Rajah & Tann Singapore gives insights into landmark court decision on trade finance and fraud

Rajah & Tann Singapore successfully represented the respondent, China Aviation Oil (Singapore) Corp Ltd, in a significant appeal before the Singapore Court of Appeal, acting through its Shipping & International Trade and Dispute Resolution team. 

The landmark judgement offers helpful guidance on how representations in payment LOIs are construed, and highlights the importance of commercial context and intention in interpreting ambiguous representations: 

In maritime trade, a letter of credit (“LC“) is a crucial payment method that assures sellers of payment while providing buyers with a secure way to fulfil payment obligations via an issuing bank. While LCs are ordinarily payable against presentation of the relevant shipping documents, including the original bill of lading (“BL“), there is a prevalent practice of using letters of indemnity (“LOIs“) to facilitate payment under LCs. This is particularly common in chain contracts involving back-to-back transactions of the same cargo through multiple parties, where the shipping documents will not be in the possession of every seller in the chain. 

What then is the effect of a LOI in the context of such LCs? Does it contain representations of fact made to the issuing bank? For the purposes of a claim in deceit, how should the contents of the LOI (including a statement as to the existence of BLs endorsed to the issuing bank) be construed? Does the issuing bank of the LC acknowledge that it will no longer have control over delivery of the cargo, and does this have bearing on the timing of the endorsement of the BL? These were the questions faced by the Court of Appeal in Banque de Commerce et de Placements SA, DIFC Branch and another v China Aviation Oil (Singapore) Corp Ltd [2025] SGCA 33. 

The Appellant in this case was the issuing bank of a LC under which payment had been made to the Respondent, which was one of the parties in a chain of back-to-back transactions. The disbursement was made upon the Respondent’s presentation of a LOI (rather than the relevant original shipping documents) in which the Respondent warranted the existence, authenticity and validity of the shipping documents, including the endorsed BLs. When the expected receivables did not materialise due to the cargo having in fact been sold to another party, the Appellant sought to claim against the Respondent in deceit, submitting that the representation in the LOI constituted a fraudulent misrepresentation. 

The Court of Appeal found in favour of the Respondent, holding that the representation in the LOI was neither false nor made fraudulently. The Court was of the view that the representation should not be construed literally to warrant the actual existence of BLs already endorsed to the Appellant at the time of presentation of the LOI, but rather should be construed contextually to mean that the original BLs had been issued, but were not available in that they had yet to be endorsed to the bank, and that the Respondent would endorse them to the bank once received. This meant that the receipt of the endorsed BLs would no longer be time-sensitive.

This decision provides guidance on the interpretation of representations in LOIs within chain contracts, the assessment of fraud in the context of ambiguous representations, and the application of the law of deceit in trade finance.

The Respondent was successfully represented by Toh Kian Sing, SC, Nathanael Lin, Marcus Chiang, Tan Zhi Rui and Muhammad Salihin bin Mohd Zahrin of Rajah & Tann Singapore LLP.

Note: The full article including background of the court case by Rajah & Tan Singapore can be viewed here. 

Photo credit: Manifold Times
Published: 28 October, 2025