Trafigura Pte Ltd & Anor v Prateek Gupta & Ors

The bills of lading tendered to Trafigura generally (although not always) included HS codes. These are harmonized codes, used internationally to indicate the type of goods said to be inside the container. They are useful and, in many countries, necessary, for customs clearance.

In relation to the buyback contracts, the bills of lading often featured the HS code ‘75089090’, which indicates “other articles of nickel and nickel alloy”, rather than ‘75021000’ which indicates “nickel, not alloyed”. The MDR Defendants said that the Trafigura team checked every bill of lading, so they must have realised that the description of the goods on each bill of lading was not consistent with LME-grade nickel.

I was shown a bill of lading, said to be typical, on which the goods were described as follows:

“195 bundles of nickel full plate cathodes

Brand: Norilsk Nickel Harjavalta

HS Code: 75089090

Net weight 286.09 MT”

The task of checking the bills of lading fell to the team in Mumbai – variously, Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain. In the witness statements that they made in response to this application, each of them said that, while they had to check that the bills of lading conformed to the contract, they did not have to check the HS codes, because the contract did not contain any requirements in respect of HS codes. They all said that, while they had some familiarity with HS codes, they did not know all the relevant HS codes off by heart, and did not know that ‘75089090’ was not consistent with LME-grade nickel.

Trafigura also suggested that the description “nickel full plate cathodes” was consistent (possibly, only consistent) with LME-grade nickel; and that Norilsk Nickel Harjavalta was a refiner of LME-grade nickel and an LME-approved brand.

There were some cases where Trafigura commented on how the HS code should be treated on the bill of lading. The evidence from Trafigura’s Mumbai team was that these were all instances of sales to third-party purchasers, not buyback contracts. They said that such comments emanated from the intended third-party purchasers, and were simply passed on by Trafigura. The fact that comments were communicated by them did not indicate any familiarity on their part with HS codes, nor any preference on Trafigura’s part as to which HS codes (if any) should appear.

As to certificates of analysis, these were required documents under each individual contract. However, the MDR Defendants said, and Trafigura accepted, that in relation to about 55% of the relevant buyback contracts, no certificate of analysis was tendered. This must have been noticed when the documents were processed, but Trafigura nevertheless approved payment, despite certificates of analysis being contractually required.

The relevant individuals were, again, Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain. They all said that they were aware that in many instances there were no certificates of analysis. They said that they were told by Mr Bhatia that certificates of analysis were not required for buyback contracts; in part because of the expectation that the Defendants would repurchase the cargo, and in part because the buyback contracts generally concerned fairly large quantities, and it would have been time-consuming and difficult to match the certificates of analysis to the packing lists (so this would have held up payment).

More broadly, Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain all denied any knowledge of the alleged fraud. Mr Howe KC fairly accepted that, subject to his points in relation to HS codes and certificates of analysis, he could not point to anything suggesting the contrary.

When Trafigura made its application to Foxton J on 8 February 2023, Mr Ispahani’s evidence noted that the bills of lading for some buyback contracts referred to anomalous HS codes, and that in some instances no certificates of analysis were tendered. He said that these matters remained unclear, because of the limitations on Trafigura’s investigations caused by the concern that Mr Gupta and the other Defendants should not be tipped off; and that they would be investigated in due course. I have already set out paragraph 45.2 of Trafigura’s skeleton argument for the application.

Mr Pillow KC made the point that, if Trafigura had not been limited by its concern about tipping-off, Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain would have been interviewed at that stage (i.e., prior to the application to Foxton J). Those individuals presumably would have given the same evidence as, in the event, they have now given, which exculpates them and which there is no real reason to doubt. Accordingly, there would not have been anything significant to disclose, as regards their knowledge of the alleged fraud.

Because their evidence in relation to certificates of analysis is that they acted on Mr Bhatia’s instructions, their evidence would not have exculpated Mr Bhatia. If anything, it would have drawn more attention to the significance of his role. However, the queries relating to Mr Bhatia were fairly drawn to Foxton J’s attention.

As regards Mr Oikonomou, there is no evidence that he had any involvement in or knowledge of HS codes on bills of lading, nor any involvement in or knowledge of certificates of analysis (or their absence). He had little involvement, if any, with Mr Nair, Mr Sharma, Mr Buddabasaynor or Mr Jain. This part of the MDR Defendants’ case therefore does not take them any further, so far as Mr Oikonomou is concerned.

Trafigura’s concerns about the MDR Defendants’ failure to buy back nickel began in March 2022, then became more acute in about October 2022. This was in part because Trafigura’s financing banks (Citigroup Global Markets Ltd. and Citibank, N.A., London Branch – compendiously, “Citi”) were becoming reluctant to roll over the credit they provided to Trafigura on the buyback contracts. From late October 2022, they wanted some of the nickel cargoes under the buyback contracts to be moved into LME warehouses, where they were liable to be inspected.

The materials Mr Howe KC particularly relied on, in relation to inspections, essentially related to two separate periods: March 2022 and October 2022.

The MDR Defendants relied on WhatsApp exchanges in March 2022 between Mr Bhatia and Mr Gupta, in which it appears to have been the preference of everyone concerned that cargoes be re-purchased by the MDR Defendants, and then on-sold by them, rather than sent to LME warehouses. Mr Gupta said in his evidence, and Mr Howe KC repeated in submissions, that this showed (or least suggested the possibility) that they all knew that the cargoes did not consist of nickel and that this might be exposed if the cargoes went into LME warehouses.

However, Trafigura pointed to what was referred to as the ‘Discussion Points’ document – a memorandum created by Mr Gupta and sent to Mr Bhatia via WhatsApp on (I was told) 29 March 2022, in which Mr Gupta gave details of sales that the MDR Defendants had agreed with third parties. This referred to 2,767 mt being bought back from 16 March to 1 April 2022, followed by the set-off of 1,628 mt and a further reduction of 3,000 mt in April 2022, i.e. a total reduction from 26,000 mt to 18,605 mt by the end of April 2022.

Significantly, although this memorandum was sent on 29 March 2022, it seems to have been prepared earlier and to have reflected Mr Gupta’s thinking on about 15 March 2022 (it referred at one point to “planned tonnages buyback” from 16 March 2022) – in other words, at the time of the WhatsApp messages relied on by the MDR Defendants.

Trafigura’s explanation of the WhatsApp materials from March 2022, when taken together with the ‘Discussion Points’ document, is that they actually showed that it was Mr Gupta who was resistant to cargoes being moved into LME warehouses, because (he said) this would disrupt on-sales that had already been arranged, those on-sales being what would enable the MDR Defendants to repurchase more nickel and thus reduce the overall volume outstanding. It is common ground that there were telephone conversations in about mid-March 2022, some involving Mr Oikonomou. Trafigura said that, in those conversations, Mr Gupta gave assurances along the lines of the ‘Discussion Points’ document. Trafigura (including Mr Oikonomou) agreed that no cargoes would be moved into an LME warehouse without the consent of Mr Gupta or Mr Rathi, so as not to prejudice the repurchases and on-sales that they said were already arranged.

In other words, this had nothing to do with Mr Oikonomou or Mr Bhatia knowing that the material in the containers was not nickel.

The MDR Defendants also referred to some exchanges in October 2022, which refer to the increasing pressure that Trafigura was coming under from Citi. In particular, they referred to an internal Trafigura email sent by Mr Thibaut Barthelme (Trafigura’s Head of Trade Finance Refined Metals, in Geneva) to Mr. Oikonomou and Mr. Mehdi Wetterwald (Mr. Oikonomou’s right-hand man and ultimate successor) on 24 October 2022 , as follows:

“We had Citi on a call again on Friday… They are insisting on inspections, which we willhave to do on the containers that are arriving at port. This is key for them and we can't avoid it this time…

Then the question is do we want to get them involved in the inspection process. It will givethem greater comfort if they are (ie if they still finance the containers which are checked) but if we find no materials or if there is an issue, they will know immediately and who knows how they will react. We can decide to buy back and then do the checks but it might look suspicious. Let me know on the plan and confirmation that we can inspect the containers arriving. Then we can decideto involve Citi or not.”

At about the same time, there were WhatsApp exchanges between Mr Bhatia and Mr Gupta, in which Mr Bhatia said that he needed to know which containers could be inspected, as he needed to inform Geneva.

The MDR Defendants relied on these documents as showing that not only Mr Bhatia and Mr Oikonomou, but also Mr Barthelme and possibly others in Trafigura, knew that some containers did not contain nickel and were worried about how best to pacify Citi, without arousing suspicion.

Read in isolation, that particular email from Mr Barthelme in this way might be said to suggest this (although the implication of Mr Barthelme and Mr Wetterwald was surprising, their involvement not being supported by any other evidence and not having been alleged, either in the pleadings or in evidence, or raised in advance in the MDR Defendants’ skeleton argument). However, the email naturally cannot be read in isolation.

Mr Oikonomou responded on the same day, as follows:

“Hi Thibaut - we had a discussion with UIL on Friday and we agreed on the following:

ꞏ Reduction plan to bring it to 22KT by Dec22 and below 20KT by March 23.

ꞏ 20% of the new containers that are sold to us every month to be inspected by a surveyor like GS/AHK etc which we we appoint.

ꞏ We are finalising today a list of containers that are in transhipment ports (approximately 20% of the total stock) that will be moved to a warehouse for immediate inspection.

I will revert with more details on the last point once we have all the details. You think the above would be ok for Citi? ”

This suggested that Mr Oikonomou had no particular concerns about having cargoes inspected, but was waiting for information from the MDR Defendants about which containers could be moved readily to LME warehouses (i.e., those currently in transhipment ports).

The exchanges that followed showed Mr Barthelme being in agreement with this and believing that the combination of reductions and inspections would satisfy Citi. It is apparent that discussions to accomplish this took place with the MDR Defendants over the next few days, resulting inter alia with the nomination of 20 initial containers (intended to be the beginning of a rolling inspection programme).

In the event, Mr Barthelme’s optimism as regards Citi was misplaced. Despite being told about the planned reductions, and despite arrangements being made for a programme of inspections, Citi nevertheless made the decision to stop financing this business. This happened on about 27 October 2022.

This meant that Trafigura was no longer any under pressure from Citi in relation to inspections. If those involved on the Trafigura side had known that the cargoes purchased from the MDR Defendants did not in fact consist of nickel, one might have expected that they therefore would no longer press for containers to be inspected.

On their side, the MDR Defendants indeed sought to “stall” the inspections, notably in an exchange between Mr Gupta and Mr Oikonomou on 7 November 2022. However, no-one on Trafigura’s side was receptive to this. On the contrary, Mr Oikonomou responded to Mr Gupta by insisting on at least proceeding with the inspection of the 20 containers that had been arranged (by this point) two weeks earlier. These were the inspections that Trafigura carried out on 9 November 2022, in which none of the 20 relevant containers were found to contain nickel, and which led directly to Trafigura’s investigation into the alleged fraud.

Accordingly, when looked at in context, it is difficult to read the email of 24 October 2022 from Mr Barthelme as an indication of knowledge on his part of the Arrangement. The more obvious reading is that when Mr Barthelme used the words “… if we find no materials”, he was positing a hypothetical worst-case scenario. It was something he regarded as an abstract possibility, not something he knew would happen. Still less does the email indicate knowledge on the part of Mr Oikonomou, because Mr Oikonomou’s response to the email and his subsequent conduct tends to suggest the opposite.

I therefore do not see the materials relied on by the MDR Defendants as providing any real support for their case, for the purposes of this application.

Mr Howe KC suggested that Mr Bhatia (in particular) made various suggestions as to how the business should be arranged, with a view to avoiding red flags being raised by the Trade Finance Department or by Citi. The relevant documents in this regard dated mostly from 2019 and 2020, although some were later.

It is right that Mr Bhatia appears to have been concerned not to invite question from the Trade Finance Department, and at various points made suggestions about structuring the transactions so that they looked more like conventional trades – notably, by ensuring that cargo sold by one MDR Defendant would be repurchased by a different corporate entity (i.e., one of the other Defendants). Deflecting the attention of the Trade Finance Department may well have been wrong, but is not evidence that he knew that the material in the containers was not nickel.

Within most trading companies, there is frequently tension between traders, who are by nature deal-makers, and those responsible for internal restrictions on lending to purchasers, whom traders often regard as deal-blockers. The materials that the MDR Defendants relied on under this heading smacked of precisely this kind of internal tension, rather than knowledge of fraud.

The MDR Defendants relied on the fact that there were regular communications between them and Trafigura – in particular, Mr Rathi, Mr Bhatia and the traders in Mumbai (i.e., Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain). These communications descended to detailed instructions from Trafigura as to the operation of the transactions, including matters such as which email account should be used and what wording.

I accept that there were very frequent communications and that Mr Bhatia and those under him in Mumbai were closely involved. This is indicative of an unusually close relationship, in particular on the part of Mr Bhatia. However, that is the “cosiness” that Trafigura specifically dislosed to Foxton J. None of the materials shown to me under this heading indicated knowledge that the materials in the containers were not nickel.

The MDR Defendants said that there were strong grounds for believing that Mr Oikonomou, Mr Bhatia and/or the traders (i.e., Mr Nair, Mr Sharma, Mr Buddabasaynor and Mr Jain) knew of the Arrangement; possibly, others did as well. They said that this should have been apparent to Trafigura, and it therefore should have been drawn to the Court’s attention. The fact that it was not drawn to the Court’s attention means that Trafigura failed to make proper disclosure.

They also suggested that, in so far as Trafigura addressed the relevant evidential materials, it did so in a misleading manner; that Trafigura failed to disclose that the MDR Defendants might well have a substantial defence to the claim; and that Trafigura failed to disclose that Mr Oikonomou’s evidence was suspect and could not be relied on. While formally different, these ways of putting the arguments on this application were all founded on the major premise of the primary argument, i.e. non-disclosure as summarised in the previous paragraph.

Thus, they all rested on the contention that there was, in fact evidence to suggest that Mr Oikonomou, Mr Bhatia and/or the traders knew of the Arrangement, such that this should have been apparent to Trafigura, and therefore should have been disclosed.

There was no real disagreement between the parties as to the duties on a party that seeks relief such as a WFO, without giving notice to the other side. I was reminded of the principles set out by Ralph Gibson LJ in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 (at pp. 1356F-1357G). I was also taken to discussion of those principles in a number of subsequent cases that have emphasized (i) how important they are but also (ii) that sensible limits have to be drawn.

This is not a case where applying those principles, or finding their limits, is at all difficult. As I have explained above, I am not satisfied that the materials shown to me by Mr Howe KC should have put Trafigura on notice that there was a real possibility that Mr Oikonomou was involved in or knew about the alleged fraud. If relevant, I would say the same about Mr Bhatia and the traders working under him, but it is apparent that enough was said to Foxton J that he was in any event well aware of the possibility that it might be said that Mr Bhatia knew about the Arrangement. Accordingly, there was no failure to disclose. The presentation made to Foxton J was fair, in all the circumstances.

It follows that the application fails. I will wait for the parties’ submissions on costs, but in the ordinary way they will follow the event.

I must re-emphasise my conclusion has no bearing on what will happen at trial. By that stage, the evidence available may present an entirely different picture.

I should also say that I heard very limited argument on what legal significance it would have, if it were to be established that Mr Oikonomou, Mr Bhatia and/or the traders knew of the Arrangement. The MDR Defendants’ case is that this would mean that Trafigura knew, such that Trafigura would not be able to say that it had been deceived. Trafigura does not accept this, as Mr Pillow KC’s submissions to me made clear, although Mr Pillow KC did not explore the authorities at great length – no doubt because he considered this unnecessary.

The presentation made to Foxton J made it clear (at paragraph 45.3 of the skeleton) that it would, if necessary, be said that the knowledge of a few individuals should not be treated as legally attributable to Trafigura. Foxton J did not ask for any assistance on that point, but I have no doubt that he was and is familiar with Bowstead & Reynolds on Agency (22nd ed.) Article 95, and with Bilta (UK) Ltd v Nazir (No. 2) [2016] AC 1. Because the submissions before me focussed on the facts more than on the law, I will not express a considered view. However, limb (4) of Bowstead Article 95 is a serious difficulty for the MDR Defendants.