1. The Qingdao metals scandal was exposed in 2014. This involved a warehouse duplicating certificates to pledge metal as collateral for several bank loans.
In the case,¹ 27 warehouse receipts were issued to a bank’s order to evidence ownership and possessory right over aluminium and copper stored in warehouses in Qingdao. The parties were under an agreement to sell and buy certain quantities of metal, which would continue to be stored at the warehouses. It was later discovered that a significant quantity of the metals was missing from the warehouses. The issue of “multiple pledging” came to light, wherein the same lot of metal had been used as the subject matter for different transactions.
This fraud revolved around in-warehouse transfers, which did not require any confirmation of delivery from the operator of the warehouse facility. It was suggested in arguments before the court that delivery under the agreement took place only by way of delivery of documents (deemed delivery), rather than there being a requirement for actual delivery of metals (since the agreement did not call for confirmation from the warehouse operator to confirm delivery).
However, the court rejected the ‘deemed delivery’ argument on the basis that it was against the commercial scheme of the transactions. It was held that, in the absence of an attornment from the warehouse operator, there was no delivery of metals that took place under the agreement.
2. Natixis v Marex and Access World,² concerning nickel stored at warehouses and ‘transferrable’ warehouse receipts given to the buyer.
In this case, the warehouse receipts were discovered to be forged and the claims between the parties involved issues of fundamental mistake and breach of duty of care. However, the court took the opportunity to review the legal status of warehouse receipts.
The court confirmed that: (i) warehouse receipts are not documents of title under English law (unlike bills of lading which are documents of title to the goods they represent), and only give the holder a right to possession of the goods; and (ii) the nature of the relationship between the warehouse operator and the original depositor is one of contractual bailment.
Stakeholders in the current system were able to continue this fraud over several years due to a lack of formal systems of checks to ensure inspection at every stage and within separate jurisdictions.
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