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Malaysia’s Archipelago Insurance Limited was last year ordered to pay US$4.5mn to commodities trader Westford Limited in a sprawling case involving failed fraud allegations and an external imposter, long-awaited court documents reveal. 

The row stems from the 2020 collapse of scandal-hit trading house Phoenix Commodities, which owed Hong Kong-based Westford US$5mn for shipments of rice. 

Westford submitted a trade credit insurance claim to Labuan-headquartered Archipelago to recover the funds, but the insurer rejected the claim, prompting the trader to file a lawsuit in Kuala Lumpur’s High Court. 

Although the court ruled in Westford’s favour over a year ago, written grounds for that decision were only filed this month. GTR has obtained a copy of the written judgement, which has not yet been made public. 

The case is one of several insurance-related disputes that have sprung up since a series of insolvencies in the commodity trading market during the early months of the Covid-19 pandemic. 

As in many of those cases, Archipelago attempted to argue that the underlying transactions were not legitimate trades, but rather “disguised financing arrangements” or even sham commodity trades. 

The trades themselves were back-to-back sales of rice cargoes, which Westford purchased from Singapore-based supplier Genuine Pte Ltd and immediately sold onto Phoenix. 

Archipelago presented documents, including some provided by Phoenix’s liquidator, that it said showed those trades could not have actually taken place. 

The insurer argued that invoices and bills of lading it obtained show another Phoenix Group company in Singapore had in fact purchased the same goods directly from shippers in Vietnam, then sold them to other end buyers, with no involvement of Genuine or Westford. 

But Westford responded by questioning the authenticity and relevance of those documents, particularly compared to its own extensive evidence that the trades did occur. It added that even if Phoenix had committed fraud, that would not implicate Westford or invalidate its claim. 

The court sided with Westford, finding: “The evidence cited by Archipelago, while suggestive of direct trades between Vietnamese shippers and other entities, does not irrefutably establish the exclusion of Genuine and Westford from these transactions. 

“The court is also mindful of the burden of proof on Archipelago to establish the existence of ‘sham trades’, a burden it has not satisfactorily met.” 

Archipelago also argued that a refusal by Westford to consent to an investigation by Phoenix’s liquidator indicated the trades were not genuine. 

The court rejected that claim too, on the grounds that Archipelago only requested investigations after legal proceedings had been started. It said Westford’s refusal was “understandable given the timing and the apparent insincerity of Archipelago’s sudden interest in sharing investigation costs”. 

It also said Archipelago obtained certain documents through a discovery process that was not disclosed to the court, which “raises significant questions about the integrity and transparency of its actions”. 

A separate Phoenix-related case brought by Westford also looks set to rely heavily on information provided by the collapsed trader’s liquidator. 

In an ongoing dispute in the UAE, Dubai Insurance Co has alleged that Phoenix constructed a sub-ledger of transactions that do not appear to correspond to real trades but were used to raise financing from lenders. It has also cast doubt on the legitimacy of the parties involved. 

Westford has argued in its own submissions it legitimately acquired and sold title to the goods, and had no knowledge of Phoenix’s internal record keeping or financing practices. 

 

Disguises and imposters 

The Archipelago case took other unexpected turns, the judgement shows. Archipelago had argued the policy was invalid because it had not received a premium payment owed by Westford, due when the policy limit was increased from US$2.5mn to US$5mn. 

Though both parties agreed to the change, it later emerged that a fraudster had impersonated officers from both companies, using pretend email addresses and forging Archipelago letterheads and signatures. Westford was fooled into paying the fraudster instead. 

The court found that rather than invalidating the policy, it would have been impossible for Westford to comply with the requirement to pay the premium, because Archipelago unwittingly sent the invoice to the imposter rather than to Westford. 

The court added that Westford offered to pay once the scam was discovered, but Archipelago refused, a position the court found was “not legally justifiable”. 

The insurer also argued Westford was acting as a trade finance provider “in the guise of a distributor” of commodities, and so was not covered by the policy. 

It claimed trades were pre-arranged, with Westford then stepping in to buy the goods and sell them to Phoenix on extended payment terms – rather than genuine purchases and sales of goods. 

But Westford argued this was a “semantic issue”, and that its operating model had been accurately disclosed to the insurer throughout, the ruling says. The court agreed that evidence presented showed Westford did not mislead Archipelago about how its business worked. 

And Archipelago claimed the policy did not apply because the cargoes were ultimately delivered to Ivory Coast and Senegal, neither of which were listed as approved countries for shipments. 

But the court ruled that interpreting “shipment” as the end destination of goods “is a misreading of the policy”, and that it refers instead to when title is transferred to the buyer. In this case, Westford provided bills of lading to Phoenix in the UAE, an approved country under the policy. 

Westford chief executive Hande Elmener tells GTR the company is “very pleased with the outcome” of the case. An Archipelago representative declined to comment. 

GTR understands Archipelago has appealed the ruling, but the appeal could not be heard until the written grounds for judgement were produced by the court this month.