Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Company Ltd

• Jurisdiction: Singapore
• Judge: Jeremy Lionel Cooke IJ
• Judgment Date: 13 January 2022
• Court: High Court (Singapore)
• Docket Number: Suits Nos 1 and 2 of 2021

Crédit Agricole Corporate & Investment Bank, Singapore Branch

and

PPT Energy Trading Co Ltd and another suit

[2022] SGHC(I) 1

Jeremy Lionel Cooke IJ

Suits Nos 1 and 2 of 2021

Singapore International Commercial Court

Bills of Exchange and Other Negotiable Instruments — Letter of credit transaction — Fraud — Applicant applying for letter of credit from issuing bank to finance purchase of cargo to be on-sold to third party — Beneficiary of letter of credit was seller of cargo to applicant — Applicant orchestrating series of transactions for round-tripping of cargo — Beneficiary of letter of credit having been invited to participate in round-tripping transactions — Issuing bank being unaware that applicant was engaging in round-tripping of cargo — Applicant perpetrating fraud on issuing bank in obtaining letter of credit by providing issuing bank with fabricated sales contract reflecting higher sale price than actual sale price of cargo — Beneficiary presenting compliant commercial invoice and letter of indemnity for payment under letter of credit — Issuing bank failing to provide notice of non-compliant documents within five banking day period from date of presentation of documents — Issuing bank refusing to make payment after being informed that sale contract provided by applicant had been fabricated and underlying receivable had been double-assigned — Issuing bank obtaining interim injunction to prevent payment under letter of credit — Interim injunction eventually discharged and issuing bank making payment under letter of credit against bank guarantee provided by beneficiary pursuant to negotiations between parties — Whether beneficiary's demand to be paid under letter of credit had been fraudulent — Whether beneficiary knew that transactions of which its sale contract had been part were for round-tripping of cargo — Whether beneficiary knew purpose of round-tripping transactions — Whether beneficiary was privy to fraud perpetrated by applicant on issuing bank — Whether beneficiary had been reckless in presenting documents for payment under letter of credit — Whether beneficiary's recklessness in presentation of documents was capable of vitiating demand for payment under letter of credit — Whether round-tripping transactions were sham — Whether beneficiary could transfer title to cargo to applicant under its sale contract — Whether documents presented for payment under letter of credit contained any express or implied representation as to title or passing of title — Whether beneficiary made fraudulent misrepresentation about it having marketable title to cargo in presentation of documents under letter of credit — Whether issuing bank bound to honour letter of credit — Whether beneficiary entitled to declaration that issuing bank was liable to make payment under letter of credit

Credit and Security — Guarantees and indemnities — Contracts of indemnity — Letter of indemnity presented by beneficiary for payment under letter of credit — Letter of indemnity governed by English law — Beneficiary warranting under letter of indemnity that it had “marketable title” to cargo that was “free and clear of any lien or encumbrance” — Beneficiary warranting under letter of indemnity that it had “full right and authority to transfer such title” to issuing bank — Beneficiary warranting under letter of indemnity that it was “entitled to receive” documents relating to cargo from its supplier and transfer them to issuing bank — Beneficiary agreeing to indemnify issuing bank against “any and all damages, costs and expenses” which issuing bank might suffer if there was breach of warranties or by reason of original bills of lading and other documents remaining outstanding — Whether warranties in letter of indemnity were given by beneficiary to issuing bank when issuing bank had failed to make payment under letter of credit by due date for payment — Whether warranties were broken — Whether issuing bank had independent basis to claim for indemnity irrespective of whether there had been breach of warranties

Held, granting PPT's claim for a declaration that it was entitled to payment under the Letter of Credit, dismissing CACIB's alternative claim against PPT for breach of the Warranties in the LOI and reserving decision on any other relief to which PPT was entitled:

(1) Letters of credit were the lifeblood of international commerce and autonomous independent contracts between the issuing bank and the beneficiary and were therefore unaffected by any irregularities in the underlying commercial contract of sale. Absent fraud, letters of credit had to be honoured by the issuing bank if the terms of the letter of credit were satisfied. The UCP 600 required the issuing bank to determine compliance on the basis of the documents presented, without regard to anything else. The fraud in question had to relate to the documents presented under the letter of credit rather than the underlying sale contract: at [17] and [18].

Whether recklessness in the presentation of documents was capable of vitiating a demand for payment under a letter of credit

(2) Any fraud capable of vitiating a demand for payment under a letter of credit had to be in the presentation of documents itself. Such fraud could only, by definition, encompass a beneficiary who acted dishonestly, in presenting otherwise facially compliant documents either with the knowledge that what was contained therein was false, or without belief that what was contained therein was true: at [20] and [139].

(3) Dishonesty was the key to the fraud exception to pay under letters of credit. A presentation of documents, said to be recklessly made without investigation by the beneficiary of the circumstances underlying the representation, or of the circumstances of the underlying transaction, could not vitiate the presentation. Since a beneficiary owed no duty of care to an issuing bank in the presentation of documents under a letter of credit, a failure, even a reckless failure to ascertain the truth of representations, which had been made in the honest belief that they were true, would not amount to fraud for the purposes of non-payment under a letter of credit: at [21].

Whether PPT's demand to be paid under the Letter of Credit had been fraudulent

(4) If PPT could be shown to be party to a scheme to defraud CACIB by presenting facially-compliant documents, CACIB could have a defence to the claim on the Letter of Credit. To do so, CACIB would have to show dishonesty on the part of PPT and an intent to participate in the fraud which Zenrock perpetrated on CACIB. It would not be enough to show that PPT was reckless in not enquiring into the purpose of the round-tripping transactions, without showing that PPT knew that the purpose of these transactions had been to effect a fraud on CACIB: at [22].

(5) There was nothing in the application for the Letter of Credit or in the information supplied to CACIB which would or should have alerted CACIB to any problem in the transaction as it was presented to it or put it on notice that there had been either any round-tripping or any possibility of duplicate notices of assignment. The suggestion that the prices of the PPT-Zenrock Sale Contract and the Fabricated Zenrock-TOTSA Sale Contract should have alerted CACIB to any potential problem with the transaction was rejected. CACIB did not have access to the prices of Djeno crude oil and on the material available to it, it had no reason to doubt the authenticity of the sale contracts as furnished by Zenrock. Further, the circumstances in which the transaction had been concluded, coupled with the fact that the market was volatile and unpredictable in March/April 2020 due to COVID-19 and Zenrock being an existing customer, meant that CACIB had no cause for concern at the material time. CACIB's witnesses were honest witnesses, whose suspicions that PPT was involved in the fraudulent scheme led to a genuine belief that this was the case: at [31] to [33].

(6) Ms Yano and Mr Uehera had to have appreciated, from the documents which showed Zenrock appearing in the transaction as buyers/sellers higher up the chain and as buyers below PPT, that Zenrock had been involved in a round-tripping set of transactions. Mr Shimazaki had to have understood the position in the same way, given the interactions between the members of PPT's trading and marketing departments. The effect of all the evidence, including, in particular, the virtually instantaneous change in Zenrock's position from being a proposed seller to PPT to a buyer from PPT on 2 April 2020, made it impossible to believe the evidence of PPT's witnesses that they had not been aware that Zenrock was involved in round-tripping of the Cargo: at [50], [62], [68], [73] and [113].

(7) However, PPT's personnel did not know the reason for the round-tripping transactions. They did not trouble to find out because they never asked such questions whenever PPT had been asked to act as a “go-between” to be interposed in a back-to-back transaction which was pre-structured by one of the parties to the arrangement, like in this case. Their interest was confined to the profit that they would make and ensuring that they were secured for their sale price under a letter of credit. In these circumstances, although PPT was hardly an “innocent bystander”, it could not properly be said that PPT had actual knowledge of, or was wilfully blind to, the fact that the PPT-Zenrock Sale Contract was part of a fraudulent scheme. In this case, PPT had been offered a pre-structured deal similar to those which it had taken part in the past, all of which had gone through successfully without any suggestion of fraud. PPT's witnesses also did not know that the prices in the round-tripping transactions in which they participated were well above market prices, which was one of the other essential pieces of knowledge that had to be attributed to PPT if it was to be said that PPT had participated...