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Insurance provider the Bond & Credit Company (BCC) is disputing US$10.5mn in trade credit claims from a Swiss bank, arguing that it should not be liable for payment because the commodity trade transactions it insured were fictitious.

Arab Bank Switzerland, the Swiss sister company of Middle Eastern lender Arab Bank, is pursuing the claims in court under an insurance policy purchased by its client, the GP Global oil trading group, which has been undergoing a form of structured wind-down since mid-2020.

BCC is already facing more than half a dozen lawsuits over its rejection of insurance claims following defaults in the Asian and Middle Eastern commodities trading sector, which was beset by revelations of fraud and the collapse of several traders during 2020.

Arab Bank Switzerland’s claim in the Federal Court of Australia is made against BCC’s parent company, Japanese insurance giant Tokio Marine, although Sydney-headquartered BCC arranged and sold the policy as Tokio Marine’s agent.

Tokio Marine says it should not be required to honour the policy primarily because the trades between GP Global and four other traders were allegedly “fictitious transactions”.

Between April and June 2020, GP Global companies bought petroleum products from several suppliers with funds advanced by Arab Bank Switzerland through a trade finance facility provided to three GP Global entities, according to court documents.

It then agreed to sell the cargoes, in separate deals, to traders Sahara Petrochem FZE and Astra Resources FZE of the UAE and Singapore’s Integrated Commodities Pte Ltd and Prime Oil Trading Pte Ltd. BCC had approved the buyers and allocated the firms credit limits ranging from US$2.5mn to US$6.75mn, the documents show.

Under the deals, the traders were obligated to pay Arab Bank Switzerland for the cargoes they received from GP Global.

But for reasons not provided in the court documents, neither the lender nor the GP Global entities received payment and, in August 2020, GP Global filed claims with BCC for payment of US$10.5mn, the covered portion of the US$11.7mn combined value of the cargoes.

By that time, GP Global had already been placed in the hands of chief restructuring officer Rod Sutton of FTI Consulting. UniCredit, one of the trader’s banks, has alleged the group’s main UAE entity Gulf Petrochem has “been guilty of widespread fraud in relation to many cargoes”, a claim echoed by UK shipping firm Torm in separate legal proceedings.

Arab Bank Switzerland says in the documents that it was assigned the rights to claim under the policy, as part of its financing arrangement with the GP Global companies. The bank says it was advised by Tokio Marine in August last year that the claims were being refused, and filed its Australian lawsuit in late December that year.

In a defence filed in May, Tokio Marine says “the insured [GP Global] through their agent and chief restructuring officer have concluded and admitted that those alleged commodity sales transactions were fictitious transactions in relation to which there was no underlying cargo”.

The defence says the GP Global companies subsequently opted not to pursue claims against the policy and therefore “the applicant [Arab Bank Switzerland] is claiming in respect of alleged insured losses that the insured themselves have disavowed”. The insurer’s defence does not provide evidence of the fraudulent nature of the trades.

Tokio Marine says that Arab Bank Switzerland has failed to establish that any insured debt or insured loss exists under the policy, and denies that it breached the policy by refusing the claim or “that any amount is payable” to the lender.

The insurer also says that GP Global entities have “not fully cooperated” with the claims process and “have not provided all the material facts and information, or provided copies of the documents”.

Its defence argues that Arab Bank Switzerland does not have the right to make one of the claims – for US$1.7mn allegedly unpaid by Prime Oil Trading – because the sales contract was signed by GP Global Apac, which Tokio Marine says did not assign its rights under the policy to the bank.

BCC and Tokio Marine declined to comment through a joint spokesperson.

Earlier this year the New South Wales supreme court upheld a lower court’s ruling that BCC must pay US$7.2mn to Australian trade financier Thera Agri Capital Management under a trade credit policy following non-payment by Thera’s client, the collapsed UAE trader Phoenix Commodities.

The courts found that the “sham” transactions allegedly carried out by Phoenix did not preclude BCC from paying out Thera, which was not aware of the fraud.

In March this year BCC also settled, on confidential terms, one of the many suits it is facing from Australian trade finance marketplace Marketlend, although several more are still before the courts.

BCC, which was acquired by Tokio Marine in 2019, was catapulted into global headlines in early 2021 when its refusal to renew US$4.6bn of insurance cover for securitised notes helped trigger the downfall of supply chain finance provider Greensill Capital. It is also enmeshed in ongoing litigation in Sydney as Greensill’s administrators and Credit Suisse seek to recover funds following Greensill’s collapse.

GP Global has also been embroiled in a raft of lawsuits since it ceased operations in mid-2020, owing huge sums to creditors.

While most of its former trade finance lenders are participating in the restructuring process in the hope of recouping some of their losses, shipowners left on the hook for several oil cargoes that lenders never received payment for have pursued Gulf Petrochem through the courts in several countries.

Gulf Petrochem was also at the centre of a closely watched legal battle between UniCredit and tanker owner Euronav over cargoes of oil that were discharged from a ship but never accounted for.

In April this year, Sutton, the chief restructuring officer of GP Global, filed a lawsuit in Singapore against Prime Oil Trading over an alleged US$4.97mn debt owed to Gulf Petrochem for sales of low sulphur fuel oil, according to bunkering publication Manifold Times.

Sutton did not respond to questions from GTR. Arab Bank Switzerland did not respond to a request for comment. GTR was unable to locate contact details for the four Singapore and UAE traders.