In Banque de Commerce et de Placements SA, DIFC Branch & Anor v China Aviation Oil (Singapore) Corporation Ltd [2024] SGHC 145, the Singapore High Court considered a claim based on a letter of credit (“LC“), in which a branch of the bank issuing the LC sought to claim against the beneficiary of the LC for moneys paid out under the LC, alleging that the underlying transaction was a sham transaction. The Court had to determine the standing of the claimant and whether the transaction was in fact a sham.
The plaintiffs were BCP Dubai and BCP Geneva (collectively, “BCP“). The LC was a payment mechanism for the purchaser, Zenrock, to purchase a cargo from the defendant seller, CAO (“CAO-Zenrock Contract“). BCP Geneva issued the LC naming CAO as the beneficiary. Pursuant to the LC, the confirming bank paid out moneys to CAO, and BCP Geneva reimbursed the confirming bank for the same. BCP sought to recover the moneys from CAO on various grounds, with the crux of its case being that the CAO-Zenrock Contract was allegedly a sham and/or fraudulent transaction. BCP alleged that CAO did not sell any physical cargo to Zenrock, while CAO’s position was that it reasonably believed that there was physical shipment and delivery of the cargo.
On the threshold issue of standing, the Court found that BCP Dubai did not have the standing to sue CAO. At common law, branches of a bank are regarded as emanations of the bank such that the head office and its various branches are regarded as a single legal entity. However, a plaintiff bears the burden of establishing its standing to sue, and the Court held that BCP failed to discharge its burden of proving that BCP Dubai should be allowed to maintain an action as an emanation of BCP despite the fact that BCP Dubai was no longer a branch of BCP.
On the overarching factual question, the Court found that the CAO-Zenrock Contract was not a sham or fraudulent transaction. Among other factors, the Court found that:
(a) The evidence showed that CAO clearly intended to enter into genuine contracts, including the CAO-Zenrock Contract.
(b) The fact that the CAO-Zenrock Contract was part of a circular trade did not mean that it was ipso facto a sham or fraudulent transaction.
(c) The CAO-Zenrock Contract had taken place against a broader series of transactions, the implication of which was that there was real physical cargo involved in the transactions, including the CAO-Zenrock Contract.
On the substantive claims, the Court found that BCP failed to show that: (i) CAO was liable in either fraudulent or negligent misrepresentation; (ii) CAO breached any contract between the parties; (iii) CAO was unjustly enriched at its expense; or (iv) CAO had engaged in an unlawful means conspiracy against it.
CAO was successfully represented by Toh Kian Sing, SC, Nathanael Lin, Marcus Chiang, Tan Zhi Rui and Wu Muyu from the Shipping & International Trade Practice.
