Winson Oil Trading Pte Ltd v Oversea-Chinese Banking Corp Ltd and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 21 August 2024
• Neutral Citation: [2024] SGCA 31
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 40 of 2023 and Civil Appeal No 41 of 2023
• Hearing Date: 28 June 2024
• Citation: [2024] SGCA 31
• Year: 2024
• Plaintiff Counsel: Kenneth Tan SC (Kenneth Tan Partnership) (instructed), Bazul Ashhab bin Abdul Kader, Lua Jing Ing Priscilla, Prakaash s/o Paniar Silvam, Caleb Tan Jia Chween, Levin Lin Yok Yan and Kirsten Siow (Oon & Bazul LLP),Kenneth Tan SC (Kenneth Tan Partnership) (instructed), Oommen Mathew and See Wern Hao (Omni Law LLC)
• Defendant Counsel: Tan Chee Meng SC, Manoj Pillay Sandrasegara, Tan Kai Yun, Felicia Soong Wanyi, Hudson Wong and Soon Wen Qi Andrea (WongPartnership LLP),Sarjit Singh Gill SC, Daryl Cheng On Lun and Suresh Viswanath (Shook Lin & Bok LLP)
• Published date: 21 August 2024

Steven Chong JCA (delivering the judgment of the court):Introduction

It has been said that letters of credit are the lifeblood of commerce. For this reason, the law developed the autonomy principle to insulate the strict payment obligation under letters of credit transactions from disputes which may arise from the underlying sale contracts. The only exception to this principle is fraud because the underlying rationale is that fraud unravels all.

The principal legal question in these two appeals is whether the Fraud Exception for letters of credit transactions should bear a higher threshold beyond the standard applicable for other financial instruments such as performance bonds and on-demand guarantees.

While the appellant accepts that the Fraud Exception is not limited to actual knowledge of fraud and can also apply to situations where there is an absence of belief in its truth, it seeks to persuade this court that it should not be extended to situations where the false representation was made “recklessly, careless whether it be true or false” within the meaning of the test in Derry v Peek(1889) 14 App Cas 337 (“Derry v Peek”) at 374.

Thus, the key question posed in these two appeals is whether there is any compelling reason to justify the different treatments of fraud to different types of financial instruments. As we will expound below, there is neither any legal basis nor legitimate rationale to warrant a different treatment. In our view, the law should “call a fraud a fraud” and the courts should apply a consistent approach in examining this issue.

Facts

The appellant in both appeals, Winson Oil Trading Pte Ltd (“Winson”) is a Singapore company operating as an energy trading company involved in the business of oil trading, bunkering, and supply chain services. The respondent in CA/CA 40/2024, Oversea-Chinese Banking Corporation Limited (“OCBC”) is a multinational banking and financial services corporation headquartered in Singapore. The respondent in CA/CA 41/2024, Standard Chartered Bank (Singapore) Limited (“SCB”), is a Singapore-incorporated indirect subsidiary of Standard Chartered Bank.

The disputes surround the last leg of a circular trade that took place on the afternoon of 27 March 2020. At 2.54pm, Hin Leong Trading (Pte) Ltd (“Hin Leong”) sold to Trafigura Pte Ltd (“Trafigura”) two shipments of 780,000 barrels of gasoil at a price of Mean of Platts Singapore (“MOPS”) for gasoil 10ppm, plus a premium of US$2.30 per barrel (the “Hin Leong – Trafigura sale”). At 3.19pm, Trafigura sold to Winson the same quantity of gasoil at MOPS plus US$2.35 per barrel (the “Trafigura – Winson sale”). At 5.10pm, Winson sold to Hin Leong the same quantity of gasoil at MOPS plus US$2.35 per barrel (the “Winson – Hin Leong sale”) (collectively, the “Subject Transactions”).

SCB issued to Winson a letter of credit on the application of Hin Leong in favour of Winson on 2 April 2020, while OCBC issued to Winson a letter of credit on the application of Hin Leong in favour of Winson on 6 April 2020. Each letter of credit was to finance Hin Leong’s purchase of each of the two shipments of gasoil from Winson under the contract for the Winson – Hin Leong sale.

Winson made its first presentation to OCBC under a Letter of Indemnity (“LOI”) for the Ocean Voyager on 7 April 2020, and its first presentation to SCB under an LOI for the Ocean Taipan on 9 April 2020. On 15 April 2020, OCBC rejected Winson’s first presentation on the basis that there was no physical cargo that was shipped on the Ocean Voyager. The next day, Winson made its second presentation to OCBC for the Ocean Taipan instead. On 21 April 2020, Winson emailed OCBC to explain that the second presentation for a different vessel was because of an internal mix-up. Thereafter, revisions were made to rectify the alleged mix-up. On that same day, Winson made its second presentation to SCB, this time for the Ocean Voyager.

Both SCB and OCBC refused to pay under the letters of credit, contending that no cargo of gasoil pursuant to the LOIs were shipped for the Winson – Hin Leong sale, which was financed by the letters of credit, and that the copy non-negotiable Bills of Lading (“BLs”) which purportedly evidenced such shipments were forgeries. These copy BLs were relied upon in preparing the LOIs which were presented to the banks for payments under the letters of credit.

Winson then brought two suits against OCBC and SCB in HC/S 463/2020 (“Suit 463”) and HC/S 474/2020 (“Suit 474”) respectively for payment of the sums under the letters of credit.

Decision below

In Winson Oil Trading Pte Ltd v Oversea-Chinese Banking Corp Ltd and another suit [2023] SGHC 220 (the “Judgment”), the High Court judge (“the Judge”) dismissed Winson’s claim against OCBC and SCB on the basis that the Fraud Exception had been made out.

The Fraud Exception involves the beneficiary of a letter of credit fraudulently making false statements to the bank. The parties in Suit 463 and Suit 474 accepted that a beneficiary is also fraudulent if he makes a false representation “without belief in its truth”. However, the parties disagreed on whether a beneficiary is fraudulent if he made a false representation recklessly without caring whether it is true or false (ie, the third category of fraud identified in Derry v Peek). The Judge noted that the Singapore International Commercial Court (“SICC”) in Credit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Co Ltd and another suit[2022] 4 SLR 1 (“CACIB v PPT”), held that the beneficiary would not have acted fraudulently if he made a false representation recklessly without caring it to be true or false. However, the Judge declined to follow CACIB v PPT and found that the Fraud Exception would be made out if the beneficiary made a false representation recklessly without caring whether it is true or false.

On the facts, the Judge found that false representations were made by Winson. The representations in Winson’s LOIs were that there was cargo shipped, pursuant to valid BLs, onboard the Ocean Voyager and Ocean Taipan (as described in the LOIs) for the Winson – Hin Leong sale, Winson had good title to that cargo, and Winson had passed good title to that cargo to Hin Leong. Assuming that the Winson – Hin Leong sale was not a sham, the Judge found that, first, the BLs were not valid BLs and were instead forgeries by a staff of Hin Leong, and second, there was no cargo shipped on the Ocean Taipan and Ocean Voyager as described in the Winson’s LOIs (being cargo that Winson had purportedly good title to, and which Winson purportedly passed Hin Leong good title to).

The Judge also found that Winson had acted fraudulently because it did not have belief in the truth of its representations by the time of the second presentations, or at the very least, was indifferent as to whether its representations were true. First, Winson’s LOIs were based on copy non-negotiable BLs (front page only) that it had received. Winson never received the original BLs nor copies of the reverse side of the BLs showing any endorsements. Winson also did not receive any loading documents such as an independent inspector’s report, certificates of quality and quantity (or equivalent documents), and it was not told that an independent inspector was appointed, or that any inspections had taken place. Second, the Subject Transactions were pre-structured. Third, the Ocean Taipan’s quantity figures on the copy BL were changed after the vessel had sailed. Fourth, in the discussions between OCBC and Winson about the purchase of the Ocean Voyager cargo, Winson was unwilling to repurchase the cargo, although one might expect a trader who had sold a cargo to be open to repurchasing it if the price was right. Additionally, Winson emphasised the need to check if the title to the cargo was clean, showing that Winson had doubts about the existence of the cargo when OCBC rejected its first presentation. Fifth, OCBC rejected Winson’s first presentation for the Ocean Voyager by conveying it through a SWIFT message on 15 April 2020. An honest trader would have sought to understand why OCBC was claiming that for one of the two shipments “no physical cargo…was shipped”, but Winson did not engage with OCBC to understand the basis of OCBC’s rejection. It did not conduct checks thereafter and lied to OCBC about the reason for its second presentation to OCBC. Sixth, Winson claims to have done several checks after OCBC rejected its first presentation for the Ocean Voyager. However, these checks were either not conducted or did not assist Winson’s claim.

The events after the second presentations supported the conclusion that Winson acted fraudulently. Winson in its communications with Trafigura, Natixis, Singapore Branch and Mashreqbank PSC (the last two are the banks that countersigned Trafigura’s LOI in the Trafigura – Winson sale) described itself as a middleman and did not reference any checks it made with Trafigura about the goods. Their email correspondence also showed that Winson believed Trafigura had made false representations in its LOIs.

The Judge also considered the other grounds raised by OCBC and SCB. First, on the Nullity Exception, it was unnecessary to make any finding on whether OCBC and SCB could rely on it. Second, it was unnecessary to make a finding on whether unconscionability should be recognised as a ground for resisting payment under a letter of credit. Third, SCB could not rely on any alleged non-compliance of the presentation to resist payment because SCB’s letter of credit was subject to the Uniform Customs and Practice for Documentary Credits (“UCP”) 600, and SCB did not issue a rejection notice in accordance with the UCP 600. Fourth, it was not open to SCB to argue that Winson could not make a claim because it suffered no loss by entering into a deed of assignment with Winson Oil Bunkering Pte Ltd and...