Zenrock (“ZR”) entered into an FOB sale contract with China Aviation Oil (“CAO”) on back-to-back terms, as CAO bought the same cargo from Shandong Energy (“SEIS”) under a contract of the same date. Banque De Commerce Et De Placements SA (“BCP”) agreed to finance this purchase by issuing an LC for US$20.5 million by relying on ZR’s representation that the cargo would be onsold to Petrochina International (East China) Co Ltd (“Petrochina”). The bank’s exposure was secured under an assignment of receivables due to Zenrock under Zenrock’s sale of the cargo to Petrochina. After CAO presented its LOI and invoice to the confirming bank (UBS), CAO then received UBS’s payment under the LC.

When BCP requested reimbursement from Petrochina, Petrochina informed BCP on 29 April 2020 that the sale contract between Zenrock and Petrochina was cancelled pursuant to a tripartite agreement. Zenrock was then placed under judicial management and liquidation from May 2020. BCP commenced litigation, claiming from CAO the sum disbursed under the LC, and alleged that the ZR-CAO contract was a sham and/or fraudulent transaction. This triggered a chain of actions against the parties downstream (namely the third party SEIS and the fourth party Golden Base Energy).

BCP claimed against CAO under multiple causes of action, which Mohan J dismissed at first instance. BCP appealed against the decision but the appeal was now specifically limited to the tort of deceit on the premise that CAO’s letter of indemnity contained false representations that were made without an honest belief in the truth.