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

• Jurisdiction: Singapore
• Judge: Judith Prakash JCA
• Judgment Date: 24 October 2023
• Neutral Citation: [2023] SGCA(I) 7
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal Nos 2 and 3 of 2022
• Hearing Date: 19 October 2022,20 October 2022
• Citation: [2023] SGCA(I) 7
• Year: 2023
• Plaintiff Counsel: David Joseph KC and Bibek Mukherjee (Essex Court Chambers) (instructed),Nair Suresh Sukumaran and Bryan Tan (PK Wong & Nair LLC), Tay Yu-Jin (Mayer Brown (Singapore) Pte Ltd)
• Defendant Counsel: Michael Collett KC (Twenty Essex Chambers) (instructed),Lee Wei Yuen Arvin, Giam Chin Toon SC, Wan Hui Ting, Monique and Tay Ting Xun Leon (Wee Swee Teow LLP)
• Subject Matter: Bills of Exchange and Other Negotiable Instruments,Letter of credit transaction,Credit and Security,Guarantees and indemnities,Contracts of indemnity
• Published date: 25 October 2023

Judith Prakash JCA, Jonathan Hugh Mance IJ and Bernard Rix IJ: Introduction

These appeals arise out of two cases heard by the Singapore International Commercial Court (“SICC”), SIC/S 1/2021 (“Suit 1”) and SIC/S 2/2021 (“Suit 2”). Crédit Agricole Corporate & Investment Bank, Singapore Branch (“CACIB”) was the plaintiff in Suit 1 and the defendant in Suit 2. PPT Energy Trading Co. Ltd. (“PPT”) was the defendant in Suit 1 and the plaintiff in Suit 2. The Judge in the SICC (the “Judge”) dismissed CACIB’s claim in Suit 1 and allowed PPT’s claim in Suit 2. The reasons for the Judge’s decisions can be found in Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Co Ltd and another suit [2022] SGHC(I) 1 (the “Judgment”). The decision on liability was delivered on 13 January 2022, but the issues of damages, interest and costs were dealt with in his subsequent order made on 30 March 2022.

CACIB appealed against the Judge’s decision in both Suits. Although two appeals were filed, CACIB raised the same issues in substance in both.

The background to CACIB’s claims below was that CACIB had been induced by the fraud of Zenrock Commodities Trading Pte Ltd (“Zenrock”) to issue an unconfirmed letter of credit dated 3 April 2020 subject to The Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”) in favour of PPT. Payment under the letter of credit was due 60 days after the bill of lading date. As the original bills were issued on 6 April 2020, the due date for payment was therefore 5 June 2020. In Suits 1 and 2, CACIB sought the following remedies: an injunction to restrain payment of any sums under the letter of credit; a declaration that PPT was not entitled to receive any sums under the letter of credit at that date or at all and that CACIB was not liable for any sum under the letter of credit; and an order that PPT reimburse CACIB for sums debited pursuant to the terms of the letter of credit together with interest; or if PPT was so entitled to receive payment under the letter of credit, then a finding that PPT was liable, under a letter of indemnity (the “LOI”) which PPT issued to CACIB in lieu of presentation of shipping documents under the credit, to indemnify CACIB for any and all such losses arising from PPT’s breaches of the representation and warranties in the LOI.

In the course of the proceedings below, CACIB took out an ex parte application (of which PPT, but not Zenrock, was given notice) for payment under the letter of credit to be prohibited, which resulted in the issuance of an interim injunction on 28 May 2020 (the “Interim Injunction”) prohibiting payment under or pursuant to the letter of credit. After negotiations, an accommodation was reached between CACIB and PPT pursuant to which the Interim Injunction was to be discharged and payment under the letter of credit was to be made by CACIB to PPT. This payment was made in return for a bank guarantee from PPT’s bank, Bank of China (“BOC”) for reimbursement, should the court hold that CACIB’s original refusal to pay was justified. The guarantee was secured by the blocking, in an escrow account, of the amount paid by CACIB as counter-security for BOC’s guarantee. CACIB made the payment under the letter of credit to PPT on 18 November 2020. PPT therefore cross-claimed for a declaration that payment was due under the credit, and for damages for non-payment, including the costs of obtaining the guarantee and the borrowing costs of a loan from a subsidiary company.

The trading background to Zenrock’s fraud on CACIB raises numerous questions, though not all of them are answerable on the available material. That Zenrock committed fraud was undisputed by both parties. To facilitate its purchase of crude oil from PPT for on-selling to Total Oil Trading SA (“TOTSA”), Zenrock had applied for a letter of credit to be issued by CACIB in favour of PPT: The credit for which Zenrock applied was to be operable against the presentation of shipping documents including signed bills of lading and PPT’s signed commercial invoice referring to the shipment FOB of 920,000 net US barrels (plus or minus 5%) of crude oil from Djeno in the Congo (the “Cargo”). The unit price of the Cargo was stated to be the average of the mean quotations published in Platt’s crude oil marketwire under the heading Brent Dated (the “Brent rate”) on the bill of lading date plus a premium of US$3.24 per barrel. The letter of credit also provided that “in case” such shipping documents “[were] not available at time of presentation”, then payment was to be made upon the presentation of the beneficiary’s signed commercial invoice and the beneficiary’s signed LOI.

To obtain credit facilities from CACIB, Zenrock had previously executed a deed of charge in favour of CACIB, which granted to CACIB a floating charge on all goods financed by CACIB. Zenrock also had to provide CACIB with an assignment of the receivable which Zenrock would obtain under the on-sale covering the amount which CACIB would have to disburse to PPT under the credit (Judgment at [37]). Zenrock had a sale contract dated 30 March 2020 for the sale of Djeno crude oil to TOTSA, but it was at a price of only the Brent rate minus US$3.6 per barrel. Zenrock simply doctored a copy of its sale contract with TOTSA to make it appear to CACIB that the price under the TOTSA contract was the Brent rate plus US$3.6 per barrel, thereby covering the amount of the proposed credit (Judgment at [3]–[4]). CACIB on 1 April 2020 gave notice to TOTSA of the assignment of the TOTSA receivable, which TOTSA counter-signed on 3 April 2020.

The effect of Zenrock’s fraud is evident from the actual invoice issued by Zenrock to TOTSA, which related to a bill of lading quantity of 920,191.814 net US barrels shipped from Djeno on the vessel Indigo Nova on 6 April 2020 at a unit price of US$17.95 per barrel, making US$16,517,443.06 the total amount payable to Zenrock. In contrast, the amount payable by reference to the same shipment under the credit which Zenrock induced CACIB to issue in PPT’s favour was US$25.715 per barrel, making a total of US$23,662,732.50. This latter amount is nearly US$8 more per barrel than the former and was about 50% higher than the market price.

The wider trading background reveals further peculiarities. First, TOTSA was not only Zenrock’s buyer, but also was at the head of a chain under which it sold 920,000 net US barrels (5% plus or minus) FOB Djeno to SOCAR Trading SA (“SOCAR”), which on 26 March 2020 on-sold the same amount to Zenrock (Judgment at [10]).

Second, to finance its purchase from SOCAR, Zenrock had applied to ING Bank NV (“ING”) for a credit in SOCAR’s favour, had assigned to ING its receivable under its contract with TOTSA and executed a deed of charge creating a floating charge over all goods financed by ING as well as over “unencumbered goods” not financed by ING (Judgment at [36]). SOCAR had on 31 March 2020 given notice to TOTSA of Zenrock’s assignment. However, on 1 April 2020, Zenrock had asked TOTSA not to approve ING’s assignment, saying that there had been a mistake and that the receivable to be assigned to TOTSA had actually been assigned to CACIB. It appears that Zenrock, short no doubt of cash, had decided to defraud CACIB by introducing a small circle of over-priced contracts which CACIB would be induced to support by Zenrock’s production of the doctored copy of its contract for on-sale to TOTSA.

Third and most significantly, Zenrock’s original approach to PPT had been to seek PPT’s involvement in a different circular trade, which would have involved Zenrock on-selling to PPT the cargo acquired from SOCAR, with PPT on-selling such cargo to another company, Trafigura Pte Ltd (“Trafigura”), which would re-sell to Zenrock, which would deliver it under the final TOTSA contract. The Judge found that, in the course of exchanges about such an involvement, PPT became aware of its circularity and that Zenrock wished PPT to avoid using CACIB to finance its proposed purchase from Zenrock, because Zenrock and Trafigura were already using CACIB and did not want CACIB to “see the whole chain” (Judgment at [52]–[65]).

In the event, Trafigura was eventually withdrawn from this proposed circle. On or about 1 April 2020, Zenrock arranged the interposition of PPT into a different trading circle, involving the purchase by one Shandong Energy International (Singapore) Pte Ltd (“Shandong”) from Zenrock of the Cargo at Brent rate plus US$3.02 per barrel and a sale by Shandong to PPT at Brent rate plus US$3.02 per barrel (Judgment at [74]). PPT was presented with arrangements made by Zenrock for both its purchase from Shandong and its on-sale back to Zenrock. PPT denies that it was aware of any circle, but the Judge found, on the evidence and in the light of all the circumstances, that it was impossible to believe that PPT was unaware, when it committed itself to this transaction, of the circularity involved in Zenrock’s purchase from SOCAR, SOCAR’s on-sale to Shandong and Shandong’s on-sale to PPT (Judgment at [113]).

The reasons for these circular arrangements are unknown, though circularity can and does occur in commodity dealing, both designedly and fortuitously (see Garnac Grain Company Incorporated v HMF Faure & Fairclough Ltd and another [1966] 1 QB 650 (at 679, 683–684) and UniCredit Bank AG v Glencore Singapore Pte Ltd [2022] SGHC 263 (at [50]–[65])). In those cases, the motive was the cheaper financing that a simultaneous sale and buy-back using a letter of credit could provide, as compared to ordinary borrowing. The Judge in the present case held that all the contracts in the expanded chain (including the circle of transactions from Zenrock to Shandong to PPT and back to Zenrock, despite its artificially high prices) were intended to and did operate as genuine contracts, under which property passed (Judgment at...