Chinese steel trader wins long-running documentary fraud dispute
The English Court of Appeal has found in favour of Chinese steel trader Sinocore International in a long-running dispute over forged trade documents.
The ruling, which will see Sinocore awarded US$4.9mn in damages, upholds an earlier judgement by the China International Economic and Trade Arbitration Commission (CIETAC), in a rare case of reciprocity between the courts in London and China.
The long-running case pertains to an incident in 2010. Sinocore agreed to sell US$1.2mn of rolled steel coils to RBRG Trading, a UK company. However, after it emerged that Sinocore had forged the bill of lading in order to comply with unsanctioned changes to the underlying letter of credit (LC) by RBRG, the deal collapsed.
In effect, both parties had altered documentation without the permission of the other. RBRG had instructed Rabobank, the issuing bank, to adjust the date on the LC in order to change the shipment period.
When the collecting bank, Bank of Communications, Beijing, tried to confirm the LC and collect the money, presenting the bills of lading in turn, it emerged that those documents had also been forged. In order to comply with RBRG’s alterations, Sinocore had amended the bills of lading without permission.
The case confirms that fraud does not always “unravel all”. In other words, the attempted fraud by Sinocore did not undermine its claims against the earlier forgery made by RBRG.
Brian Perrott, commodities partner at Holman Fenwick Willan (HFW), who represented Sinocore, says that “given the spectre of Brexit”, the case shows why the UK remains a popular destination for international trade dispute resolution, and that the enforcement of a Chinese ruling in London is a good precedent for both jurisdictions.
“Most of us spend a lot of our time trying to enforce London awards in China. What was unusual about this case was that we had a CIETAC, a Chinese award, being enforced in London, with a whole host of arguments about why it should or shouldn’t be,” Perrott tells GTR.
He adds: “I would like to see it as positive. When Chinese laws come to be enforced in London, this is a great precedent to say: ‘We are pro enforcement.’ It can only enhance the prospects of London awards being enforced in China because reciprocity matters.”
Other law firms in the trade finance space share the view that this elevates the status of London as a dispute resolution centre.
In a commentary on the case last year, Stephenson Harwood partner Andrew Rigden Green wrote: “The ruling in this case clearly demonstrates that although English judges generally take quite a dim view of fraud, they are nevertheless extremely reluctant to disregard or run roughshod over decisions by foreign arbitrators applying foreign law.”
Steven Wise, partner at Reynolds Porter Chamberlain, added: “This decision is a useful reminder that fraud, while not condoned by the court, does not always unravel everything. It is crucial to consider what the fraud is and whether it is an essential part of a party’s claim.”
This case is different to high-profile cases such as the Qingdao metals fraud, the Access World nickel fraud, or the Punjab National Bank letter of undertaking fraud, in that nobody was actually ripped off: neither of the banks involved, nor the buyer or seller, was deceived financially.
However, it reiterates the vulnerability of traditional trade finance instruments to manipulation. Paper-based trade is still dominant in many sectors, with many cases of fraud centred on document doctoring or duplication.
“Most of us are still surprised that technology and simplification of the process haven’t gained absolute traction. Most of us are children of Bolero really, and have yet to see the replacement of paper with electronic bills. It’s beginning to happen a bit more, but the vast majority of problems that come across my desk are always dealing with paper bills,” Perrott says.
This, for many, is the key argument for the digitisation of trade finance. While blockchain remains a huge buzzword in the industry, however, it is unlikely to take root until the underlying trade documents are digital: this seems to be a logical precursor to wider technological advancement.take me back