A UK judge has rejected an attempt by Italy’s UniCredit to claim US$24.7mn in damages from shipping company Euronav after an oil cargo it was financing went missing amid the demise of oil trader Gulf Petrochem.
The bank’s German subsidiary UniCredit AG financed the sale of fuel oil to BP from Gulf Petrochem, a subsidiary of GP Global, in April 2020 through a letter of credit as part of a broader credit facility. The oil was to be on-sold to approved buyers that would then pay UniCredit directly.
Euronav, the owner of the vessel carrying the cargo, allowed it to be discharged by ship-to-ship transfers to various buyers in late April of the same year. UniCredit argued that in doing so the shipper breached the contract contained in the bill of lading, which BP was in the process of endorsing to the bank and which was not produced at the time of discharge.
But in a High Court judgement published on April 28, Justice Moulder dismissed the bank’s claim, ruling that the bill of lading underpinning the cargo stopped containing the contract of carriage between Euronav and BP after Gulf Petrochem replaced BP as the charterer in early April 2020.
Justice Moulder rejected UniCredit’s argument that a new contract had “sprung up” when BP novated the charterparty agreement and held that the bill of lading represented a “mere receipt” at that time.
The judge also agreed with Euronav’s alternative defence to the suit: that UniCredit was so keen to sell the cargo amid the market turmoil in the early stages of the coronavirus pandemic, that had it been asked, the lender would have approved the transfer of the cargo by ship-to-ship without presentation of the bill of lading despite the unusual circumstances.
The judgement does not say what came of the cargo, only that it “disappeared” and the bank incurred a US$24.7mn loss and never received payment from the buyers.
The judgement suggests that at least some of the buyers may have been related parties to Gulf Petrochem, which may have invalidated the trade credit insurance covering the transactions, according to evidence produced in the judgement.
Gulf Petrochem’s parent company, GP Global, is a Dubai-based commodities trader which ran into financial strife in mid-2020, along with a string of other traders in the Middle East and Asia.
The company said in July of that year that it had filed criminal complaints against some employees for defrauding its customers, Reuters reported at the time. In February 2021 the consultant in charge of restructuring GP Global’s Singaporean subsidiary, GP Apac, said he found evidence of “irregular commodity trades and/or fictitious trades where there was no actual transfer of any underlying cargo”, according to a court document seen by GTR at the time.
The same document listed UniCredit as a top three creditor to GP Apac, alongside UBS and Credit Suisse. GP Global could not be reached for comment and its website is no longer operational. UniCredit and Euronav did not respond to requests for comment.
Justice Moulder said the case “was a significant event for the bank both in terms of the fraud and the size of the loss which it suffered”. Patrick Cotasson, a managing director for UniCredit in Switzerland, said in evidence that “the sale of a cargo pursuant to a bank’s security rights is very rare. This is not something which I have experienced personally.”
The judgement says that when UniCredit agreed to finance the cargo purchase from BP in April and May 2020, the lender “had no specific concerns” about Gulf Petrochem defaulting, but that according to the bank’s evidence “things changed completely and rapidly in July… once the market started to have suspicion of wide scale fraud”.
During the course of that month the bank suspected “fraudulent behaviour” at the trader and was aware it had “liquidity distress”.
Correspondence between Diana Bodnya, UniCredit AG’s director of commodity trade finance, Switzerland, and a Mr Agarwal of Gulf Petrochem, reproduced in the judgement, shows that the lockdowns and shipping chaos wrought by the early months of the coronavirus pandemic had a significant impact on the transaction.
The judgement shows Bodnya repeatedly asked Gulf Petrochem for updates on the deal, which was delayed due to congested ports in the UAE, full storage tanks and the slowdown in documentary trade processes as offices remained shuttered. In emails to Gulf Petrochem, Bodnya accepted that the original bill of lading would not be available until after discharge to buyers had occurred, but said there was a letter of indemnity in place.
The cargo was supposed to be discharged into storage at the port of Fujairah in the UAE but in late March Gulf Petrochem told UniCredit it planned to sell the oil “in small clips of 5,000-6,000 [metric tons] to regular customers”, providing a 10% cash margin to the bank for each sale. Gulf Petrochem also said that the new offtakers were not related parties to the trader.
The judgement shows that Bodnya then asked for the original bill of lading to be endorsed to the bank, but this was delayed because of the pandemic. By the end of April UniCredit’s emails grew more insistent, as the sale was continually delayed and Gulf Petrochem failed to disclose the location of the discharge.
Bodnya wrote: “Where are the original [bills of lading]? They should be endorsed to our order. Why delivery has not yet taken place, as envisaged? Will the clients agree to accept the goods with the March pricing period [which] is significantly higher? What is alternative scenario and what is the reason for delay?”
Since the sale had been agreed with the original buyers, the price of oil had plummeted, with US benchmark prices even dropping below zero around the same time that Bodnya queried the buyers’ willingness to pay.
Agarwal responded that the buyers would pay March prices for the cargo because they were long-term customers, an explanation that Justice Moulder said “does not appear to have any commercial logic”.
Bodnya emailed the trader again when she noticed that the vessel, the MT Sienna, had departed the United Arab Emirates and sailed to the port of Sohar in Oman. Under cross-examination, Bodnya said she was not aware the vessel was discharging via ship-to-ship transfer at Sohar.
Bodnya told the court she would not have agreed to a sale to the sub-buyers without production of the bill of lading if she had known that the method of discharge was ship-to-ship transfers. But Justice Moulder found that the bank “would have permitted discharge at Sohar” and that “the loss would have occurred in any event”.
In a note published after the judgement, Euronav’s solicitors Preston Turnbull say Justice Moulder’s decision challenges the “legal fiction” that a bill of lading automatically “springs up… due to the fact there has been a novation of the voyage charter”.
Along with other recent court decisions in London and Singapore, Justice Moulder’s judgement shows that the courts “are now increasingly open to questioning whether a shipowner will always be liable where cargo has been delivered without production of original bills of lading”, the lawyers say.
Instead, according to the note, the cases signal that courts are willing to examine in more detail the factual background to the discharge of the cargo and the “understanding/expectation of those involved in the financing arrangements underpinning the delivery of the cargo”.
Tags: BP, commodities financing, crude oil, Diana Bodnya, Euronav, Germany, GP Global, Gulf Petrochem, Italy, Litigation, Patrick Cotasson, Preston Turnbull, Sohar, Switzerland, UK High Court, UniCredit, United Arab Emirates (UAE)
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