Maersk Tankers has failed to overturn a Singapore court ruling ordering it to pay US$39mn to UOB, after the shipping giant discharged oil cargoes to collapsed trader Hin Leong without original bills of lading (BLs).
The case relates to barrels of gasoil purchased by Hin Leong from fellow trader Winson Oil in early 2020. The cargoes were unloaded by Maersk in Singapore when Winson issued a discharge letter of indemnity, after which Hin Leong applied to Singapore-headquartered lender UOB for a letter of credit to finance part of the purchase.
In order to release payment without waiting for the original BLs to arrive, Winson issued a payment letter of indemnity, a commonly used instrument in oil trading. But shortly afterwards, Hin Leong collapsed into insolvency in what became a notorious fraud scandal.
UOB won a Singapore High Court ruling in November last year against Maersk and Winson, claiming that discharging the cargo against the letters of indemnity – rather than the original BLs – was a clear case of misdelivery.
Maersk and Winson appealed that ruling, arguing that the way UOB structured its financing meant it did not genuinely consider the original BLs as security over the cargoes, and therefore had no legal right over them.
The Denmark-headquartered company previously claimed UOB knew the cargoes had been discharged at the time it issued the letter of credit and did not initially have any concerns, only pursuing the original BLs after Hin Leong’s insolvency.
Maersk had argued this action was taken by the bank to contrive a misdelivery claim and minimise its exposure to Hin Leong, and that UOB’s genuine security over the cargoes was in the form of receivables for onward sales that would be assigned in its favour.
But in a Singapore Court of Appeal judgment issued on September 5, a trio of judges found that Maersk’s focus on whether UOB regarded the original BLs as security “entirely miss the mark”.
The right to delivery of cargo based on holding a valid bill of lading is set out in UK and Singapore law, they ruled.
“The intention with which UOB acquired the [original BLs] is completely irrelevant to and cannot change the nature of the rights that it acquired by operation of law,” they said.
The judges added that even if that argument from Maersk had succeeded, they would have disagreed that UOB did not regard the original BLs as security.
“It is one thing to suggest that UOB did not place primary reliance on the [original BLs], but quite another to suggest that UOB did not regard the [original BLs] as having the intended legal effect, or any legal effect for that matter,” they said.
That scenario would essentially be equivalent to UOB extending an unsecured loan to Hin Leong in spite of the terms of the letter of credit, which would not make commercial sense, the judges found.
The Court of Appeal also dismissed a claim from Maersk that damages awarded should be reduced.
Maersk argued that the market values of the cargoes should have been calculated at US$28mn-US$30mn. The valuation process involved assessing UOB’s hypothetical ability to sell the cargoes had they not been misdelivered, and was complicated by unloaded occurring on a Saturday, when markets were not open
Maersk also called for a reduction of nearly US$11mn to account for funds recovered by UOB from Hin Leong’s liquidators.
But the three judges found the High Court’s assessment of market value to be appropriate, and that the recoveries from Hin Leong are to be considered a separate arrangement.
The outcome contrasts with a 2022 case in which UniCredit failed to claim nearly US$25mn in damages from shipping company Euronav, after oil cargoes were discharged by ship-to-ship transfers without the presentation of original BLs.
According to Singapore-based lawyer Max Lim, a partner in the marine and trade practice at Penningtons Manches Cooper, the decision in UOB’s case “is a reaffirmation of the orthodox view, namely that original BLs in the hands of a financing bank are its security and regarded by the bank as being of full legal effect”.
“It will take truly exceptional facts and evidence in order to prove that a financing bank does not regard the original BLs as having any legal effect,” he tells GTR.
Maersk Tankers and UOB did not comment when contacted.
