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Singapore’s High Court has sided with energy trader Goodwood Associates in a dispute over a missed US$1.5mn payment, dismissing claims from fellow oil company Southernpec that the duo had agreed to devise a series of “sham” trade transactions.

Goodwood had claimed it was still due payment from Southernpec – a group of companies involved in oil trading, bunkering and shipping – for a sale of petroleum in July 2015, an argument Judge Hoo Sheau Peng described as “straightforward” in her November ruling.

Southernpec, however, claims that the trade was “part of a wider web of fictitious transactions”, and that Goodwood had agreed to support those fake trades in order to give an artificial boost to its recorded income.

The company says Andrew Lim, acting on behalf of Goodwood, had approached Southernpec executives with whom he had a good working relationship. Lim was an employee of IEG, a subsidiary of fuels trader Digiland, which shared senior staff and office space with Goodwood.

Southernpec alleges that Lim suggested “the possibility of doing fictitious ‘paper’ deals in fuel oil, purportedly to help improve Goodwood’s revenue figures”, and proposed a scheme involving several companies carrying out a circular series of back-to-back transactions.

The scheme involved three other unrelated trading companies: Universal Alliance Limited (UA), BMS United Bunkers and Taigu Energy.

Southernpec would sell the cargo to Taigu, and it would then be moved onto UA, BMS, Digiland and Goodwood, with the cycle finishing with a final sale back to Southernpec.

All companies in the chain would make a profit other than UA, which would ultimately make a loss but would benefit from having immediate access to liquidity from the initial sale.

However, the scheme unravelled after UA defaulted on its payment to Taigu, which the court says involved a “substantial premium”. That ultimately meant Southernpec did not receive payment from Taigu, and so could not pay Goodwood the US$1.5mn due.

 

Forged documents

Goodwood says that as far as it was aware, the underlying trade transaction was legitimate, albeit only for the purposes of boosting balance sheets, but evidence given to the High Court by a Southernpec executive revealed otherwise.

It emerged that the oil being sold by Southernpec in fact belonged to trading giants Glencore and Socar.

Because the ship carrying the cargo was chartered by another Southernpec entity, the company was able to produce forged documents that suggested it had the legal right to sell that cargo.

Goodwood says it was unaware this was the case, and that it was given certificates by Southernpec’s oil storage arm showing real inter-tank transfers of oil had been carried out.

Southernpec says that Goodwood “well knew that while ostensibly purporting to be agreements for the sale and purchase of fuel oil, these were in fact facades” – and as a result the underlying contracts are not enforceable.

Judge Hoo explains that for Southernpec’s argument to work, it would have to prove Goodwood had knowledge of the scheme at the time it entered into the agreement.

She concludes there was “insufficient evidence to indicate that [it] knew that the fuel oil transacted was in fact non-existent and that therefore the circular chain of trading transactions was in fact a sham”.

Though close inspection of trade documents would have shown irregularities, such as typos and unexpected pricing, Hoo says that would not be relevant to a party who was immediately on-selling cargo rather than actually taking delivery.

Hoo adds that there is no evidence Lim had knowledge of the scheme, nor that he was acting as an employee of Goodwood.

As a result of the ruling, Southernpec is obliged to pay US$1.5mn plus interest.

Since the 2015 transactions, Southernpec has had other legal difficulties. In April 2019, it emerged that the Maritime and Port Authority of Singapore (MPA) was investigating its bunker ship operating arm for equipment tampering.

Its licence was suspended and later permanently revoked, with accusations staff used a magnet to tamper with one tanker’s mass flow meter, resulting in false readings.

Following a trial that concluded in September this year, a bunker clerk of one tanker was sentenced to 10 months’ imprisonment.