Crédit Agricole Corporate & Investment Bank Singapore Branch v PPT Energy Trading Co. Ltd.

Facts

Crédit Agricole Corporate and Investment Bank, Singapore Branch (CACIB) issued an unconfirmed letter of credit dated 3 April 2020, subject to UCP 600, in favour of PPT Energy Trading Co. Ltd. (PPT) for a cargo of Djeno crude oil. It did so at the request of its customer Zenrock Commodities Trading Pte Ltd, whose fraud was undisputed: Zenrock had doctored its on-sale contract with Total Oil Trading SA (TOTSA) to make the price appear to cover the credit, and had assigned the same TOTSA receivable to two banks. PPT had been interposed in a circle of trades priced far above market. As the bills of lading were not available, PPT presented a letter of indemnity (LOI) warranting that it had marketable title free of any lien or encumbrance and promising to indemnify CACIB for loss from the missing bills.

CACIB obtained an interim injunction on 28 May 2020 against payment, then paid on 18 November 2020 against a bank guarantee. In SIC/S 1/2021 and SIC/S 2/2021 the SICC judge dismissed CACIB's claims and allowed PPT's, finding PPT was not a participant in the fraud though hardly an innocent bystander. CACIB brought Civil Appeal Nos 2 and 3 of 2022 to the Court of Appeal.

Issues

1. Whether CACIB could rely on its own customer's fraud to avoid liability to PPT under the letter of credit
2. Whether the LOI took effect although CACIB did not pay on the due date
3. Whether PPT breached its warranty of marketable title, and if so what damages followed
4. Whether CACIB proved any loss under the indemnity for the bills of lading remaining outstanding

Holding

The Court of Appeal allowed CACIB's appeals solely on the ground that PPT had breached its warranty of marketable title in the LOI, and gave judgment for CACIB in the sum of US$10,319,470.81, subject to any remaining uncertainty about CACIB's settlement recovery, which could be referred back to the court. The orders made below on 30 March 2022, including PPT's costs order, were set aside, and the parties were directed to file submissions on interest and on the costs of the appeals and trial.

Reasoning

The court rejected the letter of credit argument outright. A credit is autonomous from the underlying contracts and binding on issue, and the only recognised exception concerns fraud by the beneficiary. Authorities such as Solo and Safa allowed a bank to impugn a credit only where the beneficiary was party to the fraud or misrepresentation, and the principle drawn from Scholefield and Huguenin had no place in this field. Accepting CACIB's case would mean no beneficiary could be sure of payment without investigating the issuing bank's customer, undermining the whole system of documentary credits.

On the LOI, the court disagreed with the judge that it was a unilateral contract that never took effect. It was binding from issue, and payment at the due date was a description of the obligation and an innominate term rather than a condition. The injunction did not extend the due date, but late payment, remedied by interest, did not defeat the LOI.

On the warranty, marketable title had independent meaning: a title exposing the buyer to litigation or hazard is not marketable. Title passed on shipment down the longer chain, but given Zenrock's fraud, the crystallised and inconsistent floating charges, and the fact that neither Shandong nor PPT was a bona fide purchaser for value, PPT's title was not marketable. The court found the PPT witnesses' denials of the round-tripping unbecoming. The unpleaded no-fraud counterfactual raised a pure point of law and was allowed; CACIB's revised claim, the TOTSA price caught in the interpleader less its recovery of US$6,197,532.75, was correct.

On the indemnity, the court would not disturb the judge's finding that CACIB would have acted the same way had the bills been presented, so no loss flowed from their absence, though the indemnity also covered loss from breach of the warranty.

From the judgment