Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Trading Energy Co. Ltd. [2022] SGHC(I) 1

The Singapore International Commercial Court (SICC) recently considered what constitutes fraud in the context of letters of credit and the corresponding rights and obligations of an issuing bank. The SICC also considered the rights of an issuing bank under letters of indemnity presented under letters of credit.


Crédit Agricole Corporate & Investment Bank ("CACIB") issued a letter of credit in favour of PPT Energy Trading Co Ltd ("PPT") for the sale of crude oil from PPT to Zenrock Commodities Trading Pte Ltd ("Zenrock"). As security, CACIB was granted a floating charge over goods purchased by Zenrock and financed by the letter of credit, as well as an assignment of the proceeds of the sale of the crude oil due from Zenrock's buyer, Total SA Trading SA ("TOTSA").

Unbeknownst to CACIB, Zenrock had obtained double financing for the same batch of crude oil by assigning the same sales proceeds to a competing bank in exchange for credit facilities. It had also deceived CACIB into issuing the letter of credit by presenting a fabricated sale contract between itself and TOTSA, which reflected a higher sale price than the actual contract. It was later discovered that Zenrock had engaged in pre-structured deals involving round-tripping transactions, with one of the entities involved being PPT.

CACIB filed for an interim injunction to refuse payment to PPT, which was later discharged following an agreement where CACIB would pay PPT under the letter of credit against a bank guarantee from PPT's bank (which would operate to pay if CACIB's action was justified). As Zenrock had gone into interim judicial management, CACIB sought to reclaim the credit amount from PPT by alleging that (i) PPT was part of the fraud perpetrated by Zenrock, and (ii) even if it was innocent, PPT still breached its warranties under the letter of indemnity it produced to CACIB during payment.


1. What constitutes fraud in the context of letters of credit?

A letter of credit is an independent contract between the issuing bank and the beneficiary and is not affected by any irregularities in the underlying sale contract. Issuing banks may only rely on the fraud exception to refuse payment if they are able to prove the beneficiary's intent to defraud. Dishonesty is a key element. For instance, if a beneficiary present facially compliant documents, it must be shown that the beneficiary had the knowledge that the contents were false or did not have the belief that the contents were true.

Furthermore, a beneficiary owes no duty of care to the issuing bank when presenting documents for payment. Therefore, mere reckless failure to ascertain the truth behind the circumstances underlying the presentation will not amount to dishonesty. The SICC expressly drew a distinction between the law on letters of credit and the law on demand guarantees. In the case of demand guarantees, fraud in the demand would be established where the person making the false representation in the demand was recklessly indifferent to the truth or falsity of the representation.

2. Whether PPT was a part of Zenrock's fraud?

The key element of dishonesty was not made out. Zenrock's fraud on CACIB was constituted by the presentation to CACIB of the fabricated contract with TOTSA; and the earlier assignment to ING Bank of the same proceeds from TOTSA that Zenrock told CACIB it was assigning to CACIB. While the SICC found that PPT was aware of the round-tripping transactions, such knowledge was not sufficient to prove dishonesty or knowledge of fraud on the part of PPT. In particular, the SICC noted that it was not PPT's practice as a "facilitator" to enquire the circumstances underlying the transaction. PPT also could not have known that it was enabling CACIB to provide significantly higher credit than the true value of the crude oil since it was Zenrock that pre-determined the prices. Since beneficiaries do not owe a duty to issuing banks, PPT could not be liable for failing to enquire further about the round-tripping transactions.

The SICC also did not consider the round-tripping transactions to be a sham. This was because all entities involved intended to enter into genuine sale and purchase agreements, where payment was properly made by letters of credit and the crude oil was in fact transferred from one entity to another.

Lastly, the SICC decided that the invoice and letter of indemnity did not contain any false representations as to title and was, in any event, ineffective.

3. The nature of letters of indemnity

CACIB sought to protect itself via the warranties present in PPT's letter of indemnity which was issued to CACIB. The SICC stated that each letter of indemnity must be construed on its terms, and in particular, against the background of the offer in the letter of credit. The revocability or irrevocability of a letter of indemnity would not on its own determine whether it was a unilateral contract.1

Where a letter of indemnity is construed to be a unilateral contract (where the beneficiary presenting the letter is an offeror), issuing banks are not to be regarded simply as an offeree who could decide whether to make payment referred to in the letter of indemnity in order to trigger the beneficiary's obligations to give the warranties. Ultimately, the letter of credit would still require issuing banks to make payment upon compliant presentation of documents. If they fail to do so, there is a risk that the warranties under the letter of indemnity would not be extended to them. This becomes relevant when the letter of indemnity is drafted such that the warranties are only extended upon full payment by the issuing bank.

4. Whether warranties and indemnity extended to CACIB

In the present case, PPT's warranties were given to CACIB "in consideration of" CACIB making full payment on the due date. As CACIB did not complete its payment obligation by the due date of the sale contract between PPT and Zenrock, PPT's warranties did not apply. Neither did the indemnity clause apply. The interim injunction sought by CACIB did not serve to extend the due date, and neither was there any agreement between parties to extend the due date.

While the SICC considered a possible independent claim for indemnity for losses suffered by reason of outstanding documents (including the original bills of ladings), CACIB could not discharge its burden of proof to establish loss. This was largely due to limited evidence, as well as the number of inferences and assumptions the SICC would have to make.

5. Whether PPT breached its warranties under the letter of indemnity

Despite the above, the SICC went further to decide, in passing, that PPT did not breach any of its warranties under the letter of indemnity. There were three main warranties in question:

  1. that PPT had marketable title to the crude oil it sold to Zenrock;
  2. that such title to the crude oil (prior to the sale to Zenrock) was free and clear of any encumbrances or lien when the property passed under PPT; and
  3. that PPT was entitled to receive the bills of lading from their supplier and transfer them to CACIB.

The SICC noted that even though the original bills of lading were never transferred between parties, that would not prevent the transfer of title to PPT. Since PPT had ownership of the crude oil, and ownership could and did pass at the relevant time, PPT was said to have "marketable title".

The SICC also accepted that even if a purchaser has notice of the floating charge, the purchaser would still take free of charge if he or she did not have notice of the crystallisation of the floating charge. Since PPT did not have such notice, it took title of the crude oil free from any lien.

Lastly, the warranty only covered PPT's entitlement to receive the original bills of lading. It was not for such documents to be supplied to CACIB. The fact that the entities chose not to exercise the endorsement of bills of lading (as it is in commercial practice) did not affect PPT's entitlement to these documents as PPT could still request for them from the previous buyer in the chain.

Conclusion and Learning Points

1. Fraud exception requires a high threshold to succeed

Any alleged fraud that aims to vitiate a letter of credit has to arise from the beneficiary. Issuing banks have to prove that the beneficiary had knowledge of fraud or actively participated in a fraud scheme. Recklessness is not sufficient. Thus, when the beneficiary of a letter of credit is an unknowing intermediary, it is difficult to prove a case of fraud against it since there is no knowledge or intent.

The SICC rejected PPT's argument that it was unaware of the round-tripping nature of the transaction but accepted PPT's argument that its only concern was with the profit it could earn from its participation in the transaction as well as the certainty that it had a buyer down the chain from which it could receive payment. On this basis the SICC accepted that PPT was not aware that the contractual prices were well above the then-current market prices as PPT did not even turn its mind to this question. This is significant as knowledge that the contractual prices were well above market prices was one of the essential pieces of knowledge that had to be attributed to PPT in order to say that PPT had participated in Zenrock's fraud on CACIB.

While it appears that the judgment has rewarded PPT's deliberate ignorance of the details of the transaction save for its profit and security of payment, the incidence of the burden of proof and the high standard of proof in fraud cases meant that CACIB could not establish that PPT was a participant in Zenrock's fraud. Whether deliberate ignorance is justifiable or not the fact remains that PPT did not have actual knowledge of the fraud.

However, much turned on the particular facts of the case and the judge's assessment of the credibility of the witnesses who gave evidence for PPT. In conclusion, the judge held that PPT was not an innocent bystander but was not a participant in Zenrock's fraudulent scheme

2. Mitigating risks of fraud

In light of the recent fraud and multiple finance cases in trade and commodity finance, banks ought to take extra steps to mitigate such risks. Such steps include:

  1. compliance with the best practices recommended by the ABS Code of Best Practices for Commodity Finance including the five principles on corporate governance, risk management, business due diligence, transparency and control and industry collaboration;
  2. regular training on fraud detection and management as well as updates of policies relating to fraud;
  3. use of technology, artificial intelligence and algorithms to carry out documentary checks, spot anomalies and detect fraud;
  4. use of block chain to prevent fraud;
  5. enhanced due diligence on (a) the modus operandi of the company's business and trading and (b) the trading arrangements, agreements and course of dealing between the parties;
  6. constant monitoring of the trading relationship and fund flows between the parties; and
  7. ensuring that the financing structure complements with the customs and practices in the industry.

3. Enforceability of letters of indemnity

This case is another timely reminder of some of the complications arising from the enforcement of letters of indemnity. The non-compliance with the terms of the letter of credit and/or the letter of indemnity could affect the rights of the issuing bank under such documents. Therefore, if an issuing bank decides that it has good reason not to pay or comply with any terms, it should first carefully review the terms of the letter of credit and letter of indemnity and comply with its obligations, where applicable.

In the present case CACIB's inability to rely on the warranties in the letter of indemnity and, especially, the indemnity itself turned largely on the way the letter was drafted. Careful drafting can avoid such pitfalls.

It may be expected that CACIB will appeal this decision and a further update will follow if that happens.


1. A unilateral contract is when one party promises to do something if the other party carries out a specified act without the latter making any promise to do so.

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.