Reed Smith In-depth

The Singapore High Court has affirmed a number of key principles relating to (i) circular commodity sales transactions (including simultaneous sale and buyback transactions), (ii) representations made to issuing banks in letters of indemnity provided in lieu of original documents and (iii) the disclosure to be made when presenting documents for payment under letters of credit.1

This decision may be of interest or guidance to participants of the commodities market and financiers dealing with such related issues, as well as courts and tribunals tasked with determining such issues.

Auteurs: Kyri Evagora Joyce Fong Min Jian Chan Kenneth Goh

What happened between the parties to the case?

On 27 November 2019, Hin Leong Trading (Pte) Ltd (Hin Leong) applied to UniCredit Bank AG (UniCredit) for an irrevocable letter of credit (LC). The LC was for a sum of just over US$37 million to finance the purchase of 150,000 MT of High-Sulphur Fuel Oil (the goods).

That same day, Hin Leong and Glencore Singapore Pte Ltd (Glencore) entered into a series of contracts. Pursuant to these contracts, title to the goods would pass from Glencore to Hin Leong (under the Sale Contract), and immediately back to Glencore (under the Buyback Contract).

On 28 November 2019, Hin Leong submitted a revised LC application to UniCredit, providing a copy of the Sale Contract and stating that the LC application was for “unsold cargo”. This was inaccurate since Hin Leong had by then already contracted to sell the goods back to Glencore.

On 29 November 2019, UniCredit issued the LC subject to UCP 600.2 The LC stated that the credit thereunder would be available against the presentation of various stipulated documents, including a signed commercial invoice and the original bills of lading (BLs). In the absence of such documents, payment would be effected against the beneficiary’s commercial invoice and signed letter of indemnity (LOI) in the form prescribed in the LC.

On 2 December 2019, Glencore presented the following documents to UniCredit for payment under the LC: (i) Glencore’s commercial invoice for the Sale Contract, addressed to Hin Leong, and (ii) Glencore’s LOI addressed to Hin Leong, in the format prescribed in the LC. The LOI mentioned the Sale Contract but not the Buyback Contract.

UniCredit paid Glencore pursuant to the LC on 3 December 2019. It was not aware of the Buyback Contract.

Hin Leong was placed under interim judicial management on 27 April 2020 and entered liquidation on 8 March 2021. UniCredit therefore found itself without recourse for repayment from Hin Leong, the goods, the BLs or security over the goods or the BLs.

In the circumstances, UniCredit commenced Singapore court proceedings against Glencore to seek, amongst other things, repayment of the amounts paid to Glencore under the LC.