Scorpio Tankers will finally get its day in court after being granted the right to defend a $13.6m claim for misdelivered cargo filed against one of its LR2 product tankers by Singapore’s OCBC bank.
The claim against the 110,000-dwt STI Orchard (built 2014) is one of many cases that shipowners who carried cargo for Hin Leong Trading have been facing since the Singapore-based oil trader collapsed in early 2020.
The High Court of Singapore has rejected OCBC’s request for a summary judgement, a legal mechanism that allows a plaintiff to obtain a judgment order without proceeding to trial provided there is no defence to the claim
OCBC argued that it was the legal holder of the bills of lading for the 780,000 barrels of gasoil the STI Orchard had discharged into a Hin Leong storage tanker against a letter of indemnity issued by seller Winson Oil.
Scorpio argued that OCBC did not become the holder of the bills of lading in good faith — the bills of lading had become spent before they were indorsed to OCBC, and the bank had consented, authorised, or acquiesced to the delivery of the cargo without their presentation.
The STI Orchard became embroiled in the Hin Leong saga because of the complex and convoluted manner in which Hin Leong’s oil trading deals were financed.
Formerly one of Asia’s top oil traders, it bought the gasoil from Winson on 19 February 2020. Hin Leong applied for a letter of credit from OCBC in favour of Winson Oil for the sum of $16.5m, providing documentation showing that it intended to blend the cargo and sell it as gasoline to Indonesia’s Pertamina.
The STI Orchard, on charter to Winson, delivered the gasoil to Hin Leong between 5 and 6 March 2020 at Tanjung Pelapas, Malaysia, via ship-to-ship discharge to a storage VLCC. Winson provided a letter of indemnity to facilitate the discharge of the cargo without the presentation of the bills of lading.
On 12 March OCBC granted Hin Leong a trust receipt loan from 3 to 28 April 2020 for the sum of $13.6m that was due under the letter of credit for the cargo’s purchase.
One month later Hin Leong informed its lenders of its precarious financial position, with total liabilities in the region of $4.05bn and assets of only around $714m.
OCBC, alleging various events of default, demanded immediate payment of the trust receipt.
It was only in December 2020 that OCBC obtained a court order requiring Hin Leong’s judicial managers to indorse over the bills of lading for the cargo carried on the STI Orchard.
That step finally allowed OCBC to file a misdelivered cargo claim against the tanker, which was arrested when it called at Singapore in March 2021.
Scorpio provided security for OCBC’s claim by way of a letter of undertaking from Steamship Mutual and later obtained a mandatory injunction in the English High Court compelling Winson Oil to provide replacement security to OCBC on terms which provided for the release and cancellation of Scorprio’s letter of undertaking.
Court records showed that OCBC has not received alternative security from Winson, and is still holding on to Scorpio’s security.
The High Court registrar deciding on OCBC’s summary judgment application found that there was indeed a triable issue on whether OCBC was in possession of the bills of lading in good faith.
The registrar found that it was open to OCBC when it financed the purchase of the cargo to create a pledge through the deposit of properly endorsed bills of lading. That the bills were endorsed to Hin Leong and not the bank indicated that it did not do so.
On the contrary, the underlying arrangements suggested that OCBC looked instead to the proceeds of Hin Leong’s sale to Pertamina as collateral under the trust receipt loan.
The registrar noted that OCBC did try to perfect its “security” by having the bills of lading delivered to it and endorsed in its favour, but it only took such steps after it was informed of Hin Leong’s financial difficulties and the cargo had most likely already been blended and sold.
The dismissal of the summary judgment application paves the way for the case to proceed to trial.
