Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Co Ltd and another suit

JudgeJeremy Lionel Cooke IJ
Judgment Date13 January 2022
Neutral Citation[2022] SGHC(I) 1
CourtInternational Commercial Court (Singapore)
Hearing Date22 December 2021,13 December 2021,20 December 2021,17 December 2021
Docket NumberSuits Nos 1 and 2 of 2021
Plaintiff CounselSara Masters QC (instructed), Nair Suresh Sukumaran, Tan Tse Hsien, Bryan (Chen Shixian), Bhatt Chantik Jayesh and Sylvia Lem Jia Li (PK Wong & Nair LLC)
Defendant CounselMichael Collett QC (instructed), Giam Chin Toon SC, Lee Wei Yuen Arvin (Li Weiyun), Lyssetta Teo Li Lin, Tay Ting Xun Leon and Wan Hui Ting, Monique (Wen Huiting) (Wee Swee Teow LLP)
Subject MatterBills of Exchange and Other Negotiable Instruments,Letter of credit transaction,Credit and Security,Guarantees and indemnities,Contracts of indemnity
Published date18 January 2022
Jeremy Lionel Cooke IJ: Introduction

On 3 April 2020, the plaintiff in Suit No 1 of 2021, Crédit Agricole Corporate & Investment Bank, Singapore Branch (CACIB) issued a letter of credit (“the Letter of Credit”) in favour of the defendant in that suit, PPT Energy Trading Co Ltd (“PPT”) on the application of Zenrock Commodities Trading Pte Ltd (“Zenrock”). The Letter of Credit was for the purchase by Zenrock of 920,000 (+/- 5%) barrels of Djeno crude oil (“the Cargo”) from PPT for the purpose of on-sale to Total Oil Trading SA (“TOTSA”).

In support of its application for the Letter of Credit, Zenrock furnished CACIB with a copy of its contract with PPT (“the PPT-Zenrock Sale Contract”). Under the terms of the PPT-Zenrock Sale Contract, PPT was to sell the Cargo to Zenrock at the unit price of the average of the mean quotations published in Platt’s crude oil marketwire under the heading “Brent Dated” (which I will hereafter refer to as “Platt’s”), plus a premium of US$3.24 per barrel. The Letter of Credit therefore reflected the purchase price of Platt’s plus US$3.24 per barrel.

As security, CACIB had a registered floating charge over goods purchased by Zenrock and financed by the Letter of Credit, and an assignment of the proceeds of the sale of the Cargo that were due from TOTSA, which was signed in acceptance by TOTSA.

On 2 April 2020, Zenrock furnished CACIB with a copy of what it claimed to be its contract with TOTSA (“the Fabricated Zenrock-TOTSA Sale Contract”). This document provided that Zenrock would sell the Cargo to TOTSA at Platt’s plus a premium of US$3.60 per barrel. This, had it been a genuine contract, would have meant that the assignment of the sale proceeds payable by TOTSA under the Fabricated Zenrock-TOTSA Sale Contract to CACIB would cover Zenrock’s purchase price from PPT and hence, CACIB’s exposure under the Letter of Credit. However, the Fabricated Zenrock-TOTSA Sale Contract that was supplied to CACIB on 2 April 2020, as the description suggests, had been fabricated for the purposes of the Letter of Credit. The true Zenrock-TOTSA Sale Contract (“the True Zenrock-TOTSA Sale Contract”), which was later furnished to CACIB by TOTSA on 28 April 2020, showed that the true sale price to TOTSA was not Platt’s plus US$3.60, but Platt’s minus US$3.60 per barrel. If the sale price payable by TOTSA under the True Zenrock-TOTSA Sale Contract is compared with the purchase price payable by Zenrock under the PPT-Zenrock Sale Contract, Zenrock would suffer a loss of US$6,942,847.24 on the two transactions, instead of making a profit of approximately US$331,270, as a comparison with the Fabricated Zenrock-TOTSA Sale Contract would suggest.

The Letter of Credit issued to PPT as beneficiary provided that, inter alia, the original bills of lading and other shipping documents relating to the Cargo were to be provided to CACIB in order to trigger payment under it, but as with many such letters of credit, provision was also made for the situation where original bills were unavailable. In their absence, PPT could instead provide its signed invoice and its signed letter of indemnity to CACIB, which was to follow the format set out in the PPT-Zenrock Sale Contract and the Letter of Credit. In due course, in circumstances described later in this judgment, such a letter of indemnity (“the LOI”) was provided by PPT to CACIB on 16 April 2020 (together with a commercial invoice (“the PPT Invoice”)) in the following form:


Date: 09 April 2020

From: PPT Energy Trading Co Ltd

To: Credit Agricole Corporate and Investment Bank, Singapore Branch for account of Zenrock Commodities Trading Pte Ltd

We refer to our contract dated 2 April 2020 in respect of our sale to Zenrock Commodities Trading Pte Ltd of a shipment of 920,191.814 US barrels of Djeno Crude Oil shipped on board the vessel Indigo Nova at the port of Djeno Terminal, Congo with bills of lading dated 06 April 2020.

To date we are unable to provide you with the requisite shipping documents in relation to the said sale which consist of: Full set 3/3 original and 3 non-negotiable copies clean on board bills of lading issued or endorsed to the order of Credit Agricole Corporate and Investment Bank, Singapore Branch.

In consideration of your making payment of the full invoiced price of USD23,662,732.50 (and payment when due of any subsequent shortfall apparent on any final invoicing and set out in any final invoice) for the shipment at the due date for payment under the terms of the above contract without having been provided with the above documents, we hereby expressly warrant that at the time property passed under the contract we had marketable title to such shipment, free and clear of any lien or encumbrance, and that we had full right and authority to transfer such title to you, and that we are entitled to receive these documents from our supplier and transfer them to you.

We further agree to protect, indemnify and save you harmless from and against any and all damages, costs and expenses (including reasonable legal fees) which you may suffer or incur by reason of the original bills of lading and other documents remaining outstanding or breach of warranties given above …

This Letter of Indemnity shall be governed by and construed in all respects in accordance with the laws of England, but without reference to any conflict of law rules.

The validity of this Letter of Indemnity shall expire upon our presentation to you of the aforesaid shipping documents or one year after bill of lading date.

Under Art 14(a) of The Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”), which was incorporated into the Letter of Credit, CACIB was obliged to examine documents on presentation and “on the basis of the documents alone” to determine whether or not they appeared on their face to constitute a compliant presentation. Under Art 14(b), a maximum period of five banking days is allowed following the day of presentation to determine compliance. Having determined that a presentation complies, a bank must honour the letter of credit and if it determines that there is non-compliance, Art 16(d) requires it to notify the presenter no later than the close of the fifth banking day following the day of presentation and to state the discrepancy found in the documents presented. Under Art 16(f), if a bank fails to act in accordance with the provisions of the article, “it shall be precluded from claiming that the documents do not constitute a complying presentation”.

The period of five banking days following the date of presentation of documents by PPT (through the Bank of China (“BOC”)) which was Wednesday, 16 April 2020 expired at midnight on Wednesday, 23 April 2020. By that time, CACIB suspected fraud as a result of receiving an email from TOTSA stating that Zenrock appeared to have assigned the proceeds of sale of the Cargo twice over to different banks. However, CACIB neither paid nor sent an Art 14(c) notice refusing to pay and giving a reason for its refusal. CACIB sought to investigate the position with TOTSA, PPT and the rival bank for the sale proceeds due from TOTSA to Zenrock (“the TOTSA Receivable”), but never declined to pay until it sought and obtained an interim injunction from the High Court on an ex parte application on 28 May 2020 (of which PPT was given notice), prior to the due date for payment, which was 5 June 2020. That injunction was later discharged on 13 November 2020 following the court’s suggestion and an accommodation between the parties whereby payment under the Letter of Credit was made by CACIB to PPT against PPT’s provision of a bank guarantee from BOC (“the BOC Guarantee”), which would operate to pay should the court eventually decide that CACIB’s refusal to pay was justified.

What has since emerged is that Zenrock had entered into what are called “round-tripping” contracts, purchasing the Cargo from SOCAR Trading SA (“SOCAR”), on-selling it to Shandong Energy International (Singapore) Pte Ltd (“Shandong”), which sold it to PPT, before the Cargo was then sold back to Zenrock under the PPT-Zenrock Sale Contract. Having agreed to sell the Cargo back to TOTSA, under the terms of the True Zenrock-TOTSA Sale Contract, Zenrock then assigned the TOTSA Receivable twice over, firstly to ING Bank NV (“ING”) in respect of the letter of credit it had opened for Zenrock in respect of its purchase from SOCAR, and secondly to CACIB. As explained earlier, CACIB believed the TOTSA Receivable to be much higher than the true figure as Zenrock had furnished it with the Fabricated Zenrock-TOTSA Sale Contract, and not the True Zenrock-TOTSA Sale Contract when applying for the Letter of Credit (see [4] above).

In order to simplify matters, the following summary does not set out any differences in the dates on which the prices of Djeno crude oil in the different contracts of sale and purchase had been derived from Platt’s. Nonetheless, the essential structure can be seen from the differentials recorded in those sale contracts by reference to the Platt’s index for Brent crude oil.

The underlying (and apparently uncontroversial) transaction, to which I alluded at [8] above, involved: a sale of the Cargo by SOCAR to Zenrock at Platt’s minus US$3.69 per barrel, with the aid of a letter of credit opened by ING at Zenrock’s behest (SOCAR had apparently purchased the Cargo from TOTSA, the French trading company in the Total group, which had obtained the Cargo from its affiliated company in Congo, Total E&P); and a sale from Zenrock to TOTSA at Platt’s minus US$3.60, with an assignment by Zenrock of the TOTSA Receivable in favour of ING. I refer to this as apparently uncontroversial because TOTSA appears to have sold the Cargo to SOCAR and repurchased it from Zenrock for no good reason. That appears in the documents and in WhatsApp messages exchanged between Mr Jason...

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