Grains and Industrial Products Trading Pte Ltd and another v State Bank of India and others

• Judge: Hoo Sheau Peng J
• Judgment Date: 30 December 2019
• Neutral Citation: [2019] SGHC 292
• Citation: [2019] SGHC 292
• Court: High Court (Singapore)
• Published date: 07 October 2020
• Docket Number: Suit No 438 of 2018 (Summons No 3235 of 2018) (Registrar’s Appeal No 227 of 2018)
• Plaintiff Counsel: Ang Hui Ming Vivian, Yap Yin Soon, Ho Pey Yann, Dorcas Seah Yi Hui and Douglas Lok Bao Guang (Allen & Gledhill LLP)
• Defendant Counsel: Gary Leonard Low, Vikram Ranjan Ramasamy, Priya d/o Gobal and Kellyn Lee Miao Qian (Drew & Napier LLC),Sarjit Singh Gill SC, Probin Stephan Dass, Jamal Siddique Peer and Leong Woon Ho (Shook Lin & Bok LLP)
• Subject Matter: Civil Procedure,Jurisdiction,Submission,Stay of proceedings,Conflict of Laws,Choice of jurisdiction,Exclusive,Non-exclusive,Arbitration,Agreement,Conflict of laws,Curial law
• Hearing Date: 10 July 2019,10 May 2019,12 November 2018,29 January 2019,28 January 2019,16 April 2019,28 June 2019,22 February 2019

Hoo Sheau Peng J: Introduction

Suit No 438 of 2018 (“Suit 438”) is the plaintiffs’ action against the defendants in connection with merchanting trade transactions for the sale and purchase of agricultural commodities. The defendants mounted various jurisdictional challenges in respect of the claims.

By Summons No 3235 of 2018 (“SUM 3235”), the second and third defendants sought to set aside the order for service out of jurisdiction of the writ on them. In the alternative, they sought a stay of the proceedings on grounds that Singapore is not the forum conveniens. The third defendant, Shrikant Bhasi (“Mr Bhasi”), also sought, in the alternative, a stay in favour of arbitration. On 16 April 2019, I granted SUM 3235 in part. To elaborate, I declined to set aside the order for service out of jurisdiction. Out of two claims against the second defendant, Advantage Overseas Private Limited (“AOPL”), I ordered that the claim for declaratory relief (ie, the “Negative Declaration Claim” described at [47] below) be stayed in favour of India, but not the claim for a sum of US$50m (ie, the “AOPL US$50m Claim” described at [45] below). As for the plaintiffs’ two claims against Mr Bhasi (ie, the “Agency Breach Claim” and the “Indemnity Claim” described at [55]–[57] and [59] below respectively), I ordered a stay in favour of arbitration. The parties have appealed against aspects of the decision unfavourable to them, with leave granted on 10 July 2019 to AOPL and Mr Bhasi to lodge their appeals.

By Summons No 2544 of 2018 (“SUM 2544”), the first defendant, State Bank of India (“SBI”), sought to have the proceedings brought against it stayed on grounds of forum non conveniens. SUM 2544 was dismissed by an assistant registrar, and Registrar’s Appeal No 227 of 2018 (“RA 227”) was SBI’s appeal against the decision. On 22 February 2019, I dismissed RA 227. Pursuant to leave granted on 10 July 2019, SBI has appealed against this outcome.

These are my full reasons in respect of SUM 3235 and RA 227.

Facts The parties

The first plaintiff, Grains and Industrial Products Trading Pte Ltd (“GRIPT”), and the second plaintiff, Bunge SA (“BSA”), are both part of the Bunge group of companies (“Bunge”). Bunge is a global agribusiness company dealing in various agricultural commodities.¹ GRIPT is a Singapore-incorporated company, and BSA is incorporated in Switzerland.² David Alan Rigby (“Mr Rigby”) was a senior director of the Trade and Structured Finance (“TSF”) division of Bunge’s Financial Services Group (“FSG”).³ Tan Jwee Peng Calvin (“Mr Tan”) was an employee of GRIPT, and his role in the Bunge group was that of a manager in the same TSF division of Bunge’s FSG.⁴

SBI is an Indian bank headquartered in Mumbai, India. SBI is licensed to operate in Singapore and has a Singapore branch (“SBI Singapore”).⁵ At the material time, Saurabh Srivastava (“Mr Srivastava”) was the branch manager of SBI’s Small and Medium Enterprises branch at Gwalior, Madhya Pradesh, India (“SBI Gwalior”).⁶

AOPL is a company registered in India, and was involved in the various Indian merchanting trade transactions which comprised the backdrop to Suit 438.⁷ Maneesh Kumar Singh (“Mr Singh”) was AOPL’s managing director.

Mr Bhasi is an Indian national, and was a former agent of the Bunge TSF division. Mr Bhasi’s role as agent included originating and facilitating Indian merchanting trade transactions, dealings and relationships with various counterparties in India, including AOPL.⁸

Bunge’s TSF division operated as a global business on a “hub and spoke” model. The “hubs” were the key centres where the majority of TSF division’s employees were located and from which commercial decisions were made. The “spokes” were where smaller numbers of TSF division staff were based to perform support functions. The “hubs” relevant to the transactions in question were located in Singapore and Geneva, and the former was where Mr Tan was based. The relevant “spoke” was located in India – the staff located there would report to Mr Tan. Mr Bhasi was also located in India at the material time.⁹

Background to the dispute Indian merchanting trade transactions

The plaintiffs’ claims against the various defendants arose in connection with various Indian merchanting trade transactions involving Bunge and AOPL. I briefly set out, in general terms, merchanting trade (as explained by the parties), before describing the specific arrangement between Bunge and AOPL.

Merchanting trade involves the sale and purchase of cargo by an Indian entity (ie, the merchanting trader). The Indian merchanting trader would purchase cargo from an offshore seller, before on-selling that same cargo to an offshore buyer.¹⁰ While such trades involve physical cargo (the Bunge merchanting trades utilised cargo in transit between the load port and discharge port), the cargo does not physically enter India. Instead, transfer of ownership is effected by exchanging photocopies of the bills of lading pertaining to the cargo. In this way, the Indian merchanting trader (ie, the intermediary) takes ownership of the cargo on paper, but never actually takes delivery of the physical cargo before it is on-sold to the offshore buyer.¹¹

This flow of goods comes accompanied by a flow of funds (the consideration for the cargo) in the opposite direction from the offshore buyer to the offshore seller, also routed through India. In the interim, the funds routed to India could be placed in interest-bearing Indian bank accounts. According to AOPL and Mr Bhasi, the true purpose of the Bunge-AOPL merchanting trade transactions was “interest arbitrage”. At the time, Indian banks were offering some of the highest interest rates. In other words, the putative trade flows were being used as a cover for routing and parking funds in Indian banks.¹² On their part, the plaintiffs accepted that these arrangements meant that interest could be earned, but denied that the merchanting trades were entered into for purposes of interest arbitrage.¹³

The Bunge-AOPL merchanting trade structure

Figure 1: Flow of goods and funds in the Bunge-AOPL merchanting trade structure

The merchanting trade between Bunge and AOPL involved flows of goods and funds between four entities. As was previously mentioned, GRIPT and BSA were both Bunge entities, and were the offshore seller and offshore buyer respectively. AOPL was the Indian merchanting trader and either Arabian Commodities FZE (“ACF”) or Tracon General Trading LLC (“Tracon”) would act as the offshore intermediary. ACF and Tracon were companies registered in the United Arab Emirates (“UAE”).

Under this merchanting trade structure (henceforth referred to as the “Bunge-AOPL merchanting trade structure”), the four entities would enter into a series of contracts¹⁴ with each other for the sale and purchase of cargo. These contracts would be: (a) between GRIPT and AOPL; (b) between AOPL and ACF; and (c) between ACF and BSA.¹⁵

As was mentioned, the flow of goods was effected by exchanging photocopies of the relevant bills of lading. Title to the cargo therefore passed from GRIPT to AOPL, then to ACF, and finally to BSA.¹⁶

As for the flow of funds, this was set in motion by BSA. BSA would make an advance payment against the cargo it was to receive from ACF. In practice, BSA would advance the funds directly to AOPL, instead of paying ACF.¹⁷

As between AOPL and GRIPT, payment was made by letters of credit, with maturity of six months, issued by AOPL’s bank for the benefit of GRIPT.¹⁸ The aforementioned advance paid into AOPL’s bank account by BSA provided the margin for the issuance of the letter of credit in GRIPT’s favour.¹⁹ Upon issuance of the letter of credit, GRIPT could negotiate the letter of credit with a negotiating bank and thereby receive the funds immediately. However, AOPL’s bank would not have to make payment to the negotiating bank until the maturity of the letter of credit some six months after its issuance. In the meantime, the funds remained in AOPL’s account, and interest could be earned on this deposit.²⁰

According to AOPL, these funds were placed in one-year fixed deposits. Sometime after late 2014, the funds were placed in two-year fixed deposits instead, so as to secure higher interest rates.²¹ However, this arrangement came with a particular risk. As mentioned, the letters of credit matured at the six-month mark, after which the funds would have to be paid out to the negotiating bank, potentially breaking the fixed deposit. Should the fixed deposit be broken, AOPL would not only lose the benefit of the interest that would otherwise have been earned on the deposit, but would also be liable to penalties for early termination of the deposit.²² Importantly, the maturity date of the letter of credit could not simply be extended as Indian regulations required that each merchanting trade take no longer than nine months to complete and therefore did not permit a letter of credit to remain open longer than that period.²³ Therefore, in order that the fixed deposit would not be broken, AOPL had to ensure that sufficient funds stood in its account to maintain the deposit.

In practice, AOPL was able to maintain sufficient funds by engaging in multiple trades at a time. In essence, so long as BSA advanced fresh funds (pursuant to a second or subsequent trade) to AOPL before the maturity of the first letter of credit, AOPL would be able to maintain its fixed deposit. AOPL refers to these subsequent trades as “roll-over trades”. Since the letters of credit issued by AOPL were kept open for six months, three roll-over trades would be engaged in in the course of maintaining a two-year fixed deposit.²⁴

Besides the use of letters of credit, another key feature of the payment arrangements between AOPL and GRIPT was the use of irrevocable payment undertakings (“IPU”). Pursuant to each AOPL-GRIPT contract, AOPL was obliged to procure...