The trading company accused by Trafigura of fraud has lost its second bid to avoid paying US$63mn to Hong Kong trade financier TransAsia Private Capital.

A Singapore judge has upheld a January 2023 ruling that UD Trading Group, owned by businessman Prateek Gupta, must comply with a guarantee it issued to TransAsia as part of a trade finance facility.

UD Trading made headlines last year when Trafigura accused Gupta-linked companies, including UD Trading subsidiaries, of defrauding it out of some US$500mn by obtaining financing for nickel that did not exist. Gupta and the companies deny fraud.  

The separate dispute with TransAsia stems from a US$60mn revolving trade finance facility the financier extended in 2019 to Canadian company Rutmet Inc, backed by an insurance policy from Export Development Canada, the Canadian export credit agency.  

Rutmet used the funds to buy metals and sell them to various companies within the UD Trading group, including UIL Singapore and UIL Malaysia.

UD Trading issued a guarantee to Rutmet promising to cover any debts if the subsidiary companies failed to pay for the metals. TransAsia was made the beneficiary of the guarantee as security for the financing.

The UD Trading companies ultimately did not pay for the metals, forcing Rutmet to default on the facility in 2019. TransAsia asked UD Trading to honour its guarantee, but it refused.

In last year’s ruling, Assistant Registrar Desmond Chong found firmly in TransAsia’s favour, describing UD Trading’s various defences as “vague, unparticularised”, “defective” and “wholly contrary to the relevant contracts”.

In the latest decision, Judge Vinodh Coomaraswamy upheld Chong’s ruling and dismissed UD Trading’s appeal. Coomaraswamy handed down his decision in March last year, but only published his written reasons this week.

“All of [UD Trading]’s defences are unsustainable and should be struck out,” Coomaraswamy found. UD Trading has also appealed the latest ruling.

UD Trading argued both in the original hearings and before Coomaraswamy that it did not have to pay the guarantee because TransAsia had improperly taken possession of two security pledges made as part of a separate loan agreement.

The seizure of the pledges – shares in a Cyprus-listed trading company and a gold mine in Australia – meant its debts to the financier had been satisfied, UD Trading claimed.

But Coomaraswamy upheld the previous ruling’s dismissal of this defence, finding there was not contractual or legal connection between the two separate loans, meaning that the security pledged under one deal could not be considered to have satisfied unpaid debts accrued in the other.

Although Coomaraswamy disagreed with the original judge’s finding that UD Trading’s guarantee constituted an on-demand performance guarantee, he found that it was nevertheless a contract that UD Trading was required to honour, in the absence of legitimate reasons not to, when its subsidiaries failed to pay Rutmet.

Overall, Coomaraswamy ruled that “the first defendant’s defence is legally and factually unsustainable and thus frivolous or vexatious” within the meaning of the court rules.

TransAsia, the law firm representing UD Trading and a spokesperson for Gupta did not respond to requests for comment.

Gupta is subject to a worldwide asset freezing order issued by an English court in February 2023 following an application by Trafigura, which purchased nickel cargoes from Gupta-linked companies, but inspections of some cargoes in late 2022 revealed they contained no nickel or any goods of value.

Gupta has since claimed that Trafigura staffers, including traders in Mumbai and at least one member of its trade finance team, were aware containers did not in fact contain nickel.

In December, an English judge knocked back an attempt to lift the freezing order, ruling that Gupta had failed to prove Trafigura was aware of the scheme, or participated in it. The case is ongoing.