A High Court of the Republic of Singapore Judge on 5 November issued a reserved judgement over a bunker credit sleeving dispute between Goodwood Associates Pte Ltd (Goodwood), Southernpec (Singapore) Pte Ltd (SPPL), Southernpec (Singapore) Shipping Pte Ltd (SPSPL) and other individuals, according to a court document seen by Singapore bunker publication Manifold Times.

Summary

Singapore-based petrochemical wholesale company Goodwood was involved in a credit sleeve operation with several parties in July 2015, where it received a margin of USD 3 per metric tonne (mt) for its intermediary role to facilitate the sales of fuel oil between BMS United Bunkers (Asia) Pte Ltd (BMS) and SPPL.

Source: High Court of the Republic of Singapore

The transactions for 2,000 metric tonnes (mt) and 1,200 mt of fuel oil were supported by intertank transfer (ITT) certificates and cargo release notices (CRNs).

The Scheme was intended to comprise a circular chain of “back-to-back sales” of non-existent “fuel oil” from one entity in the chain to another lower down the chain, wrote Justice Hoo Sheau Peng.

To start the chain, BMS would provide actual funds to Universal Alliance Limited (UA), another oil trading company, which would then use the funds to make payment to the next fictitious “sub-seller” above it in the chain for an ostensible purchase of fictitious fuel oil, until the funds found their way back to BMS.

According to the view of SPPL’s Fuel Oil Trading Manager Jason Wu Jian Cai (Mr Wu), another motive of the circular fictitious “paper” deals in fuel oil was purportedly to help improve Goodwood’s revenue figures.

“Mr Wu brought the matter up to Mr Xu, who agreed to do so. This was because Mr Xu and Mr Wu had enjoyed a good working relationship with Mr Lee, Mr Lim and Dr Goh Jin Han (Dr Goh), the director and chief executive officer of Digiland, when the latter three were involved with another oil trading company IAG-Pacific Petroleum Pte Ltd.,” stated the court document, reflecting Mr Wu’s account of the alleged operation.

“To that end, Mr Lim came up with a scheme involving a circular series of fictitious trades (the Scheme) with BMS on board. In particular, Mr Lim introduced Mr Mohammad Arif bin Abdol Rahman (Mr Arif), a BMS bunker oil trader, who, according to Mr Wu, would “handle day-to-day running of the Scheme for BMS” with the blessing of his superior, Mr George Markos Kounalakis (Mr Kounalakis), the managing director of BMS.”

Dispute

Issues arose for the July contracts when UA defaulted on its payment to Taigu, which in turn did not pay SPPL; leading to SPPL’s default on its payment obligations to Goodwood.

As such, Goodwood launched a claim against purchaser SPPL for the two July fuel oil sales contracts; it is also claiming against SPSPL which is the guarantor of SPPL for the similar sales contracts.

Goodwood’s case was it had duly performed its obligations under the July Contracts as it relied on the ITT certificates and CRNs as supporting evidence for the transaction.

In response, both SPPL and SPSPL denied liability and claimed the two fuel oil sales contracts were shams; they issued a counterclaim against Goodwood and its associates on the grounds they were making legal claims on the false premise that the July Contracts were genuine.

Southernpec asserts the July Contracts are not enforceable due to them being “sham transactions supported by sham documents” and thus not being subjected to any legal effects.

SPSPL on November 2017 further introduced counterclaims against Goodwood and its associates for lawful and unlawful means conspiracy.

Goodwood on October 2018 started a counterclaim against SPPL for the purchase price based on the July Contracts.

Conclusion

In summary, Justice Hoo concluded the July contracts were not shams and dismissed SPPL’s and SPSPL’s claims based on the tort of conspiracy to injure and decided both were liable to Goodwood under the July Contracts and the SPSPL Guarantee respectively.

“Judgment is granted to Goodwood against SPPL and SPSPL in the sum of US$1,491,669.26 for the invoiced amounts under the July Contracts,” she stated.

“Contractual interest is awarded at the rate of 5.1885% per annum on US$932,177.08 from 30 July 2015 to the date of payment, and at the rate of 5.19075% per annum on US$559,492.18 from 4 August 2015 to the date of payment.”

Note: Full details of the 73-page judgement, including names of all staff involved and further details of the alleged credit sleeving operations, can be found on the original document available from the High Court website here.

Photo credit: Manifold Times
Published: 24 November, 2020