The recent Singapore Court of Appeal (“CA”) decision of Valency International Pte Ltd v JSW International Tradecorp Pte Ltd and others and another appeal [2026] SGCA (“Valency CA”) reaffirms that actual possession (or an immediate right to possession) of the underlying goods is essential for a party to have standing to sue in the tort of conversion. This principle is especially relevant in typical trade finance structures involving trust receipts. In such arrangements, a trader pledges the bills of lading (“BLs”) to a lender as security for financing. The lender then releases the BLs back to the trader under a trust receipt, allowing the trader to handle delivery or sale of the goods (often to repay the loan). This can create a misconception that mere physical possession of the BLs confers an immediate right to possession on the trader, enabling it to sue third parties for conversion.
Recap of Facts: Discharge without original BLs
We set out the facts in our earlier article covering the first instance decision (“Valency HC”). Valency International Pte Ltd (“Valency”) provided letter of credit financing to K.I. (International) Limited (“Kamachi”) for Kamachi’s purchase of steam coal from JSW International Tradecorp Pte Ltd (“JSW”). Twenty-two BLs were issued in relation to the cargo, which was carried on a vessel that JSW had chartered from Oldendorff Carriers GmbH & Co KG (“Owners”). Unicorn Maritime (India) Pvt Ltd (“Unicorn”) was nominated as the discharge port agent.
On 24 August 2018, Valency opened a letter of credit in JSW’s favour with HSBC (the “LC”). On 31 August 2018, the cargo was discharged without BLs, and held by Unicorn pending the production of the BLs. JSW and Unicorn also signed letters acknowledging (among other things) the need for Valency’s instructions for the cargo to be discharged. Valency obtained an import trust receipt loan to repay HSBC for the cargo, having pledged the BLs to HSBC, and sent HSBC a trust receipt for the release of the BLs on the conditions that Valency would hold the BLs, the cargo and the proceeds of their sale on trust for HSBC and solely to HSBC’s order.
Valency collected the 22 BLs from HSBC under the trust receipt in two batches – on 13 September 2019 and 24 September 2019. Meanwhile, Owners instructed Unicorn on 13 September 2018 to issue delivery orders for the Vessel. JSW also followed suit on 17 September 2018, and instructed Unicorn to release the delivery order for the cargo. Unicorn accordingly issued delivery orders and Kamachi obtained delivery between 17 September 2018 and 15 November 2018. Despite Kamachi not paying for all the cargo, Unicorn released all the cargo to Kamachi, but misrepresented to Valency at least three times that 52,500 MT was still unreleased.
Valency brought multiple claims against Owners, JSW and Unicorn. The Court in Valency HC dismissed all of Valency’s claims, due to a lack of standing, except for its claim in conversion against Unicorn.
Finding: Trust receipt does not destroy a pledge
The CA affirmed the High Court’s ruling that Valency lacked the standing to bring a claim in conversion against JSW and the Owners. Central to this finding was the fact that Valency possessed neither actual possession nor an immediate right to possession of the cargo at the critical time.
While Valency argued that its physical possession of the 22 BLs conferred an immediate right to the cargo, the CA disagreed. The Court clarified that the capacity in which Valency held the documents at the material time was determinative: because Valency had pledged the BLs to HSBC and subsequently held them under a trust receipt, it was merely acting as a trustee for the bank. The Court emphasized that the terms of the trust receipt made it clear that HSBC never intended to surrender its security interest in the BLs or the underlying cargo; and as a pledgee, HSBC retained the right to possession until the underlying debt is satisfied. Consequently, the pledgee is the only party entitled to sue for conversion. Ultimately, the CA reaffirmed a fundamental tenet of trade finance: holding a BL under the “umbrella” of a trust receipt does not grant the holder a right to immediate possession or to sue for conversion.
Owners’ instructions do not constitute an action of conversion
The CA also addressed whether the Owners’ and JSW’s release instructions constituted an act of conversion. The Court ruled they did not, primarily due to a lack of causation.
For a conversion claim to succeed, Valency needed to prove that Unicorn (the port agent) actually acted upon the Owners’ instructions when issuing the delivery orders. On the facts, the Court noted several factors that broke this causal chain. Notably, Unicorn was fully aware of its separate undertaking to Valency not to release cargo without Valency’s express consent. Further, Unicorn’s decision to lie to Valency about the remaining cargo balances proved that it knew Valency’s instructions were required. This demonstrated that Unicorn acted on its own volition, rather than being “caused” to act by the Owners’ instructions. The Court applied this same reasoning to JSW, concluding that their instructions likewise failed to constitute an act of conversion.
Comment: Pledge and conversion
A common misconception in trade finance is that physical possession of a BL automatically equates to a right to sue. This judgment clarifies that when BLs are pledged to a lender and subsequently released under a trust receipt, the trader acts merely as the bank’s agent. Because the “special property” and the right to possession remain with the pledgee (the bank), the trader lacks the standing to sue third parties for conversion. Traders must recognize that while a trust receipt allows them to handle the documents, it does not restore the independent legal standing that was transferred to the lender under the pledge.
For commodity traders, Valency CA underscores that conversion claims based on “release instructions” are evidentially demanding. Where misdelivery is alleged to have occurred through the actions of an independent port agent, it is insufficient to show that a trader’s counterparty issued instructions which may have influenced the agent’s conduct. The trader must prove a clear chain of causation between the instruction relied upon and the actual issuance of delivery orders that resulted in loss of possession.
It can be tempting to launch conversion claims in misdelivery cases against shipowners with deep pockets in circumstances where the counterparty has defaulted. However, Valency CA serves as a reminder that issues of standing (Has the right to sue moved to the lender under a pledge?) and causation (Can the loss be traced directly to the defendant’s instructions, or was it the result of an agent’s independent misconduct?) need to be carefully evaluated in such disputes.
