The Singapore Court of Appeal has delivered a significant judgment clarifying the application of the tort of deceit in the context of international trade finance, particularly concerning the use of letters of indemnity (LOIs) in lieu of shipping documents.
Banque de Commerce et de Placements SA v China Aviation Oil (Singapore) Corp Ltd [2025] SGCA 33 involved a claim by Banque de Commerce et de Placements SA (BCP) against China Aviation Oil (Singapore) Corp Ltd (CAO) to recover US$19 million paid out under a letter of credit (LC). BCP alleged that CAO had made a fraudulent misrepresentation in an LOI. The Court of Appeal ultimately dismissed the claim, providing crucial guidance on how representations in such documents are to be interpreted and when they can be considered fraudulent.
The dispute arose from a circular chain of oil trading contracts. BCP financed its client Zenrock's purchase of a gasoil cargo from CAO. The LC issued by BCP allowed CAO to receive payment by presenting an LOI if the original shipping documents, specifically the bills of lading (b/ls), were unavailable. The LOI provided by CAO contained a key representation: "WE HEREBY REPRESENT AND WARRANT THE EXISTENCE, AUTHENTICITY AND VALIDITY OF THE DOCUMENTS," with "THE DOCUMENTS" being defined as the full set of b/ls "issued or endorsed to the order of [BCP]".
Zenrock subsequently became insolvent, and BCP discovered that the b/ls had never been endorsed to its order. BCP sued CAO in the tort of deceit, arguing that the representation in the LOI was false and made fraudulently because the endorsed b/ls did not exist when CAO made the representation.
Key legal principles and the Court's decision
The court's decision hinged on a detailed analysis of the elements of the tort of deceit.
Interpreting the Representation (Falsity): The first issue was to determine the meaning of CAO's representation. BCP argued for a literal interpretation: that CAO was warranting the actual, present existence of b/ls already endorsed to BCP's order. CAO argued for a contextual interpretation: it was warranting the existence of valid, unendorsed b/ls and representing its intention to endorse them to BCP in due course, once they were received down the sale chain.
The Court sided with CAO, holding that representations must be interpreted in their commercial context. Since the very purpose of an LOI in a chain trade is to facilitate payment because the original documents are not yet available to the seller, it would be commercially illogical to interpret the LOI as a warranty that the seller already possessed the fully endorsed documents. The Court found that a reasonable bank in BCP's position would understand the representation to mean that genuine, unendorsed b/ls existed and would be endorsed to its order in due course. On this interpretation, the representation was not false.
Assessing fraudulent intent (Dishonesty)
The Court clarified a critical legal point: the test for falsity is separate from the test for fraud. While falsity is assessed objectively from the perspective of a reasonable representee (the bank), fraud is assessed based on the representor's subjective state of mind.
Even if BCP's literal interpretation had been correct (and the representation therefore false), the claim in deceit would still have failed. To prove fraud, BCP had to show that CAO made the statement knowing it was false or with no honest belief in its truth. The Court found no evidence of dishonesty. CAO's subjective understanding was that it was warranting the existence of a genuine cargo and underlying documents, which it honestly believed to be true. The evidence showed CAO had performed its due diligence and genuinely expected the b/ls to be passed down the chain for endorsement. The Court held that as long as the representor's interpretation is not "destitute of all reasonable foundation," their honest belief in that interpretation will defeat a claim of fraud.
Representation, reliance and loss
Although not essential to its final decision, the Court disagreed with the lower court and found that the representation was made to BCP, even though the LOI was addressed to Zenrock. The Court reasoned that the LOI was created specifically to satisfy the LC's requirements for payment from BCP, and BCP was explicitly named in the document. Therefore, CAO intended for BCP to rely on it.
The Court also found that CAO's presentation of the LOI was an inducive cause for BCP to disburse payment, which led to BCP's loss of money. The Court said that, had it been necessary to decide, it would have held that CAO's representation did cause loss to BCP, and it does not matter that the aforesaid presentation of the LOI was not the only cause for BCP's loss.
This decision reinforces the importance of context in interpreting commercial documents and sets a high bar for proving fraud in deceit claims. The Court distinguished between the objective falsity of a statement and the subjective dishonesty required for deceit. For a party to be liable in deceit for an ambiguous representation, it is not enough for the statement to be technically false from the recipient's perspective; the claimant must prove the maker of the statement lacked an honest belief in the meaning they subjectively intended to convey. This provides a degree of protection for parties acting in good faith in complex, fast-moving commercial transactions like chain trades.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
