PPT Energy, an Indonesia-Japan joint venture company, has been ordered by a court in Singapore to pay Crédit Agricole US$10.3 million in a dispute over fraud perpetrated by the collapsed commodities group, ZenRock.

The Singapore Court of Appeal handed down judgment on 24 October 2023 overturning a ruling last year by the Singapore International Commercial Court (SICC) that dismissed the bank's claim against PPT Energy over a US23.7 million letter of credit (L/C) credit which Zenrock fraudulently induced Crédit Agricole to open in PPT's favour.

Case outline

The case involved circular chains of oil trading contracts. Zenrock applied for and Crédit Agricole issued an L/C in favour of PPT.

Unbeknownst to the bank, Zenrock had furnished Crédit Agricole with a fabricated copy of a sale contract with another entity. In fact, Zenrock had already financed and sold the oil shipment to the other entity.

SICC judgment overturned

The SICC held that Crédit Agricole was liable to pay PPT because the energy trader had not acted fraudulently, even though it had acted "recklessly" and was hardly an "innocent bystander". Neither could the French lender rely on a letter of indemnity (LOI) which PPT was required to issue to the bank the lower court held.

But the appeal court ruled that while Crédit Agricole was in breach of the LOI by reason of late payment, the bank's claim under the LOI was not defeated by any condition which made time of the essence.

Marketable title

Moreover, in a new twist in this case, the appeal court held that PPT was in breach of a warranty contained in the LOI in which PPT claimed to have "marketable title" to the oil shipment, which the energy trader warranted was "free and clear of any lien or encumbrance".

Due to Zenrock's fraud, this was not the case, so Crédit Agricole was therefore entitled to be indemnified under the LOI and should therefore return the funds paid to it by the bank under the L/C.

Duplicate trade financing

In common with several other cases of widespread commodities fraud revealed in or around 2020 at traders including Hin Leong, Agritrade and Hontop Energy, the Zenrock fraud centred on string or circular trading that has cost banks billions of dollars.

The frauds involved duplicate trade financing in which seemingly legitimate businesses presented the same invoice to multiple lenders, that, unbeknownst to each other, financed the same collateral several times.

A copy of the judgment in the case of Crédit Agricole Corporate and Investment Bank, Singapore Branch vs PPT Energy Trading Co. Ltd. is available here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.