Goodwood Associates Pte Ltd v Southernpec (Singapore) Shipping Pte Ltd and another suit

• Jurisdiction: Singapore
• Judge: Hoo Sheau Peng J
• Judgment Date: 05 November 2020
• Neutral Citation: [2020] SGHC 242
• Court: High Court (Singapore)
• Docket Number: Suit No 1245 of 2015 and Suit No 51 of 2016
• Year: 2020
• Published date: 01 December 2020
• Hearing Date: 20 January 2020,04 November 2019,07 November 2019,13 November 2019,03 February 2020,08 November 2019,11 November 2019,06 November 2019,26 March 2020,05 November 2019,15 November 2019,12 November 2019,14 November 2019
• Plaintiff Counsel: Khoo Boo Teck Randolph, Vanessa Chiam Hui Ting and Chan Jian Da (Drew & Napier LLC)
• Defendant Counsel: Koh Swee Yen, Quek Yi Zhi, Joel and Anand Shankar Tiwari s/o Sivakant Tiwari (WongPartnership LLP),Sim Chong, Phua Jun Han and Choong Jia Shun (Sim Chong LLC),Chacko Samuel and Angeline Soh Ean Leng (Legis Point LLC)
• Subject Matter: Contract,Intention to create legal relations,Breach,Tort,Conspiracy
• Citation: [2020] SGHC 242

Hoo Sheau Peng J: Introduction

In these proceedings, Goodwood Associates Pte Ltd (“Goodwood”) claims against Southernpec (Singapore) Pte Ltd (“SPPL”), the purchaser under two contracts of sale of fuel oil dated 2 July 2015 (the “July Contracts”), for the purchase price of the fuel oil. Also, Goodwood claims against Southernpec (Singapore) Shipping Pte Ltd (“SPSPL”), the guarantor under a guarantee granted in favour of Goodwood dated 1 June 2015 (the “SPSPL Guarantee”) for the payments due from SPPL under the July Contracts. The positions of SPPL and SPSPL are aligned, and I shall refer to them collectively as “Southernpec”.

Denying liability, Southernpec contends that the July Contracts are shams. Further, Southernpec claims against Goodwood, Mr Lee Soek Shen (“Mr Lee”) and Mr Andrew Lim Boon Leong (“Mr Lim”) for engaging in lawful and unlawful means conspiracy with three other non-parties, to make legal claims on the false premise that the July Contracts are genuine.

While Goodwood’s claims are straightforward ones based on contract, Southernpec’s allegations concern fraud and deception, with the July Contracts being part of a wider web of fictitious transactions. Therefore, at the heart of the dispute is the question whether the July Contracts are sham transactions. Having considered the evidence and the submissions of all the parties, this is my decision.

Background The parties and other personalities

Goodwood is a Singapore-incorporated company involved in the wholesale of petrochemical products. Mr Lee is its sole director and shareholder.¹ He is also a director of New Silkroutes Group Limited, formerly known as Digiland International Limited (“Digiland”),² a publicly listed company in which Goodwood has a substantial shareholding (ranging from 6.85% to 14.83% from sometime between 2015 and 2017).³

Mr Lim was the Head of the Oil Trading Division of International Energy Group Pte Ltd (“IEG”), a wholly owned subsidiary of Digiland and its oil and gas trading arm.⁴ He was responsible for cultivating and maintaining relationships with trading counter-parties, negotiating spot and term contracts, and ensuring the successful execution of IEG’s trades.⁵

As for SPPL and SPSPL, they are Singapore-incorporated companies which are part of a group of companies headquartered in the People’s Republic of China. SPPL is engaged in the business of ship bunkering and the sale of petrochemical products while SPSPL is in the business of owning ships, chartering, and oil storage.⁶ Mr Xu Qiuxiong (“Mr Xu”) is a director of both SPPL and SPSPL, while SPPL’s Fuel Oil Trading Manager is Mr Jason Wu Jian Cai (“Mr Wu”).⁷

Events leading to the July Contracts Goodwood’s account – Credit sleeving trades of fuel oil

The events leading to the July Contracts, as well as the nature of these agreements, are disputed. This is Goodwood’s account given by Mr Lee.⁸

Sometime after Goodwood was incorporated in August 2014, Mr Lee directed its Senior Operations Manager, Mr Lim Yew Piow (“Mr Lim Y P”), to register as a trading counter-party with SPPL to facilitate future trading between the two companies.⁹

Then, sometime in March 2015, Mr Lim informed the management of Digiland and IEG that SPPL wanted to purchase fuel oil from BMS United Bunkers (Asia) Pte Ltd (“BMS”), another oil trading company, but was unable to do so because SPPL did not have a trading credit limit with BMS.¹⁰ Mr Lim suggested that Digiland and IEG get involved as intermediaries to purchase fuel oil from BMS, as Digiland was a publicly-listed company and was therefore able to secure a trading credit limit with BMS. Digiland could transfer its trading credit limit to IEG after securing it with BMS.¹¹ However, Digiland realised that the trading credit limit of US$5m extended by IEG and Digiland to SPPL had been exhausted by previous trades. Therefore, it was proposed that Goodwood would be involved as another intermediary. Goodwood’s role would be to purchase fuel oil from IEG/Digiland (which in turn would buy the fuel oil from BMS), and sell it on to SPPL, in exchange for a fee.¹²

Due to the credit risks involved, Goodwood required a corporate guarantee from SPPL’s parent company, Southernpec Corporation, before it would agree to act as an intermediary.¹³ This, according to Mr Wu, was a “customary” practice to “support actual purchases” (emphasis added).¹⁴ Thereafter, Southernpec Corporation and SPSPL each executed a guarantee of US$5m in favour of Goodwood (the latter of which is the SPSPL Guarantee dated 1 June 2015).

With the guarantees in place, Goodwood entered into two transactions to buy 1,500 MT and 1,700 MT of fuel oil from BMS through IEG to sell the same to SPPL on 10 June 2015 (the “June Contracts”), followed by the two transactions to buy 2,000 MT and 1,200 MT of fuel oil from BMS through Digiland to sell the same to SPPL on 2 July 2015 (as documented by the July Contracts). The key terms of the July Contracts are set out at [38] below.

In these transactions, Mr Lim Y P represented Goodwood, and dealt with Mr Wu of SPPL. Mr Lim represented IEG, and Mr Lim Koon Hock (“Mr Lim K H”), the former chief financial officer of Digiland, represented Digiland.¹⁵ Mr Lim was not an employee of Goodwood; nor was he an agent of Goodwood.¹⁶

Thus, Goodwood played a limited role as an intermediary or “credit sleeve” to facilitate the sales of fuel oil between BMS and SPPL for a margin of US$3 per MT. Goodwood only knew of the involvement of BMS, IEG (for the June Contracts) and Digiland (for the July Contracts as Goodwood’s procurement agent), Goodwood itself, and SPPL. Mr Lee did not know the reason for SPPL entering into the deals or what it would be using the fuel oil for. Such credit sleeving transactions are routine in the industry.¹⁷

In accordance with the July Contracts, Goodwood duly performed its obligations to SPPL. This is based on inter-tank transfers supported by inter-tank transfer certificates (the “ITT certificates”) and cargo release notices (the “CRNs”) issued by SPSPL (which I shall describe in more detail at [19]-[20] below).

Southernpec’s account – Circular fictitious trades of non-existent fuel oil

According to Mr Wu, however, in May 2015, Mr Lim spoke to him about the possibility of doing fictitious “paper” deals in fuel oil, purportedly to help improve Goodwood’s revenue figures. Mr Wu brought the matter up to Mr Xu, who agreed to do so.¹⁸ 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.¹⁹

To that end, Mr Lim came up with a scheme involving a circular series of fictitious trades (the “Scheme”) with BMS on board.²⁰ 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.²¹

As Mr Wu understood it, 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. 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.²²

The June Arrangements

Pursuant to the Scheme, two series of transactions were structured in June 2015 for 1,500 MT and 1,700 MT of fuel oil (the “June Arrangements”) as described graphically below.

These transactions were supported by ITT certificates which on their face confirmed that the fuel oil transacted had been physically transferred from one ship tank to another aboard the same fuel-storage vessel. As the fuel oil transacted was stored aboard a vessel, the MT Marine Star, which was owned and operated by SPSPL, the ITT certificates were issued by SPSPL. Another supporting document was a CRN for each transaction on SPPL’s letterhead which represented that the volume of fuel oil traded was being held in SPPL’s lawful possession. The various transactions in the June Arrangement were duly executed and performed without any issues, including the June Contracts between Goodwood and SPPL.²³

The July Arrangements

The parties then entered into another two series of transactions in July 2015 for 2,000 MT and 1,200 MT of fuel oil (the “July Arrangements”) as described graphically below. Similar to the June Arrangements, these transactions were supported by ITT certificates and CRNs in the same form as those described in the preceding paragraph, save that the vessel in question was MT Star Bright. Another counterparty, Taigu (Singapore) Energy Pte Ltd (“Taigu”), was also involved.

The nature of the July Contracts

In relation to the July Contracts, it is Southernpec’s position that at all material times, Goodwood and Mr Lee well knew that while ostensibly purporting to be agreements for the sale and purchase of fuel oil, these were in fact façades. Mr Lim, who orchestrated the Scheme including the use of fictitious documents, was an employee of Goodwood, or an agent of Goodwood and Mr Lee. Indeed, all the parties knew of the details of the June and July Arrangements.²⁴ All the transactions were done pursuant to the Scheme for the transmission of money once received (with BMS providing the cash upfront to UA to fund the chain of transactions for some unknown benefit) so as to artificially improve the reported financial performance of Goodwood.²⁵ There was no trading in fuel oil at all. Indeed, the fuel oil was “non-existent”.²⁶...