Swiss trade finance lender Banque de Commerce et de Placements (BCP) has lost a second bid to claim just over US$19mn from China Aviation Oil in a dispute stemming from the collapse of commodity trader ZenRock.
The Singapore Court of Appeal on July 7 upheld a lower court’s ruling last year that China Aviation Oil’s Singapore entity did not make a false representation to BCP as part of a circular oil trade arranged by ZenRock.
ZenRock was among a clutch of Singaporean commodity traders that collapsed in 2020 amid allegations they fraudulently obtained finance from banks, setting off a flurry of litigation in the city-state.
The transaction in this case involved Geneva-headquartered BCP financing ZenRock’s purchase of 260,000 barrels of gasoil from China Aviation Oil for around US$20mn, through a letter of credit issued in January 2020.
The Court of Appeal judgment says China Aviation Oil acted as an intermediary between ZenRock and another trader, Shandong Energy International, which would only offer 10-day credit terms to ZenRock. The transactions were part of a circular trade that began and ended with ZenRock. China Aviation Oil made a profit of US$62,254 on the deal.
BCP expected to be repaid when ZenRock sold the cargo to oil company PetroChina, the purported ultimate buyer. However, that transaction was expected to be done on an open account basis and was not secured by a letter of credit.
Ultimately, ZenRock sold the cargo to a different buyer and BCP was never repaid. The trader was placed in judicial management a few months later and was subsequently wound up.
BCP made the payment to China Aviation Oil without receiving title to the goods, instead relying on a letter of indemnity issued by the firm, the judgment says.
Senior commodity trade finance staff at the bank deemed that “the recourse on ZenRock is satisfactory” and noted China Aviation Oil’s good reputation was also a “strong mitigating factor” against non-payment risk.
China Aviation Oil’s letter of indemnity included a statement attesting to the “existence, authenticity and validity” of bills of lading endorsed to BCP.
BCP’s appeal rested on the argument that this statement was false, because the lender later discovered the bills of lading were not endorsed to BCP at the time the statement was made.
The bank argued in its appeal that the statement should be interpreted literally. It argued the statement’s plain meaning was that the bills were already endorsed, and that China Aviation Oil’s assertion was fraudulent because it “either knew that the representation was false, or had no honest belief that it was true, or was reckless as to its truth”.
In contrast, China Aviation Oil maintained that the statement should be “construed with reference to the broader context” of the transaction. It said the statement was true because the bills of lading did exist and were expected to be endorsed to BCP “in due course”.
The trader argued BCP’s interpretation was not logical because the letter of indemnity only existed because the bills of lading were not yet in China Aviation Oil’s possession, and therefore the company could not have attested that they were already endorsed to the bank.
The Court of Appeal judges found in favour of China Aviation Oil’s interpretation, writing that they agreed with the lower court’s earlier ruling that the company had attested to the existence of the bills of lading, but had not falsely stated that they were endorsed to BCP.
Even if the appeals court had sided with BCP’s literal reading and found that the statement in the letter of indemnity was not true, the judges wrote, the bank would have still lost the case because they found that China Aviation Oil did not make the representation fraudulently.
BCP declined to comment. China Aviation Oil had not responded to requests for comment at the time of publication.
