UniCredit has failed in Singapore's Court of Appeal to overturn a decision of a lower court that the Italian bank cannot hold global commodities house Glencore liable for a US$37.2 million loss it sustained in a fraud committed by collapsed trader Hin Leong.

The bank sued Glencore in October 2020 on multiple grounds, including by claiming that Glencore's application for a letter of credit (L/C) failed to disclose the existence of a buyback contract and that Glencore conspired with Hin Leong to injure UniCredit by unlawful means.

The appeal court's backing of the decision in Singapore's High Court last year is significant in relation to the controversial issue of sales and buybacks - or so called circular trades - that have been in the limelight recently with traders being refused payment by banks on the grounds of purported sham, fraudulent or fictitious transactions.

Claim against Glencore

UniCredit commenced court proceedings against Glencore to recover payment of the L/C which featured in a transaction involving a sale by the Switzerland-based trader to the now failed Singapore-based oil trading company, Hin Leong, followed by a buy-back by Glencore.

The bank argued that this was a sham or fictitious transaction because the purpose of Glencore's simultaneous sale and buyback of goods under the contracts was to obtain finance.

Reasons to disagree

But the bank's case failed to convince Singapore's appeal court. Whilst the court acknowledged that Hin Leong had misrepresented the position to UniCredit, it did not follow that Glencore thereby did so as well.

Glencore had simply presented the documents stipulated in the L/C to obtain payment, and in so doing, represented to UniCredit that it had sold the goods to Hin Leong and that it had agreed to locate and surrender bills of lading to Hin Leong, both of which were true.

UniCredit's complaint sought to fault Glencore for not doing more to inform the bank about what it knew of Hin Leong's sale of the goods - but the appeal court determined that this was not something Glencore was obliged to do.

Failed at first hurdle

Backing the decision of the lower court, the appeal court found that Glencore did not represent that Hin Leong had not sold the goods, nor did Glencore represent that it had not bought back the goods.

"UniCredit's case thus failed at the first hurdle. It was unable to establish that Glencore had made any representation," the court concluded.

The Singapore Appeal Court's 28 November 2023 judgment in the case of UniCredit Bank AG and Glencore Singapore Pte can be found here.

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