Raiffeisen Zentralbank Osterreich AG v Archer Daniels Midland Co and Others

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 01 November 2006
• Neutral Citation: [2006] SGHC 182
• Docket Number: Suit No 592 of 2005
• Date: 01 November 2006
• Published date: 24 November 2006
• Year: 2006
• Plaintiff Counsel: Sarjit Singh Gill SC, Suhaimi Lazim and Rohan Harith (Shook Lin & Bok)
• Citation: [2006] SGHC 182
• Defendant Counsel: Ajaib Haridass and Srivathsan Rajagopal (Haridass Ho & Partners),Davinder Singh SC, Jaikanth Shankar and Cheryl Tan (Drew & Napier LLC)
• Court: High Court (Singapore)
• Subject Matter: Conspiracy by unlawful means,Whether plaintiff suffering loss because of misrepresentation,Conspiracy,Whether elements made out,Fraud and deceit,Whether plaintiff induced to enter transactions by alleged representations,Whether proof of false representation alone sufficient to found action for deceit based on fraudulent misrepresentation,Tort,Misrepresentation

1 November 2006 Judgment reserved.

Andrew Ang J:

1 This is an action in deceit by the plaintiff bank against the defendants in respect of alleged fraudulent misrepresentations made by one or more of the defendants which the plaintiff claims it relied upon to its detriment. The plaintiff also alleges that the defendants and other persons unknown (or any two or more of them) conspired by unlawful means (ie, the fraudulent misrepresentations) to defraud the plaintiff. The plaintiff is a bank organised and existing under the laws of Austria and operates as a branch in Singapore. The first defendant, Archer Daniels Midland Company (“ADM”), is a company incorporated in the United States. It is one of the largest agribusiness companies in the world and is principally involved in the production and trading of agricultural and related products. The second, third, fourth and fifth defendants are all related to ADM. The second defendant, ADM-ACTI Trade Resources, Inc (“ADM-ACTI”), is a company incorporated in the United States which is 100% owned by ADM. The third defendant, Toepfer International-Asia Pte Ltd (“Toepfer”), is a company incorporated in Singapore and is wholly owned by Alfred C Toepfer International Netherlands BV, which is a subsidiary of ADM. The fourth defendant, Trade Resources LLC, is a company incorporated in the United States and is jointly owned by ADM and a firm known as Global Trade Resources. The fifth defendant, Rush River Trading Cayman Ltd (“RRT”), is a company incorporated in the Cayman Islands and is a subsidiary of ADM.

2 In September 2001, one Mak Wai Cheng (“Katherine Mak”), Structured Trade Finance Asia Manager, Archer Daniels Midland Singapore Pte Ltd (“ADM Singapore”), approached Catherine Low (“Low”) and Sharon Tan Su Lin (“Tan”) who were the managing director and associate director of commodity finance at the Singapore branch of the plaintiff respectively and proposed the said transactions. Besides corresponding over the phone, Katherine Mak also made a presentation in relation to the proposed structured trade finance transactions to Low and Tan on 17 September 2001 at the plaintiff’s office. The plaintiff thereafter entered into four structured trade finance transactions with Agrograin SA (“Agrograin”), one of the first defendant’s affiliated companies, the first defendant and the third defendant between September 2001 and May 2003. The purpose of these structured trade finance transactions was to use ADM’s trade flows to raise cheaper working capital financing for the Brazilian subsidiary of Parmalat SpA (“Parmalat”). This method of raising finance meant that the Brazilian subsidiary avoided paying the high interest rates which would otherwise have been payable had the Brazilian subsidiary obtained loans from local banks and the high withholding taxes which would otherwise have been payable had it obtained loans from offshore banks.

3 In ADM’s usual trade flow, goods would be purchased from ADM in the United States or its Brazilian subsidiary by one of ADM’s affiliated companies such as Agrograin, a wholly-owned subsidiary of ADM based in the Cayman Islands which is used as a re-invoicing unit for booking tax-free profits of the ADM group. The goods would then be further sold by Agrograin to another ADM subsidiary in Cairo or the Netherlands before being sold to the end buyer.

4 Under the four structured trade finance transactions in question, Wishaw Trading SA (“Wishaw”), an Uruguayan company that is 50% owned by Parmalat and 50% owned by Parmalat’s Brazilian subsidiary, would be provided with working capital financing by “borrowing” ADM’s usual trade flows. Save for some minor variations, the transactions were structured in the following manner: Wishaw would purchase goods from ADM and/or its affiliate on a deferred 360-day payment term by issuing a promissory note in favour of ADM and/or its affiliate, payment of which would be guaranteed by Parmalat. Wishaw would then sell the goods on sight payment terms to RRT thereby obtaining cash. RRT would sell the goods to an end buyer through another ADM affiliate. In respect of these four transactions, the plaintiff agreed with ADM and/or its affiliates to discount, on a without recourse basis, five promissory notes, guaranteed by Parmalat, that had been issued by Wishaw.

5 Three promissory notes were issued in the first and second transactions in favour of Agrograin and/or ADM pursuant to a contract of sale and purchase of specific commodities between Agrograin/ADM as seller and Wishaw as buyer. These promissory notes were redeemed in full upon maturity. One promissory note was issued in each of the third and fourth transactions in favour of Toepfer, pursuant to a contract of sale and purchase of specified commodities between Toepfer as seller and Wishaw as buyer. However, Wishaw and Parmalat defaulted in payment in respect of the third and fourth transactions on account of Parmalat’s bankruptcy sometime in December 2003.

6 As earlier stated, the plaintiff has two main claims against the defendants in respect of the third and fourth transactions – one for damages for fraudulent misrepresentation and the other a claim in respect of a conspiracy by unlawful means.

7 As regards the claim in respect of fraudulent misrepresentation, the following issues arise:

(a) What were the representations made by the defendants in respect of the third and fourth transactions and were they false.

(b) If the representations were false, were they made fraudulently.

(c) Whether there was inducement, ie:

(i) whether the representations were made with the intention that they should be acted or relied upon by the plaintiff; and

(ii) whether the plaintiff did so act or rely upon the false representations.

(d) Whether the plaintiff suffered loss as a consequence of the misrepresentations.

I shall deal with each of these in turn.

What representations were made and were they false

8 The alleged representations as to the structure of the transactions are pleaded at paras 12 and 21 of the amended statement of claim. The plaintiff says, in respect of the third transaction, that:

12. During the period from December 2002 until January 2003, it was represented by the said Katherine Mak on behalf of the Defendants to Sharon Tan, an employee of the Plaintiff, that the structure of the transaction would be as follows:

(a) The 1st Defendant would contract to sell the goods (wheat) to the 3^rd Defendant.

(b) The 3^rd Defendant would then contract to sell the same goods on deferred payment sums to Wishaw in exchange for a 360-day promissory note in the sum of US$2,999,240.76 from Wishaw in favour of the 3^rd Defendant.

(c) The said promissory note would be guaranteed by Parmalat.

(d) The 3^rd Defendant would sell the promissory note to the Plaintiff at a discount, and the Plaintiff would look to Wishaw and/or Parmalat for payment of the full amount upon the maturity date as stated in the promissory note.

(e) Wishaw would contract to sell the same goods on sight payment terms to the 5^th Defendant.

(f) The 5^th Defendant would contract to sell the goods to an end buyer in the Philippines, namely, Pilmico Foods Corporation (“Pilmico”), on sight payment terms.

(g) The 1^st Defendant would ship the goods directly to the end buyer in the Philippines on behalf of the 5^th Defendant.

(h) Wishaw and/or Parmalat was to pay the Plaintiff the full value of the promissory note at maturity.

9 The alleged representations in respect of the fourth transaction are similarly pleaded in para 21 of the amended statement of claim apart from non-material differences relating to the nature of the goods, the face value of the note and the identity of the end buyer.

10 It is noted that, as pleaded, the alleged representations refer to contracts to sell which the defendants argue is to be contrasted with actual sales. The particulars of the alleged falsity of the alleged representations are set out in paras 14 and 23 of the amended statement of claim. According to para 14 of the amended statement of claim, the plaintiff’s pleaded case is that:

(a) At the time the representations were made (ie, from December 2002 until January 2003) and when the written confirmations of the transactions were sent to the plaintiff (ie, 27 December 2002 and 3 January 2003), the defendants knew that the representations made in respect of the trade transactions were false and that the underlying transaction for which the note would be issued was fictitious.

(b) When the offer was made to the plaintiff to enter into the trade finance transaction (ie, 27 December 2002 and 3 January 2003) and when the plaintiff agreed to discount the promissory note, there were in fact no goods to be sold to and by Wishaw as represented, because the goods had already been sold by the third defendant to the end buyer directly.

11 Counsel for the first, second, fourth and fifth defendants, Mr Davinder Singh, therefore contends that the plaintiff’s pleaded charge of fraud is based, not on the contention (pursued during cross-examination) that title did not actually pass from the third defendant to Wishaw, but, on the allegation as set forth at sub-para 14(a) under “Particulars”, that “the 3^rd Defendant had already sold the goods directly to Pilmico through contracts which had been entered into in or about September and November 2002”.

12 Mr Singh contends that the core of the plaintiff’s pleaded case is premised on the erroneous assumptions that:

(a) If more than one contract was entered into in respect of the same goods, then the contracts subsequent to the first in time must be fictitious.

(b) A contract of sale or invoice is fraudulent, “purported” or “fictitious” by virtue of the fact that there is a pre-existing contract under which the same goods have been sold (regardless of when title actually passed).

He contrasts the pleaded case to the one run by the plaintiff at trial and asserts that the pleadings are at odds...