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BlackStone & Gold: Transferring marketable title under LOIs used for LC payments

Law firm focuses on a recent judgement which is significant for clarifying scope of fraud exception to payments under LCs and the construction of payment LOIs frequently used in oil trading.

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BlackStone & Gold lawyers recently provided Singapore-based bunkering publication Manifold Times comments on the recent Crédit Agricole v PPT Trading judgment from the Singapore Court of Appeal, which clarified the scope of the fraud exception to payments under LCs and the construction of payment LOIs frequently used in oil trading:

By Baldev Bhinder, Managing Director, and Ramandeep Kaur, Associate Director of BlackStone & Gold 

Crédit Agricole v PPT Energy (Appeal)

The aftermath of trade fraud scandals has resulted in a number of significant cases concerning letter of credit (“LC”) payments being heard before the Singapore courts recently, with banks trying to avoid liability to pay for trades which did not occur. Another judgment on this theme from the Singapore Court of Appeal came out last week. In Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Trading Energy Co. Ltd [2023] SGCA(I) 7, the Court of Appeal reversed the first instance decision, and found that Crédit Agricole Corporate & Investment Bank, Singapore Branch (“CACIB”) was entitled to recovery of losses from having paid its beneficiary, PPT Trading Energy Co. Ltd (“PPT”). PPT was found to have breached its warranty as to “marketable title” in the payment letter of indemnity (“LOI”) that it presented to receive payment under the LC. The decision is significant for clarifying the scope of the fraud exception to payments under LCs and the construction of payment LOIs frequently used in oil trading.  

Facts

The facts and the first instance decision are covered in our earlier update (here). Briefly, Zenrock had created a fictitious trade to raise financing. The trade involved a string of FOB contracts from Totsa to Socar to Zenrock and back to Totsa. Zenrock was financed by ING in this chain. Zenrock created a circular trade within this string and another (fabricated) sale contract purporting to sell the same cargo again to Totsa. The circle involved Zenrock selling the cargo it got from Socar to Shangdong, who would sell it to PPT, before the cargo came back to Zenrock. Zenrock then purported to sell this cargo to Totsa a second time over under the fabricated contract at an inflated price of Platts plus 3.60 (while the actual sale contract to Totsa priced the cargo at Platts minus 3.60). CACIB financed Zenrock’s purchase from PPT. As is common practice in oil trading, PPT presented its invoice and a payment LOI (in lieu of original bills of lading) for payment. CACIB did not reject this presentation. Before the due date for the LC payment however, CACIB suspected double financing, having received Totsa’s confirmation that Zenrock had assigned the receivables from the Zenrock-Totsa contract twice. At first instance, the SICC found CACIB liable to pay PPT, as it was not satisfied that PPT’s presentation of documents under the LC was fraudulent. The SICC also found that CACIB could not invoke a breach of warranties in PPT’s LOI, as the warranties were only triggered in consideration of payment by CACIB “at due date”, which CACIB failed to make. In any event, the court found no breach of warranties. 

Finding on appeal

The appeal raised two main issues. First, whether CACIB could rely on Zenrock’s undoubted fraud to set aside and avoid liability to pay under the LC issued in favour of PPT. The Court of Appeal found that it could not, explaining that an LC creates a contract between the bank and the beneficiary that is separate and autonomous from the underlying sale contract. The established common law exception for avoiding an LC payment requires the beneficiary to be a party to the fraud. CACIB’s arguments to the contrary were found to be unsupported by authority, and liable to undermine the “whole system of documentary credits”. Allowing a bank to decline payment on the basis of a fraud committed by an LC applicant would in the court’s view have the effect that no beneficiary could be assured of payment without investigating the integrity of the issuing bank’s customer in its relationship with the issuing bank, which is a practical impossibility. 

The second issue before the Court was whether CACIB could decline payment on the basis of PPT’s breach of warranties in its LOI. PPT’s LOI mirrored LOIs typically used in oil trade, containing reference to a shipment of the relevant cargo; the fact that PPT was unable to provide the full set of original BLs; and PPT’s warranties “in consideration of [CACIB] making payment” for the shipment “at the due date for payment [under the PPT/Zenrock sale contract]”. Among other things, by way of its LOI, PPT warranted that “at the time property passed under the contract, [PPT] had marketable title to such shipment, free and clear of any lien or encumbrance”, and it agreed to indemnify CACIB from any losses arising from a breach of its warranties. 

At first instance, the SICC was of the view that PPT’s LOI never came into effect since CACIB had not made payment “at the due date” under the PPT/Zenrock sale contract. The Court of Appeal disagreed, and found that the LOI was effective from the moment of its issue. Examining the underlying arrangements, the Court noted that in the absence of original BLs, PPT had no choice but to provide an LOI and CACIB could not decline payment if an LOI had been presented. Further, PPT could not withdraw the LOI once it had been presented or once CACIB had indicated that it was accepting it. The Court considered that CACIB making payment “at the due date” of the underlying sale contract was not a condition precedent to the effectiveness of the LOI, as the obligation of timely payment is not a condition that makes time of the essence. If CACIB’s obligation to pay by the due date was not a condition under the LC, it would be “strange”, the Court concluded, to construe the equivalent obligation under the LOI as a condition. 

Having found that the LOI was effective from the date of its issue, the Court proceeded to consider whether PPT had breached its warranty of marketable title. The Court clarified that the words “marketable title” had to be given their own effect, instead of being equated to “free and clear of any lien or encumbrance”. In this regard, the Court clarified that marketable title is a title that may at all times and under all circumstances be forced on an unwilling buyer, as opposed to a title which will expose the buyer to litigation of hazard. On the facts, PPT’s title was not found to be free from litigation or hazard. The title that Shandong obtained from Zenrock and PPT from Shandong was of uncertain value in circumstances where Zenrock had granted inconsistent floating charges to CACIB and ING over the same goods, floating charges had crystallised by reason of Zenrock’s fraud, Zenrock was not a seller acting in the ordinary course of business in its fraudulent endevaours, and PPT was not a bona fide purchaser for value. The Court of Appeal considered that “PPT was hardly a bona fide purchaser” in light of factual findings made below, in particular, the finding that PPT was aware of the round-tripping and Zenrock’s position as both seller and buyer, and of Zenrock wanting to conceal its presence at more than one place in the chain from financing banks. As such, the court found that there were well founded concerns about the marketability of the title held by PPT. 

Comment

It was somewhat of a missed opportunity as CACIB did not appeal the judge’s findings that PPT’s presentation under the LC was not fraudulent – the Court of Appeal noted this against the backdrop of the judge’s findings relating to PPT’s ignorance of even the general level of market price and its disinterest in what was going on, which the Court of Appeal found “remarkable”. 

Since this appeal was heard, the High Court in Winson Oil v OCBC (see our update here) disagreed with the test of fraud applied by the first instance decision in Credit Agricole v PPT, and instead held a reckless indifference as to the truth or falsity of representations in documents presented under an LC, to fall within the fraud exception. 

The Court of Appeal’s decision on marketable title arises from the premise that PPT’s title was indeed subject to litigation given the inconsistent charges that had crystallized as well as the findings of the first instance judge as to PPT’s conduct which led the Court of Appeal to conclude that PPT was not a bona fide purchaser. Putting the recent cases of Credit Agricole v PPT and Winson Oil v OCBC next to each, the message to traders is the same: do not insert yourself blindly into a string of trades and ignore its peculiarities seeking comfort in an LC. That may turn out be cold comfort in the circumstances.

Related: BlackStone & Gold: Does a beneficiary’s reckless presentation under LCs amount to fraud?

Photo credit: BlackStone & Gold LLC
Published: 2 November, 2023

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Legal

Singapore: Bunker Partner seeks proprietary injunction against FOMO Pay in USD 20 million account

Application is made on behalf of First Digital Trust Limited with DBS Bank Ltd Singapore, according to to court documents obtained by Manifold Times.

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Singapore High Court

A hearing between Bunker Partner DMCC (United Arab Emirates Registration No. DMCC193291) and FOMO Pay Pte Ltd (Singapore UEN No. 201543956D) took place at the High Court of the Republic of Singapore on Tuesday (4 February), learned Manifold Times.

Bunker Partner was applying for the court to grant them a proprietary injunction against FOMO Pay over the sum of USD 20 million (exact: USD 20,353,260.86) in its account, according to court documents obtained by the bunkering publication.

It is seeking to restrain FOMO Pay from disposing of, dissipating or otherwise dealing with the funds.

The application is made on behalf of First Digital Trust Limited with DBS Bank Ltd Singapore.

FOMO Pay is a major payment institution headquartered in Singapore and licensed by the Monetary Authority of Singapore to conduct Cross-border Money Transfer Service, Domestic Money Transfer Service, Digital Payment Token Service and Merchant Acquisition Service.

 

Photo credit: Manifold Times
Published: 11 February 2025

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Winding up

Singapore: Liquidator schedules final meeting for Vanda Marine Services

Final meeting of the company and creditors for Vanda Marine Services Pte Ltd, has been set to take place at 11am on 7 March at 8 Burn Road, Trivex #16-12, Singapore 369977.

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RESIZED Jo_Johnston from Pixabay

The final meeting of the company and creditors for Vanda Marine Services Pte Ltd, has been scheduled to take place on 7 March, according to the company’s liquidator on a notice posted on Friday (7 February) on the Government Gazette.

The meeting will be held at 8 Burn Road, Trivex #16-12, Singapore 369977 at 11am. It is being held for the purpose of having an account laid before the meeting showing the manner in which the winding-up has been conducted and the property of the company has been disposed of and hearing any explanation that may be given by the liquidator.

The details of the liquidator are as follows:

Seah Chee Wei
Liquidator
c/o 8 Burn Road
Trivex #16-12
Singapore 369977

Notes:

1) A member/creditor entitled to attend the above meeting may appoint a proxy to attend in his stead. A proxy need not be a member of the Company. The instrument appointing a proxy must be lodged with the liquidator in the following manner:

  • By email to the Liquidator’s office at [email protected]; and
  • By post to the Liquidator’s office at 8 Burn Road, Trivex #16-12, Singapore 369977 not later than 12.00 p.m. on 6 March 2025 or adjourned meeting at which it is to be used.

2) A corporation which is a member of the Company may, by resolution of its directors, authorise any person to act as its representative at any meeting of the Company, and such representative shall be entitled to exercise the same powers on behalf of the Corporation which he represents as if he had been an individual member of the Company.

 

Photo credit: Jo_Johnston from Pixabay
Published: 10 February, 2025

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Winding up

Singapore: Final meetings scheduled for Apoda Shipping and related companies

Singapore: Final meeting scheduled for Apoda Shipping and related companies

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steve pb from Pixabay

The final meetings of members of Apoda Shipping Pte Ltd and related companies, has been scheduled to take place on 10 March, according to the company’s liquidators on a notice posted on Friday (7 February) on the Government Gazette.

The meetings will be held at 600 North Bridge Road, #05-01 Parkview Square, Singapore 188778 a the following times:

  • Apoda Shipping Pte Ltd (Company Registration No. 202037297W): 9am
  • Cekap Shipping Pte Ltd (Company Registration No. 201726677R): 9.30am 
  • Cergas Shipping Pte Ltd (Company Registration No. 201726683E): 10am
  • Plover Shipping Pte Ltd  (Company Registration No. 201726691R): 10.30am
  • Raggiana Shipping Pte Ltd (Company Registration No. 202037302D) 11am
  • Splendour Shipping (2017) Pte Ltd (Company Registration No. 201725911C) 11.30am

The meetings are being held for the purpose of having an account laid before the members showing the manner in which the winding up has been conducted and the property of the company disposed of and of hearing any explanation that may be given by the liquidators.

The details of the liquidators are as follows:

Victor Goh
Khor Boon Hong
Marie Lee
Joint Liquidators
C/o Baker Tilly
600 North Bridge Road
#05-01 Parkview Square
Singapore 188778

Note: Pursuant to Section 181 of the Companies Act 1967, a member entitled to attend and vote at this meeting is entitled to appoint another person or persons as his/her proxy to attend and vote in his/her stead. Proxies to be used at the meeting must be lodged at the Office of the liquidators not later than 48 hours before the meeting.

 

Photo credit: steve pb from Pixabay
Published: 10 February, 2025

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