The Singapore Court of Appeal (Judith Prakash JCA, Mance IJ and Rix IJ) handed down judgment on 24 October 2023 in Crédit Agricole Corporate & Investment Bank v PPT Energy Trading Co Ltd  SGCA(I) 7 allowing the appeal of the appellant, Crédit Agricole with respect to the claim under letter of indemnity. The case concerns letters of credit, a lifeblood of commerce in international sale of goods transactions. The judgment contains an important discussion on the scope of the fraud exception in letters of credit and the construction of the warranty of “marketable title” contained in letters of indemnity frequently given in such transactions.
The case involved circular chains of FOB crude oil trading contracts. Zenrock Commodities Trading had applied for a letter of credit with its bank Crédit Agricole, who in turn issued a letter of credit in favour of PPT Trading Co. Unbeknownst to Crédit Agricole, Zenrock had furnished Crédit Agricole with a fabricated copy of a sale contract with another entity, TOTSA, which contained a much higher price than the true Zenrock-TOTSA sale contract. In fact, Zenrock had already financed and sold the cargo to Totsa under its true sales contract.
PPT had a choice as to whether to present original bills of lading or a commercial invoice and a letter of indemnity (“LOI”) to Crédit Agricole for payment under the letter of credit. It chose the latter (as is typical under such contracts). Crédit Agricole did not reject the documents presented within 5 days as required under UCP 600. However, it became suspicious of the possibility of double financing when it received information from Totsa that Zenrock had assigned the receivables from the Zenrock-TOTSA sale contract twice. Crédit Agricole sought and obtained an interim injunction to restrain payment of over US$20 million under the letter of credit to PPT, and PPT thereafter claimed that sum.
At first instance, the Singapore International Commercial Court (the “SICC”) (Cooke IJ)  SGHC(I) 1 held that Crédit Agricole was liable to pay PPT because PPT had not acted fraudulently (even if it had acted recklessly) and Crédit Agricole could not rely on the LOI because the warranties and indemnity under it were only triggered in consideration of payment, which Crédit Agricole had not made “at the due date”. Cooke IJ also held that in any event there was no breach of warranty by PPT.
On appeal there were two issues.
The first issue was whether Crédit Agricole was entitled to rely on Zenrock’s fraud to set aside and avoid liability to pay under the letter of credit issued in favour of PPT. The Singapore Court held that it was not on the basis that the letter of credit was separate and autonomous from the underlying contractual relationship between buyer and seller and the established common law exception, namely a fraudulent presentation by the beneficiary, did not apply where the beneficiary was not party to the fraud.
The second issue concerned the promises provided under the LOI which PPT was required to issue to Crédit Agricole in the absence of the bills of lading for the Cargo concerned. The LOI contained a warranty from PPT that at the time the property passed under the contract, PPT had “marketable title to such shipment, free and clear of any lien or encumbrance”. It also contained an agreement to indemnify Crédit Agricole against damage suffered or incurred by reason of the original bills of lading being outstanding.
Contrary to the decision of the SICC, the Singapore Court of Appeal held that the LOI was effective from its date of issue and as a matter of construction, payment “at the due date” was not a condition precedent. Accordingly, Crédit Agricole, although in breach of the LOI by reason of late payment, was not defeated by any condition which made time of the essence. Further, it held that there was a breach by PPT of the warranty of marketable title due to Zenrock’s fraud and the crystallized floating charges over the crude oil. Crédit Agricole was therefore entitled to be indemnified under the LOI.
As a result, Crédit Agricole’s appeal under the LOI was allowed.