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Banque Cantonale de Genève (BCGE) has lost its attempt to pin liability for non-payment by collapsed oil trader Gulf Petrochem on a shipowner that allowed a set of bills of lading to be switched.

The Swiss bank was also ordered to pay damages to Jeil International Co Ltd, owner of the Jeil Crystal, for wrongfully arresting the oil tanker in 2020.

In a judgment published on March 15, Singapore High Court judge S Mohan found the bank’s procedural failures when seeking the arrest of the ship were “quite shocking”.

The litigation in Singapore is one of many cases which sprang up in the wake of Gulf Petrochem’s demise in mid-2020. The company went into administration owing trade finance banks in Europe, Asia and the Middle East tens of millions of dollars for outstanding commodity trades and has been publicly accused by at least one bank of “widespread fraud”.

In May 2020, BCGE financed a purchase of 2,000mt of lube base oil by Gulf Petrochem’s Singapore subsidiary, GP Global Apac, from Thai trader IRPC. GP Global was to sell the oil to Prime Oil Trading Pte Ltd, which would repay BCGE’s letter of credit.

The judgment suggests the value of the cargo was around US$2.1mn, but does not explain if Prime Oil Trading ever received the cargo and why it did not pay.

As part of the transaction, the bank surrendered and endorsed the original bills of lading (BLs) to GP Global.

In June, the trader asked Jeil’s Singapore commercial operator to “switch” the BLs by voiding the existing documents and creating a new set, saying it would help the shipment clear customs in Bangladesh.

The operator agreed on the condition that the previous BLs were surrendered and voided. As a result, the previous BLs which listed the consignee as to the order of BCGE were cancelled and the new BLs were issued, consigned to the order of a Bangladeshi bank.

In August 2020, as banks were becoming aware of Gulf Petrochem’s dire financial predicament, BCGE asked the Jeil Crystal’s master not to discharge the oil, and in October obtained a warrant to arrest the ship, claiming to be the owner the BLs.

Jeil responded the next day, asking the bank for proof that it possessed the BLs and pointing out they had been cancelled months earlier. It took BCGE until early January the following year to admit that it did not own the BLs.

When it did, the bank abandoned its misdelivery claim against Jeil from and instead changed it to a breach of contract claim, arguing Jeil should not have switched the BLs without the bank’s permission.

But Mohan firmly rejected the bank’s claim, finding that from the moment it surrendered the BLs to GP Global, it “divested itself of any rights or interests” over the cargo.

As BCGE “has no rights of suit under the contract of carriage or status under the first set BLs to speak of, its claim against the defendant for breach of contract cannot get off the ground and must fail,” Mohan ruled.

BCGE’s case that Jeil wrongfully allowed the BLs to be switched was also dismissed by the judge. The bank, which did not have a trust receipt arrangement in place, knew it was relinquishing all rights over the cargo when it handed over the BLs, the judge found.

The lender’s breach of contract claim against Jeil “was an afterthought formulated with the benefit of hindsight  – specifically, hindsight of the GP Global group’s collapse and the plaintiff’s belated discovery of GP Global’s possibly fraudulent conduct”, the judgement says.

BCGE argued that Jeil’s representatives should have contacted the bank when GP Global requested the new set of BLs, given the documents were consigned “to the order of” the lender.

But the judge found that imposing a contractual duty on a ship owner or their agent to undertake investigations when asked to switch BLs consigned to order would be “commercially insensible”.

 

Wrongful arrest

In addition to dismissing BCGE’s claim against Jeil for breach of contract, Mohan dealt with a counterclaim by Jeil, seeking damages for the bank’s wrongful arrest of the Jeil Crystal.

Mohan ordered BCGE to pay Jeil US$126,380 in damages for the arrest because the bank failed to check it possessed the BLs before it sought an arrest warrant.

“There was gross negligence implying malice on the part of the plaintiff [BCGE] when it arrested the vessel,” the judge found. “This case is a quintessential example of an arresting party failing to properly apply its mind to whether it could legitimately arrest the vessel.”

Mahon also criticised how long it took for BCGE to determine that it did not have the BLs. Before filing the arrest warrant, the bank relied only on copies of the shipping documents provided by the banker in charge of its relationship with Gulf Petrochem, the same person who had previously released the originals to the trader. It did not check the records in its back office for several more months.

“The failings in this case were quite shocking, particularly for a financial institution like the plaintiff,” Mohan wrote.

“No evidence was led by the plaintiff as to any of its internal procedures, processes, or records for keeping track of important documents of title such as bills of lading; nor was there any evidence of any internal records by which the plaintiff could or did keep track of whether such documents were still with the plaintiff or had been released,” the judgment says.

“As a major trade financing bank, one would expect the plaintiff to have systems in place to check in respect of a particular financing transaction if documents negotiated under a letter of credit were still in its possession and, if so, what those documents were.”

BCGE did not respond to a request for comment from GTR.

The oil shipment at the heart of the dispute was one of several live trades that BCGE remained unpaid for when Gulf Petrochem entered voluntary restructuring, according to other lawsuits filed in India, Singapore and the UK.

Lenders including Natixis and UniCredit have pursued similar legal claims against ship owners that discharged Gulf Petrochem cargoes without possessing the original BLs.