Euro-Asian Oil SA v Abilo (UK) Ltd & Ors [2016] EWHC 3340 (Comm) (21 December 2016)

119. Later that day Mr Duman emailed Mr Igniska with two sale contracts, one from Abilo to Euro-Asian, the other from Euro-Asian to Neptune, for the sale of about 15,000 mt of ULSD delivery CIF Constanza 6 November - 31 December 2009. He asked Mr Igniska to sign and return them so that a letter of credit could be opened.

120. In the email Mr Duman also explained that Euro-Asian's financial controller in Moscow had refused to have payment against an invoice and letter of indemnity for missing documents, since there was plenty of time to have the shipping documents delivered by the due date.

121. Shortly after, Mr Igniska telephoned Mr Duman and then emailed objecting to what the "financial controller in Moscow" was suggesting. Mr Igniska proposed the same approach as in an extant letter of credit with Kronos.

122. Mr Duman sent revised contracts on 9 November, which were entered that day: a contract under which Euro-Asian agreed to buy and Abilo agreed to sell 19,100 mt +/- five percent in seller's option ULSD, maximum 10ppm sulphur, CIF Constanza ("the First sale contract"). The signed copy on Abilo's part came from Edelweiss.

123. In the contract the delivery clause was CIF. It did not name a vessel, providing that it was TBN, to be notified. The period identified was 6 November - 31 December 2009.

124. As well there was a contract under which Neptune agreed to buy and Euro-Asian agreed to sell the same quantity and quality of product. The payment clause in the Euro-Asian/Neptune contract provided that payment should be covered by a holding certificate issued by the Constanza oil refinery with oil being released by Euro-Asian's bank, BNP Paribas, on payment.

125. Title and risk were to pass to the buyer upon release of the holding certificate by BNP Paribas at the discharge port. In his evidence Mr Michailov accepted that this meant the spirit of the Neptune contract differed from a CIF contract, as a matter of law it did.

The Dominia's cargo

126. The reference to the Dominia cargo in Mr Igniska's email of 5 November 2009 was undoubtedly to a cargo on that vessel under a bill of lading with a shipped on board date of 6 November 2009 from the Priolo-ISAB refinery in Sicily. There is a timesheet from the shipping agent at the Sicilian terminal, signed by the terminal and Dominia's master, confirming loading over 5/6 November.

127. The Constanza oil terminal faxed Romanian Customs and Excise on 5 November 2009 about a quantity of about 30,000 mt of gasoil to be discharged there by the vessel Dominia, recipient DG Petrol, the vessel having advised her arrival on 9/10 November 2009. DG Petrol was to undertake customs formalities.

128. The journey for a tanker between Priolo and Constanza is, Mr Michailov said in his evidence, about 6-7 days. In the ordinary course, Dominia's master notified various persons, including DG Petrol, Glencore and Clarksons that the vessel had arrived in Constanza on 11 November.

129. The Dominia's cargo was fully discharged on 13 November 2009 and the vessel departed. The Dominia's time at Constanza is confirmed in daily port reports from the Cargo Inspections Group. DG Petrol informed Real Oil on 17 November 2009 that the final invoice should cover 31,411 mt of cargo.

130. There had been an email on 6 November 2006 from DG Petrol in Bucharest to various parts of the organisation, including DG Petrol in Constanza, copying in Mr Igniska and Real Oil, with high priority, "Re m/t Dominia". It referred to previous instructions, from August that year, that following a complaint from Euro-Asian, Euro-Asian and other companies should be informed on a prompt basis of the vessels they were financing.

131. The "new instructions" which DG Petrol, Bucharest, set out in the 6 November email, were as follows:

"YOU WILL NOT SEND E-MAILS AND/OR ANY CORRESPONDENCE OR SIMILAR in connections to the next vessel to discharged into DG Petrol account in Constanza to Messrs EURO-ASIAN OIL AG.

You will send informations to Real Oil Development Inc, as usual, on important development on vessels' operations. And, of course to the list of receivers as indicated/instructed by owners or charterers."

132. There was a sale contract dated 9 November 2009 signed by Abilo and DG Petrol for the sale of up to 200,000 mt 10ppm max. sulphur ULSD, first delivery to be effected on board the Dominia with a bill of lading dated 6 November 2009.

133. As well there was a provisional invoice dated 10 November sent by Real Oil to DG Petrol to cover "our delivery CIF Constanza on board M/T Dominia, as per bill of lading dated November 6, 2009". The provisional invoice was for the sale of 31,443 mt in air of ULSD 10ppm for Real Oil to DG Petrol, in other words, the entire cargo of the Dominia.

134. An email from DG Petrol Constanza to Real Oil in the evening of 10 November attached the bill of lading from the Dominia, which had been forwarded by the vessel's master, "for customs formalities". Real Oil and DG Petrol were now named as the receivers in the bill of lading.

135. There is no doubt that Abilo treated the Dominia's cargo as its own and that DG Petrol obtained it. That is clear from:

i) the request to the Romanian customs on 5 November 2009 that DG Petrol would take its entire cargo; and

ii) the dealings between Real Oil and DG Petrol.

It is also clear from the DG Petrol, Bucharest email of 6 November 2009 that this operation was being concealed from Euro-Asian.

First letter of credit

136. On 9 November 2009, Euro-Asian applied to BNP Paribas to open a letter of credit that day in Abilo's favour for 19,100 mt +/- 5 pct ULSD 10ppm CIF Constanza during 6 November - 31 December 2009. The cargo, it said, was sold to Neptune under the related sale contract. Vitol was copied in to the application. Mr Igniska was sent a copy of the application separately.

137. At the trial, Mr Igniska objected vigorously to Vitol being informed of his companies' business. He said that in doing so Euro-Asian was providing information to a competitor. However, Vitol's involvement and the reasons for it have no relevance to the issues in these claims.

138. Late that same day, BNP Paribas advised Abilo's bank, Credit Suisse, that it had opened the letter of credit requested that day ("the First letter of credit"). Euro-Asian was the applicant, Abilo the beneficiary. It was available at Credit Suisse in Geneva by deferred payment, the terms being 90 days after the bill of lading date. The shipment period was 6 November - 31 December 2009 and the cargo was described as in the application.

139. In the event that a full set of bills of lading and associated shipping documents were not available when payment became due, the First letter of credit provided that payment should be made against Abilo's invoice and a letter of indemnity in the form set out in the letter of credit ("the First letter of indemnity").

140. The First letter of credit provided that the documents could be presented later than 21 days after the bill of lading date, but within the period of validity of the letter of credit itself.

First Credit Suisse letter of credit

141. Mr Igniska emailed Credit Suisse on 10 November, referring to the new, the First letter of credit, opened in its favour by Euro-Asian. He expressed the wish (referring to the discussions he had had at Credit Suisse in September to increase operations with the bank) to use it as collateral to open a letter of credit in favour of Glencore. Mr Igniska agreed in evidence that Abilo needed the First letter of credit before Credit Suisse would open its letter of credit, a point which Mr Michailov said in his evidence he fully appreciated.

142. Credit Suisse agreed to a letter of credit that day, 10 November 2009 ("the First CS letter of credit"). Dated 10 November 2009, the First CS letter of credit had Abilo as the applicant and Glencore as the beneficiary. Validity was until 31 December 2009. Payment was deferred, at ten days after the notice of readiness tendered date at the discharge port.

143. If the bill of lading and other shipping documents were not available, payment was to be against presentation of Glencore's invoice, a copy or photocopy of the bill of lading and Glencore's letter of indemnity.

144. The shipping period under the First CS letter of credit was between 6 November - 31 December 2009 CIF Constanza on board Dominia or a substitute. Payment was to be at the maturity date. Documents presented later than 21 days after the shipment date, but within the validity of the letter of credit, were acceptable.

145. Credit Suisse purchased Abilo's claim against BNP Paribas under the First Letter of Credit at the same time that it opened the letter of credit in favour of Glencore. Under the purchase of claim letter of 10 November 2009, on Abilo presenting documents through it to BNP Paribas, Credit Suisse would pay the amount due under the letter of credit against fully conforming documents upon receipt of cover. The purchase of claim letter added that, should payment under the letter of credit reach Abilo through any other channel, Abilo would immediately transfer the amount to Credit Suisse.

146. On 11 November 2009, Mr Igniska emailed Messrs Michailov and Duman as follows:

"Finally CS opened the L/C so the vessel arriving this evening in Constanza will discharge without delays. Many thanks for your GREAT support! Please be sure that we'll close everything in the right way, as per my promises. For next move, I can estimate a cargo within 15-31 December. Maybe you'll consider to switch to [Crédit Agricole]."

147. Glencore's invoice to Abilo for 20,055 mt ULSD was dated 16 November 2009. The payment due date was 20 November 2009. On 19 November 2011, Glencore sent both a revised commercial invoice and the letter of indemnity to Credit Suisse both dated that same day. Ultimately, the Glencore/Abilo commercial invoice was for 20,000 mt.

148. Glencore's letter of indemnity to Abilo regarding the Credit Suisse letter of credit was not countersigned by a bank, given its own credit standing. Its terms were mirrored in the First letter of indemnity.

149. Credit Suisse emailed Mr Igniska the following day, 20 November 2009, noting that they had received a complying presentation from Glencore, maturing that day. Credit Suisse said that it intended to pay Glencore US$13,157,600.

150. The email attached the Abilo commercial invoice for 19,100 mt of ULSD, with the maturity date of 4 February 2010, and the Abilo letter of indemnity and added:

"As we will finance this transaction, kindly check the attached invoice and [letter of indemnity] related to the Euro-Asian Oil L/C [from BNP Paribas] and if they are in order, please return a signed and stamped set to us. We'll keep them in our file and present them only in case of default of payment from Euro-Asian Oil (if nothing received by 28.01.2010, maturity being February 2010)."

The reference to default apparently meant if Euro-Asian did not pay outside the letter of credit.

151. Credit Suisse faxed Abilo the same day, their reference being the BNP Paribas letter of credit, Abilo's reference being the Dominia:

"Upon your request, we do not present documents yet. However, should we not receive necessary cover for our financing under [its] L/C... by latest on February 1 ^st, 2010 we will apply the documents under this letter of credit."

152. A few days later Credit Suisse informed Mr Igniska that Glencore had provided seven bills of lading, so could he identify those which related to Abilo. Credit Suisse required Abilo's signed commercial invoice and letter of credit "so we can hold them in our files (for audit purposes or in case of non-payment from Eur[o]-Asian Oil)".

153. The head of the trade finance unit at Credit Suisse, Mr Barras, said in evidence that he had approved the procedure of holding back presentation of the documents. He was asked about what Euro-Asian characterized as "sitting on the documents" in cross-examination:

"Q. Who proposed the idea of sitting on the documents like that for two and a half months?

A. I think that was based on, let's say, previous practice whereby actually for this type of transaction sometime the end buyer would repay outside the letter of credit the value of the cargo."

154. Mr Barras was asked about the credit risks involved in the delay in presentation of the documents:

"Q. What credit risks did you assess that the bank was running by doing this?

A. The credit risk which the bank was running is the default of payment by BNP Paribas.

...

Q. You obviously have Abilo, as your ultimate debtor, to cover that --

A. Yes.

Q. -- if something goes wrong, yes?

A. Yes.

Q. Your only security in relation to that, beyond Abilo's creditworthiness, is the possibility of making a claim on BNP Paribas.

A. Yes.

Q. But you are not actually going to make any claim on BNP Paribas at this point.

A. No, but we know that we have the complying documents in our file."

155. There were also questions to Mr Barras about whether, because of the delay in presenting the documents to BNP Paribas, the First CS and the First letters of credit were still back to back:

"Q. It is certainly true that once you enter into this arrangement you are really not back-to-back any more, are you?

A. We are back-to-back.

Q. You have received a complying presentation that now commits you to pay on a particular maturity date that is with Glencore.

A. Yes.

Q. And you are then going to sit on, if you receive them at all, documents that you receive from Abilo. Correct?

A. Yes, but we were -- I mean, we knew that we would be receiving those signed documents which were already prepared.

Q. Those documents will not be original shipping documents, correct?

A. Invoice and letter of indemnity.

Q. As far as you are actually aware, for all you know there might be no original shipping documents in existence.

A. But we have a letter of indemnity produced by Glencore."

March 2010 presentations

156. In January 2010 Credit Suisse agreed to extend the First CS letter of credit payable at 120 instead of 90 days, if the BNP Paribas letter of credit was similarly extended. Mr Igniska had requested this on 25 January 2010 on the basis of the heavy winter conditions affecting sales in the region and "in order to be much closer with the next delivery schedule...". Credit Suisse accepted this explanation.

157. Euro-Asian agreed to the extension and put the request to BNP Paribas. As a result the shipment period became 6 November 2009 - 15 March 2010, instead of 6 November 2009 - 31 December 2009.

158. Credit Suisse reminded Mr Igniska on 24 February 2010 that its financing under its letter of credit was maturing on 5 March 2010 and could he advise when Euro-Asian would pay the US$13,234,000 due under the First (the BNP Paribas) letter of credit.

159. On 1 March 2010 Mr Igniska emailed Messrs Michailov and Duman of Euro-Asian that he proposed to close that letter of credit transaction "with a physical transaction". He said that he had put a Euro-Asian/Real Oil contract for 20,000 mt ULSD under a holding certificate, in Constanza in favour of Euro-Asian/BNP Paribas. The next letter of credit would be opened only after diminishing the holding certificate.

160. Following various exchanges, Mr Duman replied that afternoon, 1 March 2010, enclosing a signed copy of the Euro-Asian/Real Oil contract (in substitution for the Euro-Asian/Neptune contract).

161. Mr Duman added that it had been mutually agreed that (1) Mr Igniska would send the bills of lading and quality certificates covering delivery of 20,000 mt ULSD; (2) prior to cashing the First letter of credit, Mr Igniska would send the holding certificate issued by Constanza's oil terminal, confirming that the oil in storage, covering 20,000 mt ULSD, was Euro-Asian's property and pledged in favour of BNP Paribas; and (3) Mr Igniska would send a copy of Abilo's commercial invoice and letter of indemnity, co-signed by Credit Suisse, at the same time as actual presentation.

162. Mr Michailov's evidence as regards point (2) of this email was that Mr Duman was intending by it to obtain a holding certificate for the oil in favour of Euro-Asian before presentation to BNP Paribas of the commercial invoice and letter of indemnity under the First letter of credit.

163. On 1 March 2010 Mr Igniska also informed Credit Suisse that after discussions with Euro-Asian there would be a claim under the First Letter of Credit.

164. The following day Credit Suisse countersigned Abilo's letter of indemnity because it was "within the frame of the back-to-back transaction involving [the First Letter of Credit]." Mr Barras said this in cross-examination:

"Q. Am I right to think that the bank took no steps whatever to satisfy itself that the warranty promises that Abilo was making in that letter of indemnity were true in March 2010?

A. The bank was again not questioning this, since the bank did receive the same warranty of title from the sellers.

Q. So the bank was happy to countersign Abilo's warranty of title in March 2010, based on Glencore's warranty of title in November 2009?

A. Yes, yes."

165. In evidence which I accept Mr Barras said that Mr Igniska did not tell the bank about the fate of the Dominia cargo or about what he was telling Euro-Asian at the time. The bank did not make inquiries since it relied on the back to back credit from BNP Paribas.

166. Abilo's letter of indemnity mentioned the Dominia in its opening sentence:

"We refer to the cargo of 20,000.00 m/tons of ULSD 10ppm max sulphur shipped on board M/T ' Dominia' at Santa Panagia Bay pursuant to bills of lading dated 06.11.2009."

Credit Suisse was sent a copy of Abilo's commercial invoice, which also mentioned the Dominia, under the heading "Vessel Name".

167. The same day, 1 March 2010, Mr Duman of Euro-Asian chased Mr Igniska for copies of the documents - the signed Real Oil contract; the bills of lading and certificates of quality, the holding certificate confirming that the goods were Euro-Asian's property and pledged for the order of BNP Paribas ("prior to your cashing the [letter of credit]"); and a copy of Abilo's commercial invoice and letters of credit.

168. In evidence which I accept Mr Duman said that he told Mr Igniska to perform the contract properly and he requested the holding certificate because that was how the sales contracts were to operate; in other words, payment by Real Oil was to be by instalments.

169. Mr Igniska sent the documents. As well as the commercial invoice and letter of indemnity, the shipping documents referred to a shipment in November 2009 and to the Dominia. The Real Oil contract did not.

170. The presentation of a commercial invoice and letter of indemnity under the First letter of credit was made by Credit Suisse on 3 March 2010.

Delivery under First sale contract

171. The cargo, which had been on board the Dominia, was not available for delivery under the First sale contract. As we have seen, DG Petrol obtained Dominia's cargo. What Abilo instead delivered under the First sale contract was product in tank at Constanza. There had been a discharge of ULSD by the Nicos Tomasos at Constanza 24-26 February 2010 under bills of lading dated 14 February 2010. It is very likely that some or all of that was used to produce the holding certificate.

172. On 4 March 2010, Euro-Asian emailed Mr Igniska urgently for a copy of the holding certificate, issued by the Constanza oil terminal confirming the 20,000 mt ULSD was its property and pledged to BNP Paribas.

173. Sometime that day, the terminal made an in-tank transfer of 20,000 mt:

"according to the instructions received on 4 ^th March from Abilo (UK) Ltd."

It notified this to both Abilo and Euro-Asian the following day. The certificate referenced the discharge from the Nicos Tomasos. Mr Duman's evidence was that this in-tank transfer certificate was sent to Euro-Asian by mistake, and that generally the terminal did not send them. The in-tank transfer certificate demonstrates to my mind that Abilo, through Mr Igniska, was treating the cargo as its own and not Euro-Asian's.

174. A holding and title certificate was then issued, dated 5 March 2010, with no reference to the Nicos Tomasos. The certificate was addressed to BNP Paribas and Euro-Asian and in favour of the bank. BNP Paribas acknowledged receipt of the certificate stating that the oil was pledged to it and that it had a first priority security interest in it.

175. Mr Michailov's evidence about this in cross-examination was that he was very relieved after an anxious period to receive the holding certificate, but that this was not part of any scheme. He added that he did not anticipate that Mr Igniska would use the Nicos Tomasos documents for presentation under the Second letter of credit:

"A. For me, the important thing after the cashing of the Dominia L/C and spending a whole day without a holding certificate, for me the most important was to have oil in tank pledged to BNP Paribas. So when we -- eventually, when Mr Igniska appeared after a day leaving us dry and this thing appeared, this holding certificate appeared, I was very relieved at the time. I was very relieved because I have paid for, by L/C, and I have a holding certificate in my hand.

Q. That, I was going to suggest to you, was the deal. As Mr Igniska said, he was going to close -- as he said right at the beginning, he is going to close things the right way; there would be a presentation under the letter of credit, there would be a holding certificate in respect of the same amount of oil that the bank was paying for under the letter of credit, but the holding certificate wouldn't come from the same ship. But that didn't bother you.

A. I would not say that this was the closing a deal the right way. Our agreement was clearly stated in the contracts, and closing a deal that way was not the right way at all.

Q. With due respect, again, you get this document and there is no record of any complaint that you or anyone in your company make to Mr Igniska.

A. At the time I was very relieved and happy to have oil in tank.

Q. So the answer is there is no record of any complaint?

A. I don't find any record, no.

Q. Because you didn't complain to him at the time.

A. Probably not at the time."

176. Mr Duman's evidence was that he had realised on 2 March 2010 that Abilo was obtaining payment on the First sale contract and First letter of credit for the Dominia cargo, which no longer existed. His evidence was that at that point, since Euro-Asian had received product of the same type and value, it did not matter.

177. In their witness statements, both Mr Michailov and Mr Duman said they were shocked by Mr Igniska presenting documents nominating cargo on board the Dominia, which had long since been delivered. Their evidence was that they complained to Mr Igniska by telephone. There is no documentary evidence that they did complain.

178. Overall I accept the evidence of Mr Michailov and Mr Duman. This was not what they intended or expected. I also accept that they did not persist in their protests because they were reassured by the entry into the Second transaction, which enabled Mr Igniska to retrieve the situation, but more importantly, as Mr Michailov said, by the fact that they received a holding certificate for the requisite quantity of gasoil.

179. As a footnote, there was no notice of nomination of the vessel or of the arrival of the cargo for delivery under the First sale contract before that cargo was discharged. The same applied with the later transactions. Mr Igniska's evidence was that there were no protests about this from Mr Michailov or Mr Duman. That seems right. There are no documents on file with Euro-Asian where it complained to Abilo about the omission.

180. To complete the story on the First transaction, the oil held under that holding certificate issued by the Constanza oil terminal was released by BNP Paribas under the First Real Oil Contract to Real Oil, expressly for further transfer to DG Petrol. That was done in eight stages, against eight part payments by Real Oil, between 24 March 2010 and 19 May 2010. The Constanza oil terminal confirmed each release and the amount remaining under the holding certificate.

The second transaction

Second Sale Contract

181. What in this case is called the Second Sale Contract is dated 12 February 2010. Euro-Asian agreed to buy and Abilo agreed to sell 20,000 mt +/- 10 percent in seller's option ULSD max 10ppm sulphur CIF Constanza. As with the First Sale Contract on the same day a contract was entered into under which Real Oil agreed to buy and Abilo agreed to sell 20,000 mt +/- 10 percent in seller's option ULSD max 10ppm sulphur ("the Second Real Oil contract").

Second letter of credit

182. There was also a letter of credit dated 12 February 2010, opened at Euro-Asian's request in favour of Abilo under the Second sale contract ("the Second letter of credit"). However, this time the issuing bank was Crédit Agricole, Geneva.

183. Crédit Agricole had approved the principle in mid-January 2010 on the basis of Mr Duman's explanation in an email of 26 November 2009. In that email Mr Duman set out the details of Euro-Asian sales of gasoil ULSD 10ppm into Romania.

"Basically, we buy on the market cargoes of 20-30,000 metric tons delivery Oil Constanza and sell them back-to-back [including the price formula] to a company we are smoothly working with for quite some time, Real Oil Development Inc.

On the purchase side, payment is effect 05-10 days after NOR at Constanza, against an irrevocable D/C.

On the sale side, the cargo is being discharged in the shore tanks of S.C. Oil Terminal S.A. - Constanza [still a state owned organization] and kept at the disposal of the financing bank [holding title to the goods] against a Holding Certificate.

...

The oil is being released to Buyer in instalments, upon receipt of payment guarantees [D/Cs or cash] fully covering the released quantity and based exclusively on the financing bank release instructions sent to S.C. Oil Terminal S.A. - Constanza.

The time between the oil being discharged and fully released varies, but it usually takes 30-45 days and Buyer pays interest [usually LIBOR + 2.0%] for the extra credit vis-à-vis the purchase payment terms.

The amount involved in financing one single such transaction is about US$15.0million +/- 10%."

184. Crédit Agricole's involvement came as a result of Mr Igniska's suggestion in late 2009 that it be approached to provide the next letter of credit. On 8 January 2010 he had emailed Mr Michailov and Mr Duman asking whether an application had been made, adding that he intended to work a new shipment to Constanza in early February and wanted to know if it could be on the same basis as the First transaction.

185. In his reply, Mr Michailov inquired why the BNP Paribas letter of credit should not be used to cover the February shipment. A week later, on 18 January 2010, Mr Michailov asked again: "[a]ny thoughts re the BNP L/C please?"

186. Later that day Mr Igniska stated: "In respect of BNP, I have asked Glencore to work a cargo for delivery Constanza within 5-10 February 2010." A few days later Mr Michailov told Crédit Agricole that he did not know who the supplier would be, but it might be Glencore.

187. On 11 February 2010 Mr Igniska emailed Messrs Michailov and Duman about working a cargo of 29,665 mt ULSD on board the Ocean Quest with a bill of lading dated 30 January 2010, to be delivered in Constanza 13-15 February.

"Do you think we can work it through Crédit Agricole? For instance to say delivery by latest March 31 ^st. First to work the volume out of this cargo [and] then after to utilize for a physical delivery May?"

188. In cross-examination, Mr Igniska's stilted but plausible explanation of the 11 February 2010 email was as follows:

"Q. ...You are suggesting to "work the volume out of this cargo and then after to utilise for a physical delivery May"; what were you going to utilise for a physical delivery May?

A. Again, seeing this message, could not come to my memory only that case. Exactly that will be possible to be needs for two cargoes; one to supply, meaning one to cover somehow the monthly needs of DG Petrol, and another volume to cover the needs for the contract with Romanian State authorities, Romanian rail authorities.

Q. But neither DG Petrol nor the Romanian State authorities are referred to in this message.

...

A. It is not mentioned, but as a matter of fact always the cargo was discharged in Constanza for DG Petrol."

189. Mr Michailov replied to Mr Igniska's email of 11 February 2010 that Euro-Asian would like to utilise the BNP Paribas letter of credit. Moreover, he felt that it was not a good idea to ask Crédit Agricole to open a letter of credit at that point, which was to be utilised at the end of May, especially since this would be the first deal with them. Mr Igniska replied a short while later:

"This is not very good for me as I've made same plans based on this [Crédit Agricole] scheme.

What about to have then an advanced shipment, earlier than in May, let's say by latest end March? To have it for 20,000 mt from [Crédit Agricole] and 10,000-15,000 mt from BNP?

Till then I'll use this 20,000 from [Crédit Agricole] for this prompt shipment and I'll close it till the next shipment in March?"

190. As opened, the Second letter of credit provided for deferred payment at 90 days after the bill of lading date. That was an amendment from notice of readiness plus 10 days and had been put to Crédit Agricole's credit committee. Shipment in the bill of lading was in one lot between 15 February - 31 March on board "M/T to be advised".

191. Once he knew Crédit Agricole had agreed a letter of credit, Mr Igniska informed his own bank, Credit Suisse. In an email on 25 January 2010 he stated his intention to have a new back-to-back operation with a letter of credit to be opened by Crédit Agricole.

192. Credit Suisse agreed in principle, conditional on receipt of all necessary information and the timely presentation of documents.

193. On 23 February 2010, DG Petrol at Constanza informed Real Oil, copied to DG Petrol in Bucharest, that the Master of the Nicos Tomasos said it would arrive at Constanza at midnight on 25 February 2010.

194. That day, DG Petrol in Bucharest emailed DG Petrol in Constanza and Real Oil that instructions from management were that only Real Oil should be informed of the information.

195. The Nicos Tomasos discharged its cargo of some 30,000 mt ULSD at the Constanza terminal on 26-28 February 2010. Its bill of lading recorded some 30,000 mt gasoil, and specified that Abilo, Real Oil and DG Petrol were to be notified.

196. There was a flurry of emails between Mr Igniska and Credit Suisse on 1 March 2010. Late that morning, Mr Igniska proposed a third letter of credit, to Credit Suisse but it replied that it would only do so once the first transaction (with maturity on 5 March) was settled.

197. Mr Igniska retorted that this was introducing a new condition into the relationship: if that was to be Credit Suisse's approach it should give warning in due time to provide the opportunity to approach another bank.

198. In an important email in reply, Credit Suisse set out its position:

"I kindly remind you that the conditions agreed at the very beginning have evolved as you have asked us to extend the period of your financing for the 2 transactions under way - which we have agreed to do in order to support your business. We think to be quite flexible to settle these tailor-made transactions which other banks won't probably agree to handle.

On Friday it wasn't even sure how Euro-Asian Oil would pay the proceeds due under [the First Letter of Credit] and I've told you by phone that we are willing to support you for another transaction provided we get the payment for another one.

You should understand that we can exceptionally agree to issue the [Second Letter of Credit] (and go on for another transaction) before having received the funds, but however we should at least have in hands documents allowing us to claim payment from Euro-Asian Oil."

199. On 2 March 2010 Credit Suisse opened its letter of credit for Abilo ("the Second CS letter of credit"). It proceeded with its purchase of claim under the Second letter of credit, after being assured it would be backed by another transaction, as with the previous transaction. The Second CS letter of credit was again in favour of Glencore.

200. Glencore claimed payment under it on 2 March 2010 by presentation of the signed commercial invoice (Glencore/Abilo), its letter of indemnity and a copy of the bill of lading, dated 14 February 2010. Those all referenced a cargo on Nicos Tomasos.

201. However, Glencore raised the issue that the bill of lading for the Nicos Tomasos was dated 14 February 2010. Credit Suisse agreed with Glencore that this required an amendment of its letter of credit.

202. Credit Suisse spelt out the reasons to Mr Igniska for the amendment and also that it meant that a similar amendment in the Second letter of credit issued by Crédit Agricole had to be made:

"It is understood that you will claim payment under the Euro-Asian Oil L/C only with your invoice and LOI and this without presentation of B/Ls. However your invoice should mention b/l date and we will have to countersign your LOI. That means that sooner or later you will have to present original documents in cancellation of your LOI which have to match with what was indicated in your own documents. Beside the fact that point 9 of 47a allows presentation of documents issued before opening date, the shipment clause restricts the period to 15.02 - 31.03.2010 in both l/cs. So Glencore is right: the b/l date will be a discrepancy (not only because they have to present a copy of b/l but also they have to stipulate b/l date in their LOI.

So I suggest you to amend the 'shipment clause' of the Euro-Asian Oil L/C as follows:

'In one lot as full cargo between 14 ^th February - 31 ^st March 2010 on board m/t 't.b.n.' or substitute.'

and also add under document 2:

bill of lading showing a greater quantity acceptable.'

Upon receipt of this amendment from Crédit Agricole, we will issue the same amendment for the Glencore L/C."

203. As a result, Mr Igniska asked Euro-Asian on 3 March to request Crédit Agricole to amend its letter of credit, the Second letter of credit, in particular to amend the shipment period from 15 February - 31 March 2010 to 10 February - 31 March 2010. Euro-Asian passed on the requested amendments later that day and Crédit Agricole agreed.

204. In his evidence Mr Michailov agreed that this showed that Mr Igniska had in mind nominating a cargo shipped between 10 and 14 February 2010. He also agreed that this would allow the Nicos Tomasos documents to be presented under the Second letter of credit. His (and Mr Duman's) evidence was that they did not appreciate this at the time.

205. In evidence about these amendments, which I accept, Mr Michailov said:

"Q. Having been, so you say, shocked the evening before, you just go ahead and comply with Mr Igniska's request without any attempt to reproach him?

A. Yes, unfortunately that is what I did, again saying, thinking, that this is completely separate transaction, second transaction. I did not link the two at all.

Q. You didn't link the two?

A. Yes.

Q. I suggest to you, you knew very well that they were linked and that was the L/C scheme.

A. No. Absolutely not.

Q. Absolutely not. If one goes to 267, one finds that on that same day Crédit Agricole make the amendments to the L/C.

A. Yes.

Q. I would suggest to you that you in fact knew at this time that the bill of lading that Mr Igniska intended to present under the second letter of credit, which required this amendment, was the bill of lading in respect of a cargo which had already arrived in Constanza and which was the basis of the holding certificate for the first letter of credit.

A. No."

206. Around the end of March 2010, Mr Igniska requested Euro-Asian to amend the Second letter of credit to extend its validity to 14 June 2010 and its shipment period from 31 March 2010 - 30 April 2010. Euro-Asian agreed, as in turn did Crédit Agricole on Euro-Asian's request.

The May 2010 events

207. In mid-May, Credit Suisse told Mr Igniska that, if it did not receive a payment from Euro-Asian, it would present the documents to claim payment from Crédit Agricole.

208. In response, Mr Igniska requested from Credit Suisse a 30-day extension to the presentation on the basis that Euro-Asian was "accounting a temporary exceeding of their exposure in their credit line as they are buying a ship of considerable value". In his evidence, Mr Michailov denied any such thing. I have no doubt that Mr Igniska was deliberately misstating the position to his bank.

209. In his evidence, Mr Barras of Credit Suisse said unsurprisingly that he made no connection between Mr Igniska's proposal to extend the Second letter of credit and the proposed new, Third letter of credit, Mr Igniska had made that same day.

210. On 25 May 2010, Credit Suisse presented an invoice and letter of indemnity under the Second letter of credit. It nominated part of a shipment per Nicos Tomasos, with bills of lading dated 14 February 2010, for sale and delivery under the Second sale contract.

211. Crédit Agricole notified Euro-Asian that it would pay under the Second letter of credit and debit Euro-Asian's account with the value of the documents (US$12,588,800) and the charges of some US$11,000. Payment was to be by 14 June 2010.

212. Mr Michailov's evidence was that by this time, the end of May, he realised that Mr Igniska was engaged in what he described as a carousel operation: Euro-Asian had received Nicos Tomasos's cargo under the First sale contract and it was effectively being sold to Euro-Asian a second time.

213. Both Mr Michailov and Mr Duman said that they telephoned Mr Igniska in the following days to protest and he promised to put things right. Nothing was recorded in writing, and no report was sent to Moscow.

214. Mr Michailov's evidence was that he could have taken legal advice but did not do so since he trusted Mr Igniska to come up with a cargo. At the time his view was that the least worst option was to give Mr Igniska the opportunity to trade out of his difficulties.

215. Mr Igniska denied receiving telephone calls from Mr Michailov or Mr Duman but in cross-examination he said this:

"Q. ...It is right, isn't it, do you remember this, that in May 2010, when the documents referring to the Nicos Tomasos were presented for payment under the second letter of credit, that you received a phone call from Mr Michailov, didn't you?

A. Could be possible.

Q. And he told you this is not the right way to perform these contracts.

A. So? Could say this, yes.

Q. He said to you "I", meaning Mr Michailov, meaning Euro-Asian, "seem to be on a carousel that you have set up".

A. It was never -- this word I first here saw in the witness recently.

Q. And you told him, "Don't worry, I will put things right".

A. Correct, because it was referring to a contract with Real Oil where DG Petrol is backing with payments, cargoes, whatsoever.

...

Q. Are we agreeing, therefore, that that is what you said to Mr Michailov, "This hasn't been correct but I will sort it"?

A. I never said that was not correct.

Q. Why did you promise him that you would sort it out, then?

A. Because this was the way how the things should happen. As always happened until DG Petrol suffer a major force majeure, where everything was blocked for DG Petrol. This is what happened. And this is not my intention, not in May, not in November 2009, not even in January."

216. On 28 May 2010 Mr Igniska sent a draft assignment agreement for the proceeds of a US$ 10,000,000 letter of credit. Later that day, Euro-Asian sent suggested wording for the assignment taken from what Euro-Asian's lawyers had drafted on another occasion. In his witness statement, Mr Michailov explained that the draft assignment was an attempt by Mr Igniska to remedy the situation.

217. The draft assignment was touched on only in passing in Credit Suisse's cross-examination of Mr Michailov about whether he and Mr Duman had in fact made telephone calls to Mr Igniska protesting the situation at the end of May:

"Q....You didn't think this was important enough, having spoken to him, to make sure it was in writing, to confirm what you had said?

A. No, at the time obviously not. At the time the telephone calls, for me, was enough.

Q. Right. Did you report this terrible abuse of trust and carousel to your superiors in Moscow?

A. No, I didn't.

Q. Why didn't you?

A. Because at that time, although I saw what is going on, I was still not overly worried that we will lose money here, and there were consistent assurances by Mr Igniska that this will -- when I spoke with him after I saw this, that I told him "I want out of this carousel very quickly, will you sort it out", and he assured that it will be sorted out.

Q. You see, I suggest to you that these telephone calls never took place. Because if you were as concerned as you say you were, you would have put something on the email to him recording your displeasure?

A. Well, there was a result from these telephone conversations, him sending wording of a revolving L/C immediately after that, trying to sort out the situation, which for me was a very good sign."

218. There is a benign email from Mr Duman to Mr Igniska over a week later, 3 June 2010, disclosed by Mr Igniska during the trial:

"Have tried to call you couple of times but without success. Suspect something wrong with my mobile. Would you please call me at the hotel..."

That was a date, as we see shortly, that the Third transaction was entered. The most likely explanation of this is that Mr Duman wanted a conversation about the new transaction.

219. Mr Igniska cross-examined Mr Duman as to why Euro-Asian had not stopped the carousel after the Nicos Tomasos presentation in late May as follows:

"Q. Myself, was not this my problem or Abilo problem. I am asking about Euro-Asian now. Why you don't stop the carousel exactly on 8 June, when you understood what is going on with these vessels?

A. Because we would have ended up with a cargo not delivered against Nicos Tomasos, and there would have been where we have been a couple of months later. It was matter -- you always promised that you will do your best to put things in order, and I understand from Michael [Michailov] that we decided that we will give you some breathing space to put your house in order.

Q. Okay, but again, it was an incorrect operation.

A. It was.

Q. It was incorrect.

A. Correct.

Q. But you still decided not to stop it on 8 June.

A. Because we would have ended up with a cargo paid for and no delivery.

...

Q. So you are in knowledge of that carousel and you accept that operation to continue.

A. Yes.

Q. Even with the fourth.

220. A. Even Michael [Michailov] in his statement accepted this. We had no choice. But on the promises that you will be able to put your house in order, we decided, based on our relationship, that to give you more breathing space to be able to handle your problems."

Delivery under Second sale contract

221. Abilo delivered under the Second sale contract product in tank at Constanza, by means of a holding certificate from the Constanza oil terminal dated 9 June 2010. There had been a discharge by the Histria Azure at Constanza around 6-7 June 2010. The holding certificate dated 9 June 2010 was addressed to Crédit Agricole.

222. That holding certificate did not identify that the product derived from the Histria Azure. In chasing Mr Igniska for the holding certificate on 8 June 2010, Euro-Asian had stated that for "obvious reasons" it should not mention the name of any vessel.

223. Mr Michailov's plausible (but not excusable) explanation for this omission was that if the Histria Azure had been mentioned, this would highlight to Crédit Agricole that the transaction had not been performed correctly and the bank would not engage in any further business with it. In cross-examination he said:

"Q. ...Can you tell me what are these obvious reasons, Mr Michailov?

A. Yes, the obvious reasons are that the previous day I was informed already, 6/7 June, that Mr Igniska is planning again to continue with the carousel, so I knew for a fact that the Histria Azure will be delivered under the second holding certificate... [i]t was logical not to have a name because it was not corresponding to the actual cashing.

Q. So you didn't want Crédit Agricole to know that the holding certificate was based on a vessel other than that one named in their documents.

A. Yes.

Q. In the documents presented to them.

A. For Crédit Agricole it was enough that they see a holding certificate and, as we discussed before, for me it was first deal with Crédit Agricole, I was willing to give Mr Igniska a chance to recover his financial situation, still believing in him, and rather than go down explaining to Crédit Agricole and ruining the relationship with them, I decided that it is better to do it this way.

...

Q. Weren't you being involved in misleading Crédit Agricole?

A. I don't believe this is misleading. They have a holding certificate which they were asking for.

Q. If the holding certificate doesn't mention the vessel, they would assume, would they not, that the holding certificate is connected with the LOI and the invoice which is presented to them?

A. Probably they would assume, I don't know.

...

Q. You were taking steps deliberately to make sure they didn't know the truth.

A. If Crédit Agricole had enquired which vessel was delivered on this holding certificate, then we would have told them. So we are not misleading them; they were not interested.

Q. ...So the truth is, as you say in your witness statement, you deliberately took steps to ensure the holding certificate didn't mention the vessel's name because if it did there was a risk that Crédit Agricole would not deal with you again.

A. Correct. As I said, it was the first deal with them and I didn't want to spoil the relationship because of this small deal."

224. In that email of 8 June 2010, Euro-Asian had also requested copies of the cargo documents for both the Nicos Tomasos and the vessel discharged at Constanza on 6-7 June 2010, believed to be the Histria Azure.

225. As with the First transaction, the oil held under that certificate was released to Real Oil by Crédit Agricole over the following months.

The Third transaction

226. It is therefore clear that by the end of May Mr Michailov was aware of what he described as the carousel. In other words, Mr Igniska was presenting documents under letters of credit in respect of one cargo, which had already been discharged in Constanza, and using other gasoil and the holding certificate for it as a basis for a new transaction.

227. Nonetheless, Euro-Asian entered a further transaction. In evidence Mr Michailov said that he was prepared to run with it for another circle or two, until Mr Igniska extradited himself for his difficult situation, to avoid legal action and to resolve matters commercially.

228. The Third sale contract was dated 3 June 2010 whereby Euro-Asian agreed to buy and Abilo agreed to sell 20,000 mt +/- 10% in seller's option ULSD max. 10ppm sulphur CIF Constanza. The Third Real Oil contract was of the same date with the same product.

229. As referred to earlier, on 21 May 2010 Mr Igniska had informed Credit Suisse of a new back-to-back operation but that the 120 day payment period should be in the letter of credit from the outset. Credit Suisse opened a letter of credit on 4 June 2010, this time with Select Energy as the beneficiary ("the Third CS letter of credit").

230. There were discussions between Mr Igniska and Euro-Asian, as a result of which the latter requested BNP Paribas to open a letter of credit. That is what is called here the Third letter of credit, which was dated 4 June 2010.

231. On 7 June 2010 Credit Suisse sent its purchase of claim letter in relation to the Third letter of credit to Mr Igniska for signature by Abilo.

232. Mr Igniska sent the bill of lading to Mr Michailov on 8 June 2010 showing as the cargo amount 22,000 mt air but 22,029 mt vacuum. He added that after discussing with Credit Suisse he would probably ask that the Third letter of credit be amended to show the wherever "metric tonnes in vacuum" appeared it should show "metric tonnes in air".

233. Ultimately Euro-Asian made the request to BNP Paribas, and the Third letter of credit was amended along these lines.

234. When asked about this amendment in cross-examination, Mr Michailov agreed that without the amendment the bill of lading for the Histria Azure , with its 22,029.09 metric tones in vacuum, would not have been in conformity if it had been presented under the Third letter of credit. That provided for 20,000 +/- 10 percent in vacuum. However, he denied that he agreed to the amendment knowing that the Histria Azure documents were to be so presented.

"A. There was no agreement with Mr Igniska, there was no discussion with him that we will present Histria Azure under this L/C. And as I mentioned in my statement, at the time Mr Duman was out, and I did not have time to make the link between this bill of lading and the L/C, I did not look into it at all."

235. Credit Suisse paid Select Energy some US$ 15,000,000 under the Third CS letter of credit mid-June 2010.

236. At the end of June, Mr Michailov and Mr Duman flew to Bucharest. On their evidence, which I accept, that was to meet Mr Igniska to find out what he planned to do to remedy the situation of the carousel. Mr Michailov's evidence was that nothing concrete was proposed and all Mr Igniska did was to assure them all would be well. Mr Igniska's evidence was that it was a general, cordial discussion.

237. In mid-September BNP Paribas asked Euro-Asian when the goods under the Third letter of credit were scheduled for loading. The shipment period ended 30 September. BNP Paribas inquired again about the status of the sale on 1 October 2010.

238. Having received an email slightly earlier that day from Mr Igniska (see below), Mr Duman replied to BNP Paribas that he understood the vessel was arriving at Constanza that evening. There would be a presentation against the Third letter of credit for payment on 5 October 2010, and the Constanza Oil Terminal would issue a holding certificate that day. A few minutes later, Mr Duman emailed Mr Igniska requesting a provisional holding certificate.

239. Mr Duman was asked in cross-examination whether this was this not misleading the bank, implying to BNP Paribas that the vessel arriving was the one for which they would have a presentation of documents. Mr Duman replied that the bank would soon find out his omission by obtaining the documents.

240. On 1 October, Mr Igniska also sent Euro-Asian copies of the commercial invoice and bill of lading to be presented to BNP Paribas. He added that the Fourth letter of credit would be opened "today". Mr Igniska sent the documents just after midday. Dated 1 October 2010, they referenced cargo on the Histria Azure .

241. Claiming under the Third letter of credit on 1 October 2010, Credit Suisse sent the invoice and letter of credit nominating cargo from the Histria Azure. With its bill of lading dated 5 June 2010, the Histria Azure cargo would no longer have been available.

242. What Abilo delivered under the Third sale contract was ULSD by in-tank holding certificate. The Ariadne had arrived at Constanza sometime after 30 September 2010 under bills of lading dated 10 September 2010. On 4 October 2010, 22,000 mt out of its cargo was nominated by Select Energy as a seller for delivery to Abilo.

243. In his evidence Mr Michailov said that when he learnt about this he was not surprised, given the carousel. With the opening of the Fourth transaction at the time he was prepared to support Mr Igniska.

244. In cross-examination, Mr Michailov was asked whether he expected that there would be a holding certificate which would be provided by some other cargo other than the Ariadne for the Fourth transaction. He replied:

"A. I did not expect to have Ariadne cashed as an original documents cashed for Ariadne at all without actual cargo, and following Mr Igniska's assurances throughout all this year that he will bring a cargo and stop this carousel that was my expectation, that he will, if he cashes Ariadne, there will be another cargo unrelated to us and we will be even. That was his promises."

Later he was asked this:

"Q. ...You would never have thought, by getting those documents under the letter of credit, that your company would get title to cargo on board the particular ship Ariadne, would you?

A. No.

Q. No?

A. No.

Q. Because you knew that cargo had been used for the holding certificate under the third transaction.

A. Of course."

245. When Euro-Asian chased a holding certificate for the Third transaction on 4 October, Mr Igniska explained that staff were not at the oil terminal and there was port congestion facing the (unnamed) vessel. Mr Michailov replied that he understood but that "only make sure that the payment for BNP is not done prior [to] sending us the Holding Certificate...".

246. Mr Michailov's evidence was that he did not want to be exposed again with having to pay but without any cargo and a holding certificate. Before payment was effected, and the commercial invoice and letter of indemnity were presented, he wanted a holding certificate.

247. According to the daily port reports of the Cargo Inspections Group, the Ariadne discharged its cargo and left on the afternoon of 5 October 2010.

248. The Constanza oil terminal issued a holding certificate dated 5 October 2010, covering 22,000 mt ULSD, pledged to BNP Paribas. The ULSD under it was released in stages by BNP Paribas to Real Oil under the Third Real Oil contract against corresponding part-payments by Real Oil.

The Fourth transaction

Fourth CS letter of credit

249. On 27 September 2010 Mr Igniska had proposed to Credit Suisse a fourth operation, back-to-back as he described it, similar to the third. There would be a letter of credit from Euro-Asian, opened by Crédit Agricole, for payment after the bill of lading date, for the usual quantity of 20,000 mt.

250. Credit Suisse's letter of credit should be opened, he said, with Select Energy as the beneficiary. He already had the Ariadne with its bill of lading of 11 September. He explained to Credit Suisse that the bill of lading showed that the vessel had been loaded in Venezuela and the cargo was to be delivered at Rotterdam or order. On his calculations, he explained, Select Energy would be paid on 11 October, and the claim under the Crédit Agricole letter of credit would be made on 7 January 2011.

251. After ensuring that payment was to be made imminently under the Third letter of credit, Credit Suisse agreed on 28 September 2010 to open a letter of credit in favour of Select Energy ("the Fourth CS letter of credit"). That was opened on 1 October 2010, with a validity date of 31 December 2010.

252. Credit Suisse purchased Abilo's claim against Crédit Agricole under the Fourth letter of credit the same day, with deferred payment terms of 120 days after the bill of lading date.

253. Credit Suisse agreed with Mr Igniska not to present documents to Crédit Agricole at that time, but said that it would do so if it did not receive counter instructions or necessary cover by the latest 5 January 2011.

254. Credit Suisse debited Abilo's account under the Fourth CS letter of credit with US$15,779,300 on 6 October 2010.

The Fourth letter of credit and Fourth contract of sale

255. There were exchanges between Mr Igniska and Euro-Asian that same day, 28 September 2010. Mr Igniska asked Euro-Asian to have Crédit Agricole open a letter of credit. Mr Igniska sent a draft letter of credit and an Ariadne bill of lading.

256. The draft letter of credit had special conditions referring to a Rotterdam destination. In his evidence, Mr Igniska said that he did that to avoid any discrepancy. At the time, Mr Duman said he ignored the terms of the draft letter of credit. In his evidence, Mr Michailov said that it looked as if Mr Igniska was intending to use the Ariadne for the Fourth transaction.

257. Later in the day, Mr Duman sent Mr Igniska for signature two draft sale contracts pertaining to the purchase of 20,000 mt ULSD for delivery CIF Constanza during the period 10 September - 31 December 2010, one Abilo/Euro-Asian, what became the Fourth sale contract, the other Euro-Asian/Real Oil, what became the Fourth Real Oil sale contract.

258. At the hearing Mr Michailov was asked why, given that he knew that the Fourth transaction was part of a carousel, he agreed to continue with it. His response was that "we were continuing to help him sort out his situation."

259. On 1 October 2010, a Thursday, Mr Igniska returned the two contracts signed. Their terms are referred to earlier in the judgment.

260. In that email Mr Igniska reiterated the request that Crédit Agricole be asked to open a letter of credit, what became the Fourth letter of credit. He added in relation to the Third transaction that Credit Suisse would claim payment for value date Monday 5 October 2010. His email concluded:

"We have the vessel with ETA this evening and we shall have a HC [holding certificate] for 22kt for EAO [Euro-Asian] on Monday."

His evidence was that he was referring to the Ariadne.

261. In cross-examination Mr Michailov said that he could not remember whether he had appreciated at the time that Mr Igniska intended to tender documents relating to Ariadne under the Fourth letter of credit. Given the time which has elapsed I did not find that answer surprising.

262. Mr Duman sent the two contracts to Crédit Agricole shortly after, requesting the opening of a letter of credit in favour of Abilo, using the draft letter of credit Mr Igniska sent.

263. Crédit Agricole promptly agreed to open a letter of credit. As described earlier in the judgment, the Fourth letter of credit had a shipping period and was valid until 31 January 2011.

Fifth transaction proposed

264. On 28 December 2010, Mr Igniska proposed to Credit Suisse a new back-to-back operation, what would have been the Fifth transaction, "similar with the one we are closing on January 7 ^th". He explained that Euro-Asian would open a further bill of lading in Abilo's favour, for payment at 120 days after the bill of lading date, to the usual quantity of 20,000 mt ULSD. Credit Suisse's letter of credit would be in favour of Mercuria, an oil trader.

265. Mr Duman asked for Mr Igniska to prepare Abilo/Euro-Asian and Euro-Asian/Real Oil contracts on 29 December for what would be the Fifth transaction. The drafts returned on 30 September 2010 had Neptune Energy, not Real Oil, as the buyer for Euro-Asian. Delivery under both contracts was to be during the period 1 December 2010 - 31 March 2011. Euro-Asian returned the contracts signed on its part, requesting "details of the deal: name of vessel, ETA/ETC Constanza".

266. That day Euro-Asian requested that BNP Paribas open a letter a credit in favour of Abilo, "on the understanding that Real Oil issued today L/C our favour". The cargo was to be sold to Neptune and would be secured by a holding certificate as soon as the vessel discharged at Constanza.

267. As to what would have been the Fifth letter of credit, BNP Paribas in an email of 30 December 2010 proposed changes from the draft Mr Igniska had sent to Euro-Asian, which Euro-Asian had sent on: (1) it should be available by deferred payment, not negotiation; (2) there was no need for the letter of indemnity to be payable at 120 days after the bill of lading when Credit Suisse and Abilo had sufficient to present documents at maturity; and (3) since shipment had already been effected, the name of the vessel should be specified.

268. Mr Igniska emailed Euro-Asian that afternoon that he had heard from BNP Paribas that they were refusing to open a letter of credit. As to the specific points BNP Paribas had raised, he explained to Euro-Asian, in unconvincing terms, that (1) that Credit Suisse wanted deferred payment; (2) that there were cases when documents were delayed in arriving at banks in the chain; as well, there was the same clause in Abilo's back-to-back documents; and (3) the vessel name was " Mount Karava/substitute".

The crisis: presentation under Fourth letter of credit

269. On 4 January 2011, Credit Suisse emailed Mr Igniska that the maturity date of the Fourth letter of credit was 7 January 2011. Would it receive payment from Euro-Asian outside the letter of credit or should it present documents under it to be repaid its financing?

270. The following day, 5 January 2011, Mr Michailov faxed Credit Suisse that there was a strong indication that Abilo was planning to draw fraudulently under the letter of credit and that there was no planned delivery of physical oil against payment. Credit Suisse was asked to postpone payment whilst Euro-Asian took steps to obtain an injunction. Mr Michailov sent another letter in similar terms to Crédit Agricole, the issuing bank of the Fourth letter of credit.

271. The evidence of Mr Michailov and Mr Duman was that this was prompted because Mr Igniska had informed them that there would be no delivery of ULSD and acknowledging that this amounted to theft and fraud. Mr Igniska denied making the latter admission and I cannot accept that he would.

272. On receipt of Mr Michailov's fax, Credit Suisse emailed Mr Igniska to call the bank immediately. He did and the following day set out his response to the fraud allegation. First, he said, Abilo had fulfilled its obligations under the Fourth contract of sale of 28 October by delivery of the 22,000 mt ULSD discharged 1-5 October. Secondly, Abilo had paid its supplier for the Ariadne cargo with a bill of lading dated 10 September. Thirdly, Euro-Asian was advised of the discharge and had received a holding certificate dated 5 October.

273. Euro-Asian applied for an urgent provisional measure (an injunction) from the Tribunal de premiere instance, Geneva, on 7 January 2011 to prevent Credit Agricole paying under the Fourth letter of credit.

274. The Tribunal held that it could not intervene except in serious cases, especially fraud. Euro-Asian did not have sufficiently clear evidence of fraud for it to be wrong for Crédit Agricole to pay against documents that conformed on their face to the requirements of the Fourth letter of credit, since the 5 October 2010 holding certificate could relate to either the Third or Fourth contract of sale.

275. In an email to Credit Suisse, Crédit Agricole, and Euro-Asian that day, 7 January 2011, Mr Igniska stated that at the time the Ariadne discharged its cargo, Real Oil had taken it without paying. That inability to pay was because DG Petrol was in dispute with the Romanian fiscal authorities, which was still to be resolved in the courts.

276. In the afternoon of 7 January 2011, Mr Michailov of Euro-Asian emailed Credit Suisse, stating that Mr Igniska had informed him that he had requested it not to claim payment from Crédit Agricole on the Fourth letter of credit but that Credit Suisse had refused.

277. In evidence Mr Barras of Credit Suisse denied ever having that conversation with Mr Igniska. I accept his evidence. As well Mr Barras's evidence was that Mr Igniska never provided a satisfactory explanation to Credit Suisse what had happened.

278. In his evidence Mr Barras accepted that if he had known that the cargo from the Ariadne had already been delivered to Euro-Asian under the Third sale contract, he would have had to take legal advice before proceeding with the presentation under the Fourth letter of credit, with the letter of indemnity and the commercial invoice referencing Ariadne cargo. At the time, however, he still trusted Mr Igniska.

279. The Geneva Tribunal having refused provisional measures, Credit Suisse presented an invoice and a letter of indemnity, both dated 3 January 2011, to Crédit Agricole under the Fourth letter of credit. Under these documents, payment was claimed for cargo shipped on Ariadne under the bill of lading dated 10 September 2010.

280. On 7 January 2011 Crédit Agricole paid US$15,844,840.00 under the Fourth letter of credit to Credit Suisse, and debited the sum of US$15,856,873.63 from Euro-Asian's account, the difference in amount being its commission and charges.

281. Credit Suisse prepared an internal report around 12 January 2011, attempting to discover the chronology of events, and to set out with a diagram and text what had gone wrong. One aspect was that Rabobank had endorsed the bills to BNP Paribas, which seemed to have endorsed them for the whole cargo to DG Petrol but then split the cargo, endorsing 22,000 mt to Credit Suisse, the remainder of some 9,570 mt to Select Energy. Credit Suisse then endorsed the 22,000 mt to Crédit Agricole. In fact this missed the point.

282. On 17 January 2011 Euro-Asian invoiced Real Oil pertaining to ULSD delivered CIF Constanza ex Ariadne, bill of lading dated 10 September 2010. The cargo had been paid for, it wrote, so could Euro-Asian have a holding certificate.

283. In his evidence Mr Michailov explained that Euro-Asian invoiced Real Oil because it was desperate to get paid, and it kept itself back-to-back on the invoicing in circumstances where Mr Igniska was insisting that Euro-Asian was entitled to look to Real Oil for payment.

284. Subsequently, Euro-Asian has not pursued any claim against Real Oil since it had supplied nothing to Real Oil and Real Oil owed it nothing. This was clearly the case.

Aftermath of crisis

285. There was a meeting on 18 January 2011 in Bucharest between Mr Michailov, Mr Duman and Mr Igniska. Mr Michailov's evidence was that Mr Igniska bluntly said that he did not have the money, and that he and Mr Duman left. In later evidence Mr Michailov accepted that at that meeting he had Mr Igniska agree to conceal the commissions.

286. On 7 February 2011 Mr Igniska sent an e-mail in which he stated: "In respect of the cargo... on board of Ariadne this volume was used for issuing a Holding of Title Certificate to cover the previous cargo delivered". The email said that Real Oil still had liability to Euro-Asian for non-payment.

287. On 24 February 2011 Credit Suisse sent to Crédit Agricole two of the three signed original bills of lading for the cargo on board the Ariadne, endorsed to the order of Crédit Agricole, together with the other original shipping documents. The third original bill of lading was sent on 20 April 2011.

V ROLE OF CREDIT SUISSE

288. In the four transactions, Credit Suisse financed Abilo's purchase of gasoil from Glencore and Select Energy by opening a letter of credit at Abilo's request with these suppliers as the beneficiary, the First-Fourth CS letters of credit.

289. As described earlier with the First CS letter of credit, Credit Suisse purchased the claims which Abilo had under the First-Fourth letters of credit Euro-Asian had its banks, BNP Paribas and Crédit Agricole, open in favour of Abilo for payment of the cargo Euro-Asian bought from it.

290. Credit Suisse regarded these letters of credit transactions as back-to-back. In his evidence Mr Barras of Credit Suisse explained the only way the bank could provide Abilo and Mr Igniska with finance was through back-to-back letters of credit, since at the time the country risk for Romania was too high to support other forms of credit.

291. In his evidence, Mr Barras said that Credit Suisse's due diligence for this would have been undertaken when the account for Abilo was opened for the business in which Mr Igniska was asking the bank to engage. That would have been done elsewhere in the bank and not by his, the trade credit department.

292. In his evidence, Mr Barras stated that generally banks issue back-to-back letters of credit for individual trading transactions. The status of the companies involved is not a factor for this kind of transaction because Credit Suisse relies on the credit-worthiness of the bank issuing the back to back letter of credit.

"Financing of this kind is conditional upon the prior receipt of an acceptable export letter of credit in favour of Credit Suisse's client. No further investigation of the underlying transaction or the parties involved in the transaction is undertaken by Credit Suisse beyond obtaining an acceptable export letter of credit. Credit Suisse then creates a mirror image of the export letter of credit so that the outgoing letter of credit it then subsequently issues to its client's supplier is on the same documentary conditions as the export letter of credit. This is why the incoming documentation is critical to Credit Suisse. The letter of credit issued by Credit Suisse must strictly replicate the documentary conditions of the export letter of credit... Once the back-to-back nature of the letters of credit to be issued is verified, Credit Suisse will accept the transaction subject to the receipt of the satisfactory export letter of credit."

293. In his evidence Mr Barras denied any knowledge of what became known as the carousel, a denial I unhesitatingly accept. He explained that Credit Suisse dealt in documents, not goods. It was the nominated bank under the First to Fourth letter of credit and so examined the documents being presented under them. However, the bank rarely examined an underlying transaction:

"Q. Did you ever look at or ask to see the sale contracts, either Abilo's purchase contracts or the contracts where Abilo is selling to Euro-Asian, before you issued your letters of credit?

A. Well, we have a general look on the contract whenever they have been remitted to us, which is not mandatory, because in the end what counts for us is the incoming letter of credit.

Q. It surely is important to you to see that there really is a genuine sale contract, no?

A. Yes, but again, when we finance on what we call back-to-back letter of credit system we just rely on the quality of the letter of credit."

294. Under the arrangements with Abilo, Credit Suisse's financing was provided by the delay between Credit Suisse paying out on its own letters of credit to Glencore or Select Energy, and it (having purchased Abilo's claims) being paid under the letters of credit issued by BNP Paribas or Crédit Agricole. That was a period of months, for example three months with the Fourth transaction, between 6 October 2010 when Credit Suisse debited Abilo's account on paying out Select Energy, and 7 January 2010, when Crédit Agricole paid Credit Suisse on its letter of credit.

295. In his evidence Mr Barras said that the financing fee Credit Suisse charged to Abilo under the arrangements was LIBOR plus a margin. The financing fee was additional to the transaction fee for issuing its letter of credit.

296. When Mr Barras was asked about the delay in presenting the documents to Euro-Asian's banks, BNP Paribas and Crédit Agricole, he explained that buyers sometimes paid outside the letter of credit so that no presentation under the letter of credit was necessary.

297. Mr Barras further explained that in delaying presentation (which Euro-Asian called "sitting on the documents") Credit Suisse had placed trust in Abilo, and in its willingness itself to sign the letter of indemnity:

"Q. What evidence do you have, when you enter into this agreement to sit on Abilo's documents, that Abilo is actually doing what it is supposed to do, which is selling and delivering the Dominia cargo to Euro ‐ Asian?

A. Because Abilo is issuing a letter of indemnity."

298. Mr Barras's evidence about the letters of indemnity which Credit Suisse co-signed was that they were a substitute for the provision of the relevant bills of lading and other shipping documents.

"The letter of indemnity gave the necessary assurances to the buyer that would ordinarily be provided by the original shipping documents. The seller warrants that it had the authority to transfer free and unencumbered title to the goods to the purchaser."

299. Mr Barras acknowledged that the bank, in signing the letter of indemnity, was exposed to the risk of Abilo not making a delivery of cargo. However, the bank relied on the letter of indemnity provided by the head seller, either Glencore or Select Energy:

"Q. Does that amount to this: you are taking it on trust from Abilo that they are actually making that delivery?

A. Yes.

Q. So to that extent you are exposed to Abilo as your credit risk, aren't you?

A. When I countersign the LOI, yes.

...

Q. What you are saying is that you are happy to stand in effect as like a guarantor of the promises that Abilo makes in the LOI document as long as the LOI document is in the right wording for the inward letter of credit, and you don't in fact care whether those statements in the LOI are true or false, is that right?

A. Again, we do that because we have received a letter of indemnity from Glencore which is mirroring the terms and condition of the letter of indemnity issued by Abilo that we have to countersign."

300. Later in his evidence Mr Barras returned to the point:

"Q. [W]ould you agree that on each of the four transactions, when your bank countersigned Abilo's promises relating to title and delivery and so on of a particular cargo and the bank countersigned that on a particular date, it was doing so simply because on the letter of indemnity it had received in --

A. Yes.

Q. -- making similar promises by the head seller at an earlier date?

A. Yes."

301. In light of this, and the evidence considered earlier regarding the transactions, my conclusions on Credit Suisse's role in these four transactions are as follows:

i) There was no evidence about what due diligence inquiries Credit Suisse undertook in taking on Abilo as a customer; that was not a task for the trade finance unit.

ii) Credit Suisse was financing Abilo for which it charged Libor + a margin.

iii) It was doing this through the mechanism of letters of credit since other forms of financing were ruled out because of Romanian country risk.

iv) Credit Suisse provided this finance through paying Abilo's suppliers (Glencore, Select Energy) under its letters of credit, but delaying for a number of months presentation under the letters of credit opened by Euro-Asian's banks (BNP Paribas and Credit Agricole) in Abilo's favour. As a result of which it would be repaid, it having purchased Abilo's claims under the First-Four letters of credit.

v) That delay in presentation was primarily because Credit Suisse was financing Abilo, not because Euro-Asian might pay outside the letters of credit.

vi) Given this background, Credit Suisse was correct in asserting in its email to Mr Igniska of 1 March 2010 that this financing was tailor made. This was not mere sales puffery. It is of note that BNP Paribas objected to the 120 day delay in presentation when the Fifth transaction was proposed.

vii) Credit Suisse's trade finance department did not as a matter of practice ask for the underlying sale contracts.

viii) Credit Suisse's trade finance department dealt in documents, not goods, so it had no means of knowing whether and what cargo Abilo was delivering to Euro-Asian.

ix) Credit Suisse signed Abilo's letters of indemnity for presentation under the letters of credit on a joint and several basis since, unlike Glencore and Select Energy, Abilo did not have sufficient creditworthiness to do so by itself. In doing so it was no longer an autonomous letter of credit bank, but was taking on the same responsibilities as Abilo in relation to the underlying contract of sale.

x) In signing the letters of indemnity in these four transactions, Mr Barras (and thus Credit Suisse) had trust in Abilo and Mr Igniska, but accepted that there was a risk. In addressing that risk Mr Barras relied on the mirror letters of indemnity issued by the head sellers, Glencore and Select Energy.

xi) Specifically Credit Suisse acknowledged through Mr Barras's evidence that it trusted Abilo to make a delivery of cargo. So there was a performance as well as a credit risk.

xii) In general terms the delay in presentation meant a risk for Credit Suisse in that the undertakings Glencore and Select Energy gave in their letters of indemnity related to a situation several months prior to the undertakings it was giving by co-signing Abilo's letters of indemnity.

VI FOURTH LETTER OF INDEMNITY CLAIMS

302. Abilo and Credit Suisse both signed the Fourth letter of indemnity, presented to Euro-Asian's bank, Crédit Agricole, on 6 January 2011, for payment under the Fourth letter of credit. Euro-Asian claims that both Abilo and Credit Suisse are liable for breach of the warranties and the undertaking contained in that Fourth letter of indemnity.

Euro-Asian's case

303. These warranties and the undertaking in the Fourth letter of indemnity, quoted in Part II of the judgment, were that:

i) Abilo had marketable title free and clear of any encumbrance to a cargo of 22,000 mt of ULSD (max. 10ppm) shipped on board Ariadne at Puerto la Cruz, pursuant to bills of lading dated 10 September 2010;

ii) Abilo had the full right and authority to transfer title to such a cargo to Euro-Asian;

iii) Abilo had the full right and authority to effect delivery of such a cargo to Euro-Asian; and

iv) Abilo had the full right and authority to locate and surrender to Euro-Asian the full set of 3/3 original bills of lading.

304. Euro-Asian's case is that the presentation of the documents under the Fourth letter of credit took effect as a contractual nomination of the vessel/shipment pursuant to the Fourth sale contract. That sale contract was one for the delivery CIF Constanza of a shipment of 22,000 mt of ULSD from the Ariadne, covered by a bill of lading dated 10 September 2010. Under that contract of sale Abilo was obliged to deliver to Euro-Asian documents representing that cargo, and to do nothing to prevent Euro-Asian from obtaining delivery of it from the Ariadne at Constanza.

305. But no such cargo existed. The cargo of ULSD from the Ariadne was no longer there by January 2011, but not through any performance of the Fourth sale contract. Rather,

i) Abilo had bought 22,000 mt of ULSD ex-Ariadne from Select Energy;

ii) Select Energy nominated 22,000 mt out of Ariadne's cargo on 4 October 2010;

iii) The Ariadne completed discharge of its cargo at Constanza on 5 October 2010; and

iv) Abilo most likely used it to satisfy its delivery obligations to Euro-Asian under an earlier contract of sale, the Third sale contract.

306. That being the case, Abilo's liabilities are the same as they would be if Abilo had sold and delivered the Ariadne shipment to a third party three months before it was used in January 2011 by way of the Fourth letter of indemnity and accompanying commercial invoice for Credit Suisse to claim payment under the Fourth letter of credit.

307. Euro-Asian's case is that in early January 2011, when the warranties and the undertaking in the Fourth letter of indemnity took effect, they were false because by then:

i) Abilo did not have marketable title free and clear of any encumbrance, or any title, to a cargo as described in the Fourth letter of indemnity, no such cargo then existing;

ii) Abilo did not have any right or authority to transfer title to such a cargo to Euro-Asian; and

iii) Abilo did not have any right or authority to effect delivery of such a cargo to Euro-Asian.

308. Further, there was a breach of the undertaking in the Fourth letter of credit to locate and surrender the bills of lading - meaning bills of lading still negotiable and effective - because by early January 2011 the cargo carried under the Ariadne bill of lading, dated 10 September 2010, had been delivered to the Constanza oil terminal by early October 2010.

Abilo/Igniska case on "separate arrangements"

309. I have already rejected the notion that as a result of an agreement between Mr Igniska and Mr Michailov at the Crédit Agricole drinks party on 4 September 2006 the four transactions were intended to be removed from a classic CIF contract. I say no more about the Abilo/Igniska "separate arrangements" defence.

Credit Suisse's case on "separate arrangements"

310. At the hearing Credit Suisse's case focused on separate arrangements which it said existed between Euro-Asian and Abilo outside the written contracts. Under these arrangements, Credit Suisse contended, the true intention and agreement between Euro-Asian and Abilo was that the Fourth transaction would not operate with the rights, obligations and characteristics of a classic CIF contract although this was how it was portrayed.

311. Credit Suisse invoked what Dillon LJ said in Welsh Development Agency v. Export Finance Co Ltd [1992] BCC 270, at 278G, that the court "looks at the substance of the transaction and not at the labels which the parties have chosen to put on it". If the court did that in this case, Credit Suisse submitted, it would find that there was no breach of the warranties and undertaking contained in the Fourth letter of indemnity since the parties were actually engaged in quite separate arrangements.

312. The separate arrangements argument was advanced along two fronts. The first was that the Fourth transaction was never a CIF contract, where Euro-Asian expected to receive the Ariadne cargo while the bills of lading were still valid documents of title. Rather, what it expected to receive was a holding certificate in its favour from the Constanza oil terminal, pledged to Crédit Agricole, for an equivalent amount of ULSD without presentation of the bills of lading. In this case it was the holding certificate which provided Euro-Asian the security until Real Oil paid for instalments of that oil over time.

313. What went wrong in this regard was that Mr Igniska and Abilo suffered financial problems, on his account because of DG Petrol's tax issues, and was unable to obtain a fifth cargo and the associated holding certificate, not that Abilo failed to transfer cargo still on board the Ariadne or to provide extant bills of lading relating to it.

314. The second way Credit Suisse put its case was that, in broad terms, Euro-Asian agreed to the so-called carousel. In other words, it agreed that Abilo should present documents in the Fourth transaction, as in earlier transactions, representing cargo already discharged and used to obtain a holding certificate from the Constanza oil terminal under a previous, in that case, the Third transaction.

315. On Credit Suisse's analysis, because of financial difficulties Abilo was unable to obtain a fifth cargo to continue the carousel or to "close the circle" by obtaining a cargo from other sources.

316. Credit Suisse argued that there were good reasons between Euro-Asian and Abilo for these separate arrangements, which essentially reduced to Mr Michailov and Mr Duman assisting Mr Igniska to build his business with major suppliers and banks.

317. First, without the letters of credit which Euro-Asian had its banks (BNP Paribas and Crédit Agricole) open in Abilo's favour, there was no way that Abilo's bank, Credit Suisse, could open a letter of credit in favour of the seller, be it Glencore or Select Energy, in the four transactions.

318. Secondly, by using documents for payment nominating a previously discharged cargo, but obtaining for Euro-Asian a holding certificate based on another (probably more recently discharged) cargo, Abilo effectively obtained the value of the first cargo, the Dominia cargo, on credit for an indefinite period.

319. Indeed, continued Credit Suisse, Mr Michailov had accepted in his evidence that Mr Igniska did obtain the Dominia cargo, also agreeing that the credit so obtained would continue until the circle was closed at some future date, when Abilo was able to tender documents for a cargo, perhaps for another source or its own resources.

320. Thirdly, Credit Suisse contended, the financial incentive on Euro-Asian's side to do all this was two-fold. Euro-Asian itself obtained the financing fee, the US$2 per mt difference from what it paid Abilo and what it obtained by on-selling to Real Oil, some US$44,000 (US$2 mt x 20,000 mt+/- 10% in seller's option) for each consignment.

321. More importantly, there were the commission payments which Mr Michailov and Mr Duman received from the deals and had tried to conceal. The attempt by Mr Michailov to have Mr Igniska dress up the commissions as a loan when the crisis occurred in January 2011 and he and Mr Duman went to see Mr Igniska in Bucharest was underscored.

322. Credit Suisse highlighted evidence to make its case that Euro-Asian knew and intended that these separate arrangements existed - that the cargo which Abilo nominated under a transaction would be different to that it would use to procure the crucial holding certificate, and would have been used elsewhere by the time of any presentation under the relevant letter of credit, including to satisfy an earlier contract.

323. That evidence included:

i) The absence of complaint, or persistent complaint, by Euro-Asian to Abilo for using earlier cargos for presentation under the letters of credit.

ii) The ready acceptance by Euro-Asian of amendments to the Second and Third letters of credit, and the insertion of special conditions in the Fourth, to enable tender of documents relating to old cargo.

iii) Euro-Asian's own admission that it knew by early May what Mr Igniska was doing, yet it allowed him to continue (although it should be noted that Credit Suisse's case was that Euro-Asian knew about matters earlier).

iv) Euro-Asian's concealment from its own bank of the situation (specifically, with the holding certificate to go to Credit Agricole in early June 2010, and the reply to BNP Paribas on 1 October 2010 regarding use of the Histria Azure for the Third letter of credit).

v) The insertion of the Ariadne in the commissions table in November 2010, indicating willingness at that point that it be used for presentation under the Fourth letter of credit.

vi) The failure of Abilo to give notice of nomination or arrival of cargos for delivery under the sale contracts, and Euro-Asian's lack of concern about this.

vii) Euro-Asian's strenuous attempts to ensure that Abilo provided a holding certificate prior to presentation being made under the letters of credit, and its chasing the holding certificate when it was not readily available, by contrast amongst other things with its casual attitude towards the shipping documents.

324. In summary, Credit Suisse's case was that against the background of the relationship with Mr Igniska and the commissions paid to Mr Michailov and Mr Duman, Euro-Asian willingly participated in these separate arrangements. Euro-Asian had no intention or expectation that Abilo would, at the time the Fourth letter of indemnity was presented under the Fourth letter of credit, still retain title to cargo on board the Ariadne, or have bills of lading capable of operating as documents of title. What was essential to Euro-Asian was obtaining a holding certificate in its favour from the Constanza oil refinery covering any gasoil of the requisite quantity and quality.

Discussion of Credit Suisse's separate arrangements case

325. It is difficult to understand the commercial logic behind what Credit Suisse claimed were the separate arrangements between Euro-Asian and Abilo as to how the four transactions were to work. As Credit Suisse presented the commercial purpose of the separate arrangements, it ran in very large part for Abilo's benefit, not Euro-Asian's.

326. Essentially Credit Suisse posited arrangements under which Euro-Asian paid though its banks, BNP Paribas and Crédit Agricole, not insignificant sums (nearly US$ 16,000,000 under the Fourth Transaction) for letters of indemnity and commercial invoices which created no rights and had no bearing on whether there would ever be a cargo under the relevant contract of sale. What on Credit Suisse's case Euro-Asian relied on was Mr Igniska producing a holding certificate covering ULSD in tank at Constanza.

327. But that involved a substantial commercial risk when from the time of presentation under the First letter of credit it was a close run thing whether Mr Igniska would obtain a holding certificate before Euro-Asian's bank had paid out. In light of that risk it is difficult to see the commercial benefit to Euro-Asian of the relatively small financing fee compared with a potential loss to it of many millions of dollars worth of gasoil.

328. Given the commercial reality, Credit Suisse in my view faced a high hurdle in establishing that such separate arrangements existed.

329. That is apart from the legal difficulties it would have had in demonstrating, as a matter of law, (1) how the separate arrangements operated between Euro-Asian and Abilo as a collateral contract, even in the absence of the entire agreement clause in the First-Fourth sale contracts; and (2) how Credit Suisse could invoke these separate arrangements as a third party if they existed.

330. There is no need to grapple with these legal issues since in my view there is no basis in the evidence for the existence of the separate arrangements Credit Suisse alleged in either of the forms it was advanced. Nothing express in the nature of a separate arrangement was identified, be it the emails or the witness evidence. To the contrary there were the emphatic denials of Mr Michailov which, as I have indicated, I accept.

331. Further, there was the evidence that Euro-Asian considered that the four transactions would work as ordinary CIF contracts in the oil industry. The pattern envisaged by Euro-Asian was contained in the explanation Mr Duman gave to Crédit Agricole in his email of 26 November 2009. It spelt out that Euro-Asian would buy cargoes of 20-30,000 mt, delivery CIF Constanza, to be sold back to back to Real Oil.

332. In my view there was strong evidence that Euro-Asian expected the transactions with Abilo to work that way and that there were no other arrangements or understandings. Among that evidence was the following:

i) On 11 January 2010, in response to Mr Igniska's proposal for a second transaction with a February shipment and Crédit Agricole as the bank, Mr Michailov suggested instead that the existing, the First letter of credit, with BNP Paribus should be extended to cover it, indicating Euro-Asian's view that the first transaction remained unperformed.

ii) Once with presentation of the Nicos Tomasos documents it became clear in early May 2010 to Mr Michailov that Mr Igniska was operating "a carousel", both he and Mr Duman complained to him about Abilo's mis-performance and Mr Igniska promised to make things right. I have accepted that the complaints and Mr Igniska's promises occurred in telephone conversations and when Mr Michailov and Mr Duman went to see Mr Igniska in Bucharest on 29 June 2010.

iii) In evidence at the hearing Mr Igniska seemed to accept that in a telephone conversation with Mr Michailov during this period he said that he would put things right.

iv) Perhaps the strongest evidence supporting a promise on Mr Igniska's part to remedy the situation was the draft assignment agreement he sent on 28 May 2010 for the proceeds of a US$10 million letter of credit, albeit that this proposal never came to anything.

v) Mr Igniska's acceptance (when cross-examining Mr Duman) that "it was an incorrect operation", although I am careful about attaching too much weight to that statement given that his case was not on all fours with this and given the standard of his expression in English.

333. None of the evidence which Credit Suisse advanced to support its case on separate arrangements in my judgment bears the weight suggested. Particular expressions in emails must be read in context and not interpreted with the benefit of hindsight.

334. Moreover, the evidence relied on by Credit Suisse must be seen against the backdrop of:

i) The trust which both Mr Michailov and Mr Duman had in Mr Igniska, built up over many years. Mr Michailov felt especially indebted to him for how he had fostered Euro-Asian's profitable trading in crude oil into Romania;

ii) Abilo's operations being only a small part of Euro-Asian's oil-trading business and something which were supposed to look after themselves. Euro-Asian dealt in crude oil, not gasoil, and in far larger quantities and in a grander scale than those traded with Abilo; and

iii) The need for Mr Michailov to maintain the impression that all was normal in the eyes of Euro-Asian's controllers in Moscow and Euro-Asian's banks.

335. The absence of persistent complaint to Mr Igniska, the ready acceptance of his proposals regarding the drafting and amendment of documents, the slackness regarding matters such as notices of nomination and arrival, and the omission from the Constanza terminal's holding certificates pledged to Euro-Asian's banks of the vessel names - all have to be seen against this background.

336. In my view Euro-Asian was not a willing participant, as Credit Suisse suggested, in any separate arrangements. Mr Michailov and Mr Duman were eventually aware of the fate of the Dominia cargo and of what they called the carousel. Once they realized what Mr Igniska was doing was untoward they were especially vigilant in obtaining a holding certificate covering the same quantity of oil as contracted.

337. But this did not mean that they ever accepted or approved this way of performing the transactions. They continued with Abilo and Mr Igniska because there was no loss in the first three transactions. Their protection in each case was a holding certificate and that was why they were so anxious to obtain one in the first three transactions before presentation under the letters of credit.

338. Indeed it is difficult to see what opportunities Euro-Asian had to put a stop to Abilo's mis-performance of the transactions. Mr Michailov's explanations that he was giving Mr Igniska the opportunity to trade out of his difficulties, that he was avoiding legal action and wanting the situation to be resolved commercially, and that he was hoping that Mr Igniska would eventually "close the circle", all ring true. The insertion of the Ariadne in the November 2010 commissions table must be seen against this background: Mr Igniska would ultimately close the circle, Mr Michailov hoped, perhaps but perhaps not on this turn of the carousel. And of course crucially, Euro-Asian could always fall back on a letters of indemnity signed by Credit Suisse.

339. As to the commissions and other financial benefits which Mr Michailov and Mr Duman derived from the Abilo business, I accept Credit Suisse's submission that Mr Michailov and Mr Duman had been misleading about these and the true nature of their relationship with Mr Igniska. The financial benefits may have been a factor in not taking a stronger line with Mr Igniska and allowing the situation to run.

340. H owever, I do not accept that these personal financial benefits would ever have induced Mr Michailov (and Mr Duman) to enter the Credit Suisse type separate arrangements, with their grave attendant risk that Mr Igniska, as happened in the Fourth transaction, could present documents for payment when he had no cargo to supply. The commissions were small beer compared with the potential losses to their company and consequential repercussions for them.

Credit Suisse's construction arguments re warranties in Fourth letter of indemnity

341. In its closing submissions the basis of Credit Suisse's case in this regard was that, in light of the true nature of the agreement between Euro-Asian and Abilo, first, the warranties in the Fourth letter of indemnity were meaningless, irrelevant and inapplicable to the Fourth transaction; secondly, if they had any meaning they were fulfilled because on their true construction they related to the position immediately prior to Abilo's delivery of the Ariadne cargo to Euro-Asian, and not to the position as at January 2011; and thirdly, even if they were breached, this caused Euro-Asian no loss.

342. Since I have rejected Credit Suisse's case on the true nature of the Euro-Asian/Abilo agreement, these issues do not arise. In my judgment, the warranties in the Fourth letter of indemnity which Credit Suisse signed were applicable to the Fourth transaction. The knowledge that Mr Igniska was running a carousel, and the indulgence towards him in that regard, cannot undermine these warranties or render them applicable to an earlier time.

343. Thus, in my judgment, the Fourth letter of indemnity related to the position when it was presented with the commercial invoice on 6 January 2011 to Euro-Asian's bank, Crédit Agricole. It was on that date that the Ariadne shipment was nominated under the Fourth sale contract. The representations and warranties took effect on that date.

344. The warranties were breached and Euro-Asian suffered loss because Abilo did not have the right to deliver the cargo, since it had been already been delivered and paid for by Euro-Asian with the Third transaction. Euro-Asian suffered loss in that it effectively paid a second time for the Ariadne cargo.

Credit Suisse's arguments re bill of lading undertaking

345. As with its arguments on the effect of the warranties in the Fourth letter of indemnity, Credit Suisse had lengthy written argument about the meaning of the bill of lading undertaking it contained which were also not developed at any length in oral submissions. In summary Credit Suisse submitted that the undertaking should be read simply as requiring the surrender of the original Ariadne bills and not, as on Euro-Asian's case, "original, negotiable bills, issued or endorsed to the order of Crédit Agricole (Suisse) SA Geneva, whilst still effective and negotiable".

346. Credit Suisse also submitted that the Ariadne bills were still negotiable after the cargo had been discharged at Constanza because, pursuant to section 2(2)(a) of Carriage of Goods by Sea Act 1992, they were capable at the time of surrender of transferring rights of suit against the ship-owner.

347. One prong to Credit Suisse's argument was its separate arrangements case, which I have rejected on the facts.

348. As to its other submissions, the undertaking in my judgment required the location and surrender of the bills of lading which at the time the letter of indemnity was tendered were effective and not spent. As Mr Barras of Credit Suisse explained the bank co-signs a seller's letter of indemnity to protect the buyer when, at the time of tender, there is a conforming shipment with effective bills of lading, but for some reason or other they are not available.

349. As to the Carriage of Goods by Sea Act 1992, section 2(2)(a) requires the person to become the lawful holder of the bill by virtue of a transaction under a contract or other arrangement made before the time when a right to possession of the goods ceased. Here Euro-Asian became a holder in pursuance of the Fourth letter of indemnity of 6 January 2011, after a right to possession ceased to attach to the bill, which was the date of discharge from the Ariadne in early October 2010. Thus there was no transfer of rights under the section, quite apart from the defences the ship-owner would inevitably have.

Expiry of the Fourth letter of indemnity

350. Only mentioned as a heading at the hearing was Credit Suisse's argument that, by reason of its tender of spent bills of lading by 20 April 2011, the letter of indemnity expired pursuant to its express terms and any alleged liability under it ceased.

351. That is an argument without merit: it would render the Fourth letter of indemnity pointless at a time when it was intended to have effect. Any expiry under that provision cannot affect accrued liability for breaches or accrued obligations to indemnify.

Quantum

352. Quantum was dealt with in writing. Euro-Asian claimed the market value of 22,000 mt of ULSD (max 10ppm) in Constanza on or about 7 January 2011 against Abilo and Credit Suisse for breach of the Fourth letter of indemnity, and against Abilo for breach of the Fourth contract of sale. Euro-Asian and Credit Suisse agreed that this was US$ 18,360,320. Abilo and Mr Igniska took the market valuation date as at 13-17 September 2010.

353. In my judgment Euro-Asian's damages should be capped at US$ 15,889,500, the price which Euro-Asian invoiced Real Oil under the Fourth Real Oil contract. It was always contemplated that Euro-Asian would nominate the same cargo to perform the Real Oil contracts which Abilo had nominated to perform the sale contracts. The market value rule for damages for failure to deliver goods under section 51(3) of the Sale of Goods Act 1979 is displaced.

VII CLAIMS AGAINST ABILO/MR IGNISKA

354. Euro-Asian also claims against Abilo under the Fourth contract of sale, in particular that Abilo did not deliver the cargo nominated in the commercial invoice or the Fourth letter of indemnity, or any documents representing it. Abilo's answer under this head was that delivery from the Ariadne to Euro-Asian on 5 October 2010 was due performance of its obligations under the Fourth sale contract. Since this answer turns on Abilo's separate arrangements case, which I have rejected, I conclude that Abilo is liable under this head as well.

355. Euro-Asian also advanced a case in deceit against Abilo and, in turn, Mr Igniska. Mr Igniska was cross-examined on a range of matters relevant to this such as:

i) the fate of the Dominia cargo;

ii) the direction to DG Petrol in relation to both the Dominia and Nicos Tomasos not to inform Euro-Asian about the vessel's movements;

iii) the false pretext given on 12 May 2010 for the 30 day extension of the Second letter of credit;

iv) the claim that the Ariadne cargo was taken by Real Oil without payment, when Real Oil had been paying for that cargo from November in instalments; and

v) the falsity of the representations in the Fourth letter of indemnity and the events around presentation under the Fourth letter of credit, including the failure of Mr Igniska to give a satisfactory explanation to Credit Suisse when it asked.

356. Euro-Asian thus built its case under this head against both Abilo and Mr Igniska personally. Although it was only addressed in passing in closing there were detailed written submissions in opening and in written "Comments on Factual Evidence for Closing". A summary of relevant case law was also provided.

357. Mr Igniska denied fraud. In closing Mr Gruder QC stood aside from his role in representing Credit Suisse to make submissions on behalf Abilo and Mr Igniska that the documents containing the false statements presented in January had been prepared earlier and that when they were presented that was by Credit Suisse as the nominated bank to recoup itself for the financing provided to Abilo.

358. I am not persuaded of that submission since at the time of presentation Abilo, acting through Mr Igniska, knew that the statements in the letter of indemnity were false. That the document had been prepared earlier is not to the point.

359. However, Mr Gruder's commendable attempt to assist Abilo and Mr Igniska highlighted the difficulty that Mr Igniska (and Abilo) faced in meeting the case in deceit without legal representation. In their written submissions Euro-Asian fairly conceded that reliance and loss were a difficult issue for them in the deceit claim.

360. While maintaining their case, and citing many authorities to support it, Euro-Asian fairly identified in this regard obiter dictum of Gloster J in Barclay Pharmaceuticals Ltd v. Waypharm [2012] EWHC 306 (Comm) 306, [219], that it is difficult to see how the party, rather than its bank, can assert reliance (albeit contrasting that with Moore-Bick J's decision in Niru Battery Company v. Milestone Trading Limited [2002] EWHC 1425, [87]).

361. In my view Euro-Asian has not proved its case in deceit against Abilo and Mr Igniska. With legal assistance I suspect that, quite apart from legal submissions regarding reliance and causation, much could be made of the evidence of Euro-Asian's knowledge of the carousel, as well as the sequence of events surrounding the presentation on 6 January 2011 and the finding of the Geneva Tribunal. However, I make it clear that I have reached my conclusion on the basis of the evidence as a whole, including Mr Igniska's evidence.

362. Euro-Asian's claims in restitution, causing loss by unlawful means and inducing breach of contract were developed in brief written submissions only and since they add nothing to its other claims I do not propose to deal with them.

VIII CREDIT SUISSE'S ADDITIONAL CLAIM

363. In written submissions Credit Suisse contended that it is entitled to an indemnity from Abilo under the Fourth letter of credit. That, it submitted, was a matter of construction or implication regarding the Fourth letter of indemnity. Given its knowledge and involvement in the transaction, it must always have contemplated that, should any breach of warranty or undertaking occur, it would be Abilo ( via Mr Igniska) who would, as between Abilo and Credit Suisse, have the greater responsibility for any such breach. A passage in Vossloh Aktiengesellschaft v. Alpha Trains (UK) Limited [2010] EWHC 2443 (Ch), [25] was cited in support.

364. In my view it is not possible to reach this conclusion on ordinary principles of construction or of the implication of terms. On the face of the Fourth letter of indemnity Credit Suisse assumed joint and several liability with Abilo. This may have been common practice in the industry to give comfort to a buyer but that cannot affect the liability between a seller and the co-signing bank. In effect the Fourth letter of indemnity on its face stated that Credit Suisse was assuming the same contractual responsibilities as Abilo and I cannot find that as a matter of construction or implication there is a term requiring Abilo to indemnify Credit Suisse should Credit Suisse be liable to Euro-Asian.

365. However, Credit Suisse is entitled in my judgment to a contribution from Abilo under the Civil Liability (Contribution) Act 1978 for the damages it must pay Euro-Asian. Credit Suisse seeks a one hundred percent contribution from Abilo having regard "to considerations of relative causative potency as well as to comparative blameworthiness": see Chitty on Contracts, 32nd ed, para. 17-034.

366. Earlier in the judgment I described the role of Credit Suisse. Abilo was their customer and the bank financed it by delaying presentation under what it regarded as tailor made arrangements and signing letters of indemnity regarding the situation as it was some months previously. On its own admission it was exposing itself to some risk. The reality was that in signing the letters of indemnity and acting in this way it was no longer a letter of credit bank.

367. In terms of the parties' comparative responsibility, however, it was Abilo (through Mr Igniska) which bears the major responsibility for Euro-Asian's loss. It was he who started the so-called carousel and, to continue with the Euro-Asian's terminology, it was he who never closed the circle. He kept what was happening from Credit Suisse, as explained earlier in the judgment.

368. In the result it seems to me that in terms of the parties' responsibility for the damage (see White Book, vol. 2, 9B-1092), Credit Suisse is entitled to a contribution from Abilo, one I assess at eighty percent.

IX CONCUSION

369. For the reasons given I find for Euro-Asian in its claims on the Fourth letter of indemnity against both Abilo and Credit Suisse, and on the Fourth contract of sale against Abilo. On Credit Suisse's additional claim against Abilo, for the reasons I have given the bank is entitled to an eighty percent contribution for the damage.

	EURO-ASIAN OIL SA (formerly EURO-ASIAN OIL AG)	Claimant
	- and -
	CREDIT SUISSE AG - and - ABILO (UK) LIMITED - and - MR DAN IGNISKA	Defendant Third Party Fourth Party

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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Euro-Asian Oil SA v Abilo (UK) Ltd & Ors [2016] EWHC 3340 (Comm) (21 December 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/3340.html Cite as: [2016] EWHC 3340 (Comm), [2017] 1 Lloyd's Rep 287

England and Wales High Court (Commercial Court) Decisions