THE Singapore International Commercial Court (SICC) has dismissed a claim by Credit Agricole Corporate & Investment Bank's (CACIB) Singapore branch that PPT Energy Trading was not entitled to receive some US$24 million under the bank's letter of credit (LC) as it was a participant in the fraud by failed Zenrock Commodities Trading.

International Judge (IJ) Jeremy Lionel Cooke held that although PPT Energy was hardly an "innocent bystander", it was not a participant in Zenrock's fraudulent scheme. In its judgement dated Jan 13, the SICC held that fraud capable of vitiating a demand for payment under a LC can only encompass a beneficiary who acts dishonestly as part of a scheme to defraud the bank.

"It cannot properly be said that PPT had actual knowledge of, or was wilfully blind to the fact that this was a fraudulent scheme because it had, in this case, been offered a prestructured deal, similar to those in which it had taken part in the past - all of which had gone through successfully without any suggestion of fraud," said Judge Cooke.

He also determined as "all fail" Credit Agricole's claims for an injunction, declaration and an order for reimbursement of the sum paid under the LOC and that PPT was entitled to retain the sum.

Both parties had first commenced their respective actions in the High Court, which were later transferred to the SICC.

CACIB had sought that PPT was not entitled to receive payment under the LC and that the latter was in breach of warranties given to CACIB as per a letter of indemnity (LOI) and hence was liable to pay damages corresponding to the sum of some US$23.66 million paid under the LC.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

On the other hand, PPT had sought a declaration that it was entitled to such payment, as well as damages from the bank for breaching the contract under the LC.

The SICC held that PPT was only obliged to give the warranties as set out under the LOI if CACIB had paid the energy trader by the due date, which was Jun 5, 2020. The bank had not done this but instead, paid the sum 5 months later when an interim injunction granted in May 2020 on the payment was lifted.

CACIB had made out the LC to PPT in April 2020 following an application by Zenrock to purchase Djeno crude oil from PPT. Unbeknownst to CACIB, the PPT-Zenrock sale contract was part of a series of round-tripping transactions - PPT had first purchased the cargo from Shandong Energy International (Singapore), before selling it back to Zenrock. Zenrock, in turn, was to sell the cargo to Total Oil Trading SA (TOTSA).

In applying for the LC, Zenrock had furnished CACIB with a copy of its sale contract with TOTSA, which according to court documents, was fabricated to reflect a higher sale price than its actual sale contract.

The scandal-hit commodities trader also executed a notice of assignment (NOA) purporting to assign its receivables due under its sale contract with TOTSA to CACIB. However, prior to executing this NOA with CACIB, the trader had executed another NOA assigning the receivables to ING Bank, therefore perpetuating a fraud and deceiving CACIB to obtain the LC.

Troubles at Zenrock, a Singapore-based oil trader, emerged following a historic slump in oil prices in 2020 as the pandemic wreaked havoc on energy demand amid curbs to contain the outbreak.

Following that, HSBC, Zenrock's biggest creditor, had filed an application in Singapore's High Court to put the debt-hit trader under judicial management. The bank also sought to oust the company's management from any potential debt workout process as it has lost trust and confidence in them after unearthing alleged "highly dishonest" and "extremely suspicious" trade practices. The company has since been wound up.