Breaking: False representation claim dismissed in Singapore - BCP fails in US$19 million deceit case against China Aviation Oil - Trade Treasury Payments

Singapore Court rejects US$19 million deceit claim over letter of credit in circular oil trade

On 7 July 2025, the Singapore Court of Appeal dismissed a US$19 million deceit claim brought by Banque de Commerce et de Placements SA (BCP) against China Aviation Oil (Singapore) Corporation Ltd (CAO).

The case arose from a circular oil trade initiated by Zenrock Commodities Trading Pte Ltd (Zenrock), involving a cargo of gasoil and a series of back-to-back transactions. It focused on whether a letter of indemnity (LOI) presented by CAO under a letter of credit (LC) contained a false representation. The court found that it did not.

BCP is a Swiss-headquartered bank specialising in commodity trade finance. Its Dubai branch arranged financing for Zenrock Commodities, a Singapore-based trading company, to purchase a parcel of gasoil from China Aviation Oil (Singapore) Corporation Ltd (CAO). The transaction was structured as a circular chain trade. Zenrock initially acquired the cargo from Petco Trading Labuan, then passed title through a series of intermediaries, Golden Base, Shandong Energy, and CAO, before reacquiring it and on-selling it to Petrolimex Singapore, with payment expected 45 days after shipment.

CAO had purchased the cargo from Shandong Energy International (Singapore) Pte Ltd (Shandong) and resold it to Zenrock. The cargo itself originated with Petco Trading Labuan Company Ltd (Petco). Zenrock had acquired the cargo and executed a rapid series of on-sales, passing title through Golden Base Energy Pte Ltd, then Shandong, then CAO, and ultimately back to itself. Zenrock then sought to sell the cargo to Petrolimex Singapore Pte Ltd (Petrolimex) as the final off-taker.

According to CAO, it agreed to act as an intermediary in the trade because Zenrock required 45-day credit terms, whereas Shandong was only willing to offer 10-day terms. CAO earned a fixed margin of just over US$62,000 for facilitating the structure. The original bills of lading had been issued, but at the time of drawdown, they had not yet flowed down the chain to CAO. In accordance with the LC terms, CAO presented an LOI and invoice to claim payment.

BCP made the payment. Weeks later, the deal with Petrolimex was cancelled. Zenrock defaulted. The cargo never reached its intended destination. Left with an uncovered exposure, BCP sued CAO to recover the US$19 million, alleging that CAO’s LOI contained a false representation and was issued fraudulently.

The dispute centred on the meaning of the representation in CAO’s LOI, which warranted the existence, authenticity, and validity of the shipping documents, and CAO’s entitlement to possession. BCP argued that the LOI represented that CAO already possessed bills of lading endorsed to BCP Dubai, rather than merely being entitled to receive them. Since CAO did not, BCP alleged the statement was false and made without honest belief.

CAO denied the allegation. It said the LOI reflected commercial practice in chain trades, where title and documents move sequentially. CAO believed that Shandong would pass the bills to it, and that it would endorse them to BCP once received. It had received confirmation from the ship’s master that the cargo was loaded and relied on its seller’s contractual warranties.

The Court of Appeal agreed with CAO. It found that the LOI did not represent that endorsed documents were already in CAO’s possession—only that they existed and would be provided in due course. The court accepted that CAO had acted in good faith and had taken reasonable steps to verify shipment and documentation.

The court reiterated that in cases of alleged fraud, the test is not whether a statement is technically incorrect, but whether it was made dishonestly. On the evidence, CAO did not act dishonestly. It had entered into a genuine sale and purchase of cargo and had no reason to believe the documents would not flow down.

The court also rejected BCP’s broader arguments. It found that BCP had accepted the risk that Zenrock’s receivable from Petrolimex might not materialise. The LC expressly allowed for payment under an LOI. Internally, BCP had treated the transaction as unsecured. It could not later rely on the absence of endorsed bills to ground a fraud claim.

The loss, the court found, was caused by Zenrock’s collapse and the cancelled deal with Petrolimex, not by any misrepresentation by CAO. The claim was dismissed and costs were awarded against BCP.

Baldev Bhinder, Managing Director at Blackstone & Gold, and TTP Global Advisory Panel member told TTP, “It appears that the main thrust of the appeal was whether the letter of indemnity should be read literally to mean that CAO was representing that the BLs had to be endorsed to BCP at the time of presentation of the LOIs But as the court pointed out this ignores the very role of the LOI, which serves as an agreed alternative to endorsed BLs, for example because they are not available in time, which means the timing of the endorsement ceases to be critical.

“The argument that the LOIs require endorsed BLs also runs contrary to the practice of negotiable BLs in chain contracts, where endorsement can only happen when the BLs come into a party’s possession rather than an earlier point of time, when the LOI is presented. Ultimately, the decision of the Court of Appeal rightly accords with both common and commercial sense on how a LOI should be interpreted, especially given how it’s used in oil trading.”

The judgment clearly reminds us that banks bear the risk of counterparty failure unless dishonesty can be shown when LOIs are used in place of shipping documents in a chain trade. It also confirms that representations must be read in the commercial context in which they were made, not through overly literal interpretations.