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Fimbank has turned to the courts in a bid to force Dubai Insurance Co to pay out on a trade credit insurance policy invoked after a commodity trader failed to repay a US$10.8mn trade finance facility.

Fimbank is seeking US$5.43mn from the insurer, which the Maltese lender says it is owed under a policy which covered non-payment by Gulf Petrochem, a trader which used the facility to finance eight deals in early 2020 but collapsed shortly afterwards.

The case is the third publicly known lawsuit facing Dubai Insurance stemming from the insurer’s refusal to pay out under a trade credit policy, following legal action by Westford Trade Services and the Commonwealth Trade Bank in disputes over disgraced trader Phoenix Commodities.

In the latest case, Dubai Insurance says it should not have to honour the claim, which is for the 50% insured portion of the facility.

The row is among many that have erupted between trade finance lenders and insurers after small and medium-sized traders foundered during the onset of the Covid-19 pandemic in 2020, facing liquidity crunches as banks tightened lending. Some have been alleged or found to have engaged in lengthy frauds which were exposed after they failed to clinch fresh financing.

Gulf Petrochem, which specialised in oil and petroleum products, has been in restructuring since mid-2020, triggering a wave of litigation stemming from its unpaid debts.

Fimbank first granted an uncommitted revolving credit facility of up to US$15mn to Gulf Petrochem in 2016, to finance invoices from pre-approved suppliers, court filings show. The trader was required to pay interest and repay the principal within 90 days.

Gulf Petrochem drew down on the facility to finance eight invoices issued by Vitol, Uniper Energy DMCC and Sahara Petrochem FZE in February and March 2020, according to Fimbank’s claim.

The trader defaulted on all its payments and post-dated cheques provided to Fimbank as security bounced, the lender says.

Fimbank filed its claim with Dubai Insurance in September 2021, the court filings show. Since then, the insurer has asked for further documents but has not made a decision on the claim.

 

Proof of ‘genuine transactions’ demanded

Dubai Insurance has deployed several arguments to rebuff Fimbank’s claim, including by demanding evidence from Fimbank that the trades financed with the facility were real.

In a filing, the insurer says that an internal audit of Gulf Petrochem, carried out by its restructuring advisors FTI Consulting, found that a group of three traders “had perpetrated fraud on GP”.

Citing a 2020 email from Gulf Petrochem to Fimbank, it says the alleged fraud consisted of “discrepancies in [its] sales invoicing system whereby a number of invoices were financed which the relevant counterparty rejected”.

Gulf Petrochem also publicly disclosed the alleged misconduct at the time and said it had reported it to police. UniCredit, one of the trader’s banks, has alleged that Gulf Petrochem itself has “been guilty of widespread fraud in relation to many cargoes”, a claim echoed by shipping firm Torm in separate legal proceedings.

“In the circumstances, the claimants are put to proof that the transactions the first claimant financed were genuine transactions, provided in the ordinary course of business,” Dubai Insurance’s defence says.

This line of defence echoes that put forward by insurer Bond and Credit Company in a dispute in Australia with Arab Bank Switzerland, in which the carrier alleges that insured trades undertaken by Gulf Petrochem were “fictitious transactions”. Sahara Petrochem was also one of the suppliers in that case.

Dubai Insurance’s defence adds that Gulf Petrochem’s statement of account with Fimbank shows that on “multiple occasions”, loans were repaid by third parties, which the insurer says “is indicative of a company in financial distress”.

The insurer says Fimbank should provide proof that it investigated the payments, given it was required by the policy not to incur any further exposure to a borrower “following the occurrence of material events or circumstances that may reasonably be expected to result in a loss”.

The insurer also argues that Fimbank has not provided sufficient proof it actually suffered an insurable loss from Gulf Petrochem’s non-payment, pointing out that the outstanding balance of the facility stood at only US$36,454 in the month before the insurance claim was filed.

Fimbank did not respond to a request for comment. Dubai Insurance and a lawyer representing it in the case did not respond when contacted.