ABN AMRO Bank NV, Singapore Branch v CWT Commodities (SEA) Pte Ltd

CourtHigh Court (Singapore)
JudgeWoo Bih Li J
Judgment Date17 January 2011
Neutral Citation[2011] SGHC 13
Citation[2011] SGHC 13
Published date24 January 2011
Hearing Date26 August 2010,22 August 2010,18 August 2010,20 August 2010,17 August 2010,23 August 2010,28 September 2010,18 November 2010,24 August 2010,24 September 2010,29 September 2010,27 September 2010,21 August 2010,30 September 2010,26 September 2010,25 August 2010,25 September 2010,16 August 2010,23 September 2010,19 August 2010
Docket NumberSuit No 275 of 2009
Plaintiff CounselHerman Jeremiah, Joseph Lee, Zhulkarnian Abdul Rahim and Ross Tan (Rodyk & Davidson LLP)
Defendant CounselKenneth Tan, SC and Soh Wei Chi (Kenneth Tan Partnership)
Subject MatterContract
Woo Bih Li J: Introduction

The present dispute involves a claim by a bank against a warehouseman arising from a fraud perpetrated on the bank by a borrower in respect of collateral which the warehouseman had custody over. It raises the question of the scope and extent of a collateral manager’s duties to his principal, as well as issues of causation and remoteness.

The facts Background

The plaintiff, ABN AMRO Bank N.V., Singapore Branch (“the Bank”), provided trade financing to a company called Singapore Tin Industries Pte Ltd (“STI”), which was engaged in the business of tin refining and tin trading. Pursuant to a facilities agreement (“the Facilities Agreement”) dated 27 August 2007, the Bank made advances to STI for the purchase of tin in various forms, such as tin concentrate and crude tin ingots. These advances were secured, inter alia, by STI pledging the purchased tin products (and refined tin ingots produced from its refinery) to the Bank as collateral. The present claim revolves around a substance known as tin dross, which formed part of the collateral pledged to the Bank by STI.

Tin dross is a by-product of the tin refining process. Crude tin is refined by being placed (in the form of ingots) into a large kettle and heated above the melting point of tin to produce molten tin. Certain processes are then applied causing the impurities in the molten tin to rise to the surface as a solid mixture, which is then skimmed off. This solid mixture of impurities is then placed into a liquation furnace and heated until any excess tin in the mixture melts and is extracted to be put back into the kettle. What is left is a dry form of tin dross which is then taken out of the liquation furnace. Tin dross is not a homogenous substance; it can consist of fine particles as well as solid lumps in various shapes and sizes. The fine particles generally consist of tin oxide while the lumps consist of iron-tin compounds and bits of tin metal. As is obvious from the above description, tin dross contains residual amounts of tin from the refining process.

The goods pledged by STI were not managed by the Bank directly. Instead, STI and the Bank entered into a collateral management agreement (“CMA”) dated 24 August 2007 with the defendant, CWT Commodities (SEA) Pte Ltd (“CWT”), a company that provided general warehousing services, to supervise the receipt, storage and release of the pledged goods. CWT was previously known as C&P Asia (S.E.A.) Pte Ltd (“C&P”) at the time of the CMA.

The CMA incorporated CWT’s standard Forwarding Conditions and standard Warehousing Conditions insofar as they were not inconsistent with the principal terms of the CMA. These two sets of standard conditions were collectively referred to as “the FWC” in the CMA and I will adopt the same term accordingly. CWT’s obligations under the CMA were, inter alia, to issue warehouse receipts (“WRs”) and certificates of quality (“CQs”) to the Bank in respect of goods brought into its custody. The WRs served as an account to the Bank that a certain type and quantity of goods had been received by CWT to be held as the Bank’s collateral. The CQs were supposed to confirm that the goods conformed to the Bank’s quality criteria in terms of having a minimum tin content. For any batch of goods brought into CWT’s custody, the Bank would require a WR and a CQ to be issued before it would permit STI to make a drawdown under the Facilities Agreement to finance that particular batch of goods. CWT was also not permitted under the CMA to release any stored goods unless the Bank had issued release instructions to CWT. In consideration for its services, CWT charged a monthly management fee of US$4,000 which was payable by STI.

For the purposes of fulfilling its obligations under the CMA, CWT leased a warehouse (“the Warehouse”) from STI within STI’s own premises at 61 Tuas Crescent and another warehouse at 1 Tuas Avenue 3 from a related company, C&P Asia (S) Pte Ltd. The latter warehouse is not relevant for present purposes. CWT had sole management and control of the Warehouse and STI personnel had no access to it. All goods pledged by STI to the Bank were stored by CWT in the Warehouse.

The Bank’s financing of tin dross

During the period of the CMA, CWT issued WRs and CQs in respect of goods delivered by STI into its custody. The collateral received by CWT consisted of tin ingots (both refined and unrefined), tin concentrate, tin slag and tin dross. With regard to tin dross in particular, CWT issued WRs and CQs in respect of seven batches of tin dross pledged by STI to the Bank, the details of which are set out as follows:

WR Number Date of WR Weight of tin dross (metric tons) Tin content as indicated by CQ (%)
WRC20070901363 10 September 2007 136.686 94
WRC20071202088 6 December 2007 205.8775 85.9
WRC20080100126 18 January 2008 240.2005 91.86
WRC20080200442 21 February 2008 276.7615 86.69
WRC20080300882 28 March 2008 327.2105 81.96
WRC20080601868 10 June 2008 290.6495 87.45
WRC20080601881 11 June 2008 69.7050 87.45

For the purpose of issuing the CQs, CWT did not itself analyse the tin dross. The first batch (ie, WRC20070901363) was analysed by Singapore Test Services Pte Ltd (“STS”). The first batch of tin dross had actually been pledged by STI to its previous financier, the Development Bank of Singapore Ltd (“DBS”) and held by CWT under a collateral management agreement with DBS similar to the present CMA. Although the analysis was carried out by STS, CWT issued its own CQ for DBS under its letterhead repeating the result of STS’ analysis.1 When the Bank took over from DBS as STI’s banker, CWT issued a fresh WR to the Bank for this batch of tin dross while using the same results from the original by STS to issue a fresh CQ for the Bank.2

The subsequent batches of tin dross were analysed by Alex Stewart Assayers (S) Pte Ltd (“Alex Stewart”). Alex Stewart would analyse samples and issue certificates of analysis indicating only the percentage of tin content measured. Thereafter, CWT issued its own CQs to the Bank under its letterhead repeating the results of Alex Stewart’s analyses, but stating that the analyses were conducted by Alex Stewart. CWT also attached the original certificates of analysis issued by Alex Stewart to its own CQs.

Based on the WRs and CQs issued by CWT for tin dross, the Bank advanced the following sums to STI:

Date of loan Amount Repaid by STI?
7 September 2007 US$2,443,230.18 Yes
10 December 2007 US$1,572,625.50 Yes
31 December 2007 US$846,798.34 Yes
21 January 2008 US$3,047,702.98 Yes
26 February 2008 US$3,538,287.22 Yes
2 April 2008 US$2,291,036.08 No
4 April 2008 US$2,336,439.60 No
17 June 2008 US$4,850,256.04 No
18 June 2008 US$1,124,352.28 No
STI’s fraud

Unfortunately for the Bank, STI had been perpetrating a fraud on it. This fraud essentially consisted of the round-tripping of tin dross inventory. The seven batches of tin dross stored by CWT (referred to at [7] above) were purportedly purchased by STI from third parties and sold to other third parties and the Bank advanced money to STI in the belief that it was financing such purchases. The Bank subsequently issued release instructions to CWT to deliver the tin dross to STI, who was then supposed to deliver it to the third party buyer. Out of the seven batches of tin dross, the Bank issued release instructions to CWT for the first five batches. No release instructions were given for the remaining two batches, ie, WRC20080601868 and WRC20080601881. The release instructions were given on the following dates: WRC20070901363 – 29 November 2007 WRC20071202088 – 14 and 15 January 2008 WRC20080100126 – 18 and 19 February 2008 WRC20080200442 – 25 March 2008 WRC20080300882 – 6 June 2008

However, apparently, no actual sale of tin dross was made and the released stocks of tin dross were never physically removed from the Warehouse. This was because STI chose not to take physical delivery of the tin dross from CWT, but instead signed to acknowledge receipt of the same and gave instructions for the same to be retained in the Warehouse. CWT thus held onto the released batches of tin dross but placed them apart from the collateral that was still held for the Bank.

The tin dross that was released from the Bank’s security (but which physically remained in the Warehouse) was subsequently combined with additional tin dross which STI delivered to the Warehouse from outside to obtain an additional advance from the Bank. This additional dross had been generated by STI itself from its refining process. CWT would then issue a fresh WR and CQ to the Bank in respect of the combined tin dross. The tin dross that was previously released (and placed apart from the Bank’s remaining collateral) and the additional tin dross would then be placed together with the remaining collateral. From CWT’s perspective, this was done on the basis that STI had re-pledged the released batch of tin dross to the Bank as fresh security together with the additional dross brought into the Warehouse. The Bank did not know that the tin dross being pledged included those previously released as it had thought that the released tin dross had been sent to the third party buyer. It believed instead that the tin dross was purchased entirely from a third party by STI.

The following is an illustration of how the round-tripping of tin dross worked. CWT issued a WR and CQ for 136.686 metric tons of tin dross on 10 September 2007. This was the first batch of tin dross stored in the Warehouse which the Bank had taken over from DBS. This batch of tin dross was released for sale on 29 November 2007 and...

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