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A UK appeals court has dismissed an attempt by financial services group Straits Singapore to shave off part of a US$282mn damages order arising from a fake warehouse receipt scandal.

Straits was ordered in February to pay the sum to commodities trader ED&F Man over its role in a “conspiracy” to defraud the company and Australian lender ANZ using forged warehouse receipts for nickel.

At the time, a High Court judge ruled that Straits was liable for losses suffered by ED&F Man Capital Markets (MCM) on 28 nickel repurchase (repo) agreements, because it knew that two Hong Kong companies were using copies of original warehouse receipts held by Straits to fraudulently claim ownership of nickel they sold to MCM.

In all, 92 forged warehouse receipts were used by the two Hong Kong firms – Come Harvest Holdings and Mega Wealth International Trading – in 2016 to sell nickel to MCM, who in almost every case simultaneously onsold the metals to the commodities division of ANZ.

In reality, the receipts were forgeries made by an unknown person with access to the originals held by Straits, which it had already pledged to its bank, Australia’s Macquarie. The High Court found that Come Harvest and Mega Wealth paid Straits an effective fee for use of the receipts.

When ANZ and other lenders including ING, Natixis and private equity group Carlyle attempted to inspect the nickel at warehouses, which they thought they owned thanks to the endorsed but fake receipts, employees of Straits crafted “misleading” and “dishonest” emails to the warehouse operator, Access World, to throw the banks “off the scent”, according to the February ruling.

The fraud unravelled in early 2017 when Marex, another financier, submitted receipts from Come Harvest and Mega Wealth to Access World’s authentication procedure.

Straits argued in hearings before three UK Court of Appeal judges earlier in December that the original judge incorrectly calculated the amount in damages the trader was liable for.

Instead of US$282mn, which is MCM’s loss minus some US$1.8mn in recoveries made from other defendants, Straits said it should only have to pay the amount that MCM owes ANZ.

While MCM’s nominal liability to ANZ was US$291mn, a settlement agreement between the two struck in early 2017 bound MCM’s parent company ED&F Man to pay an agreed sum to settle its liability to the bank. The sum has never been made public but the judgement reveals it is “considerably less than” US$282mn.

Straits’ barrister, David Lewis KC, argued that Straits should only have to pay the amount provided for in the settlement agreement, minus the US$7mn profit that MCM made on the trades at the time.

Lewis argued, according to the judges’ unanimously agreed summary, that deals between Come Harvest and Mega Wealth, and MCM and ANZ, were one overarching transaction, meaning that MCM’s liability to ANZ had to be considered when weighing Strait’s liability to MCM.

MCM argued in favour of the lower court judge’s interpretation that the two repo arrangements were separate and its dealings with ANZ “should be disregarded in assessing MCM’s damages”.

While the judges agreed with Straits’ arguments, reaching a different conclusion to the original judge, they still found that Straits was liable for the full loss, rather than just MCM’s liability to ANZ.

The settlement agreement, as updated in 2022, includes an amount which would become payable by MCM in September 2025. However, that amount can be reduced by funds recovered by MCM through litigation, which the judges said could include MCM’s High Court suit against Straits.

Therefore, assessing Straits’ liability on the basis of a payment amount that depended on the outcome of the very case being appealed “would be hopelessly circular” and “impossible”, the judges found.

Straits, a diversified financial services group, declined to provide an immediate comment on the decision, including whether it would pursue an appeal to the Supreme Court. ED&F Man did not respond to a written request for comment.

The case shocked the commodities financing industry when it became public in mid-2017, coming hot on the heels of the Qingdao metals fraud scandal which embroiled multiple heavyweight banks.

It raised further questions about due diligence conducted by lenders financing stocks held at warehouses in Asia, with an ED&F Man employee admitting in the 2021 High Court trial that he only “glanced” at Come Harvest and Mega Wealth’s financial statements and “did not understand” their business model.

The High Court judge also noted that “if any authenticity checks at all were carried out by ANZ they would have been minimal”, given the speed at which the bank paid MCM after receiving the fake warehouse receipt copies.

ANZ has pursued separate litigation against Come Harvest, Mega Wealth and other defendants in Hong Kong. A trial was slated for January this year but no judgement has been published.