DCW Updates
DCW Monthly: December 2024
We’re thrilled to share the newest edition of DCW’s premium monthly content. This month’s highlights include: * Five
DCW Litigation Digest
Banque De Commerce Et De Placements S.A. v. China Aviation Oil (Singapore) Corp. [2024]
Issuer sued beneficiary alleging sham transaction and breach of warranties; beneficiary and prior sellers lodged indemnification claims.
15 min read
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Banque De Commerce Et De Placements S.A. v.
China Aviation Oil (Singapore) Corp.
[2024] SGHC 145 [Singapore]
Type of Lawsuit: Issuer sued beneficiary alleging sham transaction and breach of warranties; beneficiary and prior sellers lodged indemnification claims.
Topics: Back-to-Back LCs; Bills of Lading; Breach of Contract; Civil Conspiracy; Confirmation; Deferred Payment; Fraud; Letter of Indemnity; Sham Transaction; UCP600 Article 3; UCP600 Article 5; UCP600 Article 7; Unjust Enrichment
Parties:
• Plaintiff/Issuer Dubai Office – Banque de Commerce et de Placements S.A., DIFC Branch, Dubai
• Second Plaintiff/Issuer – Banque de Commerce et de Placements S.A., Geneva
• Buyer/Applicant/Alleged Fraudster – Zenrock Commodities Trading Pte Ltd.
• Defendant/Seller/Beneficiary – China Aviation Oil (Singapore) Corp. Ltd.
• Second Buyer – PetroChina International (East China) Co. Ltd.
• Confirming Bank – UBS Switzerland A.G.
• Intermediate Seller – Shandong Energy International (Singapore) Pte Ltd.
• Original Seller – Golden Base Energy Pte Ltd.
Underlying Transaction: Chain of “back-to-back” FOB sales of gasoil cargo.
LC: UCP600 LC for USD 20,500,000; confirmed and available by deferred payment 45 days from B/L date.
Decision: The High Court of Singapore, Goh Yihan, J., ruled in favour of Seller/Beneficiary.
Rationale: (1) Under Singapore law, bank branch that undergoes legal change to representative office lacks legal capacity to sue (bank branch and head office single legal entity for standing purposes); (2) No sham transaction where seller and buyer reduced their agreement to writing and seller undertook risk management steps, followed typical internal procedures, appointed cargo surveyor and had no knowledge of counterparty double financing, among other evidence; (3) LC fraud exception claim rejected where unpleaded and unproven as documents were neither addressed to nor presented to issuer; (4) beneficiary not liable for tort of deceit as LOI contained no misrepresentations and, even if so, beneficiary was not proximate cause of bank losses.
China Aviation Oil (Singapore) Corp.
[2024] SGHC 145 [Singapore]
Type of Lawsuit: Issuer sued beneficiary alleging sham transaction and breach of warranties; beneficiary and prior sellers lodged indemnification claims.
Topics: Back-to-Back LCs; Bills of Lading; Breach of Contract; Civil Conspiracy; Confirmation; Deferred Payment; Fraud; Letter of Indemnity; Sham Transaction; UCP600 Article 3; UCP600 Article 5; UCP600 Article 7; Unjust Enrichment
Parties:
• Plaintiff/Issuer Dubai Office – Banque de Commerce et de Placements S.A., DIFC Branch, Dubai
• Second Plaintiff/Issuer – Banque de Commerce et de Placements S.A., Geneva
• Buyer/Applicant/Alleged Fraudster – Zenrock Commodities Trading Pte Ltd.
• Defendant/Seller/Beneficiary – China Aviation Oil (Singapore) Corp. Ltd.
• Second Buyer – PetroChina International (East China) Co. Ltd.
• Confirming Bank – UBS Switzerland A.G.
• Intermediate Seller – Shandong Energy International (Singapore) Pte Ltd.
• Original Seller – Golden Base Energy Pte Ltd.
Underlying Transaction: Chain of “back-to-back” FOB sales of gasoil cargo.
LC: UCP600 LC for USD 20,500,000; confirmed and available by deferred payment 45 days from B/L date.
Decision: The High Court of Singapore, Goh Yihan, J., ruled in favour of Seller/Beneficiary.
Rationale: (1) Under Singapore law, bank branch that undergoes legal change to representative office lacks legal capacity to sue (bank branch and head office single legal entity for standing purposes); (2) No sham transaction where seller and buyer reduced their agreement to writing and seller undertook risk management steps, followed typical internal procedures, appointed cargo surveyor and had no knowledge of counterparty double financing, among other evidence; (3) LC fraud exception claim rejected where unpleaded and unproven as documents were neither addressed to nor presented to issuer; (4) beneficiary not liable for tort of deceit as LOI contained no misrepresentations and, even if so, beneficiary was not proximate cause of bank losses.
Factual Summary:
To support its purchase[[1]] of 260,000 barrels of gasoil (± 5%), Zenrock Commodities Trading Pte Ltd. (Buyer/Applicant) applied for and caused Banque de Commerce et de Placements S.A., (Issuer) based in Geneva, to issue a UCP600 letter of credit for USD 20.5 million in favour of China Aviation Oil (Singapore) Corp. (Seller/Beneficiary). The LC was confirmed by UBS Switzerland A.G. (Confirming Bank). In making its undertaking, Issuer believed Buyer/Applicant would on-sell the gasoil to PetroChina International (East China) Co. Ltd. (Second Buyer) and Buyer/Applicant would assign its expected proceeds from Second Buyer to Issuer. This “self-liquidating” transaction would cover Issuer’s financial exposure under the credit.
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Apparently, the lead plaintiff, Banque de Commerce et de Placements S.A., DIFC Branch, (Issuer Dubai Office) had a back-to-back LC with Issuer, as Buyer/Applicant was Issuer Dubai Office’s customer.[[2]] The LC was available with Confirming Bank by deferred payment 45 days from B/L date and called for, among other documents, Seller/Beneficiary’s commercial invoice and original B/Ls.[[3]] In the event Original B/Ls (OBLs) and other documents were unavailable at the time of presentation, Seller/Beneficiary could present its invoice and letter of indemnity (LOI) in a form prescribed by LC field 47A(10).
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