The recent English Commercial Court case of Euro-Asian Oil SA v Credit Suisse AG and others is a cautionary tale with wider consequences for parties who counter-sign letters of indemnity (LOIs).


Euro-Asian Oil SA (Euro-Asian) purchased a cargo of ultra-low sulphur diesel from Abilo (UK) Limited (Abilo), the fourth in a series of similar transactions between them. The transactions were financed by way of letters of credit, which provided standard wording for LOIs to be presented in lieu of bills of lading.

Credit Suisse AG (Credit Suisse) had financed Abilo’s purchase of the cargoes and agreed to be jointly and severally obligated with Abilo under the LOIs. It counter-signed the LOIs with Abilo.

The LOIs were presented to Euro-Asian’s banks in lieu of the bills of lading, under the letters of credit which those banks had opened for Euro-Asian to pay for the purchase of the cargoes from Abilo. The banks paid out and Euro-Asian claimed against Credit Suisse, and another defendant, in relation to the fourth transaction, for breaches of warranties and undertakings in the LOIs that it had signed.

The relevant clauses in the LOIs warranted that:

  1. Abilo had marketable title to the cargo free and clear of any encumbrance.
  2. Abilo had the full right and authority to
  3. Transfer title to the cargo to Euro-Asian.
  4. Effect delivery of the cargo to Euro-Asian.
  5. Locate and surrender to Euro-Asian the full set of 3/3 original bills of lading.

Unfortunately, and without Credit Suisse’s knowledge, the previous transactions between Euro-Asian and Abilo had proceeded in an irregular fashion, characterised by Euro-Asian during trial as a ‘carousel’, whereby Abilo presented documents under a letter of credit for one cargo which had already been discharged under a prior transaction and used by the oil terminal to issue a holding certificate for the purposes of the back to back transaction. The carousel arrangement rendered the warranties in the LOIs untrue. The court found that Euro-Asian was aware of the carousel by the end of May 2010 but Credit Suisse only became aware in January 2011, in the aftermath of the breakdown in the relationship between Euro-Asian and Abilo.

Further, the individual controlling Abilo had close links with the relevant individual traders at Euro-Asian. In fact, the individuals involved in the transactions at Euro-Asian were receiving commission on the back of them. This information was kept not only from those controlling Euro-Asian but crucially, from Credit Suisse.

The crisis point came when Abilo made a complying presentation under the letter of credit for the fourth transaction, despite both Euro-Asian’s protestations that an underlying fraud was being committed and Euro-Asian’s failed attempt to secure an injunction in Geneva to prevent payment of the funds under the letter of credit.


The lengthy judgment deals with a number of issues, including the definition of a CIF contract, Euro-Asian’s involvement in the so-called “carousel” and third party indemnities.

In relation to the LOIs, the court found that by countersigning the relevant LOIs, Credit Suisse was “exposing itself to some risk” and that “in signing the letters of indemnity and acting in this way it was no longer a letter of credit bank.” Credit Suisse was held to be liable for Euro-Asian’s losses, despite having no relevant knowledge of the convoluted underlying transactions.

The court ultimately found that Abilo shouldered the majority of the responsibility for Euro-Asian’s losses and assessed Credit Suisse’s overall contribution to the loss at 20%, pursuant to the Civil Liability (Contribution) Act 1978.

The court denied Credit Suisse permission to appeal at the ancillary hearing but leave has since been sought from the Court of Appeal.

How does this affect me?

The current ruling has wider implications for transaction specific trade finance. Although Credit Suisse was not aware of the underlying carousel and that the warranties given in the LOIs were incorrect, by countersigning the LOIs it assumed the risks and responsibilities of them being incorrect.

To avoid this risk, banks should conduct further due diligence regarding underlying transactions. Additionally it may be possible for a bank to countersign a separate indemnity, affirming that it will be jointly and severally obligated only if the warranties and representations in the relevant LOI are all correct at the time of signature. Ultimately however, banks may simply find this kind of financing less attractive going forward.