, the Court found that the Claimants had not proven the existence of genuine trades on a balance of probabilities. Indeed, the Court went further to state the “irresistible inference” is that all of Novita’s trades were fictitious.

Failure to provide key documents

One of the mysteries of the case was how Novita or Marketlend could explain trading goods without the original bills of lading. As part of investigating the Policy claims, QBE had requested copies of correspondence concerning the transmission of invoices, bills of lading, and shipping documents from Novita to its buyers. None of this information was provided.

The insured’s observance of all the terms and conditions of the Policy was a condition precedent to any liability under the Policy. These terms and conditions included providing documents and information requested by QBE relating to (among other things) any transaction between the insured and its buyer, and the obligation to cooperate fully with the insurer in relation to investigation and handling of claims.

The court was of the view that it is “plain” that such cover correspondence would fall within the insured’s duty to provide documents and information to QBE and/or to cooperate with QBE in investigating and handling claims. This is consistent with the Court’s view that on a plain reading, an ‘Insured Debt’ under the Policy required an actual physical sale and shipment of goods by Novita to its insured buyers. A shipment of goods by a party to another ordinarily involves the transmission of bills of lading and shipping documents, making it “plain” that the insured was required to provide these documents. The insured’s failure to provide these documents therefore constituted a breach of conditions precedents under the Policy.

Material non-disclosure and misrepresentations

Not only did Novita’s failure to disclose the nature of its trade represent a breach of a condition precedent to the right to claim under the Policy, but it also entitled QBE to avoid the Policy on grounds of material non-disclosure. The fictitiousness of Novita’s alleged trades also meant that Novita’s pre-Policy representations to QBE indicating that Novita was seeking cover for losses incurred in its physical trading of commodities were false, which entitled QBE to avoid the Policy.

Understanding dubious trades claims in trade credit insurance

The key to a dubious TCI claim is understanding the motivations behind some of the trade structures that rely on TCI. Liquidity seems to be the central theme of most fraudulent schemes, and trade presents an ideal pretext to obtain large amounts of financing. With a handful of documents, trades and trading relationships that mirror actual trades can be concocted while the funds obtained are applied elsewhere.

Underwriters and claims handlers alike need to be alert to the vulnerabilities of international trade, particularly with invoice financing programmes where trades are financed at scale. While insurers are typically underwriting non-payment arising from a physical shipment of goods, traders might deploy financing schemes or fictitious trades with the aim of securing more financing. They might use such financing to plug a hole in the business, thereby creating a continuous Ponzi scheme, or apply it elsewhere for short-term use. To secure financing, they might seek TCI, creating a risk of misuse for trades that are completely unconnected to the physical shipment of goods.