Natixis S.A. v Marex Financial and Access World Logistics (Singapore) Pte Ltd [2019] EWHC 2549 (Comm)

The English Commercial Court recently delivered a judgment which will have consequences in the area of commodity finance and in particular, the relationship between warehouse operators, commodity owners and financing banks, the legal status of warehouse receipts and the purpose of the acknowledgement of the warehouse operator that it holds the goods on behalf of the commodity owners.

Facts of Natixis v Marex

Natixis S.A. ("Natixis") is a bank that entered into five spot purchase contracts with Marex Financial ("Marex"), in which Marex agreed to sell, and Natixis agreed to buy, nickel stored at warehouses operating under the Access World group of companies. Under these purchase contracts, Marex had the option to repurchase the nickel at a later date and the documentation required that Marex deliver to Natixis warehouse receipts. Marex delivered hardcopy documents to Natixis' London branch and upon receipt, Natixis transferred payment to Marex.

Shortly after, Access World issued a press release stating that they were aware that there were forged warehouse receipts in their name circulating in the market, and that holders of any Access World warehouse receipts should seek authentication from the relevant issuing office for any warehouse receipts not issued directly by Access World.

Following this, Natixis sought verification of the warehouse receipts received by Marex at Access World's Asia Regional Office in Singapore and received confirmation that the receipts were forgeries. Natixis subsequently closed out certain nickel futures positions that it had opened pursuant to the purchase contracts and claimed damages of US$32,114,093 against Marex.

Natixis' Claim against Marex

Natixis' position was that they had a straightforward contractual claim against Marex for breach of the purchase contracts. Natixis had paid Marex the purchase price against the forged receipts, and Marex was liable to it pursuant to the terms of the purchase contracts. Marex initially denied that the receipts were forgeries, claiming that Access World had confirmed them to be authentic in previous emails. However, Marex now accepts that all the warehouse receipts are forgeries. Following this acceptance, its defence is that the purchase contracts are null and void as a result of common and fundamental mistake as to the authenticity of the warehouse receipts.

The Court found that Marex had breached several terms of the purchase contracts, and rejected their construction of the terms of the purchase contracts. The judge found that the risk of the warehouse receipts (as part of the required documentation) being fraudulent fell on Marex. Since the parties had determined at the point of contracting who should bear the burden of Marex not having good title to the nickel, Marex's defence of common mistake failed. Hence, Natixis was entitled to the damages in respect of the breaches of contract claimed, totalling US$32 million.

Marex's Claim against Access World

Marex's primary claim against Access World was that of breach of contract and/or negligence and/or negligent misstatement that the warehouse receipts were genuine. Marex claimed that Access World was contractually liable to deliver up the nickel, based on certain receipts and letters that were sent between the parties. However, it faced difficulties in establishing a contractual relationship with Access World. This was because the warehouse receipts were endorsed by a third-party and not issued by Access World to Marex directly.

The Court found that no contractual relationship existed between Marex and Access World, by reason of the terms of the warehouse receipts. Accordingly, there could be no breach of contractual warranties.

The Court also emphasised the point that the relationship between a warehouse operator and the owner of the goods is that of bailment (transfer of possession and not title), and that the terms of the contractual bailment are evidenced by the terms of the warehouse receipt in this particular context. In the earlier decision of Mercuria Energy Trading Pte Ltd and another v Citibank NA and another [2015] EWHC 1481 (Comm) ("Mercuria Energy"), the Court in that case explained that the role of a warehouse receipt was merely evidential of the acknowledgement of the warehouse operator that the goods are deliverable to the person named within; the warehouse operator holds the goods as agent of the owner until he has attorned to the owner. Accordingly, a warehouse receipt was not a document of title and did not transfer constructive possession of the goods according to s29 of the English Sale of Goods Act 1979 ("SOGA"). Since there was no transfer of constructive possession, there was no transfer of the property within the receipts and hence no delivery within the meaning of s29(4) SOGA1.

However, the Court found Access World to have owed Marex a duty of care not to make a negligent misstatement in its verification or authentication exercise of the warehouse receipts. It also owed Marex a Hedley Byrne-type duty of care not to inflict pure economic loss based on the existence of a special relationship. The Court found that the special relationship existed as Access World had held itself out as having possessed a special skill, namely that it could identify whether warehouse receipts were authentic; it agreed to apply that special skill for the assistance and benefit of those to whom it offered authentication services; and it was aware that its statements as to authenticity would be relied upon by the party to whom it provided its statement as to authenticity. Hence, subject to the principles of causation and contributory negligence, Access World had fallen below the applicable standard of care in failing to identify the fraudulent receipts. The damages recoverable by Marex were reduced by 25% based on their contributory negligence in choosing to trade in endorsable warehouse receipts (known to be inherently risky) without sending the originals for authentication.

Nevertheless, even though Marex's claims ultimately arose in tort and not in contract, Access World was entitled to rely on its terms and conditions which limited their liability to EURO 100,000 for each purchase contract. This was because Marex had adequate notice of the standard terms and conditions, given the course of their previous dealings with Access World on many occasions.

Steps to Mitigate Fraud

(a) Details

One way to prevent fraud is to maintain a keen eye for details. Fraudsters often lack the patience and meticulousness to conceal their tracks. For instance, in the metal fraud involving RBG Resources, the fraud was unraveled when counterparty confirmation letters were mistakenly faxed from Hong Kong along with some routine paperwork to the auditors of the RBG Resources. These counterparties were supposed to be competitors operating in separate parts of the world, but the signed paperwork came from the same Hong Kong fax number. This raised the suspicions of the auditors, and led to the discovery of the fraud. Vigilance in preventing fraud may help detect fraud at an early stage and keep losses at bay. Another example would be the 2014 Qingdao fraud, whereby one bank alone was supposed to have 73,000 tons of aluminum, however the warehouses only contained 60,000 to 70,000 tons of aluminum. It is relatively easy to pick up such mismatches and conducting such checks at the very least reduces the possible number of duplicate receipts.

(b) Documentation

Banks should also seek contractual protections in commodity finance agreements in relation to the risks of fraud in commodity finance. These could be by way of undertakings, representations and warranties on title, possession and fraud related matters, contractual arrangements on the allocation and transfer of risk and deliverables on completion.

Likewise, service agreements, whether with warehouse operators or third-party collateral management or inspection agents, can also be designed to mitigate or reallocate the risk of fraud. For example, there could be undertakings in respect of the identification, segregation, storage and safekeeping of the goods. Banks should also make sure that the collateral manager is insured against employee fraud.

It is also important to note the contractual limitations in service agreements, in relation to the claim process and limitation to liabilities and damages. For example, contractual liabilities may be subject to onerous claim conditions and processes, time bars as well as an overall limit on damages.

(c) Due diligence

Notwithstanding the robustness of legal documentation, it remains the case that there is often no substitute for proper due diligence on the counterparties, local legal system and underlying trade transaction. This needs to be supported by trustworthy monitoring and access to the inventory during the life of the credit. A second inspector could be appointed to monitor the collateral manager. SWIFT launched a regional initiative in Asia to create a compliance repository, where banks can submit and share know-your-customer and anti-money laundering information.

Banks should also bear in mind that warehouse receipts (unlike LME warrants) are not documents of title and they should not solely rely on repeated endorsements on warehouse receipts to effect transfer of possession of these goods. It is crucial to present these warehouse receipts to the warehouse operator to ensure that the latter attorns or acknowledges the bank's interests in the goods. The importance of the warehouse operator's attornment or acknowledgement was underscored in the English High Court's decision of Mercuria Energy, as well as in this case.

After embarking on the transaction following their due diligence, banks still have to be vigilant in handling the paper documentation. In this case, the authentication of the warehouse receipts were handled electronically as Marex only sent PDF copies to Access World for verification, hence a relatively higher risk of fraud. To the extent possible, holders of endorsed warehouse receipts should insist on in-person authentication and verification.

(d) Warehouse visits

Regular warehouse visits to inspect the goods are critical. It is important during these visits to ensure that the goods are properly segregated and identified. The lot numbers in warehouse receipts must be matched against the physical lot numbers in the warehouse. In addition, the warehouse receipts must also correspond to the warehouse accounting system. This is because there may be duplicate receipts that appear to be authentic.

(e) When fraud occurs

When fraud has occurred, swift action is essential. It is important to be properly advised in commencing court proceedings and/or arbitration proceedings. The choice of judicial redress or arbitration would depend on a multitude of factors, including the location of the assets and the parties, the jurisdiction clauses (if any) in the legal documentation and other tactical considerations. Parties may choose arbitration for its advantage of greater privacy and enhanced flexibility. Emergency arbitrators of the Singapore International Arbitration Centre can issue freezing injunctions orders for the preservation and inspection of evidence as well as anti-suit injunctions. However, it is not possible for emergency arbitrators to grant ex parte relief. This may necessitate an application to court for a freezing injunction, especially in cases when an element of surprise is needed to avoid tipping off the respondent. Emergency arbitrators cannot grant relief against third parties, and this is what is usually needed when fraud is committed by third parties in trade finance transactions.


There is a relatively higher risk of fraud in "off-warrant" metals financing as there is no centralised depository to back the existence of the metals. Despite the higher risk involved, there will still be a demand for this type of financing as it is cheaper for metal owners, because warehouses charge a lower rent for metal held on warehouse receipts as opposed to those held on exchange warrants. This case is a timely reminder for banks to understand, identify and quantify such risks, and take the necessary steps to manage and mitigate such risks.


1 Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.