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Singapore Court sets the record straight for structured trade finance transactions

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In response to the allegation of there being a conspiracy between Glencore and Hin Leong to injure UniCredit by unlawful means, the Court held at [182] that there was no evidence of any such conspiracy, and that there was also no evidence that Glencore knew, or ought to have known, that Hin Leong was misrepresenting to UniCredit that the goods were “unsold” when in fact they had been sold back to Glencore. The allegation of unjust enrichment was rejected by the Court at [188] on the ground that Glencore was legally entitled to the payment it received from UniCredit, as it had presented complying documents to UniCredit and further, since the payment was for a genuine sale of goods by Glencore to Hin Leong. UniCredit’s claim under the Master Discounting Agreement was held at [190] to be premised on there being fraud and illegality on Glencore’s part, which had been rejected by the Court.

Finally, as regards the allegation that there was a breach of the LOI (which stated that Glencore would surrender the BLs to Hin Leong), the Court at [194-195] held that (i) the LOI was enforceable by Hin Leong and not by UniCredit and further (ii) Glencore had not breached the LOI.


For the above reasons, the Court dismissed all of UniCredit’s claims against Glencore and held that Glencore was entitled to the payment which it received from UniCredit under the LC. There was neither fraud or deception by Glencore, nor was there any conspiracy or unjust enrichment, and consequently, UniCredit was not entitled to rescind the LC.

The High Court in this case linked on Goodwood Associates, Agricultural creditand Garnac Grain, and affirmed that sale and buybacks and circular trades are not sham transactions, even if done for the purpose of financing. The case further confirms that the fact that there was no physical delivery of goods or documents is of no importance in commodities trading where goods and documents do not physically pass through the hands of all intermediate traders.

We are pleased that the Court has taken this approach and upheld the cases of Goodwood Associates, Agricultural creditand Garnac Grain which deem circular or buy-back transactions as legitimate. In our experience, “structured commodity trade finance” transactions are the norm rather than the exception. Unfortunately, we have seen repeated instances of trade finance underwriters or lenders seeking to renege on their obligations on the basis that these transactions are fraudulent or otherwise improper, causing great hardship to our commodity trading clients. We are gratified that the Singapore Court has taken a commercial and practical view, citing prior case law with approval, that such structures are valid and a perfectly legitimate (and indeed, often necessary) means of funding the sale and purchase of commodities.

WFW has successfully assisted a number of our commodity trading clients in similar matters, and our team has considerable experience in achieving favorable outcomes. Should you require to discuss a similar matter, or any other aspect of structured commodity trade finance, please do not hesitate to get in touch with a member of our team.