BCP v. Bissma, 2015 ONSC 794

COURT FILE NO.: CV-14-10512-00CL

DATE: 20150220

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE RECEIVERSHIP OF BISSMA PACIFIC INC.

Banque de Commerce et de Placements, S.A., Applicant

AND:

Bissma Pacific Inc., Respondent

BEFORE: Conway J.

COUNSEL: Kevin P. McElcheran, for Grant Thornton Limited, moving party

John Nicholl and Katarina Germani for Export Development Canada, responding party

HEARD: February 2, 2015

ENDORSEMENT

[1] This motion involves the interpretation of an accounts receivable insurance policy (the “Policy”)[^1] issued by Export Development Canada (“EDC”) to Bissma Pacific Inc. (“Bissma”).

[2] In April 2014, Grant Thornton Limited (the “Receiver”) was appointed the receiver of Bissma with respect to its accounts receivable from two customers, and related rights under the Policy.[^2] The Receiver brings this motion for an order declaring that there are no outstanding “Disputes” under the Policy with respect to the accounts receivable in question.[^3]

Facts

[3] For purposes of this motion, the relevant facts are not in dispute.

[4] Bissma carried on business as an international trading company, importing and exporting agricultural commodities. Two of its customers were Rushdi Food Industries Ltd. (“Rushdi”), a food processor based in Israel, and Heilongjiang Tianzheng Cereals Oil & Foodstuff (“Heilongjiang”), based in China (the “Customers”).

[5] At the time of the receivership, the Customers had outstanding invoices with Bissma that they refused to pay (the “Invoices”). Most of their complaints were unrelated to the shipments covered by the Invoices – the complaints related to quality and tonnage issues on previous shipments (the “Unrelated Complaints”). The Customers sought to set-off amounts owing under the Invoices to compensate them for these issues with previous shipments.

[6] The Receiver submitted a claim to EDC under the Policy with respect to the unpaid Invoices. EDC advised the Receiver that its payment obligations were deferred under the Policy due to the ongoing disputes with the Customers.

[7] The Receiver subsequently settled the Customers’ complaints relating to the shipments covered by the Invoices (the “Related Complaints”), which were minor, but not the Unrelated Complaints. The Customers continue to assert a set-off and refuse to pay the balance owing on the Invoices because of the Unrelated Complaints.[^4]

[8] The Receiver seeks to recover the unpaid balances of the Invoices from EDC under the Policy. EDC continues to assert that its payment obligations are deferred due to the ongoing disputes with the Customers.

The Policy

[9] The Policy states, in paragraph 1:

EDC insures the Insured [Bissma] against and agrees to pay the Insurance Percentage [90%] of any loss covered by the Policy that is sustained by the Insured under Eligible Contracts with buyers in countries listed in the Country Schedule (excluding Canada), as a direct result of the occurrence of any Risk…

[10] The Policy works as follows. The Insured applies to EDC for “Credit Approval” for a particular buyer listed in the “Country Schedule”[^5] and EDC establishes a “Credit Limit” for that buyer. Once Credit Approval is obtained and the Credit Limit is set, the Insured’s contract with that buyer, provided it meets certain conditions, is an “Eligible Contract”. The Insured can make shipments to the buyer pursuant to the Eligible Contract, and those shipments are covered by the Policy.

[11] The Policy insures against certain “Risks”, including:

(2) failure of the buyer to pay by the Due Date all or any part of the Gross Invoice Value of goods that were delivered in accordance with the terms of the Eligible Contract and accepted by the buyer;[^6]

[12] When a Risk occurs, EDC agrees to pay the Insured 90% of the “Loss” sustained as a direct result of the occurrence of the Risk. The amount of the Loss is calculated in accordance with Section 19 (set out below).

[13] However, if there is a “Dispute” between the Insured and the buyer, as defined in Section 7 (also set out below – the “Dispute Clause”), EDC is not required to pay for the Loss until the Dispute has been resolved. The Dispute Clause suspends EDC’s obligation to pay for the Loss.

Dispute Clause and Calculation of the Loss

[14] There is no issue in this case that a Risk has occurred. The Customers have failed to pay, by the Due Date [90 days after the invoice date], all or any part of the Gross Invoice Value [the invoice value of the goods shipped to the Customers] of goods delivered in accordance with the terms of the Eligible Contract and accepted by the Customers.

[15] Under the terms of the Policy, EDC is required to pay 90% of the Loss, unless that obligation is suspended pursuant to the Dispute Clause.[^7]

[16] The Dispute Clause reads as follows (my emphasis added):

If there is a dispute between the Insured and the buyer with regard to any matter which brings into question the amount owing (or whether there is any amount owing) by the buyer to the Insured (a “Dispute”), the Insurer shall have no liability with respect to the claim until the Dispute is finally settled, by negotiation or otherwise, and the Loss amount is clearly established.

[17] The Dispute Clause ties into the calculation of the Loss and defers EDC’s payment obligation until the Loss amount is “clearly established”.

[18] Section 19 of the Policy deals with the computation of the Loss, and reads as follows (my emphasis added):

The amount of a Loss that is covered by the Policy will be computed in the Contract Currency, and is the Gross Invoice Value of the goods Shipped together with any additional insurance, freight or other handling costs (exclusive of demurrage) that were incurred as a result of any interruption or diversion of delivery due to the occurrence of the Risk which resulted in the Loss, less:

(1) any amount which the Insured agrees the buyer is entitled to take into account by way of payment, credit, set-off or counterclaim;

(2) all amounts received, recovered or realized by or on behalf of the Insured on account of amounts payable by the buyer to the Insured in respect of such goods, including any amount realized through sale or disposal of the goods; and

(3) all costs that would normally have been incurred by the Insured in respect of such goods but which have not been incurred as a result of the occurrence of the Risk.

Positions of the Parties

[19] The Receiver’s position is that the Dispute Clause only suspends EDC’s payment obligation if there is a dispute about the shipments covered by the Invoices (i.e. a Related Complaint). The Receiver argues that since it has resolved all Related Complaints, there is no remaining “Dispute” that would suspend EDC’s payment obligations.

[20] The Receiver submits that the wording of the Policy is “shipment specific” – that all of the definitions in the Policy (Risk, Loss, Gross Invoice Value, Shipped) tie into a particular shipment. The Receiver therefore submits that each shipment stands on its own and that a dispute with respect to an Unrelated Complaint (regarding a previous shipment or matter) cannot be considered to be a Dispute.[^8]

[21] EDC’s position is that the Policy covers ongoing relationships between the Insured and its buyers – the Insured gets Credit Approval and a Credit Limit per buyer, the Eligible Contract is with the buyer, and the Policy contemplates that multiple shipments can be made to the buyer.

[22] EDC submits that there is nothing in the plain language of the Dispute Clause that restricts a Dispute to issues with a particular shipment and that a Dispute can exist even if it is with respect to an Unrelated Complaint. EDC submits that its interpretation is consistent with the ongoing nature of the commercial relationship between the Insured and the buyer, as reflected in the Policy.

Analysis

[23] I agree with EDC that the Policy contemplates an ongoing relationship between the Insured and the buyer, in which multiple shipments can be made under an Eligible Contract. I also agree with the Receiver that EDC’s insurance obligation is triggered on a per shipment basis – that is, when the buyer fails to pay the invoice for that shipment.

[24] However, I disagree with the Receiver that EDC’s payment obligation is only suspended under the Dispute Clause if the dispute relates to the shipment in question (a Related Complaint).

[25] First, the language of the Dispute Clause is broad – “a dispute between the Insured and the buyer with regard to any matter which brings into question the amount owing (or whether there is an amount owing) by the buyer to the Insured.” There is nothing that restricts the dispute to matters pertaining to the shipment in question, nor is there anything ambiguous about that language.[^9]

[26] Second, the Dispute Clause suspends the payment obligation until the “Loss amount is clearly established.” The definition of Loss itself clearly contemplates that a set-off or counterclaim (for an Unrelated Complaint) can factor into the calculation of the Loss – s. 19(1) subtracts from the Gross Invoice Value “any amount which the Insured agrees the buyer is entitled to take into account by way of payment, credit, set-off or counterclaim”.

[27] The Receiver argues that it is the agreement of the Insured (“any amount which the Insured agrees the buyer is entitled to take”) that ties a set-off for an Unrelated Complaint into the calculation of the Loss. The Receiver argues that if the buyer asserts a set-off for an Unrelated Complaint, and the Insured does not agree to the set-off, then any dispute about that set-off is not a “Dispute”. I reject the Receiver’s submission. In my view, any set-off asserted by the buyer to which the Insured does not agree is clearly “a dispute…with regard to any matter which brings into question the amount owing by the buyer to the Insured” and the Dispute Clause applies.

[28] Third, there is no suggestion that the Unrelated Complaints in this case are frivolous, such that they would not qualify as a Dispute.[^10]

[29] Fourth, I agree with EDC that the Receiver’s interpretation could lead to cherry picking, with the Insured settling only the buyer’s minor complaints and leaving EDC to face the buyer’s remaining complaints. In my view, that is precisely what the Dispute Clause is intended to prevent.

[30] Finally, I adopt the reasoning in 2964-3277 Québec Inc. v. EDC-Export Development Canada, 2011 QCCS 1372, aff’d 2012 QCCA 2154, at para. 68, which considered the same Dispute Clause:

Assuming that the insurer is, despite the existence of a dispute, subrogated to the rights of its insured, it is obviously not interested in becoming a plaintiff in a foreign lawsuit against a solvent third party who is disputing the existence or the value of any uncertain claim concerning which only the insured is able to give explanations. EDC intends to be subrogated to a clear and non-litigious right. To do otherwise…would certainly involve a considerable increase in the policy premium. (unofficial translation)

[31] It is clear to me that the Dispute Clause is broadly cast to suspend EDC’s payment obligation while there is any legitimate dispute between the Insured and the buyer that could impact on the calculation of the Loss. The Dispute Clause does not exclude the claim altogether – it merely defers payment until the Loss is determined.[^11] It is only once that Loss is “clearly established” that EDC’s payment obligation (and its rights of subrogation) takes effect.

Decision

[32] The Customers are disputing the Invoices. These are Disputes between the Insured and its buyers within the meaning of the Dispute Clause. The fact that these are Unrelated Complaints does not take them outside the ambit of the Dispute Clause.

[33] The Receiver’s motion seeking a declaration that there are no Disputes between Bissma and the Customers is dismissed.

[34] Counsel agreed that the successful party will receive its costs, fixed at $30,000, all inclusive. Accordingly, the Receiver shall pay $30,000 to EDC within 30 days.

Conway J.

Date: February 20, 2015

[^1]: Accounts Receivable Policy (Shipments) insurance policy No. GE 133624. The Policy was first issued to Bissma in November 2007.

[^2]: The Receiver had been privately appointed by Bank of Nova Scotia in November 2012. The Receiver was appointed by court order in April 2014, specifically to deal with the accounts receivables and Policy issues.

[^3]: The Receiver’s application also seeks an order requiring EDC to pay the claim to the Receiver. At the hearing, counsel agreed that to defer the request for payment as there are other issues (alleged misrepresentation and non-disclosure) that could affect any payment obligations under the Policy. Counsel agreed to proceed first with the contract interpretation issue and to address these additional issues at a later date.

[^4]: Rushdi’s balance is over $1.4 million USD and Heilongjiang’s balance is over $1.6 million USD.

[^5]: There is no issue that Rushdi and Heilongjiang are located in countries on the Country Schedule.

[^6]: The parties agree that this is the only relevant Risk in this case.

[^7]: For purposes of this motion, I have not considered any other factors that could impact on EDC’s payment obligation, apart from the Dispute Clause.

[^8]: The Receiver argues that any other interpretation of the Policy would negatively affect banks that finance export shipments on a documentary credit basis and rely on the terms of the Policy. There is no evidence to support that submission. Further, the Receiver concedes that on this motion it stands in the shoes of the insured (Bissma) and not the bank. Whether or not the bank relied on the Policy is therefore irrelevant.

[^9]: Since the Dispute Clause is not ambiguous, the legal principles with respect to interpreting ambiguous clauses in insurance contracts (as set out in Non-Marine Underwriters, Lloyds of London v. Scalera, [2000] 1. S.C.R. 551, at paras. 68-71) do not apply.

[^10]: See Strategic Associates Incorporated v. Export Development Corporation, 2007 ONCA 140, at para. 16.

[^11]: The Dispute Clause is not an exclusionary clause – it is found in s. 7, clearly before the Exclusions section. The exclusions are listed in s. 8 of the Policy. Accordingly, the legal principles with respect to the interpretation and enforcement of exclusionary clauses (as set out in Weston Ornamental Iron Works Ltd. v. Continental Insurance Co., [1981] O.J. No. 78, at para. 16 (C.A.)) do not apply.