Alta Trading UK Limited & Ors v Peter Miles Bosworth & Ors

INTRODUCTION

This case relates to a course of events which the Claimants, members of the Arcadia Group, allege amounted to “a substantial and sustained fraud”. The events involved 144 crude oil purchase and sale transactions between April 2007 and May 2013 relating to oil originating in West Africa.

In simple terms, the Claimants allege that fraudulent transactions were carried out in this way. In the course of trading transactions in which an entity within the (legitimate) Arcadia Group was buying and/or selling crude oil, fraudulent entities which were not part of the Arcadia Group, but rather were beneficially owned and/or controlled by some or all of the individual Defendants, were ‘inserted’ into the chain of transactions between the legitimate Arcadia Group entity and its buyer and/or seller. The ‘inserted’ entities extracted profit that would otherwise have accrued to the legitimate Arcadia Group. On other occasions, trading transactions into which an entity within the legitimate Arcadia Group would or could have entered were diverted to fraudulent entities which were not part of the Arcadia Group, but rather were beneficially owned by and/or controlled by some or all of the individual Defendants. In addition, entities within the legitimate Arcadia Group were caused to enter into loss-making transactions for the sole or dominant purpose of ensuring that profits accrued to and/or losses were avoided by entities beneficially owned by and/or controlled by individual Defendants.

The Claimants allege that the First and Second Defendants, Mr Bosworth and Mr Hurley, “were centrally involved in the conception and operation of the fraud perpetrated on them and are likely to have been the primary architects of and beneficiaries from the fraud”. The Claimants allege that the Fifth Defendant, Mr Kelbrick, “played an active and essential role in the fraud perpetrated on them”, was closely associated with the relevant trading activities as well as with Mr Bosworth and Mr Hurley, “played an important and active role in the operations of the fraudulent companies” – including the Ninth Defendant Attock Oil International Limited, Mauritius (“Attock Mauritius”) – and was beneficially interested in “entities who appear to have profited from the fraud”.

Mr Bosworth and Mr Hurley counterclaim for certain bonuses and similar sums which they allege remained unpaid when they departed from the Arcadia Group in 2013.

The case was tried before me over a period of approximately 10 weeks, during which I heard evidence from, among others, the ultimate owners of the Arcadia Group, the individual Defendants (Messrs Bosworth, Hurley and Kelbrick), and expert witnesses on oil trading practice, Swiss law and forensic accountancy. There was voluminous evidence, though as I indicate below there were also certain unsatisfactory gaps in the available documentation.

For the reasons given in this judgment, I have reached the conclusions that:

OVERVIEW OF PARTIES AND CLAIMS

I set out at this stage a brief overview of the companies and individuals involved and the composition of the Claimants’ claims, as an aid to comprehension of the factual narrative that begins in section (G) below.

The First Claimant (“Arcadia London”) was established in 1988, the Second Claimant (“Arcadia Switzerland”) on 1 February 2007 and the Third Claimant (“Arcadia Singapore”) on 2 June 2006. They are private companies which during the relevant period were engaged in the trading of physical crude oil and oil derivatives.

Until 16 March 2006, Arcadia London was 100% owned by the Japanese conglomerate, Mitsui. On 16 March 2006, the Fourth Claimant (“Farahead”), a Cypriot holding company, completed its acquisition of Arcadia London from Mitsui, as I explain in more detail later. Arcadia Switzerland and Arcadia Singapore have always been, and continue to be, 100% owned by Farahead.

Farahead was and is owned by a discretionary trust settled by Mr Fredriksen, a Norwegian/Cypriot shipping magnate, for the benefit of members of his family. Farahead’s function was to act as the group parent company for Arcadia London, Arcadia Switzerland and Arcadia Singapore. Mr Fredriksen and his then deputy Mr Trøim were the ultimate decision-makers at Farahead. It is common ground that Mr Fredriksen and Mr Trøim were the Farahead shareholder representatives and acted on behalf of Farahead at all material times. Discretionary trusts settled by Mr Fredriksen for the benefit of members of his family own (directly or indirectly) various shipping and oil exploration businesses, including Frontline Ltd (“Frontline”), which has the largest oil tanker fleet in the world, Seadrill Ltd (“Seadrill”), at one stage the world’s largest deep-water drilling-rig provider, Golden Ocean Group Limited, a large dry container shipping business, and Seatankers Management Company (“Seatankers”).

The First Defendant, Mr Bosworth, joined Arcadia London as a crude oil trader in about October 1992 and became Head of Trading in or around 1999. He later became the Chief Executive of the Arcadia Group companies, which he remained until around March 2013.

The Second Defendant, Mr Hurley, joined Arcadia London as a financial controller in about June 1992, and was the Finance Director/Chief Financial Officer of the Arcadia Group companies from 16 March 2006 until September 2013.

The Fifth Defendant, Mr Kelbrick, was employed as an oil trader at Arcadia London between 1998 and 2004. Thereafter, he worked for a Chinese State oil company, PetroChina, and then set up various companies through which (at least on his case) he undertook oil consultancy services on his own account: South Energy Consulting SARL (“South Energy”), Blacksea Petroleum Offshore SAL (“Blacksea”), Multiford Enterprises Limited (“Multiford”), and Proview Enterprises Inc (“Proview”). He is a specialist in originating and trading West African crude oil and has spent long periods of time living and working in West Africa, in particular in Nigeria. It is common ground that Mr Kelbrick has never been a director of any of the Arcadia Group companies, and did not at any relevant time owe any members of the Arcadia Group any duties, fiduciary or otherwise.

The Seventh Defendant, Arcadia Petroleum SAL Offshore (“Arcadia Lebanon”, sometimes referred to as “AL”) is a Lebanese company whose registered owners were Mr Bosworth and Mr Hurley and their nominees. From 2013 it was allowed to wind down with a view to dissolution. It is a central subject of this litigation, but did not participate in the trial and no claims were advanced against it at trial.

The Eighth Defendant, Arcadia Petroleum Limited, Mauritius (“Arcadia Mauritius”), was incorporated in August 2001 as a ‘shelf’ company for Arcadia London potentially to use in its trading activities. In December 2003, Arcadia London sold Arcadia Mauritius to Mr Jean-Pierre Decker (“Mr Decker”), a West African oil trader who set up the Tristar Petroleum group of companies. Some years later, in September 2009, Mr Kelbrick acquired Arcadia Mauritius from Mr Decker. From then on, Mr Kelbrick was its sole director, shareholder, and beneficial owner. The company is believed to have been dissolved some time after April 2011.

The Ninth Defendant, Attock Oil International Limited, Mauritius (“Attock Mauritius”), was incorporated in 1998, and since then has been engaged in originating and trading crude oil, and in the trade finance of crude oil and related products. It was acquired by Mr Kelbrick from Mr Decker in September 2009. The Claimants advanced claims against Attock Mauritius similar to those against Mr Kelbrick, and it was represented by the same legal team.

Three other individuals and one company were formerly defendants to the Claimants’ claims:

The 144 Transactions in respect of which the claims are brought concern the sale of crude oil under term contracts with three West African national oil companies (“NOCs”). The transactions fall into two main groups.

In the first 67 transactions, the “Arcadia Lebanon Transactions”, Arcadia Lebanon acquired crude under three term contracts with West African NOCs:

In the remaining 77 transactions, the “Attock Transactions”, the Attock group (at least on the Defendants’ case) sourced crude from NOCs for its own account and then sold it at market prices to Arcadia London or Arcadia Switzerland. The Attock Transactions took place from September 2009, after Mr Kelbrick and Mr Mounzer had acquired Attock Mauritius. The Attock Transactions can be categorised by reference to the purchase of crude from different NOCs: 61 involved the purchase of crude from NNPC, 14 the purchase of crude from GEPetrol, and one a purchase from Ontario. One of the Attock Transactions did not involve a sale to the Arcadia Group.

WITNESSES OF FACT

The Claimants called Mr Fredriksen, Mr Trøim, Mr Dimitris Hannas, Ms Irene Theocharous and Mr Jonathan Dodgson to give evidence at trial.

Mr Fredriksen by the time of trial was 80 years old, not in the best of health and found giving evidence tiring. His recollection of many matters was limited. At the same time, he was not averse to making serious accusations to the effect that the Defendants and others were “crooks” (a word he used four times in his oral evidence) without a basis in first-hand or even necessarily second-hand evidence. Although he had authorised this litigation for many years, Mr Fredriksen said he had never seen Mr Adams’s affidavit in support of the worldwide freezing order which the Claimants obtained near the outset of the case, nor the Claimants’ original Particulars of Claim or Reply. At one point in his evidence, Mr Fredriksen suggested that the Defendants had “made apparently hundreds of millions of dollars”, basing that statement on a report by Ernst & Young (“EY”). He said he had not, however, read the EY report though an expert specialist had “gone through this” for a number of years. Mr Fredriksen struck me as someone who had convinced himself that he had been defrauded, and was unwilling to reflect on that belief even where the facts suggested otherwise (one illustration being the remarkable answer to which I refer in § 395 below).

Mr Trøim represented Farahead during the relevant period. He had not been involved with any of Mr Fredriksen’s businesses since he and Mr Fredriksen parted ways in 2014, and said he had not spoken to Mr Fredriksen in more than 10 years. He said he had no vested interest in the outcome of the case. At times he appeared to me a candid witness. Nonetheless, in other respects his evidence was unsatisfactory. It was notable that the Hannas Note, to which I refer later, recorded or referred to a series of significant communications between June 2008 and September 2009, in which Mr Trøim had been involved in discussions about Arcadia Lebanon’s financial statements, the extraction of a dividend from it, and ultimately an instruction not to make any more enquiries about Arcadia Lebanon (see §§ 469 and 482-483 below). In his witness statement for trial, Mr Trøim did not refer to any of those discussions, or the fact that a dividend was in fact obtained from Arcadia Lebanon, apart from saying that he recalled receiving the company’s 2007 financial statements. In cross-examination he said he had not remembered the dividend payment itself, and that he did not see any particular reason to mention the discussion about obtaining a US$15 million dividend from Arcadia Lebanon. Given the centrality of Arcadia Lebanon to this case, that was an unfortunate omission. At another point, Mr Trøim said “There is a lot of stuff I don’t mention in my witness statement. I tried to focus on the important things.”

Mr Hannas was the managing director of Seatankers between 1996 and 2017. Seatankers administered Farahead’s books and finances. Mr Hannas was a director of Farahead, a director of Arcadia London from March 2006 to April 2008 and a director of Arcadia Singapore from August 2006 to January 2009. He was in frequent contact with Mr Trøim, who described Mr Hannas as a “very detail oriented guy”. I regret to say that Mr Hannas was a highly unsatisfactory witness. He destroyed relevant, potentially highly relevant, documents during the course of the litigation and then gave evidence about that matter which I consider to be untruthful (see section (E) below). He was also the source of untrue evidence about Arcadia Lebanon’s dealings with GEPVTN, a joint venture involving a Fredriksen company, which was contradicted by documents he had seen and dealt with at the relevant time (also set out in section (E) below). He seemed to accept in one of his more recent witness statements that he had access to the Hannas Note when making his previous witness statements (which included his main witness statement for trial). The “Hannas Note” is a page of manuscript notes written by Mr Hannas, recording a series of 19 conversations between February 2008 and September 2009, which was provided to the Defendants a few months before trial. Mr Hannas said that when preparing his trial witness statement he had “overlooked” entries in the Hannas Note about Arcadia Lebanon providing a dividend to Farahead and its connection with the Fulham Properties loan (as to which see later). He similarly said in cross-examination that he “may have overlooked” an entry suggesting that Mr Hurley was talking to him in June 2009 about Arcadia Lebanon’s 2008 financial statements, contrary to the impression given in Mr Hannas’s witness statement that Mr Hurley hid information about Arcadia Lebanon from Mr Hannas. His approach to all of these matters was thoroughly unsatisfactory.

Ms Theocharous was Chief Accounting Officer at Seatankers, reporting to Mr Hannas, becoming the Chief Financial Officer in 2016 and by November 2016 a director of Farahead. She worked with Farahead’s directors, Mr Hannas and Mr Pallaris. Ms Theocharous liaised with Arcadia and Farahead’s auditors (PKF Savvides & Co) to prepare Farahead’s consolidated accounts and management accounts. She has since retired. Ms Theocharous was a straightforward witness.

Mr Dodgson is a former Arcadia Group employee and an IT specialist. From 2009, he had responsibility for the Arcadia Group’s reporting. From 2014, he was the Head of Energy Trading Risk Management and Business Intelligence Systems, with primary responsibility for the Trade Capture system and data. He now works elsewhere. Mr Dodgson was a straightforward witness.

Mr Bosworth and Mr Hurley gave evidence themselves, and also called as witnesses Ms Jacqueline McDonald, Mr Jan Scheepers, Mr Paul Duncan, Ms Candice Achkouti, Mr Osagie Akpata and Mr Paul Main.

Mr Bosworth produced ten witness statements and four affidavits over the course of this litigation, and was cross-examined at trial over a period of almost four days. My overall impression of Mr Bosworth’s evidence, both written and oral, is that it was candidly given. There were numerous passages in both where he was tentative and careful about the limits of what he could remember, or how clearly he could remember things years later. His evidence as a whole was broadly consistent with the documents as they emerged, including documents such as the Hannas Note that were not available when he made his witness statements. I am completely satisfied that his evidence was honestly given, and overall I found him an impressive witness.

The Claimants criticised Mr Bosworth on the basis that some of his oral evidence was not reflected in contemporary documents or his written evidence. I find that unsurprising given the scope of the allegations advanced at trial, many of them unpleaded as I indicate later in this judgment. They make specific criticism of one piece of late recollection, a criticism which in my view is unfounded for the reasons I give later (see § 286); and an apparent departure from his written evidence in relation to a peripheral matter regarding the Calabar project (see § 674 below). The Claimants seek to criticise Mr Bosworth in relation to an allegation of a concealed interest in a company, ArcAfrica, which was the subject of a proposed amendment which I disallowed. I reject the criticism in § 254 below. The Claimants also sought to advance, unheralded in any pleading or other form, a suggestion that Mr Bosworth had been involved in paying a bribe to a Sudanese government minister in 2012. An allegation of specific dishonesty or illegality of that kind cannot fairly be advanced for the first time in cross-examination, even in cross-examination as to credit, still less by reference to documents dating from some 12 years ago about a matter which the witness will have had no particular reason to revisit. Mr Bosworth denied the allegation and I accept his evidence.

Mr Hurley provided in total six witness statements and four affidavits in this case. He was cross-examined for almost three days. Though on one or two occasions he was slightly argumentative, I am satisfied that his evidence was honestly given. I reject the Claimants’ suggestion that, by saying that he deferred to Mr Bosworth’s business judgement on payments to service providers, Mr Hurley demonstrated “at least ‘blind eye’ knowledge sufficient to establish dishonesty on his part”. I also reject the contention that he tailored his oral evidence to match that of Mr Bosworth. The Claimants also make criticisms in relation to certain payments to Mr Hurley by Proview and Cathay Holdings, and an unpleaded allegation of an interest in a company called Arcadia Global Assets Ltd. I reject the Claimants’ contentions on these points in §§ 980-984 and 985 respectively. Particularly when viewed in the light of the evidence as a whole, I do not consider any of them to reflect adversely on Mr Hurley’s credibility.

Ms McDonald was formerly employed by Arcadia London, from 2008 to 2013, as a compliance officer. Before that, she had worked in operations handling West African oil lifting contracts. She was a straightforward witness.

Mr Scheepers was head of shipping at Arcadia and controller of VTN Shipping, the Farahead group’s shipping arm. His background is in shipping and commodity trading. At Arcadia, he was head of shipping. He was involved in the establishment of GEPVTN and was one of its directors along with Mr Hannas. He was a straightforward witness.

Mr Duncan was head of operations at Arcadia from 2007 to March 2012. His evidence explained oil companies’ use of special purpose vehicles to carry on West African trading and covered some of Arcadia’s West African trading activities. He too was a straightforward witness.

Ms Achkouti is an office manager. She worked as a secretary at Arcadia Lebanon and was responsible for its administration. When Arcadia Lebanon closed down in 2013, she agreed to act as Arcadia Lebanon’s director for the purpose of its liquidation. I am satisfied that her evidence was honestly given.

Mr Akpata is the CEO of Azenith Energy Resources Limited, which operates as a service provider in the Nigerian crude oil industry. His relationship with Arcadia dates back to the 1990s. He explained the roles of service providers in West African oil trading, the work that he did to assist Arcadia in that trading, and the payments that service providers receive. Despite a slightly confusing passage in his oral evidence about whether he had been angry with Mr Kelbrick for using Mr Akpata’s company’s name on one occasion, I found Mr Akpata’s evidence as a whole cogent and truthful.

Mr Main is a businessman involved in asset-based mining and oil/gas opportunities. In the mid-2000s he worked on a joint venture with Mr Fredriksen and Arcadia to develop mining activities in Africa. His companies included Concerto, to which Arcadia Lebanon made payments on behalf of Arcadia. He was a good witness. His evidence was clear and cogent, and in my judgment truthful. I specifically reject later the Claimants’ suggestions that Mr Bosworth held interests in certain of Mr Main’s companies (§§ 253-254 below).

Mr Kelbrick gave evidence himself, and also called as a witness Ms Elizabeth Driay. He has provided three witness statements and nine affidavits in these proceedings, and was cross-examined for 2½ days. He was a good witness. He gave his oral evidence calmly and patiently. There were several occasions where I felt he was candid in admitting matters that could have been considered adverse. At other times, he appeared genuinely to be searching his recollection. He was frank in acknowledging when he could not remember things. I have no doubt whatsoever that his evidence was honestly given. The Claimants’ highly selective and disparaging attempts, in their comments on witnesses, to belittle his role are unfounded. The Claimants also suggested in closing that Mr Kelbrick gave “false information” on a peripheral matter regarding the ownership of Attock Lebanon from 2011, without having suggested to Mr Kelbrick that that evidence was false or misleading. I reject that suggestion in § 544 below. None of the Claimants’ criticisms of Mr Kelbrick’s evidence in my view has any real force.

Ms Driay worked as Arcadia Switzerland’s West African crude oil trader from October 2010 to March 2013. She explained in her evidence, both written and oral, why Arcadia needed to retain a presence in crude physical trading and described her West African oil trading with the Attock group. She was a good witness.

As the Claimants candidly accepted in their submissions, none of their witnesses had anything to do with the 144 Transactions which are the subject of this claim. The Claimants did not call a number of individuals who were involved in the relevant events and who either had provided written evidence or had agreed (in their settlement terms) to co-operate with the Claimants. These were Messrs Paul Adams, John Skilton, Charles Tuke, Lance and Mounzer.

Mr Adams is an ex-employee of the Arcadia Group, living in the USA, who was based there while employed by the Arcadia Group. He succeeded Mr Bosworth in 2013, and made the detailed affidavit on the basis of which the worldwide freezing order was granted in 2015. He provided four interlocutory witness statements and in October 2023 a 7-page witness statement for trial (after he had left the Claimants’ employment in March 2022).

The Claimants draw attention to the fact that, in 2016, Mr Bosworth and Mr Hurley pointed out that Mr Adams joined the Arcadia Group only in 2009, had no formal responsibilities outside the USA or detailed information about the trading (until 2013), and visited Europe or the trading offices only occasionally. Nonetheless, the documents suggest that Mr Adams knew in June 2011, for example, that Arcadia was still engaged in regular West African trading (contrary to an alleged representation which in his affidavit he alleged to have been made); and knew about Arcadia’s use of service providers in West Africa (including being involved in the drafting of service provider agreements and organising compliance sessions for them). In a letter of 12 April 2024, shortly before trial, the Claimants said they had decided that it was “not necessary” to call him. In a further letter of 19 April, they said he had indicated that he did not want to be involved in this litigation and was not willing to do so voluntarily. In these circumstances, I do not consider that I should draw any particular inference from his absence. The respects in which his affidavit has turned out to be incorrect may in due course be relevant to applications which the Defendants have said they intend to make should they succeed in this case (in particular, arising from the Claimants’ undertaking in damages recorded in the freezing order), but that is for another day. I take this opportunity to record that I reserve for future consideration any further factual findings that might be necessary in that context.

Mr Skilton looked after Mr Fredriksen’s corporate affairs. Mr Fredriksen said Mr Skilton helped “on the tax side and also on the legal side”. Mr Skilton gave a previous witness statement and the Claimants listed him as a witness for the trial. They then decided not to call him, saying that on reflection it was not necessary to do so. Mr Skilton was involved in several of the important events, and his name appears several times in the Hannas Note, including particularly significant entries about Farahead obtaining a dividend from Arcadia Lebanon, and an instruction from Mr Fredriksen/Mr Trøim that “we should not make any more enquiries on [Arcadia Lebanon]”. Moreover, Mr Skilton was the author of the meeting note to which I refer in §§ 430-434 below, on the basis of which the Claimants made and pursued an allegation of deliberate misrepresentation by Mr Bosworth/Mr Hurley said to have concealed their alleged fraud from the Claimants. As I say there, I would if necessary have drawn an adverse inference against the Claimants on that issue by reason of their unexplained failure to call Mr Skilton to give evidence.

Mr Tuke was a director of Arcadia London until November 2023. He previously gave a witness statement in these proceedings. Mr Tuke became a director of Arcadia London in July 2012, and was a director of Arcadia Switzerland until April 2012. Mr Tuke was one of Arcadia’s paper traders, and signed service provider agreements with Equinox and Azenith Nigeria. His evidence might have assisted the court on Arcadia’s own use of service providers and the relationship between the West African physical trading and the paper trading. It is unnecessary to consider drawing any inference from his absence.

Mr Lance was the Fourth Defendant. His company, Cornhill Group, was the Tenth Defendant. Mr Lance was Arcadia’s corporate secretary, and Cornhill provided compliance and secretarial services to Arcadia. Mr Lance was involved in incorporating Arcadia Mauritius and Arcadia Lebanon. The Claimants alleged that he was a conspirator, but settled with him in April 2016. The Claimants make the point that they could not have been expected, in these circumstances, to have called Mr Lance as a witness of truth (cf Kazakhstan Kagazy plc v Zhunus [2017] EWHC 3374 (Comm) at [57]). That point would ordinarily have had some force. However, there is evidence that the Claimants continue to use his services, and that Cornhill Secretaries Limited remains Arcadia London’s corporate secretary.

Mr Lance was heavily involved in the establishment of Arcadia Lebanon, the use of service providers, and the proposed restructuring of the Arcadia Group. Questions were put to Mr Bosworth and Mr Hurley about Mr Lance, his role, and documents which he authored or was provided with. The first entry in the Hannas Note records Mr Lance as having said Arcadia Lebanon was Mr Fredriksen’s “stand-alone company”, and the Claimants sought to explain that recorded statement as meaning something other than its apparent natural meaning. In these circumstances, adverse inferences can properly be drawn (to the effect that the entry can be read at face value, absent any contrary explanation from Mr Lance), though none of the findings I make on that or other matters relevant to Mr Lance is dependent on such inferences.

Mr Mounzer, the former Sixth Defendant, worked with Mr Decker at the Tristar group, and became Mr Kelbrick’s business partner. Mr Mounzer is the 50% owner of Attock Mauritius. The Claimants alleged that Mr Mounzer was party to the conspiracy, but in July 2018 they settled with him. The settlement agreement indicates that Mr Mounzer provided extensive documents and assistance to the Claimants. I do not, however, consider that any adverse inference can be drawn from his absence.

EXPERT EVIDENCE

The Claimants and the Defendants called evidence on West African oil trading practice from Liz Bossley and Peter Hendry respectively.

Ms Bossley has since 1999 run an energy trading consultancy. This work has included engaging actively in contract negotiations in West Africa, in particular advising and sometimes negotiating sales on behalf of non-NOC West African producers to traders or end-user refining companies. That has involved discussions with senior managers in NNPC, for example discussing the pricing for a new grade of crude oil in Nigeria. Ms Bossley said she had not, however, been personally involved in sourcing or operating term contracts with West African NOCs, and had met, but never dealt with, intermediaries and service providers in West Africa. Before starting her consultancy, Ms Bossley worked from 1978 to 1985 as a crude oil trader for the British National Oil Corporation (trading particularly in UK Continental Shelf oil), and from 1985 to 1999 as Head of Marketing for Enterprise Oil plc, where she was responsible to the board for all issues concerning Trading, Operations, Shipping and Risk Management, and controlled trading staff who were trading North Sea, Mediterranean, Indonesian and US Gulf crudes and LPG. Ms Bossley accepted that some of the expert issues were outside her areas of expertise.

Mr Hendry has over 30 years’ experience in the oil and gas industry. He has worked as a crude oil trader and in petroleum products. He originally worked during the early 1990s for Caltex Oil, based in Cape Town and then Singapore, as a crude oil trader. From 1997 to 2008 he specialised in petroleum products, holding various senior positions. From 2008 to 2012 Mr Hendry worked for Optima Energy in Geneva as a trading manager. Optima was orientated towards West African physical oil trading (with associated hedging) and had offices in Lagos and Abuja. Mr Hendry oversaw the work of four other traders based in Geneva, and liaised regularly with the traders in Nigeria. During this period, Optima obtained a crude oil term supply contract from NNPC. Optima had a sponsor for that contract, who Mr Hendry believed to be a local tribal chieftain, but used its own staff as service providers (albeit Mr Hendry added that the contract might have been more successful had they employed a service provider). Mr Hendry encountered service providers when Optima was seeking to obtain crude oil contracts with neighbouring countries including Senegal, and when service providers from time to time offered services to Optima. From 2012 to 2013 Mr Hendry had a trading and managerial role at JP Morgan Commodities in Geneva, focussing among other things on physical and derivatives oil trading.

I am satisfied that both experts were expressing their genuine opinions and doing their best to assist the court.

The parties called expert evidence on Swiss law. The Claimants called Professor Hans-Ueli Vogt (civil law) and Professor Marc Thommen (criminal law). The Defendants called Professor Peter Forstmoser. Each of them was appropriately qualified to express the opinions he gave, and set out his opinions fairly and with a view to assisting the court.

The parties also called expert evidence in the field of forensic accountancy. The Claimants called Richard Abbey, a partner in Forensic & Integrity Services at EY. The Defendants called Mr David Stern, a partner in StoneTurn. Both were good witnesses and gave evidence fairly and clearly with a view to assisting the court. I do not accept the Defendants’ criticism of the decision to instruct Mr Abbey given his firm’s previous role in the investigation carried out on behalf of the Claimants. Mr Abbey made clear that his role was clearly distinct from that previous role and did not depend on the accuracy or otherwise of the conclusions EY had previously reached. I would accept that, since Mr Abbey had not been instructed to look at the Defendants’ witness statements, it may not have been correct to use the phrase “many gaps in the explanation and evidence of payment provided by the Defendants”. However, Mr Abbey fairly made clear in his evidence the limits of his task and the conclusions he reached, and that he was merely trying to explain what he had and had not been able to substantiate from the materials provided to him.

DOCUMENTS

Although a large number of searches had been undertaken on both sides, and voluminous documents were disclosed, there remained certain unsatisfactory gaps in the documentation available at trial. I shall not burden an already long judgment with a detailed account, but consider it necessary to highlight a few conspicuous points.

Mr Hannas said he regularly deleted many of his emails, in order, he said, to free up space. However, he undoubtedly also destroyed relevant documents during the course of this litigation. Mr Hannas said that during his time at Seatankers he kept handwritten notes in notebooks, mainly notes of telephone calls. He had maybe 20-25 notebooks each of 30 or 40 pages, stored in a locked box. Nobody else knew about them. He said that when he retired in 2017, he destroyed most of them, and then took home other notebooks:

“which I thought were particularly important or could be helpful to refer back to if my former colleagues had questions about ongoing matters”.

However, Mr Hannas later destroyed those remaining notebooks too:

“I destroyed these remaining notebooks about a year ago as they were of no use to me and I did not think, at the time, that they would have been of use to anyone else. I was concerned that the documents could still be commercially sensitive, so I shredded them….”

That statement was made in Mr Hannas’s 3^rd witness statement, dated 1 November 2023. He was therefore saying that he shredded the remaining notebooks in late 2022.

Mr Hannas destroyed the two sets of notebooks despite the fact that he knew the litigation was ongoing, and had given witness statements in July 2016 and August 2020. He also accepted that he had been told not to destroy the notebooks. He said, in relation to the first set:

“I destroyed them … because although the lawyer from the first hearing told me to keep them, I destroyed them simply because I forgot.”

In relation to the second set, Mr Hannas was unable to explain the inconsistency between his evidence that (a) he took them home because they were particularly important or could be helpful in answering queries and (b) he did not think they would have been of use to anyone. Mr Hannas said he could not “distinct [sic] the fine difference between these two”. I found that answer wholly implausible, particularly from a person for whom record-keeping was a significant part of his role. In relation to the second set of notebooks, Mr Hannas said “I certainly did not destroy them on purpose. I simply forgot that I had to keep them.” He said he had not heard from anyone about the case between August 2020 and late 2022, or been asked for the notebooks, and thought he had assumed that the case was concluded.

The timing of the destruction of the second set of notebooks is potentially significant, because the first CMC was in late October 2022 and largely concerned disclosure, a matter which the parties had been discussing for some months. The Claimants’ solicitors said in early August 2022 that they were in the process of identifying whether hard copy documents held in Cyprus duplicated electronic records. In a further witness statement, served the day of the Claimants’ written opening, Mr Hannas said that he may have destroyed his remaining notebooks “somewhat sooner” than 2022, and that “I am not sure of the precise timing, but I think it would have been in the first half of 2021 when I destroyed my notebooks”, in preparation for moving house. In his oral evidence, Mr Hannas said he destroyed these notebooks “Maybe 2021, maybe 2022”. A difficulty with his change of evidence is that if, as he now says, Mr Hannas destroyed the notebooks in the first half of 2021, that would have been only a few months after he gave his witness statement in August 2020 in the jurisdiction challenge. Mr Hannas would have had no conceivable basis on which to conclude that the case had already concluded by early 2021 and that his notebooks could no longer be required; and I find it entirely implausible that he did so conclude. Nor, for that matter, would Mr Hannas have had any plausible basis to have reached that conclusion in late 2022, if that is when he destroyed the notebooks. I regret to say that I consider Mr Hannas’s evidence about the destruction of these notebooks to have been untruthful.

Mr Hannas denied that he had destroyed the notebooks on the instructions of Mr Fredriksen, something which Mr Fredriksen also denied. It would be somewhat surprising if Mr Hannas had destroyed documents relating to Mr Fredriksen/Mr Trøim’s business entirely of his own accord. However, I do not feel able to draw any firm conclusion on that point based on the available evidence.

A second point of concern arises from the late disclosure of the “Arcadia Beirut” box held in Mr Hannas’s office, the contents of which turned out to be difficult to square with evidence previously given on the Claimants’ behalf. In particular, Mr Adams’s affidavit in support of the freezing order said that during the relevant period, Farahead was “not aware at the time that GEPVTN had received payments from Arcadia Lebanon” and that this had come to light only from Arcadia Lebanon transfer instructions to GEPVTN “that have now been identified”. GEPVTN was a joint venture between VTN Ship Management (an indirect subsidiary of Farahead) and GEPetrol. Mr Hannas was identified as the source of that information for the affidavit. In July 2016, Mr Hannas made a statement (after Mr Bosworth/Mr Hurley had raised material non-disclosure in respect of GEPVTN) in which he said that he did “not know that GEPVTN did business with Arcadia Lebanon at any time…The first time I became aware that GEPVTN did business with Arcadia Lebanon was when this was discovered in the course of the …investigations into the alleged fraud”. In his witness statement for trial, Mr Hannas he said he “was not aware that [GEPVTN] traded with Arcadia Lebanon”.

In Mr Hannas’s Seatankers office there was a locked box, labelled “Arcadia Beirut”. The Claimants gave disclosure of (hard-copy) documents from the box only in October 2023. During cross-examination, Mr Hannas was shown one such document. In late January 2009, Mr Hannas asked Ms Theocharous to print out the GEPVTN records that contained Arcadia Lebanon’s payments to GEPVTN because he wanted to review Arcadia Lebanon’s financials for Mr Fredriksen/Mr Trøim. During cross-examination, Mr Hannas was shown a hard-copy GEPVTN ledger that recorded Arcadia Lebanon’s payments, found in the Arcadia Beirut box and apparently printed out on “Tue 20 Jan/09 15:57”. That is the same day on which Mr Hannas emailed Mr Fredriksen and Mr Trøim about Arcadia Lebanon and its financial statements (see § 496 below). The hard-copy ledger has manuscript additions (circling the word ‘GEPVTN’ and underlining the words ‘ARCADIA PETROLEUM SAL (LIBANON)’ [sic]), which Mr Hannas denied he had made, and he denied that the ledger had come from his office. It was put to Mr Hannas that Mr Adams’s evidence was untrue because Mr Hannas knew at the time that GEPVTN received payments from Arcadia Lebanon since he had printed out the ledger showing it; to which he replied, “I cannot recall”. He continued to insist that his own evidence quoted above was true. Later, Mr Hannas said he could not remember whether he looked at the ledger at the time (January 2009) and “Okay, maybe I looked. Maybe – I don’t know for what purpose.” I find that implausible. It is evident from the documents that the interest in Arcadia Lebanon at the time concerned its profits, which in due course led to a dividend being taken, and that Mr Hannas’s evidence was untrue.

In addition to the above points, the email mailbox of Mr Fredriksen’s secretary, Gunn Skei, was not preserved. That is significant because Mr Fredriksen did not use email personally.

Separately, Arcadia’s trading data, including data on the Transactions, was recorded in its Trade Capture system. The Claimants disclosed Trade Capture data in December 2022. However, during the course of these proceedings they deleted the software (the ‘FR9’ application and servers) that provided a particular facility for the interrogation of the system, save in relation to closed trades before March 2009. That limited the Defendants’ ability to access, view or search the data in one of the ways that a user of Trade Capture at the relevant times would have been able to do.

Other potentially important documents no longer exist, such as Mr Trøim’s notebooks, but explanations have been given for their loss which mean their absence cannot be regarded as culpable.

As to the Defendants’ disclosure, the Claimants make a number of points about the Defendants’ unwillingness to comply with certain disclosure requests and resistance to certain disclosure applications. They also say that Mr Kelbrick did not take steps to preserve all his email accounts. They refer to correspondence from his solicitors dated 22 November 2022, indicating that there were eight mailboxes that had been within his or Attock Mauritius’s control but for which control had been lost. In his oral evidence, Mr Kelbrick could not recall whether he was asked in February 2015 to preserve two of the mailboxes, or whether he had tried in 2015 to obtain access to the emails sent and received at three others. He accepted that he used the accounts skelbrick@southenergyconsulting.com and sk@southenergyconsulting.com, though it appears that the South Energy servers were removed and wiped in 2013 (before this litigation began). Mr Kelbrick’s counsel made the point, however, that these various complaints had for the most part not been raised before, for example in correspondence, and the Claimants do not seek to demonstrate the contrary. In these circumstances, I do not consider it appropriate to draw any particular inference from the loss of these accounts.

WEST AFRICAN OIL TRADING

The events from which this case arises need to be considered in the context of the nature and exigencies of oil trading in West Africa during the relevant period. Mr Hendry described it as being “not for the faint hearted”, and said it was essential to have “boots on the ground” in order to build up contacts and develop close and long-lasting relationships with local traders and NOCs.

West African NOCs usually supplied crude oil pursuant to term contracts, as opposed to ‘spot’ contracts (one-off sale contracts). Term contracts prescribed the volumes of crude to be sold/delivered over a set time-period, usually not less than a year. The company that entered into the term contract with the NOC and bought the oil was the ‘contract holder’. West African governments sometimes allocated oil contracts to other governments (in ‘government-to-government’ contracts). Some governments did not have the ability or interest to lift oil allocated under such a contract and therefore needed the help of an oil trader.

There was considerable agreement between the oil trading experts about the risks involved in West African oil trading at the relevant time. These included physical, performance, financial, legal, anti-corruption, reputational, operational and market-related risks. Mr Hendry said that:

“[c]orruption of various kinds was widespread and frequently encountered, which caused issues with compliance and corporate reputation. Access to cargoes, whether for purchase or for sale, was often subject to an opaque allocation process, greatly influenced by various forms of patronage which in turn predicated the employment of intermediaries who were familiar with local customs and practices and so capable of safely navigating these local idiosyncrasies.”

It was particularly risky to buy oil directly from a West African NOC under term contracts. Mr Hendry explained that:

“70.

Commodity trading firms frequently operate in countries in which corruption is rife, making the firms vulnerable to running afoul of anti-corruption laws in the USA, Europe, and elsewhere. Reputable lifting companies operating under strict anti-corruption rules can encounter compliance issues when dealing within WAF, where the practice of paying signature bonuses, as well as other rewards and incentives, are the norm. It is often the case that the NOC will be the centre for a nexus of patronage involving politicians, regional governors and tribal heads and as such, there are problems when dealing with what the banks refer to as “politically exposed persons” – or PEPs ….

71.

Moreover, commodities are sometimes the subject of trade sanctions. …

72.

As a consequence of the above, trading firms often wish to deal with NOCs that reside in difficult jurisdictions via intermediate entities, rather than directly. … in summary, and in my experience it was common for oil companies during the Relevant Period [2005 to 2013] to structure their operations so as to provide a degree of separation between the principal (i.e. the oil trading company) and the NOC. Individual structures varied based on individual company needs, but included the use of sleeving – including the creation of special purpose companies incorporated in offshore jurisdictions to undertake their operations and structure their ownership when operating in WAF, as well as utilising intermediate entities to sit in the transaction chain between the buyer and the seller of the crude oil.”

Mr Hendry defined a “sleeve” as “[a] company within the deal chain, usually required by one of the principal players. Such an insertion may be undertaken for a number of reasons and a sleeve may turn up anywhere in the ownership chain, depending upon their function. They are usually well-known to the players whom they stand between”. He said “sleeving is a long-standing technique used in the energy and commodities trading industry”. Mr Bosworth’s evidence was that the “use of sleeves was typical of all oil companies operating in that region during this time, everybody used them – including Arcadia, Glencore, Trafigura, Vitol and the other main players in West Africa”; and that Arcadia used them “as a means of creating a corporate barrier between off the books Arcadia entities (such as [AL]), and the Arcadia group, reducing the compliance risk associated with West African trading”. Mr Scheepers also said it was “normal procedure” to use intermediaries because of the desire to avoid contracting directly with the NOCs. He said: “this is not only happening here in Arcadia, it happens with Vitol, it happens with Trafigura, with all the big major traders. It’s a common industry practice”.

Mr Hendry defined a “contract holder” as “usually a company that has succeeded in gaining an award of crude oil volumes from a WAF NOC, but which may not have the wherewithal to perform. Sometime[s] may be known as “briefcase” company”.

Ms Bossley similarly said:

“I would not take issue with Mr. Hendry’s description of the routine existence and use of intermediaries, sleeves, service providers, however described, to distance companies that are sensitive about their reputation from the accusation of involvement in bribery and corruption This distancing could be arranged in a number of different ways. ...”

Ms Bossley acknowledged in her report that: “There are marked cultural differences between how business is done in WAF compared with the large global financial centres”. She said there was “invariably” a risk of bribery or corruption in the procurement of term contracts from NOCs. Ms Bossley said that:

“Companies may wish to deal through intermediaries…to put some distance between themselves and the NOCs in case they are subject to investigation by the regulatory authorities.”

“Given the potentially large rewards that are on offer in the oil trading business, it is unsurprising that companies may attempt to find a halfway house by outsourcing to third parties activities that they do not wish to undertake in their own name.”

and:

the “existence and use of intermediaries, sleeves, service providers, however described, to distance companies that are sensitive about their reputation from the accusation of involvement in bribery and corruption” is “routine”.

Ms Bossley agreed in her oral evidence that because of the compliance risks, it was common practice for oil trading companies to use intermediaries to create distance and separation between the NOC and the oil trading company; and that the big traders and the oil majors used intermediaries as sleeves and to obtain term contracts.

Mr Hendry helpfully elaborated on the types of risks that might arise, in this passage in the experts’ joint report:

“[T]here are certain risks to an IOC [i.e. an international oil company] which are exacerbated within the WAF region. For example, in introducing the sponsor, the service provider needs to be confident that the candidate will maintain sufficient leverage over the duration of the contract and not be ousted and replaced by someone who is less favourable towards the IOC. In Equatorial Guinea, for instance, there is an on-going family squabble about who will succeed President Obiang. At least two of his sons both want the job. In Nigeria, the GMD of NNPC and the oil minister are frequently changed. Another non-regional (and historic) example might be the sudden jailing of the Malaysian Deputy- Prime Minister, Anwar Ibrahim, by Dr. Mahathir, the Prime Minister, on trumped-up charges. If you lose your sponsor the chances are you will lose your business. So, the risk of early contract termination can be lessened by backing a good sponsor. But precisely because of this reliance on patronage to acquire business in the WAF region, an IOC can quickly become exposed to reputational and compliance risks e.g. by engaging with politically exposed persons (PEPs), which in-turn can often complicate the IOC’s relationship with their trade financier, who, if they are based in USA or Europe, will need to closely follow international guidelines to counter bribery and corruption. To identify a sponsor who is not a PEP can be a difficult task and so these risks must be accepted. So, by utilizing sleeving entities and alternative finance and other intermediaries, it is possible to create some distance between what happens in the WAF region, and what is seen to happen in the IOC’s home country. Their involvement created some clear space between IOCs and NOC which helped to safeguard the reputational risks of the IOC.”

Mr Duncan said it was common for trading companies to use special purpose companies that they did not officially own, or which were not officially part of the group, for West African oil trading. He said that while he was working for Trafigura, for example, they used a company called Delaney to support Trafigura’s Nigerian operations. Delaney was not formally owned, but was still effectively directed, by Trafigura for its business operations in Nigeria. It dealt with operational, logistical, and administrative matters in Nigeria (where Trafigura had no physical office), but would also help the Trafigura traders get new business in Nigeria by arranging meetings with local contacts and would make sure that the correct people were attending those meetings. It was necessary, he said, to have a company like Delaney in Nigeria to get to know the Nigerian governmental and private sector people involved in the oil industry; and there was no point in sending someone from London who did not know the people and the environment. Mr Duncan said many major players in the oil and energy sectors, including Vitol, Glencore, Gunvor, and Mercuria used such companies.

As to how term contracts were obtained from West African NOCs, Mr Hendry explained in the joint report that:

“Personal relationships with decision makers within the NOC were key to obtaining contracts. Usually, it was necessary to enlist well-connected individuals to further these relationships. To achieve a close relationship with any WAF NOC producer will be of significant benefit to a trader, especially with a NOC like NNPC, which is routinely able to supply large quantities of high quality, highly desirable crude oil. Many WAF crudes, especially those from NNPC, are readily able to arbitrage north, south, east or west and are widely accepted in most markets.”

and

“It was a virtual necessity to use third party service providers so the practice was commonplace. Many IOCs engaged intermediaries during the RP [Relevant Period]. The reason for IOCs to use third party service providers is to enhance their chances of being allocated export volumes within the NOC tenders. All IOCs operating in the WAF region will have attempted to form close direct relationships with the NOCs, but even when supposedly succeeding in this goal, they may not succeed in getting what they most desire – a steady high volume of crude oil, awarded through a term tender. In the case of NNPC, there are so many potential lifters competing for the same supply that demand always outstrips supply and NNPC usually “rations” their awards. As a result, no one company gets all the oil. Even equity producers who co-produce with the NOC (in the case of Nigeria, NNPC has around 60% share) usually submit bids to buy more volume through the annual tenders but not even they can guarantee any success and they also resort to third-party assistance. Once an award is made these same third-party service providers help to ensure optimal operations on an on-going basis.”

That is not a view from which Ms Bossley dissented in the joint report, albeit she suggested that it was difficult to generalise. She added:

“The range of activities might include anything from simple introductions and socializing with influential persons to applying pressure or incentives to those in a position to grant contacts or allocate the most valuable cargoes and exercise operational preference in, for example, berthing order.”

To similar effect, Mr Hendry said in the joint report:

“Although the sponsor would not usually continue to be so “hands on” after the contract was agreed, the involvement of the third-party service provider would be on-going.

The use of local sponsors and/or introducers and/or third parties was of the utmost importance in obtaining term contracts with NOCs during the RP. During the RP, some well-known refiners may have succeeded in winning allocations within NOC tenders. This can be seen from the published results (where available) and from the lifting schedules but what is less clear is precisely how they managed to win those awards. No-one is willing to reveal or to publish this information. After all, ultimately no one is paying a higher price than that set by the NOC within their official selling price (OSP). Some refiners, who might not normally need, say, NNPC crude, also participated and won from time-to-time. There can be no doubt that the chances of a successful award were significantly enhanced by forming a relationship with the right third-party service provider.

…

For a successful award of volume potential awardee will principally rely upon the services of their sponsor to steer an allocation their way. The potential awardee will, in turn, rely upon their service provider to facilitate the introduction to the best sponsor (or contract-holder). A symbiosis develops. The sponsor must rely upon the buyer to successfully perform the contract, while the buyer is relying upon the sponsor to ensure an award. The Service Provider has risk both ways, both with the sponsor and with the buyer.”

Mr Hendry used the term “sponsor” to mean “usually a family or a respected individual possessing the power to influence the award of oil e.g. such as within a term tender”, and by “service provider” meant:

“A deal facilitator who seeks out and develops relationships with key personnel in the target area, with the aim of spotting an opportunity, creating and developing business. Initially, to provide a bridge between sponsors/ contract-holders to IOCs. Once any contract is concluded, the service provider is usually expected to perform a myriad of further tasks during the lifetime of the contract and so plays an integral role throughout.”

For example, Mr Hendry said that when he was working for Optima and it acquired a term contract from NNPC, Optima had used a sponsor in the form of a local tribal chieftain in the Delta region. I accept Mr Hendry’s evidence on these matters.

Ms Bossley agreed that the use of local sponsors, introducers and/or third parties was important in obtaining term contracts with NOCs during the relevant period. She said in her report that “Business in WAF is still a ‘relationship’ business…in WAF I understand that who you know and how you socialise with them remains important in establishing relationships with NOCs”; and in oral evidence that the process for obtaining a term contract from a NOC was “opaque”. She said she “agree[d] with Mr. Hendry that acquiring a term contract with a NOC in WAF typically involves the assistance of service providers or intermediaries”, and that “the services provided by these intermediaries might include introductions, preferential access to cargoes, beneficial prices, optimisation of cargo quantities, amendments to contractual terms and logistical “on the ground” support”.

Mr Bosworth’s evidence was that in order to obtain a term contract from NNPC, the approval of politically significant individuals was generally required, because in Nigeria term contracts with NNPC were approved by the President or the Minister of Petroleum. Sponsors therefore tended to be powerful and politically connected individuals, and using a sponsor significantly increased the chances of obtaining a term contract. Indeed, Mr Bosworth said that without a sponsor’s access to high-level decision makers, a term contract application “would be a waste of time”. Mr Akpata, who acted as a service provider in Nigeria from 1992, said:

“The main thing that we do as service providers is procure oil trading business in West Africa for international oil trading businesses. We assist these oil traders with identifying and winning opportunities that they themselves are unable to find or win without local help. Most oil trading opportunities in West Africa are largely controlled by national oil companies and Nigerian private producers. It is very difficult to gain an audience with, let alone secure business from, the decision makers in these oil companies without local knowledge, local contacts and local assistance. Service providers sometimes have enough influence with national oil companies or private producers to influence the allocation of the contract and help make sure it goes to an oil trader they work with.”

and:

“… one of the most important services I provided to Arcadia was making introductions to Nigerian traditional rulers, chiefs and retired military officers or ministers…because from them could come opportunities to win or bid for valuable contracts”

He said service providers “have to put in time to build and maintain relationships with [significant figures in the Nigerian oil sector]. You have to chase them up for meetings. You have to spend a lot of time getting through the layers of bureaucracy that surrounds them”.

The Claimants accepted that term contracts were “difficult to acquire”, Mr Kelbrick described the process as “incredibly competitive” and Mr Akpata said it was “highly competitive”. Mr Bosworth said obtaining a term contract with NNPC was “a complicated awarding system. It is political”, and that even BP obtained an NNPC term contract only on the occasion when it had a joint venture with a service provider called Niger Med (Mediterranean). He described having spent considerable time on the ground in Nigeria, trying to build relationships with powerful tribal and religious leaders, such as the Shehu of Borno and the Sultan of Sokoto, both of whom ultimately acted as sponsors for the Arcadia Group (via special purpose companies) to obtain term contracts. Mr Kelbrick said “[d]eveloping these local relationships is demanding on your time but its value cannot be underestimated”, and that relationships in West African oil are “all about the individual” and “all about trust”. I accept the evidence of Mr Bosworth, Mr Kelbrick and Mr Akpata on these points.

As indicated in some of the evidence quoted above, the role of a service provider did not end when a term contract had been obtained. Mr Hendry confirmed in the joint statement that the use of local sponsors, introducers and/or third parties was necessary to facilitate the operation of term contracts:

“and in particular the continued hands-on involvement of the third-party service provider, who often bears most responsibility for the smooth running and optimization of the term contract. From a buyer’s perspective, the seller (the NOC) holds virtually all the cards. The NOC can choose not to supply, or to offer a sub-optimal grade, or to provide an undesirable loading window. Such operational enhancements can sometimes be positively influenced by the service provider, who will also be relaying vital operational and market information, to all parties.”

Mr Hendry noted that in 2017, for example, NNPC granted 396 companies term contracts, in excess of the available supply of oil.

Mr Hendry emphasised services providers’ ongoing role in his evidence in the joint report:

“… service providers did provide routine operational services but crucially much more besides, particularly with regards to services like introductions and facilitation to large contracts, which wouldn’t have been possible without the service provider’s participation.

So no, it was not unusual. It was part and parcel of the role of many service providers to provide continuous on the ground operational and logistical support, for the duration of any term contract, especially parallel communications with the NOC to ensure optimal performance of the contract but also in expediting general operations and logistics.

The service providers were expected to get involved from top to bottom, i.e. from the NOC and sponsor at one end, to the guy manning the pump at the other end. “Operations” usually refers to everything related to the physical loading of the cargo onto the ship. Some service providers would be expected to positively influence all aspects of operations by providing continuous support. Although just about every aspect of operations is critical, of particular importance (and where a good service provider could influence events), would have been in the choice of the crude grade allocated by the NOC and in the loading window given. Although all grades of Nigerian crude oils are desirable, some are more desirable than others. Equally, loading windows at the very beginning and at the very end of the month can, sometimes, also enhance profitability. Other operational support might include, enhancing reaction time to loading instructions, expediting documentation, facilitating customs documentation, liaising with agents, inspectors and freight forwarders, etc., but maybe only stepping in if a situation demanded their attention.”

Ms Bossley also noted the importance of operational services on the ground:

“…success or failure in the physical oil trading business is heavily dependent on logistics. A transaction that looks on paper to be a highly profitable, well-hedged arbitrage when it is constructed, can turn into a loss maker if the logistics come unstuck. Late loading, short loading, substitution of grades, contamination or other quality issues, delays to cargo documentation and export licences can cause a, supposedly “locked in”, profit to leak away into loss.”

The experts’ evidence is consistent with evidence from Mr Kelbrick and Mr Akpata, some of which I quote later on the same topic. Mr Kelbrick said that ensuring that the company would obtain its allocation of crude oil under the term contract was the ‘number one’ job of a service provider, because obtaining a term contract did not guarantee that the NOC would supply the agreed volumes of crude oil, or in fact any oil at all. Mr Akpata said “you have to fight tooth and nail to make sure that you get the volume against that contract”. As Mr Hendry said in his report, “in order for [international oil companies] to gain access to crude volumes in the Relevant Period, service providers were absolutely critical, not only to the initial award of these contracts but also playing a crucial role in the optimal performance and smooth operation of those contracts, thereafter”. This was particularly so as the NNPC term contract did not specify the type of crude grade that will be allocated, and some grades were far more attractive than others. Mr Akpata said getting the right grade was a very important service, potentially of great value to the trading company, especially when there was competition over a particular grade in the market; and, as he pointed out, the trader may already have entered into an obligation to deliver a particular grade to an end-buyer. Mr Kelbrick said, “my job was to get the grades they wanted”. I accept their evidence.

Mr Akpata said that service providers also assisted with the allocation of particular loading dates within a window. Mr Hendry said such allocation could have a significant impact on profitability for a trading company, especially whenever there was a steep contango or backwardation in the forward market. It was also, Mr Akpata said, important because of hedging arrangements.

Service providers also assisted with operations on the ground, resolving logistical issues and handling paperwork. Mr Akpata said it was “critical” to have people on the ground in West Africa, “[i]n those days it was impossible to do without.” Mr Hendry said:

“For example, any delay to a loading usually has detrimental consequences, which can include the need for letter of credit amendments, extra demurrage costs, hedging inefficiencies, added costs and onward customer problems. Cargoes are often expedited and delays avoided by the employment of local third parties, who are knowledgeable as to local customs and practices, and who are able to oversee and facilitate smooth operations.”

Mr Akpata elaborated that:

“In addition to providing these introductory or brokerage services, service providers also often help traders with operational issues. For example, something might go wrong in the process of moving a cargo of crude oil onto a vessel and out of a port, such as a customs issue or an inspection issue. It is often very difficult to resolve such problems in Nigeria without actually going to meet the people causing the holdup and speaking to them. It is often difficult for Westerners to do this because most oil traders are based in London, Geneva, the USA or somewhere else outside Nigeria. There are also cultural and linguistic differences. To fix an operational problem of this kind, a service provider like me would go in on the ground and talk to the people who can actually fix the problem for the oil trader.”

A further complication was that communication with the NOCs in the relevant period was not straightforward. Mr Bosworth said NNPC did not communicate electronically in the 2000s, and telephone lines were poor, so everything had to be done in person. Mr Akpata said that in 2002 he would have received documents by fax or letter. Mr Duncan said that during his time at the Arcadia Group and Trafigura, communication with NOCs (mainly NNPC) was “on a paper basis” and there was no electronic communication, though he accepted the position appeared to have been different in Equatorial Guinea. Ms McDonald also said that in her experience, “it was really hard to even make a phone call to NNPC” in the 1990s and in the relevant period communications were still not good.

Turning to remuneration, the experts were asked whether, “in general”, the level of remuneration varied as between sponsors, introducers, third parties and service providers. Ms Bossley’s response was that without further details concerning what each of these parties actually did, it was impossible to say. Since the question related to the general position, that was perhaps somewhat uninformative. Mr Hendry was able to provide the following evidence, set out in the joint statement:

“The amounts paid to the various categories of intermediaries will alter with their role and the extent of their work, and also by the expected profitability of the deal. For instance, someone who simply makes an introduction might just get 1-2 cents per bbl [barrel], a briefcase company will have very little to do after it hands over the contract to the IOC and so might also be paid a relatively small commission, but this is highly negotiable, too. Alternatively, another contract holder may be expected to continue to show face to the NOC and so provide a screen for whoever stands behind it. They may also have to provide a security deposit and open letters of credit, to pay for the cargoes. Inevitably, the contract holder will have greater cost to bear than the briefcase company whereas the sponsor and the service provider might expect considerably more, eg. 20-60 cents per bbl each, but such rewards might also be paid as a fixed fee, or as a profit share or both.”

Similarly, in response to a question in the joint statement about remuneration for operational support, Mr Hendry said:

“In my opinion, typical remuneration might fall somewhere between $0.2 - $0.6/bbl but might vary with market conditions, expected workload and whether or not a profit share was involved. Profit share varied widely between, say, 5% and 60% with expectations rising throughout the RP. Some service providers might have considered winning an allocation within the tender as being the meat of their work done but many service providers would often have been expected to be hands on, and to provide logistics support, for the entire duration of the contract.”

and:

“In my opinion, the payments made by Arcadia Lebanon and by Attock Mauritius to service providers were pretty average.”

As to the latter point, Ms Bossley said the levels of payments made were unusual “[i]f this refers to “normal” services such as brokers, independent inspectors or cargo agents”. However, as indicated above, that was not the general nature of services provided by sponsors and service providers; and as indicated later, it was not the nature of the services provided by Proview, for example, in the present case. Ms Bossley said she could not give any evidence about the levels of remuneration payable to service providers who generate and operate term contracts without details of exactly what they were doing; and she had not been personally involved in term contracts with West African NOCs.

Mr Hendry in his supplementary report said:

“11.

Paragraphs 112-115 of LB1 [Ms Bossley’s first report] imply that the level of fees paid to service providers was dependent only on which end of the “spectrum” a company was willing to go towards the payment of bribes, and that the services provided by a service provider simply depended on how far along that “spectrum” the company / service provider was prepared to travel. I do not agree with this. The level of remuneration paid to service providers would vary considerably for reasons other than at which end of the spectrum the service provider was considered to inhabit – and in my experience depended on the services they provided, their position in the market, their ability to procure and maintain term contracts and their relationship with NOCs (see [JM/13], at 2.8 and paragraphs 99-102 of my First Report). The more influence a service provider had, and the more active a role it continued to play in connection with a relevant contract, the higher the levels of remuneration it would be paid.

12.

The fees paid to service providers would likely have been negotiated on a contract-by-contract basis and therefore would have varied over time.

13.

At paragraph 116 of LB1, Ms Bossley states that “Winning term contracts in WAF usually does not involve brokers but does involve the more the proactive involvement of companies prepared to bid in their own name for contracts”. I do not agree with this, although I am not clear what Ms Bossley is referring to when she uses the term “brokers”. As I explain in my First Report …, virtually all participants in WAF oil trading found it necessary to engage the services of local third parties to act as service providers / intermediaries. I also do not agree that winning term contracts in WAF involved only companies “prepared to bid in their own name”. I explain in my First Report … that it was common in Nigeria to see many more buyers chasing allocations within the official crude tender than there were contracts and cargoes awarded and so it was common practice for oil trading companies to not only participate directly and openly in the tenders, but also through intermediaries (such as indigenous companies and special purposes companies).

14.

… as I explain in the Joint Memorandum [JM/18], profit shares in WAF could range between 5-60%. With respect to other Arcadia London Service Providers, the document shows profit shares of 10% and fees per barrel of between 2 and 15 cents per barrel. Again, I do not think that this is an unusual level of remuneration for a service provider who might provide the types of services which I explain in my First Report might be expected of service providers (i.e. assisting in obtaining term contracts, and the operation and facilitation of those contracts throughout their lifetime). As I also explain in the Joint Memorandum [JM/18] expectations of service providers as to the levels of fees they expected rose throughout the Relevant Period.”

Ms Bossley said it was unusual for services providers to be paid a profit share “for routine operational services”; but, as indicated above, the role of a service provider would generally go far beyond services of that nature. Ms Bossley said in cross-examination that she could not give any evidence about the levels of remuneration payable to service providers who generate and operate term contracts. Mr Hendry said:

“… in my opinion, with regards to a service provider, a profit share was not uncommon to see, especially towards the end of the RP but it was often part of the negotiation, ultimately resulting in a smaller commission with a larger profit share or vice versa. Sometimes, the profit share might be very significant e.g. at 60%. A 50% profit share became quite common. And, as it was the IOC who was keeping the books, the recipient of the profit share would need to trust that IOC if he expected fair recompense.

I have never heard of a profit-sharing scheme (of this nature) where any losses would be shared by the service provider.

Once again, my explanation of the role of a “service provider” … should be seen to encompass far more than an agent that provided just routine services.”

Mr Hendry in his supplementary report referred also to an email in 2000 suggesting that Arcadia London agreed a 50/50 profit share with a service provider called Milio, who assisted in relation to Russian crude oil. The documents also include draft amendments dating from May 2002 which would apparently have altered that to a 20% profit share (along with a fixed fee of US$ 0.02/bbl and a discretionary bonus of up to US$ 0.15/bbl). However, the Claimants were not able to locate any executed or final agreement, and did not suggest to any of the witnesses of fact that the profit share had been reduced.

Mr Hendry in his oral evidence also referred to a Financial Times article, which recorded BP being offered terms of a 50% profit share plus US$ 0.30/bbl for NNPC oil in November 2017, and said he believed this to be the going rate from probably the mid 2000s onwards. Mr Hendry said that service provider remuneration depended on the state of the market and the value of oil at the time, and that when “Brent was above US$100, the people on the ground were looking for larger rewards”. He added that if the result of a service provider’s work was that the trader “receive[d] the desired cargo, the desired quality, the desired timing at the desired price, if the service provider has been instrumental in facilitating that, he has done a good job” and depending on the potential profitability of the deal, “you would expect the potential reward remuneration paid to the service provider to reflect that”.

Mr Hendry accepted in cross-examination that in his first report he did not mention any percentage higher than 50%, but made the point that it was challenging to find evidence in black and white of what service providers were paid: service agreements were “rare beasts to see in black and white”. I am satisfied, however, that Mr Hendry was qualified to give all this evidence from his experience over the years of observing and being offered the assistance of service providers. He agreed he was not personally aware of a higher percentage, and appeared to accept that the figure of 60% was a higher one given without explanation. The latter answer was, however, interrupted by counsel, and Mr Hendry had just made the further point that it was an “elastic” number. He also agreed in cross-examination that the 65% paid to Sonergy was “definitely the upper echelon of what I would expect” and beyond what he would expect. He was then asked about the fact that, in addition to Sonergy’s 65%, other service providers on the Zafiro Contract received payments bringing the total to 80%, leading to the following evidence:

“Q. So we can't really call that pretty average, can we?

A. No, I would say it was upper echelon and out of the average.

Q. Out of the average?

A. For what I have seen but as I say, I have never done an Equatorial Guinea contract and I certainly have not done an Equatorial Guinea crude contract. The potential profitability because of the pricing that was made available to the buyer being able to choose a five-day date range retrospectively, one would consider that to be a very profitable option for the trader to exercise and so somebody orchestrating such a deal might feel that they were entitled to a bigger profit share. I don't know.

Q. Orchestrating such a deal and operating a contract?

A. Yes.

Q. And negotiating those prices?

A. Yes.”

In relation to the Senegal Contract, with Petrosen for the supply of oil produced by NNPC, he said the 70% ultimately payable to Proview was “a higher echelon”, but was asked whether there was also a fixed fee, leading to these exchanges:

“A. Well, if somebody is negotiating both a fee per barrel for their service plus an eventual profit share if fee per barrel negotiated is low, the profit share might be expected to be higher and vice versa.

Q. But you are aware -- 70% of gross profits can't be regarded as pretty average given what you have referred to in the joint statement, can it?

A. No, I think 70% is a higher echelon. Was there a fix fee paid, can you remind me?

Q. No?

A. No, so if there was no fixed fee paid then you might expect a higher echelon profit share. That is logical I think.

Q. I think you will agree with me that neither the percentages of profit share under the Zafiro contract nor Proview's 70% under the Senegal contract can fairly be described as pretty average, can they?

A. No, they are higher than I would say is normal. But again, you have to look at whatever services are being provided by the service provider if there are finances being paid, finance being offered in some way, or what service is being provided generally.”

I accept Mr Hendry’s evidence on these matters.

Mr Akpata’s evidence was that one form of service provider renumeration was a profit share, and he said: “The split could vary quite a lot depending on the relative bargaining power of the oil trader or service provider, or the relationship that existed between them. However, 50/50 was not unusual. Sometimes you saw 60/40”. Mr Akpata said he was “totally, completely” aware of service provider and profit share deals of this kind, although not ones specifically involving the Arcadia Group. There was also this exchange:

“Q. If Mr Kelbrick is very well connected within NNPC, he is carrying out some of the services you have just described, would it be a surprise to you if he is getting the kind of commissions that you refer to -- sorry profit shares that you refer to in paragraph 58; 50/50, sometimes 60/40?

A. Well, yes, because he didn't do more than I did and from what I can see he got more profit share than I did. But based on that, it wouldn't be, generically speaking. Once you get to that level, which was my gripe, I spent 30/25 years getting to that point, getting paid.

Q. It may irritate you that he did, but it didn't surprise you?

A. But it doesn't surprise me, no. That's what was supposed to happen.

…

Did you say that, Mr Akpata; that's what is supposed to have happened?

A. Yes.

MR JUSTICE HENSHAW: Well, it can be checked.

A. Yes. That was, in my understanding, at that level that was what the remunerations were supposed to be. Yes.”

To secure term contracts, oil trading companies often established special purpose companies, which would act as a ‘front’ for the transaction. Both Mr Hendry and Mr Bosworth said this was common practice in West Africa in the 1990s/2000s. One reason for it was that NOCs would typically award each term contract to a different company rather than awarding multiple term contracts to the same company. Since it was practically impossible to increase volumes under a term contract, an oil company wanting to secure greater volumes of crude needed to submit multiple applications. Mr Bosworth and Mr Hurley said Arcadia had many ‘off the shelf’ special purpose companies, incorporated in different jurisdictions, available for use in the course of its oil trading; and that Mr Lance and Cornhill organised the incorporation of such companies.

PRE-2005 ACTIVITIES OF ARCADIA, ATTOCK AND MR KELBRICK

The oil trader Marcus Green established Arcadia in 1988, with the backing of the Mitsui group (“Mitsui”), which became its sole shareholder. Mr Green recruited Mr Bosworth in 1992 to be the team leader for trading West African crude oil. To obtain the volumes necessary to support its expanded trading, Arcadia sought to enter into term contracts with West African NOCs, and entered into its first term contract with NNPC in the early 1990s. Mr Bosworth’s evidence was that he did extensive work during that period to search for new sponsors, work with service providers and build relationships with key individuals in the region.

Entirely separately from the Arcadia Group, Attock Mauritius was incorporated in 1998, after which it engaged in originating and trading crude oil, and in the trade finance of crude oil and related products. (It may be that the Attock business in fact began earlier, through another Attock entity. Mr Bosworth in his oral evidence said that in the past there had been an Attock Refining in Pakistan and an Attock Trading, and a split had occurred with Mr Imtiaz Dossa taking over the company following an insolvency at some stage.) Attock Mauritius was run by Mr Dossa, and was one of the largest lifters of crude oil in Nigeria, among other countries. By the time Mr Kelbrick acquired it in 2009, it had obtained crude oil contracts from a number of NOCs, including in Algeria, Bahrain, Cameroon, Ghana, India, Iran, Malaysia, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela; and it sold oil to major counterparties, such as Agip, BP, Chevron, Total, Exxon, Petrobras and Shell. Mr Akpata said in his oral evidence that “Attock had a very solid reputation in the 90s. Very, very solid. It was one of the most well-known traders in Nigeria…With Nigerians, in NNPC. With Nigerians, with people in the know in the industry, it was thought of what you would call a five-star boutique”. Mr Bosworth explained in his oral evidence that he had had a long-term relationship with Attock’s former owner, Mr Dossa, when he (Mr Bosworth) had worked for Sun, and that Attock/Mr Dossa “was one of the largest lifters of crude oil in Nigeria and Sun Refining and Marketing was the largest refiner of Nigerian crude oil at the time”. He said that in the 1990s, Attock was an “established Premier League Club” in West African trading and was a “household name” in Nigerian oil (a view that Mr Scheepers agreed with). Ms Driay likewise said that “Attock was known in the West African crude oil trading market.”

Similarly, a Credit Enquiry response dated 8 May 2002 referred to a term contract that Attock Mauritius had had with NNPC since at least 2001 – in which the Arcadia Group had no involvement – stating that “they buy 60MBD crude oil from NNPC under a term contract which was renewed in Oct 2001”. It listed Attock Mauritius’s buyers as including Shell, ChevronTexaco and TotalFinalElf. Mr Kelbrick’s evidence was also that in 2004 Attock Mauritius had an ongoing term contract with NNPC. An Attock Dubai business plan in February 2013 said that:

“Attock Oil International Limited (‘AOIL’) is incorporated in Mauritius and has approximately 20 years trading crude oil and refined products under long-term contracts from a number of national oil companies, including those of Abu Dhabi, Algeria, Bahrain, Cameroon, Ghana, India, Iran, Malaysia, Nigeria, Saudi Arabia and Venezuela”.

There is no evidence that Attock Mauritius sold any oil to the Arcadia Group until 2005.

I conclude, on the evidence as a whole, that Attock Mauritius had a substantial, well-established and successful business and presence in West African oil trading long before the transactions the subject of the present case, including one or more term contracts with NNPC, and was in no sense dependent on the Arcadia Group. Further corroboration for that view of Attock Mauritius can be found in its post-Arcadia activities. As Mr Kelbrick points out, after the Arcadia Group ended its trading relationship with Attock Mauritius in 2013, and Attock Mauritius moved its business to Attock Dubai, it continued sourcing and selling oil to major oil traders, such as BP and Exxon. After the Arcadia Group ceased trading with Attock, Attock Dubai entered into 20 transactions with Exxon and BP, in which it earned US$27,292,814 in gross profits, and an average of US$1,364,640 gross profit per transaction, which is comparable to the average amounts Attock Mauritius made on the Attock Transactions in the present case. As Mr Kelbrick said in oral evidence, the Arcadia Group “didn’t have any obligation to me. If they had turned round – as they did in the end – and said tomorrow we don’t do, I could have gone and found another buyer and that could easily have been a Vitol or a BP”, which is what happened after June 2013.

After Mr Green died in 1999, Mr Bosworth became Arcadia’s joint head of trading, and then CEO in 2000. Mr Bosworth reported to Mitsui, which had a permanent representative (Mr Takeshi Yamada) based in Arcadia’s London office who was on Arcadia London’s board. Mitsui provided Arcadia London with a parent company guarantee to assist it with its trading, enabling Arcadia London to benefit from Mitsui’s favourable credit terms in the market. Mitsui monitored and approved Arcadia’s trading counterparties.

The evidence indicates that from the 1990s to the mid-2000s, Arcadia had a West African trading desk with substantial overheads, comprising several traders (both crude oil and products traders) and operations staff. Nigeria was the most productive and economically important oil-producing country in West Africa at this time. Arcadia London was one of the major lifters of physical Nigerian crude oil and had a direct term contract with the Nigerian NOC, NNPC, as well as indirect access to NNPC crude. Equatorial Guinea was the second major oil-producing country in West Africa. Crude oil was discovered in Equatorial Guinea in the mid/late 1990s and the Equatoguinean NOC, GEPetrol, was incorporated in 2001. Arcadia began to lift physical Equatoguinean crude oil direct from GEPetrol in late 2005.

Mr Kelbrick graduated from the University of Liverpool in 1990 with a degree in Mechanical Engineering and Industrial Management, and immediately began work in the oil industry at Shell. Between 1990 and 1998, Mr Kelbrick worked at various Shell Group companies, variously selling and trading bulk and special purpose oil and products and beginning to develop his contacts in West Africa.

Mr Kelbrick was recruited to join Arcadia London in 1998 by its founder, Marcus Green. After Mr Bosworth became Head of Trading in March 1999, Mr Kelbrick began to travel to West Africa more regularly to develop contacts there, including meeting with refiners, suppliers, and producers. Mr Kelbrick built contacts across the spectrum of seniority, from administrative assistants, to operational and sales associates, and ultimately the group managing director of NNPC, with whom he regularly played golf in Nigeria. His evidence was that building these relationships took many forms, including assisting NNPC with written presentations, assisting NNPC in running training courses in Abuja, and attending NNPC quarterly marketing reviews. Mr Kelbrick recalled that in the late 1990s, Arcadia London was trading up to about 8 million barrels a month of West African crude oil each month. In 2001/2, Mr Kelbrick originated a swap contract for NNPC oil between Arcadia London and the Indian Oil Corporation (“IOC”) and arranged for IOC to visit Nigeria and negotiate contracts directly with NNPC.

As I explain later, Mr Bosworth’s role and responsibilities at the Arcadia Group grew, Mr Bosworth travelled to West Africa less frequently, and Mr Kelbrick increasingly travelled there on his own. As a result, Mr Kelbrick said, Mr Bosworth lost some of his connections in the region, and Mr Kelbrick became NNPC’s ‘go-to’ person in Nigeria for Arcadia London.

The Defendants’ evidence is that Arcadia’s trading of physical crude not only created an opportunity for direct profit from particular trades, but was also important to its oil business more generally. Trading in physical West African crude oil enabled Arcadia to participate in derivatives linked to the Dated Brent pricing structure of crude oil and provided market intelligence, which helped its traders in other markets. It also supported Arcadia’s WTI trading in the US, whose traders could not generally participate in such large-scale derivatives trading without a substantial portfolio of physical crude oil. Thus, it is said, Arcadia’s West African physical trading had a value to Arcadia beyond each cargo’s basic profit and loss, across the business as whole.

Ms Driay said in her first witness statement:

“Despite the risks associated with trading in West Africa, this kind of trading brought with it distinct advantages. At a basic level, West African crude is of a very high quality (with a low sulphur content) and physical trading provides liquidity to the paper traders. Further and in particular, West African crude is useful for hedging and paper trading purposes, as trading in it gives access to a large amount of market information which is valuable in respect of paper trading. For example, physical trading gives information as to who is buying the crude, and where this crude is being shipped to. This can have long and short term effects on the global pricing of crude and is very valuable information in itself. Even knowing what pricing dates and components other market participants are attempting to negotiate is useful, given that it indicates the view those participants are taking on market movements. Oil markets are inter-linked, and West African crude oil is priced by reference to the price of Brent. This sort of information is not just useful to traders - I recall that shippers would call Arcadia up to try and obtain our market intelligence.”

She was asked about this passage in cross-examination, leading to the following exchanges:

“A. … But in a place like West Africa, particularly Nigeria, to know the disruption would be useful and to know whether it is going east or whether it is going west, whether it is going by small tankers of 1 million barrels or by VLCC with longer routes. Yes, it is very interesting. I'm sure you could see in the press what happens when the Suez Canal is being disrupted.

Q. But that news travels quite fast, doesn't it?

A. What, that the Suez Canal is disrupted? That one, yes, but to know two months in advance more or less what will be the requirement for shipping one month to seven weeks ahead of time is an interesting position for demand in the shipping market.

Q. I'm interested in the information used by traders. You have explained that you were not on Nick Wildgoose's team so you don't really know exactly what information he was using?

A. I know when he was not happy, that was very clearly stated. They would shout loud enough and I won't repeat his language, but -- so I knew exactly what he wanted because I had been doing that long before. He wanted to know the swing, he wanted to know the pace of sells, when the programmes were out. He wanted to know what were the tenders going east as well as the people in Singapore office. So they were very tough, obnoxious and arrogant in getting this WAF tracking and not happy because I was putting in horizontal rather than vertical what they wanted and vice versa.

Q. But the information that you were able to obtain was available to other traders as well, wasn't it? You didn't have a particular insight into the information that Mr Wildgoose wanted?

A. Within Arcadia I did.

Q. Yes, but other traders would have access to the same information?

A. The people active in the market would spend time collecting that information as well, yes.

Q. There's a free exchange of information between the traders?

A. It's not free -- well, it is free in the sense that you are not paying. It's not free in the sense that information is key so there is need to be a give and take in information. And that is why being active, having a cargo, gave you a chance to call the people and tell them, "I have this cargo, which cargo do you have, what are you asking, what are you showing, what are you seeing?" Commerce.”

Mr Nicholas Wildgoose was, along with Mr James Dyer, one of Arcadia’s key paper traders.

Ms Driay explained in her oral evidence that “the whole point of half of the oil market” was to take a position in the physical crude oil market in order to create exposure that could be used to facilitate paper (derivatives) trading. Her oral evidence also included the following:

“Q. It has been suggested in the course of these proceedings that buying physical oil somehow allows Arcadia to get into the paper market but it is true that this pure paper trading can take place without any physical trading?

A. It can take place, whether it can be traded and exercised in the full knowledge, you have to go to Morgenstern’s theory of utility with passion, knowledge and full knowledge. So as we were talking yesterday, the more in the future you are going, the more it is closer to financial and GDP and type of very financial markets, the closer it goes, the more it is a physical market and the more it is linked with supply and demand and price discovery.

Q. If you wanted particular exposure to Brent, there are other ways of obtaining exposure to Brent through physical trading than buying West African crude?

A. There are plenty of ways, but West African is the first one to −− because of the programming of the loading, and the timing of exchange, the one that is trading physically, the most forward and it is the balanced barrels that are going eastwards and westwards as well as remaining in Europe. This gives the trade −− the pace of trading physical West African is giving a huge incentive to understand what is happening on the balance on the market.”

Ms Driay explained that such information was important to paper traders because of the intelligence as to where the crude was being shipped. For example, if crude was going west, “it had an impact on the global volume of oil traded in the USA which was of very big interest to Mr Wildgoose’s team”. Further, information as to pricing dates was also important.

Similarly, Mr Kelbrick said he understood his role as “getting oil so that it could be sold to Arcadia to feed the paper machine in London […] I knew how important it was for them to have physical oil to feed that paper machine in London and Switzerland”.

This evidence was supported by the expert evidence of, in particular, Mr Hendry. In the Joint Statement, he said:

“No, I firmly believe that the best market intelligence is to be had via providing boots on the ground, whether or not these boots belong to an employee, or to an affiliated intermediary.

So, providing there is some local representation, such as via a good, active, service provider, an IOC should be able to receive the same level of market intelligence as by having their own personnel in situ – perhaps even better, as the service providers tend to be extremely well plugged-in. Of particular interest would be an early indication of the loading program and whether there were any unsold cargoes from the previous month that were being carried over. This is an indication of the OSP being set too high but more importantly can be an indication of an over-supplied market. In general, Nigerian grades are very desirable, due to their fungible quality and, as they are used by refiners located at all points of the compass, any observation of unsold cargoes is important information to possess. When injection cargoes are observed they compete with the next month’s loading program, so, should such a situation be observed a seller would sometimes be wise not to chase the last cent on his re-sale and to off-load his own cargo quickly.” (§ 7.1)

“As per 7.1 above, a presence in WAF trading can give vital intelligence as to market conditions. Nigerian crude is an excellent barometer and therefore an early warning system for market change. For example, an early observation of say, a surfeit of WAF crudes, would be a bearish signal for Mediterranean crudes and vice-versa. If there is strong buying interest from China or India for example, which would be known by the number of calls to check avails, this would be a bullish signal. If there is a large number of unsold cargoes to be injected into the following month’s loading program, this would be a bearish signal. (On occasion, NNPC has had over 35 unsold cargoes carried over). Rapid, early assimilation of such quality market intelligence into the trading book can influence subsequent decisions in other trading spheres, such as, USGC, USAC, Brazil, NW Europe and Med. By having a known presence in the market, you are able to tap into the information highway.” (§ 7.4)

Ms Bossley did not fully support this evidence, stating that whilst more information including local knowledge was always helpful, many oil trading companies did not have West African positions or local offices in the seat of production or refining; that it would be an exaggeration to suggest that a West African position would give an edge in calling the market for other positions (though she acknowledged that talking to brokers and other trades “can be very informative about the WAF situation”); and that she “would say that the financial derivatives markets assist participation in the WAF market, not the other way around”. I prefer the evidence of Ms Driay and Mr Hendry on these points. It is cogent, and reflects Ms Driay’s actual day-to-day experience while working in the business and Mr Hendry’s wider experience than Ms Bossley. Further, to suggest that derivatives markets support physical West African trading rather than the other way around creates a false dichotomy. It was certainly the case that Ms Driay from time to time placed derivatives positions in order to hedge uncovered trading exposures. However, that is in no way inconsistent with Ms Driay’s and Mr Hendry’s compelling evidence about the advantages for Arcadia’s derivatives trading operation of information which Ms Driay was able to provide them as a result of her trading in physical West African crude. Mr Fredriksen and Mr Trøim themselves considered physical oil trading to support the paper trading: see § 169 below.

The evidence also indicated an additional advantage for the paper traders of Arcadia engaging in physical trading in West African crude. Mr Hendry said in the Joint Statement:

“Exchanges, like CME and ICE, in order to reduce the opportunities for market squeezes, limit the number of paper trades that can be done in say Brent and WTI, as the date for contract expiry approaches. A trader that is seen to trade physical crude oil may apply to the Exchange for an exemption from these position limits as he will likely be adjusting his hedges until the cargo is placed and, should this be granted, that trader will have an advantage over those that do not have such an exemption.” (§ 7.5)

Ms McDonald explained that:

“One of my responsibilities as Compliance Manager from 2008 was to organise trading limits with the exchanges on which the Arcadia Group did its “paper” trading (i.e. its trading of financial derivatives that were linked to the price of oil). The CFTC would not allow traders to engage in paper trading above a certain threshold unless they did a certain amount of physical oil trading too. As such, it was important for us to be able to say to the CFTC that we had a major physical business. The West Africa book was one of the biggest physical books and we would usually rely on it when we asked the CTFC for bigger trading limits”.

In Mr Bosworth’s words, “this meant that West African crude oil trading had a value to Arcadia beyond the basic profit or loss that it made by selling a cargo for a different price to the one at which it bought it”. Mr Trøim accepted in cross-examination that physical cargoes supported the paper trading.

Similarly, Ms Driay said in her trial witness statement:

“… around 2010/11, the ICE and Nymex exchanges, where Brent and WTI future contracts were being traded, imposed new position limits and rules regarding the exiting of positions ahead of their expiry. These limits would vary depending on the nature of the business being carried out by the trading company in question and the volumes of physical trading being conducted. I believe that these restrictions were introduced following the major market disruptions in 2008/09. Trading companies willing to trade paper could apply for an exemption or extension to their limit if they could cite bona fide hedging purposes to cover the market exposure created by a physical trade. Additionally, if there was no exemption granted, those trading companies with paper positions would have to “exit and roll” their position to a later maturity a certain number of days ahead of the expiry date. To the best of my ability, I recall that different fees were also charged by exchanges depending on the nature of the crude volume “within hedging” or “out of hedging”. As such, by around 2011, Arcadia’s offices and trading desks, including mine, would be asked by those in charge of Arcadia Group’s paper trading to detail the volumes of their physical trading business so that Arcadia could apply to increase its position limits based on its bona fide hedges (as opposed to speculative hedging being carried out by paper traders). That these applications were being made must have been known to the main individuals involved in Arcadia’s Brent TI trading, including Paul Adams and Nick Wildgoose, as those individuals were subject to CFTC scrutiny.” (§ 17, footnotes omitted)

Ms Driay maintained this evidence in her oral evidence, stating that the paper traders used Arcadia’s exemption to ‘play the expiry’ i.e. profiting from taking positions close to the expiry of the trading periods for crude oils. The exemption depended on being able to demonstrate to the exchange that the company held physical positions in crude, and its purpose was to permit hedging of such positions. In fact, though, Ms Driay’s evidence indicates that the paper traders at Arcadia (Wildgoose and Dyer) could and did take advantage of the exemption for their own trading. That is because the exemption was purely volume based, rather than tied to particular physical cargos, and so it was possible for the paper traders, in Ms Driay’s words, to “keep[] this volume for themselves”. (Ms Driay did not require the exemption for such hedging positions as she placed herself, because she hedged off-exchange using Contracts for Differences pursuant to ISDA terms.) I accept Ms Driay’s evidence on this matter too.

The CFTC’s Complaint against Parnon Energy Inc. (“Parnon”), Arcadia London, Arcadia Switzerland, Mr Wildgoose and Mr Dyer in May 2011 indicated that obtaining a physical trading position between (i) crude oil deliveries in the near month and (ii) crude oil deliveries in the following month was “generally understood to be the best representation of WTI physical supply and demand”. Traders could “trade this differential via a “calendar spread,” i.e. a pair of contracts, one for the purchase of oil deliverable in one month and one for the sale of the same quantity of oil deliverable in a subsequent month” in their physical or derivatives (i.e., paper) books. Between January 2008 and April 2008, while making a physical trading loss of US$15 million on physical trades, Parnon and Arcadia were able to generate trading profits of over US$50 million in their paper books by trading these “spread” prices (Complaint § 52). When taken to this passage of the Complaint, Mr Fredriksen accepted that the making of physical losses in lieu of paper gains for a net profit was “part of the game or trade”: which was consistent with Mr Kelbrick’s evidence about feeding the Arcadia Group’s “paper machine” requiring the Arcadia Group to hold physical cargoes.

Arcadia had a network of service providers in various parts of the world, including West Africa. The evidence indicates that Arcadia had extensive direct dealings with West African service providers from the 1990s to the mid-2000s. Mr Bosworth said that “going back to 2000”, oil trading in Africa and Nigeria in particular at that time were “close to the wild west”.

In respect of its operations in Nigeria sourcing crude oil from NNPC, Arcadia London had dealings with Mr Osagie Akpata (“Mr Akpata”) and his company Azenith Resources Limited (“Azenith Nigeria”). Mr Akpata’s work for Arcadia dated from the early 1990s. Mr Akpata explained in his evidence his role in assisting Arcadia in its relationship with NNPC.

Arcadia also dealt with Mr Mohammed Asibelua (“Mr Asibelua”), a Nigerian businessman with strong connections in the oil and gas industry. His companies included Equinox Oil & Gas Limited (“Equinox”) and Pang Ling Nigeria (“Pang Ling”). Mr Asibelua assisted Arcadia in its Nigerian trading operations throughout the 1990s and 2000s. Pang Ling assisted Arcadia London in obtaining crude oil contracts in Nigeria, including through connections with the Sultan of Sokoto.

In about 2000, Mitsui authorised the establishment of a special purchase company, Arcadia Petroleum Nigeria Limited (“Arcadia Nigeria”). NNPC had expressed a wish for major oil trading companies to have a presence in the country, and Arcadia Nigeria could act as a vehicle to bid for contracts in Nigeria. Mr Bosworth and Mr Asibelua were Arcadia Nigeria’s original shareholders, and Mitsui became a shareholder.

Turning to the position in Equatorial Guinea, the evidence indicates that in the early to mid 2000s a French oil trader, Jean-Paul Driot (“Mr Driot”), effectively controlled international oil traders’ access to GEPetrol and Equatoguinean crude oil exports. Mr Bosworth in his witness statement said:

“78.

In the around the early 2000s, I was introduced to Jean-Paul (JP) Driot. I do not now recall how I came to know Mr Driot, but it may have been through Steve Kelbrick. At this time, Mr Driot had a small trading company called Stag. I recall that, as a trader, I would track which cargoes went to different companies in order to be able to analyse the fundamentals of the West African market. Stag was a company frequently on that list. Mr Driot had also been involved in Nigerian and Cameroonian crude oil and petroleum product businesses as well as in Equatorial Guinea. I believe Mr Driot first went to Africa when he worked for Renault.

79.

While in Equatorial Guinea as part of his role at Renault, JP Driot developed a relationship with the President of Equatorial Guinea and they became personal friends. JP Driot told me that at one stage the President fell ill and he funded the President’s flight and medical treatment in Europe (France or Germany I believe). JP Driot later left Renault and that is when he developed his own oil trading business in the name of Stag.

80.

Arcadia began its relationship with Stag by buying spot cargoes of Zafiro grade crude oil from Stag which had its own contract with the Equatorial Guinean government. Arcadia would then sell those cargoes on the open market. I remember that Glencore and Vitol also had their own contracts around that time with the Equatorial Guinean government. After a period of buying spot cargoes from Stag (I do not recall the precise length of time) and as I explain further at paragraph 130, I believe that I approached JP Driot (or he may have suggested to me) and we discussed the idea of Arcadia being able to obtain its own term contract with the Equatorial Guinean government.”

I refer later to Mr Bosworth and Mr Kelbrick’s evidence about the significance of Mr Driot and Stag given in the context of the Zafiro Contract (§§ 229 ff below).

An article published later, in 2009, in Harper’s Magazine entitled “Invisible Hands: The secret world of the oil fixer”, said:

“So whenever oil business is conducted around the world, it’s quite common to find middlemen at the heart of the deal - even if most of their operations are significantly more limited in scope than were those of the old guard. In Equatorial Guinea, a former top Elf executive named Jean-Paul Driot now has an exclusive agreement to market the government’s share of its international production through his company, Stag Energy.”

Similarly, an article in “Energy Compass” on 27 February 2004 stated that Stag Energy “lifts the government’s equity share of Zafiro crude” and referred to Stag as “something of a mystery” run by “Jean Paul Driot, a well-connected Frenchman”. The journal Africa Energy Intelligence reported on 22 September 2009 that Stag “sells the government’s share of oil and gas production”. The same journal on 7 November 2012 reported that Mr Driot, a former executive of Marathon and Gulf Oil, “[t]hrough another of his firms, Stag Energy, … has been selling the government share in the country’s oil output for over 10 years”, and that that contract made Mr Driot one of the most influential figures in presidential circles in Malabo (Equatorial Guinea’s capital). An internal Arcadia email dating from 15 February 2008 made reference to the risk that irritating Mr Driot “may well prejudice your Zafiro relationship”. These materials are consistent with Mr Bosworth’s and Mr Kelbrick’s evidence about the significance of Mr Driot and Stag to an entity’s ability to purchase crude oil from GEPetrol during the relevant period.

Arcadia began to trade cargoes with Mr Driot in the early 2000s. Mr Driot became a close contact of the Arcadia Group and attended events hosted by Arcadia London that Mr Fredriksen also attended. In 2002, Arcadia hired Mr Driot’s son, Gregory, as one of its West African traders. Subsequently, through Mr Driot, Arcadia had dealings with an Equatoguinean service provider, Sonergy Limited (“Sonergy”), that enabled Arcadia to source crude oil directly under a term contract with GEPetrol in December 2005.

Ms McDonald and Mr Akpata explained in their evidence the services that service providers undertook for Arcadia. Service providers might introduce Arcadia to business opportunities, in particular to their contacts at West African NOCs and be involved in the negotiations of term contracts. Some service providers were involved in aspects of the operation of the relevant term contract for Arcadia. West African oil trading could be highly bureaucratic. Arcadia could not navigate the issues from its London office, but relied on service providers with local contacts to obtain the relevant permits, clearances, and meet the key individuals at NNPC’s offices. Azenith and Equinox, for example, assisted in obtaining approvals of letters of credit or clearances from NNPC needed to load cargo. Because the service providers were ‘on the ground’, they could physically go to the NOC’s office to ‘find the right person to talk to’. Ms McDonald said in her statement that “The service providers were not big companies. They did not need much except local contacts to do what they did. It was really all about relationships – knowing who to call when there was an issue and how to persuade them to help.” I discuss the evidence about service providers in general in sections (F)(2)-(4) above.

Arcadia kept due diligence files in respect of service providers with which it had dealings (the “Service Provider Files”). Ms McDonald’s role as Arcadia’s Compliance Manager included maintaining a file on each service provider and carrying out checks for corporate documents and ultimate ownership records. Arcadia would sometimes instruct Clearwater or other risk consultants to investigate and produce reports. The Service Provider Files also included agreements between Arcadia and service providers. These were prepared by Arcadia’s compliance department, using draft templates provided by Arcadia’s solicitors, Clifford Chance LLP. Clifford Chance and Dewey & Le Boeuf LLP also advised from time to time on issues relating to service providers.

The service providers invoiced Arcadia for their services, based on monthly fees or fees paid on a per barrel or profit share basis. Trading data for Arcadia’s trades was contained in Arcadia’s “Trade Capture” system. The payments that Arcadia made to the service providers were recorded and shown as transaction costs in Arcadia’s Trade Capture database and in its audited accounts. Each cargo on Trade Capture had its own P&L record. Arcadia’s arrangements with service providers could be the subject of scrutiny during audits. Before the transfer of Arcadia’s dealings with service providers to Arcadia Lebanon, summarised below, there were (as I summarise later) a number of audit queries in respect of Arcadia’s West African service providers.

Among other things, Trade Capture recorded transaction costs, including payments to service providers in respect of West African crude trades. A user of the Trade Capture system could generate trading reports or deal sheets on each trade, including profit/loss and costs information. In addition to the Trade Capture information, there were also hedging reports. Mr Bosworth gave evidence that Trade Capture at the time had an interface to the data that allowed a user quickly to produce reports with relevant costing and operational data within seconds.

A spreadsheet recording the amount spent by Arcadia London on service providers for the year ended March 2003 indicated a total of 14,340,545 (presumably in US$, like most of the other financial records in evidence).

As the Defendants point out, the use of service providers was not a secret inside or outside the Arcadia Group. There was a considerable volume of emails and paperwork relating to the use and payment of service providers, sent from and to many Arcadia Group employees, as well as directors. Mr Bosworth said the use of service providers was “common daily knowledge amongst the management, including the operations people, finance people”. Outside of the Arcadia Group, the payments to service providers were known to the Arcadia Group’s lawyers (Clifford Chance and Dewey & LeBoeuf) and auditors (Moore Stephens LLP). In January 2004, Deloitte (on behalf of Arcadia London) appear to have written to HM Inspector of Taxes, noting that US$16 million had been spent on service providers in the year up to 14 November 2003 and attaching a list of the service providers used by Arcadia London. Ms McDonald, Arcadia London’s Compliance Manager, explained in her evidence that “Arcadia London had a network of service providers working for it around the world. I personally worked with service providers in West Africa, Yemen, and Ecuador”; and an Arcadia Group document explained that her job description included the “Preparation of new Service Provider and Consultants contracts and administration thereof”.

As mentioned earlier, in the 1990s and early 2000s Arcadia engaged Pang Ling to assist in its Nigerian trading. Pang Ling provided operational services to Arcadia in Nigeria, including in relation to the NNPC pricing options. Pang Ling also helped Arcadia London obtain a term contract. Pang Ling was remunerated on various bases. It appears that some of the profit share arrangements between Arcadia London and Pang Ling were unwritten.

Arcadia’s auditors, Arthur Andersen, queried Arcadia London’s payments to Pang Ling. They resigned on 20 July 2001 and Deloitte replaced them. Mitsui explained to Deloitte the amounts that Arcadia London had paid Pang Ling, and stated: “we genuinely believe that the services we received from Pang Ling were of significant value”. Pang Ling invoiced Arcadia London for approximately US$19 million for the year ended 31 December 2000, in respect of 13 cargoes, an average of about US$1.46 million per cargo. Arcadia London entered into written agreements with Pang Ling dated 26 September 2001 and 18 February 2002. Arcadia paid Pang Ling directly: the payments were in Arcadia’s records, disclosed to the auditors and claimed as tax-deductible transaction costs with HMRC. On 14 November 2001, Mr Yamada emailed Mr Alistair Gordon, Mr Bosworth, and Mr Hurley in relation to Pang Ling, noting that “Having had PL’s assistance, APL succeeded in renewing the crude oil purchase contract with NNPC for another one year from Oct/01. PL has requested for higher remuneration after the renewal because of time, work and value of services they devoted.” Mr Bosworth in an interview with the FSA said that for the first few of those 13 cargoes, Pang Ling received 50% of the profits plus about US$150,000 for their costs, and for the last four Pang Ling received 60%.

Arthur Andersen had reported the Pang Ling activity to the Financial Services Authority, and in 2002 the FSA investigated Arcadia’s relationship with Pang Ling, in particular whether Pang Ling was involved in making potentially corrupt payments or bribes. The FSA did not take any action against Arcadia, but it sent warning letters dated 1 November 2002 to Mr Bosworth and Arcadia London about Pang Ling. At or around the same time, the Tokyo Public Prosecutor investigated a Mitsui employee on suspicion of bribing a Mongolian official in relation to power generation projects. This resulted in significant pressure on Mitsui and led to the chairman’s resignation. Mr Bosworth explained that “the scrutiny of all of the subsidiaries of Mitsui, of which Arcadia was a wholly owned subsidiary, was increased”. Mitsui reported to Mr Bosworth that Deloitte in its role as auditor would pay special attention to compliance.

The Claimants suggest that, following the FSA Investigation in 2002, Arcadia London began to pay Pang Ling (and later Equinox: see below) only cents on the barrel with the potential for a bonus payment. They refer to a written agreement between Arcadia London and Pang Ling dated 26 September 2001, referring to a payment of US$0.06 per barrel, and a bonus of up to US$3 million in any one year. However, a bonus at that level might still have been as large as a percentage of profits: in the absence of the relevant operational files for the Sao Tome Contract, such as the deal sheets, it is not possible to say. Moreover that agreement predated the FSA investigation, so there is no reason to believe the bonus provision it contained reflected a reduced level of remuneration caused by the impact of the FSA investigation. Further, in the light of the evidence I consider elsewhere about the vital importance of service providers for both obtaining and operating term contracts, and the bargaining position they held, it seems inherently unlikely that Arcadia would have been able substantially to reduce its payments to Pang Ling and yet have retained the same supplies of oil.

It appears that, in the light of the FSA investigation and broader auditor scrutiny of its compliance record, Mitsui wished to minimise compliance risks including in relation to Arcadia’s West African oil trading. In 2003 Mitsui instructed Arcadia to avoid direct acquisition of crude oil from NNPC. Mr Bosworth said in his oral evidence that “Mitsui requested that we not have an Arcadia contract with Arcadia London with NNPC because West Africa was deemed to be potentially high risk.” In addition, both Mitsui and Mr Bosworth disposed of their shares in Arcadia Nigeria.

Mitsui nonetheless wished Arcadia to continue to trade West African crude and maintain a relationship with NNPC. At about this time, in 2003 Arcadia invited Mr Decker to join its West African team. Mr Decker was a senior and very well-connected West African oil trader, who had previously worked for Addax Petroleum and had strong connections to NNPC and Nigeria generally.

Mr Decker declined Arcadia’s approach. Instead, he set up his own business, the Tristar group, to source and trade crude oil. Mr Decker’s business partner, Mr Mounzer, handled the financial/corporate administration for the Tristar group. It became a substantial trading operation, with a range of suppliers and customers, including the Arcadia Group, and had turnover of some US$6 billion trading 30-50,000 barrels of oil a day in 2004-2005.

Mr Bosworth’s evidence is that in the light of Mitsui’s instruction to avoid direct trading with NNPC and minimise compliance risks, Arcadia and Mr Decker agreed that Mr Decker would source crude oil from NNPC for Arcadia, with one of his companies, rather than Arcadia acting as the contract holder with NNPC. Crude oil lifted under this term contract (or its volumetric equivalent) would be transferred to Arcadia by a Tristar entity under a sleeving arrangement.

Arcadia had had a good relationship with NNPC, which regarded it as a reliable lifter of crude. In December 2003 Arcadia (with Mitsui’s approval and with the assistance of Cornhill/Mr Lance) transferred to Mr Decker an inactive Arcadia shelf-company (bearing the ‘Arcadia’ name), Arcadia Mauritius, for Mr Decker to use as the contract holder in the term contract with NNPC. Mr Bosworth explained that the use of a company with the ‘Arcadia’ name enabled Mr Decker to present the company (and himself) to NNPC as being associated with Arcadia and thus as a credible buyer and lifter of the crude. Arcadia Mauritius had been incorporated in August 2001 as a shelf company for potential use as a trading entity. The Claimants, in their closing, suggest that it was a company Mr Lance had on his books for Mr Bosworth’s and Mr Hurley’s use, citing a paragraph of Mr Bosworth’s trial witness statement. That is not, however, an accurate statement of his evidence, which was as follows:

“I do not recall precisely when Arcadia Mauritius was established but I do recall that it was established as an ‘off the shelf’ company – i.e. the company was incorporated so that the Arcadia name could be reserved, should Arcadia wish to later use it for its trading activities. I believe that Arcadia Mauritius would have been set up by Mark Lance or someone like him and held in their name. Arcadia Mauritius was therefore an ‘off the books’ company – i.e. it was not owned or controlled by the Arcadia group or Mitsui. I was never a shareholder in Arcadia Mauritius nor did I hold any beneficial or legal interest in it. I also did not control it.” (§ 93)

Further, the pleaded case of Attock Mauritius (on which the Claimants place reliance in this context) is that Arcadia Mauritius was originally incorporated, in 2001, as a company that might be used to bid for contracts on Arcadia Group’s behalf: not that it was transferred to Mr Decker for that purpose.

The Claimants suggest that Arcadia Mauritius was transferred to Mr Decker for him to operate “for the benefit of the Arcadia Group” and that it was acting as agent for Arcadia London. However, I do not consider the evidence to support that view. The arrangement (from late 2003) was for Arcadia Mauritius, now a Decker company, to contract with NNPC and then to on-sell to the Arcadia Group as contractual counterparty via an intermediate entity or ‘sleeve’ (a member of the Tristar group). There is no evidence that Mr Decker, or Arcadia Mauritius, agreed to or did contract as agent for any entity in the Arcadia Group. Moreover, the arrangement did not even involve particular cargoes to the Arcadia Group. Instead, it operated on a volumetric basis. Mr Decker’s companies had several NNPC term contracts, of which the Arcadia Mauritius contract was only one, and he met his volume commitments to Arcadia London using crude sourced under any of those contracts. The commitment was for Arcadia London to receive the same volume of crude as it would have had if it had a term contract directly with NNPC. Neither Mr Bosworth nor the Arcadia Group retained control either of Arcadia Mauritius or of the contracts it entered into with NNPC.

The Claimants suggest that a passage in Mr Hurley’s oral evidence shows that he agreed that Arcadia Mauritius was being used by Mr Decker as an agent of the Arcadia Group. I disagree. Mr Hurley was being asked general questions about using entities outside the Arcadia Group to make payments to service providers. The following exchange then occurred:

“Q. So these are entirely independent third parties you are referring to, who are holding the contracts; is that right?

A. Not necessarily, no.

Q. So are they working for Arcadia as an agent?

A. There was one in particular that I know was working for Arcadia.

Q. Which one are you referring to?

A. I think it is -- I think it's Arcadia Mauritius but I'm not certain and then there was another company I think in between. But I can't remember the details of that.”

I do not regard that as evidence that Arcadia Mauritius, after its transfer to Mr Decker, was Arcadia’s agent. The answer given is plainly uncertain as to the entity Mr Hurley was trying to recall, and was entirely unspecific as to timing.

The ‘sleeve’ company was Tristar Petroleum SA (“Tristar Switzerland”). Since Arcadia Mauritius was a shell company with no financial strength, Tristar opened a letter of credit in Arcadia Mauritius’s favour to pay NNPC for the oil. Arcadia agreed to pay Tristar Switzerland a fee for its services as a sleeve, calculated in part by reference to its start-up costs and structured as a commission payable on a per barrel basis. The fee included Tristar Switzerland’s financing costs.

Mitsui approved the transfer of Arcadia Mauritius to Mr Decker and the sleeving arrangements with Mr Decker/the Tristar group, as a means of avoiding direct acquisition of oil from NNPC. The arrangements took some months to implement. In emails exchanged with Tristar on 9 October 2003, Mr Hurley referred to December 2003 as “the deadline given by Mitsui for APL [Arcadia London] to transfer said contracts”. In his oral evidence, Mr Bosworth described a “process” during which Mitsui obtained information that ultimately led to its approval of the use of Arcadia Mauritius and Tristar as part of Arcadia London’s trading. On 29 October 2003, Mr Yamada emailed Mr Hurley to inform him that he was “drafting an application to Mitsui to buy NNPC oil through Tristar”. Mr Bosworth confirmed in cross-examination that Mitsui approved the transfer. His evidence was that Arcadia London would not have entered into this contract without Arcadia Mauritius and Tristar Switzerland’s involvement, because of Mitsui’s then concerns regarding compliance issues associated with West African oil trading. Arcadia London began to trade with Tristar by April 2004. I note that – as the Defendants point out – the transactions forming part of the contract chain involving Arcadia Mauritius and Tristar Switzerland are not alleged to be fraudulent by the Claimants, but the structure of those transactions was very similar to the Arcadia Lebanon Transactions now alleged to be fraudulent by reason of their very structure.

As I explain later, Mr Decker later (in 2005) went on to buy Attock Mauritius, which also began to do business with Arcadia.

In around 2002, Arcadia secured a supply (or a renewal of a supply) of crude from the Sao Tome government, with which it entered into an agreement on 26 August 2003. Mr Asibelua’s company, Pang Ling, witnessed the signing of the contract. NNPC supplied crude to Sao Tome under a government-to-government contract between Nigeria and Sao Tome, under which the latter had an allocation of 30,000 barrels a day. The Sao Tome government needed an oil trading company to lift the oil, hence its appointment of Arcadia under the Sao Tome Contract. In return, Arcadia agreed to pay Sao Tome a fee, which for 2006 was US$0.15 per barrel. The government of Sao Tome granted Arcadia London a power of attorney to deal directly on its behalf with NNPC.

The evidence indicates that the Sao Tome Contract was achieved by virtue of Mr Asibelua’s relationship with the Sao Tome government. In Mr Bosworth’s words:

“Mohammed Asibelua was the service provider who brought the Sao Tome Contract to Arcadia… Mr Asibelua had spent one or two years developing his relationship with the President and government in Sao Tome. I recall that Mr Asibelua assisted the President of Sao Tome in preparing the application/letter to the Nigerian government for a crude oil contract… It was Mr Asibelua alone who developed the relationship with between Sao Tome and Arcadia London. It would not have been possible for Arcadia to, for example, pick up the phone to the President of Sao Tome and simply request a contract. We therefore had to go through someone who was well connected with the Sao Tome Government, and this was Mohammed Asibelua.”

Arcadia paid Mr Asibelua’s companies, Pang Ling and later (by 2005) Equinox, remuneration in relation to the Sao Tome Contract.

For its work on the Sao Tome Contract, Equinox received a fixed per barrel fee of US$0.04 (originally US$0.02) on each cargo. The Sao Tome government’s fee of US$0.15 (originally US$0.11) per cargo was also paid to Equinox’s bank account, for onward distribution by Equinox. In addition, the Defendants say that Arcadia London was paying Equinox profit shares similar to its previous payments to Pang Ling. An “Analysis of Other Charges” for Arcadia London covering the period April 2005 to March 2006, apparently prepared for the auditors, states that payments to Equinox in that period totalled US$2,717,900.26. That sum exceeds by US$1,584,872.02 the total of the Equinox and Sao Tome government ‘per barrel’ fees in respect of to the seven Sao Tome cargoes that Arcadia London lifted during that period (totalling 6,664,872 barrels). The Claimants counter that the analysis does not identify why the payments were made, and suggest that Equinox may also have been involved in products trading, citing an email from Equinox in December 2006 referring to invoices for product imports totalling around US$1 million and dated between April 2005 and January 2006. The email chain does not indicate whether or not the invoices were paid. Such fragmentary data as has been preserved and disclosed does not enable me to form a clear view on the true extent of Arcadia’s payments to Equinox. However, as I say above in relation to Pang Ling, it seems to me unlikely that Arcadia would have been able to make substantially reduced payments to Equinox, compared to those it paid Pang Ling in 2000, and yet have retained the supplies of oil.

Mr Bosworth’s evidence was that the Sao Tome Contract was a stepping stone for Mr Asibelua, who wished to move on to wider opportunities. Arcadia London therefore turned to Mr Kelbrick (who had by then left the Arcadia Group: see below) to manage the Sao Tome Contract. In his oral evidence about his role on the Sao Tome Contract, Mr Kelbrick said “maintaining it is a better way of putting it, but not sourcing it” and “… I took over the management and the handling once again from the NNPC side of that contract”. I deal with Mr Kelbrick’s role in more detail in section (I)(3) below. Contemporary documents in 2007/8 referred to as the ‘Cargo P&Ls’ indicate that there was an apportionment to Mr Kelbrick’s company of 53.75% of the difference between the quotation unit sale and purchase prices, multiplied by the number of barrels (see also § 240 below as to the concept of quotation differential profit).

By early 2005, Arcadia wanted to expand its business beyond Nigeria. Equatorial Guinea had large reserves of Zafiro crude. The evidence indicates that Mr Driot controlled access to the state oil company GEPetrol and its allocations and export of Equatoguinean crude: see §§ 126-127 above and 229-232 below. His company, Stag Energy (“Stag”) had a term contract with GEPetrol. Mr Bosworth had been introduced to Mr Driot in the early 2000s. Arcadia began to buy from Stag cargoes of Zafiro crude that Stag had lifted under its term contract.

The documents also include an existing contract between Arcadia London and GEPetrol dated 14 February 2004. However, there is no evidence that any cargoes were actually supplied under it. Mr Bosworth’s evidence, which I accept, is that “[s]igning a piece of paper is one thing. Enacting a contract is another”, and that it was only when Arcadia employed Sonergy that cargoes began to flow.

Mr Kelbrick left Arcadia in 2004 to become head of trading at PetroChina, a Chinese state oil company. PetroChina recruited him to assist it in the West African market. While he was there, Mr Kelbrick in 2004 originated a one-year NNPC term contract for PetroChina, and also a term contract from the Algerian NOC, Sonatrach, for Saharan blend crude oil.

After about a year, Mr Kelbrick left PetroChina in 2005, due (he said) to lack of autonomy at the company leading to a desire to set up on his own. Mr Bosworth tried to bring him back to work for Arcadia, and Vitol also offered him a job. However, Mr Kelbrick chose to pursue a career as an independent trader and consultant.

By this stage, Mr Kelbrick had come to be well-acquainted with Mr Decker, whom Mr Kelbrick had met on a number of occasions in Nigeria. In 2005, Mr Decker approached Mr Kelbrick and asked for his help. Mr Decker wanted to spend less time in Nigeria and to move back to Switzerland, while maintaining his local relationships on the ground in West Africa. Mr Kelbrick agreed, and in 2005-2006 worked as a service provider for Mr Decker, being paid by Mr Decker for his consultancy work via Blacksea. As part of that work, in 2005 Mr Kelbrick secured a term contract with NNPC for a Tristar Group company. Mr Kelbrick also continued to develop his own contacts in West Africa, and later (in 2007) used his companies South Energy and Proview to manage his business interests.

In addition, documentation indicates that Mr Kelbrick provided services for Arcadia in relation to work in India and Nigeria (including, for example, an invoice for US$1 million for “Services in India and Africa for crude oil and products cargoes” for the period ended 31 December 2006). The following passages from Mr Kelbrick’s witness statement illustrate the context in which he operated and the services he was providing:

“12.

After Mr Green passed away, I became more involved in the regular travel down to Nigeria to meet with people there and to make my own contacts. As I was not spending much time in the office (and was also less familiar with the paper side of Arcadia’s business) Arcadia employed David Ford who was also able to undertake much of the work I would have carried out in London while I travelled to West Africa. At the start, I effectively shadowed Mr Bosworth, who then spent approximately half of his time in West Africa and already had a large network of his own contacts there. Mr Bosworth introduced me to various of his contacts, but I had also begun to make my own contacts and build a name for myself in Nigeria. Mr Bosworth became a close friend during the period that we worked together, and I was grateful for him teaching me about the West African crude market.

13.

The oil industry in West Africa is enormous. Being present in West Africa was (and is) important in order to ensure a successful trading practice as people there want you to be visible and available for face-to-face meetings at a moment’s notice in order to create trust, failing which they may well take their business elsewhere. Developing these local relationships is demanding on your time but its value cannot be underestimated. In addition, people within NNPC changed on a regular basis and it was important to be physically present in Nigeria to maintain or create new relationships.

14.

When travelling to the region I would meet with local businesspeople who held various roles from the top of the chain to the bottom, from the wellhead to customer. This included meeting with refiners, suppliers and producers; at NNPC I met with everyone from the group managing director (with whom I regularly played golf) to the administrative assistants. I had contacts who worked in the operational, finance and sales departments. Employees moved up quickly and around frequently, so an administrative assistant could well be leading the trade desk in 4-5 years’ time or so.

15.

Building relationships could take many forms. For example, if the Head of Marketing at NNPC had to give a written presentation I would try and assist them by providing certain information relevant to the presentation. In addition, I flew trading experts from London to run training courses in Abuja for NNPC staff and I went to the NNPC quarterly marketing reviews. At those meetings I took the opportunity to speak about the markets, the global outlook, what geopolitical changes might have an impact on the price of crude, and gave NNPC an overview as to what factors traders took into consideration when purchasing crude. I also monitored cargo tracking for crude oil and spoke to people in other trading companies to share market information, and get a view as to who sold what to whom and at what price. I knew that all of this supply and demand market information was valuable to Arcadia’s paper trading department when creating its position in WTI and Brent and the spreads therein, even though I was not involved in the paper trading element of the business.”

“27.

Also in 2005, Mr Decker approached me and asked whether I could assist him. Mr Decker told me that he wanted to spend less time in Nigeria and wanted to move back to Switzerland but needed to maintain his local relationships on the ground in West Africa in order to keep his businesses going. I agreed to assist him on the ground in West Africa as a consultant while at the same time trying to develop my own business. As part of my services for Mr Decker, I secured a contract with NNPC for a Tristar Group company. I used a shell company, Blacksea Petroleum Offshore SAL (“Blacksea”) that I acquired from Mr Decker himself (I believe, but cannot now recall, for a nominal fee) for my consultancy work. ... This was my first involvement with offshore companies, and I recall travelling to Lebanon to establish Blacksea’s bank accounts. Mr Decker paid Blacksea for the services I was providing to him in Nigeria.

28.

In 2005-2006 I spent on average at least 15 days a month in Nigeria. I was working for Mr Decker and further building up my contacts in order to focus on building my own business, but my family remained in England. I did not enjoy working alone in Nigeria and this was not a happy period in my life.”

“70.

At the time of the 144 Transactions (i.e., between 2007 and 2013), obtaining a contract from a national oil supplier was incredibly competitive. Obtaining term contracts requires business relationships with the national oil company and/or key individuals related to them. There could be as many as 250 companies applying for a contract, and initially only 25 companies or so would be successful. Unsuccessful companies may then lobby to be included in the list of successful companies such that the initial number went up. Whatever the eventual number, there is only so much oil to go around. Even if successful, the amount that was awarded under a contract always far exceeded what was actually available. NNPC typically kept the only copies of the signed contract, which provided a maximum volume a contract holder could lift. This maximum volume was no guarantee of the amount that would be lifted – in reality there was still a great deal of competition for cargoes and a wide variety of reasons why a contract holder would not be able to lift, including production shortages, pipeline issues or a poor track record with NNPC.

71.

If trading with a national oil company, therefore, it was essential to have people on the ground; first to ensure that it was your company who was awarded a contract in the first place, and second to ensure that – having secured the award of a contract – your company was then actually nominated to lift a cargo under that contract. This was the focus of my work for Blacksea, Arcadia and AOIL, making sure that, a contract having been secured, the nomination to lift the cargo also followed. Simply put, even if a company secured a contract with a national oil company, unless it had people on the ground to lobby and keep track of cargoes, it was unlikely to actually lift.

72.

Each of the following was important for the success of prospective lifters at the time in West Africa:

72.1

Good track record: It was much easier to renew a contract than to be a new market entrant as NNPC wanted reliable buyers that they were familiar with. During the tender process, you had to submit banking and trading references to NNPC. Generally, turnover had to be in excess of US$500 million per year, which amounted to at least 6-7 cargoes a year. This was more easily satisfied if the contract was a renewal. This is why the acquisition of companies which already had contracts (like AOIL) was so appealing. Having secured a new contract or a renewal part of my role was then to ensure that the contract holder performed, i.e., that the contract holder lifted on time, had the requisite financing in place and paid on time.

72.2

Multiple bids: obtaining a contract from the NNPC was something of a numbers game. Simply put, the more companies I had applying for a contract from NNPC, the greater the chance that I was able to lift oil. It was widely accepted practice in West Africa to apply for crude oil contracts using a variety of companies’ names. When I worked at Arcadia London, we would:

72.2.1

make applications in Arcadia’s own name and in the name of a number of their affiliated companies, including a company called Arcadia Mauritius. After I bought AOIL, I applied for contracts in AOIL’s name, but also in the name of Arcadia Mauritius, Azenith, Crudex and Cathay Petroleum. I explain more about these companies below; and

72.2.2

make applications in the names of third-party companies (with the permission of those third parties). The third parties would consent to our use of their company name in return for giving them first option on the oil, alternatively a referral fee). As I recall, Arcadia had arrangements with private companies and state companies such as SK Co. Ltd, Petrobras, Sunoco, and the IOC.

72.3

Relationships with local sponsors: In Nigeria certain local businessmen would on occasion have the power to “sponsor” a contract with the NNPC. They would offer their support to a particular company, which meant it was more likely to obtain a contract. The sponsors would offer traders the name of the company to be granted an oil contract in return either for a referral fee and/or profit share. Over the years I had developed relationships with various sponsors in West Africa. When I worked at Arcadia, Arcadia had a relationship with a Mr Osagie Akpata, a local businessman and sponsor.

72.4

Local presence: It would be near impossible to lift cargoes from a national oil company in West Africa without people on the ground. I attended NNPC’s offices regularly to ensure that the company for whom I was working (initially Arcadia, then Mr Decker’s contract holders, and then AOIL (or its contract holders)) lifted the correct grade of oil, in the correct quantity, at the right time.

Service Providers

73.

The success of any oil trader’s business depends largely on how reliably it can acquire oil and deliver it to its buyers. In West Africa at that time, there were a number of third-party service providers, whose business it was to assist traders in ensuring that they were able to deliver the right grade of crude, in the right volumes and at the right time. If you get one of those three elements wrong, it can result in a multi-million-pound loss. During the period that I worked at Arcadia London up to 2004, it engaged the services of various service providers under service agreements, including Sonergy, and companies owned by Mr Akpata, such as Azenith Resources Nigeria.

74.

Third party service providers were often well-connected, and would lobby national oil companies to ensure that a given contract holder was allocated a cargo. They were also a valuable source of information as to the likelihood of securing a cargo, and whether lifting would proceed as expected. Even after a cargo was allocated, the services provided by these third parties included securing a given grade or quality of cargo and overseeing the inspections of the same, assisting with the time charters of the vessels and recovering outstanding payments.

…

Associated Risks

76.

Between 2007 and 2013, at the time of the 144 Transactions, there were real risks with dealing with national oil companies in West Africa. The national oil companies had all of the power, and there was very little recourse available to contracting parties if the national oil companies acted unreasonably or in apparent breach of a contract – a challenge to the behaviour might require litigation in the local courts (which nobody wanted to do), and/or result in the loss of a contract renewal.

77.

Delivery of cargoes were often delayed due to operational issues. A change in laycan date would change the pricing period and so could amount to a significantly different price for the oil, which price risk had to be carried by the contract holder. Loading delays could also result in major demurrage claims.

78.

In addition, it is well documented that (at that time in particular) West African oil trading was opaque and carried with it a high corruption risk, which in turn presented a serious reputational risk to its counterparties. The global reach of the UK Bribery Act 2010 was a concern for many oil traders with a presence in the UK.”

Mr Akpata described Mr Kelbrick in oral evidence as “very well connected in NNPC”, and as someone who knew who needed to be accessed and how to access them, including, for example, playing golf with key individuals at the Abuja Golf Club. (Mr Kelbrick played golf with the head of NNPC and the head of the Petroleum Pipelines Marketing Corporation (“PPMC”), the Nigerian state-owned product supply company.) One of the reasons why Mr Kelbrick became well-connected in NNPC was, as Mr Akpata explained, because he lived in Nigeria when Mr Bosworth did not. Mr Akpata said: “You had to be in Nigeria a lot, which Pete in the beginning was but then couldn’t be any more” and that being on the ground in Nigeria was “critical” and “impossible to do without”. Mr Kelbrick’s own evidence was that: “By spending less time in Nigeria, it was challenging for Mr Bosworth to maintain the depth of contacts in the country, including because his contacts were replaced by people that Mr Bosworth did not know”. Mr Kelbrick said in his oral evidence that by 2004, Mr Bosworth “wasn’t travelling there quite as much. I was there a lot, lot more”. Mr Kelbrick said “I had lived there [in Nigeria], I had been working for NNPC since 1998, and I had gained by this time [2009]…11 years in I had gained my own network of people in West Africa”. He identified a number of those connections in oral evidence, including Chief Lulu Briggs, Chief Anenih, Mr Akpata, the Emir of Kano, and the whole of the Crude Oil Marketing Department at NNPC, including its head, Aminu Babu-Kusa.

Mr Duncan, who said he had not got on well with Mr Kelbrick, nonetheless described the operational services Mr Kelbrick performed as a service provider and consultant on the ground in Nigeria as “vital” and “very valuable and important”. Similarly, Mr Scheepers said that Mr Kelbrick was regularly in Nigeria because “the day-to-day interface with the trading side and the local Nigerian side involved constant meetings”. Mr Scheepers described being in Nigeria as “an absolutely necessity or a must…because your competitors are doing exactly the same and if you are not present you will simply not get the business and in most situations there is one such person per geographical location or country …and in this case Steve was that for Nigeria, exactly that. That’s what he has been doing for most of his career”.

Mr Bosworth in his oral evidence described Mr Kelbrick as being experienced in Nigeria, including because he lived there, and experienced in other countries in West Africa, as well as in Sudan, Kenya, and India. He described Mr Kelbrick as “a hybrid type of individual”, because he had his own trading company (Attock Mauritius), worked as a service provider via Proview, and performed consultancy services for the Arcadia Group through South Energy. Asked about the fact that Arcadia Lebanon did not enter into new contracts after 2009, Mr Bosworth said “I didn’t source those contracts” and “[t]he business that I sourced went to Arcadia Lebanon. The business that Mr Kelbrick and whoever else worked with him sourced went to their own trading company”.

I return again later to Mr Kelbrick’s role as service provider for Arcadia Lebanon under the Sao Tome and Senegal Contracts: see section (I)(3)).

FARAHEAD’S ACQUISITION OF ARCADIA AND SURROUNDING EVENTS

Arcadia was profitable under Mitsui’s ownership, but some types of trading opportunity were outside Mitsui’s own risk appetite. At the same time, Mr Fredriksen and Mr Trøim were interested in the possibility of becoming involved in the oil trading business. In late 2004/early 2005, they engaged a Paul Chrispin of Principal Search to help them. This led to an approach by Mr Chrispin to Mr Bosworth.

In February 2005, Mr Chrispin prepared a briefing paper for Mr Fredriksen and Mr Trøim entitled “Current Oil Trading Situation” which described two potential acquisitions – the business of a Swiss company, Projector SA (“Projector”) and Arcadia’s trading team – and some potential “individual hires”. It included this passage about Mr Bosworth:

“As agreed, we got in touch with Peter Bosworth, Executive Vice President of Arcadia Petroleum Ltd to ascertain his interest in discussing a senior role in building the Frontline commodities business. He has a reputation through his staff of being a good manager to whom people were loyal.

…

Peter Bosworth is 42, British, and has been running Arcadia for seven years

Personality wise he is:

- Approachable, team orientated, motivated

- Communicates well - an obvious leader

By way of background, Peter and Arcadia had a legal dispute about seven years ago with a US oil company, which also involved a fight with their Auditors. They were not found to [be] in the wrong but it took two years and a lot of funds to sort out the mess.

Because of this Peter is strict on compliance matters and runs a very tight ship guided by his lawyers / consultants based in London (not Monaco or the Lebanon where compliance is much looser).

Interest:

Peter said that he would be very interested in talking to an established company that is serious about building an oil trading business in a professional way - a major shipping company would be attractive. He believes that there could be a win / win situation for both parties, though he does not know Frontline's identity yet. The Arcadia business is its people and Peter firmly believes he could “transplant” all the people he wanted to move”

About Arcadia, the briefing paper said:

“What is Arcadia?

Primarily a crude trading operation. The business has definite strengths but does not cover a lot of the market yet, little of the trading is products based. Mitsui owns 100% of Arcadia Peter says that the only support that he receives is from parent company guarantees to the likes of Shell ($150 million per month) and BP. There is no flow of business or information from Mitsui, also all the trading contracts are in his name, not Mitsui’s.”

“Product / Geographic / Risk Management Breakdown:

1.

Crude Oil 90-95%

2.

Petroleum Products 5%

The primary business is physical crude oil trading and ships.

Currently trading around 500,000 barrels per month of which half is Nigerian Crude and approx 100,000 barrels is Med related.”

and:

“Turnover/Profit:

Peter says that Arcadia turns over approx $1 bill per month of physical trading. The average profit over the seven years since he has been in charge is about $40 mill per annum. There has been one losing year. Year ending March 2005 profits should be around $110 million.

On profits everything over an agreed overhead (currently approx $20 mill) is divided 30% to Peter's team and 70% to Mitsui. If there is a loss Mitsui take it.

He believes he works a fair bonus system and creates a good team morale. All traders including Peter are on three months notice and bonuses will be paid in July.

Conclusion

Peter definitely has interest; he seems to be frustrated by the Japanese methods of doing business. He is currently negotiating for the company VAR to move up to $6mill. He says that all physical contracts are in his name not Mitsui's. He says that all staff are loyal to him and that he would want to take the majority with him to a new house Mitsui apparently know that they do not have the contacts nor the relationship with the staff to retain any of them. He believes that there would be an immediate profit from front end physical shipping where his team have a lot of strength. Most importantly he seems like a real businessman.”

Later in the briefing paper were the following significant passages:

“ARCADIA PETROLEUM LTD

1.

Overview of Current Business

Physical Term Business

(It should be noted that all the contracts referred to hereunder included assignment clauses as a matter of course).

Nigeria: Arcadia has very recently renewed its term contracts with the NNPC, for total of 160,000 bbls/day. In addition we have secured under contract a further 85,000 bbls/day from indirect sources of Nigerian crude oil. We have also concluded a term deal with the Indian Oil Corporation whereby they will allocate to us the Nigerian crude oil under their 40,000 bbls/day contract with the NNPC.

We have a first class relationship with a Nigerian-owned equity producer, and have just renewed our contract with them to market 20,000 bbls/day of their own production. In total, therefore, Arcadia markets 285,000 bbls/day of light sweet Nigerian crude oil.

…

Equatorial Guinea: We have just concluded a term supply purchase of Zafiro crude oil with the Govt., via a fronting company, for a volume of 20,000 bbls/day.

…

Spot Business

Nigeria: In addition to our base position in Nigeria and West Africa in general, we run an active spot book, buying from both majors and traders, with an average volume of 100,000 bbls/day. This, together with our term availability, makes Arcadia one of the biggest volume traders in the whole of the West African market, rivalling many major equity producers.

…

2.Company Profile

Arcadia was founded in 1988 by Marcus Green as a 100% subsidiary of Mitsui and Co, Tokyo. After Marcus' death in 1999, Peter Bosworth assumed the role of CEO.

The company's profile, as well as its volume of business, has grown steadily over recent years. We have estimated our annual budget to be in the area of 50 to 120 million USD. The expected profitability of the company for the year 2004/05, (the financial year ends on 31^st March 2005) is expected to be in the region of 120 million USD. In considering this result, one must take into account that Arcadia is limited by Mitsui to VAR of 3.5 million USD. We believe that if such a severe restriction were to be withdrawn or revised to a more workable level, then the profit potential of the company would be significantly increased. We feel that our budget target could be reasonably set at between 100 and 250 million USD with the necessary VAR and position/volume limits. We must note with regret, however, that such an eventuality is unlikely to be granted by the current Mitsui management.

In addition, we face further limitations in that we are only permitted to trade in the relatively narrow field of crude oil trading. In the course of our business associations with various energy groups, a number of investment opportunities have arisen which we have been unable to take advantage of due to the restrictive environment in which we operate.

3.

Synergies: Arcadia/Front Line

• Greater flexibility and less restrictive practise would add to the profitability across all existing businesses.

• Our cargo tracking system on all physical crude markets increases Front Line's understanding of tonnage demands and timing in all major crude oil supply areas.

• Arcadia's crude oil trading expertise can secure cargoes for Front Line tonnage as and when it is deemed economic and viable across both trading and freight profit books.

• We can switch the emphasis of our trading away from FOB deals to CIF or delivered sales to create 'in-house' business for the freight book.

• Jointly, we can expand our involvement in the FFA market either speculatively or as a hedge mechanism. In addition, we would like to develop this market to such a degree where we could present our ideas to institutional investors, creating liquidity and position with fixed profit margins.

• By utilising our considerable experience in Risk Management, we can work with Front Line's fuel department to establish a Bunker hedging strategy which would reduce the risk of extreme market volatility in the key area of tonnage costs.

• Our special relationship with a number of crude oil producers over the years has given us an excellent insight into the planning and political views of the OPEC cartel Our intelligence has proved to be accurate on a number of occasions in respect to OPEC out-put.

4.

Investment Opportunities

Our broad-based level of contact in the State organisations of many producing countries can presents us with diverse investment opportunities.

For example, we have been approached to supply and maintain a FPSO unit for the off -shore production of a West African oil producer.

• We have been offered a term LNG contract, also in West Africa. We are currently prohibited in concluding this by Mitsui.

• We have, on several occasions, been offered the rights to buy lucrative blocks for E and P purposes in West Africa and elsewhere. We have had the opportunity to obtain licenses with proven reserves and/or existing production. On each occasion our application to Mitsui to invest in such projects has been rejected. Our aim in this area of business is to acquire a block with a minimum 250 million barrels of proven reserve, with a view to look to an IPO or sell privately to a mid-range E and P Company.

• Arcadia has been requested to invest in product storage facilities, and given the opportunity to secure such rights and land necessary to build significant storage units at strategically important ports in West Africa.

• By using vessel storage made available by Front Line, we believe there are substantial savings to be made in providing logistical flexibility to product deliveries in West Africa, where certain products are in tight supply and an off-shore storage unit would prove to be invaluable.”

Mr Fredriksen and Mr Trøim wished to hire an oil trading team, or at least an individual who would help them build a trading business. As reflected in the Principal Search briefing paper, they saw potential synergies between Arcadia’s oil trading and Frontline’s shipping business, not least because they had (as Mr Trøim said in oral evidence) a “lot of tonnage in Frontline which traded a lot in West Africa in particular in Suezmax” and transporting crude oil from West Africa was a “major part of the [Frontline] business”. Mr Fredriksen said in his oral evidence that, in addition to making money, an oil trading business would help Frontline get “more information and more flexibility on the market”. Although in his witness statement Mr Fredriksen said he had no experience of the oil trading industry, he had been involved in shipping crude from West Africa and dealing with oil traders such as Shell and Trafigura.

Mr Fredriksen and Mr Trøim hoped to develop a large trading concern. Mr Fredriksen said: “the intention was to build up a big trading company like Glencore and go to the Stock Exchange with it, that was the ambition”. Mr Trøim said:

“We thought that we could effectively compete with Vitol and Glencore and Trafigura and the other people. We had been to see Mercuria which was one of the companies we had considered to buy at that time, or buy into, which had been very, very successful.”

and:

“I think Ian Taylor kind of, Marc Rich and these people are friends of John and he saw how successful they were and in many ways he wanted to have a bit of the cake and that is why we started. I think we mainly started because we had the fleet, we thought we had something. What the traders do is they trade without having the assets and we had the assets in the companies so we thought that we could be successful on that basis.”

One area of interest to Mr Fredriksen and Mr Trøim was the combination of physical and paper (derivatives) trading in respect of oil. Mr Fredriksen agreed in cross-examination that physical trading supported the paper trading, and that one could potentially make a lot of money on the paper market using the physical market to support it. Mr Trøim said “I would say physical and financial positions works well together”, and:

“I think the physical was important in order to understand, as Pete always said, to understand the financial and to trade the financial but I think what we betted on, if you look at the people we hired trading the paper books, we hired a team from Goldman Sachs which had a historic record.”

In the end, Mr Fredriksen agreed that Farahead made a ‘fortune’ as a result of buying Arcadia, which he attributed to the paper trading conducted by Messrs Wildgoose and Dyer. (See further §§ 697 and 937 below.)

On 29 March 2005 Mr Chrispin emailed Mr Trøim the “Current Oil Trading Situation” briefing paper and a “Frontline Comparison” document, which compared different options for the acquisition of an energy trading business. A meeting was arranged with Mr Bosworth for Saturday 2 April 2005 at Mr Fredriksen’s house in London. A document which appears to have been the Frontline Comparison document summarised the Arcadia and Projector businesses and gave overviews of other options. In relation to Arcadia, it noted that Mr Hurley had prepared a preliminary business plan outlining some of the synergies and opportunities, that a full budget would be ready before Easter, and that Mr Bosworth would be available to discuss an in-depth proposal the following week. The summary stated that profit would be “substantially higher with a more aggressive owner in charge”. I have quoted extracts from the business plan earlier. As part of his cross-examination Mr Fredriksen was asked about the reference in the document to the Zafiro crude being bought via a fronting company. He indicated that he understood that one company could enter into a term contract and that the oil might be transferred via a chain to Arcadia, and said “I think it happens all over the world, this similar situations”, and that “It can happen in some cases, [oil trading companies] use [a] front company”.

On 2 April 2005 Messrs Fredriksen, Trøim and Bosworth met at Mr Fredriksen’s house in London. Mr Fredriksen and Mr Trøim had a briefing paper entitled “Frontline Oil Market Entry Options”, which was an expanded version of the Frontline Comparison document and contained the Arcadia business plan and the full budget. The budget (“Arcadia Costings Profile”) started by saying:

“The company shall operate from four regional offices – London, Geneva, Beirut and Singapore. The company shall trade crude oil and oil products encompassing risk management, shipping management, operational and financial arrangements. In addition the company shall develop opportunities identified in energy related assets to include crude oil upstream projects. The company shall trade approximately 1,000,000 barrels per day of physical crude oil supplemented by paper trading activity of up to 5,000,000 barrels per day through either exchange trader or OTC derivative products.”

The latter numbers give some hint of the perceived importance of the intended paper trading.

The Options document identified Tristar as Arcadia’s key spot trading customer. It also included reference to proposed guarantees for “regular trading partners”. In that context, Mr Fredriksen agreed in cross-examination that it was mutually beneficial to help a regular trading partner finance its business. The document also included overhead expense budgets for each of the four offices: US$21.5 million for the London office, US$2.7 million for Geneva, US$1.46 million for Singapore and US$1 million for Beirut. Mr Trøim suggested that this showed that the Beirut office was intended to be no more than a ‘rep office’, whereas Mr Bosworth said the budgets for the non-London offices did not include trader salaries and were merely base costs subject to the number of traders and amount of activity carried out at each office. I do not consider that any clear conclusions can be drawn from these figures, which may have been more or less provisional and subject to decisions yet to be taken about how the business would be organised.

As at April 2005, the available financial statements for Arcadia were those for 2003 and 2004. (The 2005 statements were not published until 8 July 2005.) Mr Fredriksen agreed in his evidence that it was most likely that he looked at the financial statements, though Mr Trøim doubted that he would have looked at any of the detail, as they had a team of people do to that.

Note 3 of the accounts in the 2003 financial statements stated:

“PAYMENTS TO SERVICE PROVIDERS

Cost of sales includes US$16 million in respect of amounts payable in the year ended 31 March 2003 to service providers in Nigeria, the Middle East, and other countries (2002 – US$16 million) where Arcadia have no offices, to provide assistance in the execution of purchase contracts with local suppliers”

This cost of US$16 million was clearly very substantial when compared to Arcadia’s gross profits for the year of US$12 million and net profits after taxation of only US$337,000 on turnover of about US$6.459 billion. The 2004 financial statements contained the same note on payments to service providers, save that the payments to service providers totalled US$15 million. For that year there was an operating loss of US$19 million on turnover of about US$7.9 billion.

Mr Trøim said in his witness statement that he was “not aware of commission payments being made to so-called “service providers” and what their role may have been in relation to West African oil trading”. However, such payments were clearly disclosed in the accounts, and not hidden. In cross-examination Mr Trøim gave this evidence:

“Q. You were being told by the accounts that the service provider payments were to assist Arcadia in the execution of purchase contracts with local suppliers; correct?

A. I can probably say maybe in the naivety, the fact that John and I didn’t know this business very well, we said that if an auditor goes good for an account including the payment to service provider and they have the boxes to check about payments to related party transactions, all the stuff they need, if it is good enough for auditors, it is good enough for us.

Q. That is why because payments to service providers are not necessarily wrongful or necessarily bad, are they?

A. No, I don’t think so. But of course, it depends a certain amount of KYC linked to it and it depends on the fact that they really do the service for the thing. That is the auditor’s mission. I think kind of running four public companies, this is a big part of our kind of story every time you are ending up on the audit when it gets questioned about that and everybody in the organisation has to sign off. It is a very proper process.”

Mr Fredriksen and Mr Trøim had some awareness of the risks of West African crude trading. The Claimants’ Reply said:

“Farahead, in particular Mr Fredriksen and Mr Trøim, understood as at March 2006 (when Farahead acquired Arcadia London) that physical trading of West African crude oil purchased from national oil companies was Mr Bosworth’s principal activity.”

and:

“It is admitted that Farahead, and Mr Fredriksen and Mr Trøim, were aware, in general, of some risks presented by West African oil trading, in particular that involving purchases from national oil companies, and were concerned to prevent these eventuating …, including risks of bribery and corruption.’

Mr Trøim in his cross-examination appeared to backtrack from that position, disputing the idea that direct dealings with NOCs were particularly risky, and suggesting that it was worse, not better, to have intermediaries in between. I find that evidence hard to accept. As the Claimants accept, dealing with NOCs carried a particular risk of bribery and corruption problems, which they were keen to avoid. In addition, the due diligence enquiries in relation to Pang Ling, to which I refer shortly, brought those issues clearly to the attention of Mr Fredriksen and Mr Trøim. It is precisely because they were aware of the risks that, on their own evidence, Mr Fredriksen and Mr Trøim would have raised this matter in the course of the pre-acquisition discussions. Mr Trøim in his witness statement said:

“43

Throughout my career I have sought to make sure that the businesses I have been involved with act lawfully, including not engaging in corruption. John and I operated in highly regulated environments given we were in control of sizeable listed companies, several of them being listed on the New York Stock Exchange and on Nasdaq and which were regulated by the SEC. The reputational damage from corruption allegations would have been very serious.

44

I do not recall specific discussions on this topic during the negotiations for the acquisition, but I believe that I would have raised this issue during the talks with Mr Bosworth and Mr Hurley. I was aware generally that the oil trading sector did not have the best reputation in terms of corruption and was concerned that John and I did not end up on the front page of the Financial Times because of a couple of trades in a small subsidiary.”

Mr Bosworth’s evidence was that a Beirut office was proposed as a way of mitigating compliance risks of this kind. In his witness statement, after referring to the draft budget for a Beirut office, he said:

“120.

… Having had my memory refreshed by reference to these documents, I recall that we discussed with John and Tor Olav possibly opening an office in Beirut early on in the process of their takeover. I do not however remember the precise details of those discussions as they took place almost 20 years ago. I do however remember that John and Tor said at this time that it was very important for John to be distanced from the potentially riskier aspects of Arcadia’s business in West Africa, and I believe that the discussion of a Beirut office was part of the discussion of how to distance and protect both John (and his business interests) and the Arcadia group from any [of] the compliance risks associated with Arcadia’s West African trading activities. This is just one example of the way in which John wished to be insulated from the Arcadia business and the lengths he went to so as to ensure that there was a separation between him and any risk to his other business interests (I explain … below further instances of this, including the instruction from John and Tor that we should no longer send emails about Arcadia’s daily reporting to John’s personal email address). It had been communicated to me by John and/or Tor Olav on a number of occasions that the risk to John’s business interests of any compliance-related issue would be critical, and – this was something John and Tor said several times, I think as a way of hammering home the message – that Arcadia could never make enough money to make up for such an issue.

121.

As far as I can remember, the commercial rationale for opening an office in Beirut rather than some other country would be to take advantage of the low compliance environment (it being outside of the UK and the US and with as I understand it less strict legislation on anti-corruption practices) and banking secrecy laws. There was not (as far as I can recall) any other business case for establishing an office in Beirut. If Arcadia wanted to expand in that geographical area, we would have established an office in Dubai, rather than Lebanon.”

Mr Bosworth said he thought the jurisdiction of Lebanon was probably recommended by one or both of Mr Hurley and himself, then agreed to by Mr Fredriksen and Mr Trøim as suitable. Mr Bosworth added that he understood from what Mr Fredriksen told him at the time, as well from publicly available sources, that Mr Fredriksen had close political ties with the hierarchy in Lebanon, and believed that Mr Fredriksen actually lived there while he was trading oil for a period of time.

In cross-examination, Mr Bosworth confirmed that:

“The principal reason for establishing an office in Beirut was to have a lower compliance environment. We were instructed to own the company on John and Tor's behalf. This would allow a distancing for John Fredriksen himself if there was a problem.”

Pressed on this, he was clear that Mr Fredriksen’s and Mr Trøim’s objective was for any potentially high risk business to be distanced from the group as far as possible. As to the timing, Mr Bosworth gave this evidence:

“Q. Are you suggesting that you discussed the company, Arcadia Lebanon, in late 2005? Or are you saying, as I think you have said a couple of times, that actually you didn't consider moving the contract to Arcadia Lebanon until auditors raised a problem with this Contract [the Zafiro Contract concluded in December 2005]?

A. We raised right at the beginning the potential of having a Beirut office for compliance reasons. We continued that conversation as you can see with a potential budget. And later on, having entered into this contract in the interim period between Mitsui and John Fredriksen, we entered into this contract and this was one of the contracts where we discussed and it was agreed or we were instructed to move it to Beirut.”

It was suggested to Mr Bosworth that a later document, an email from Mr Lance to Moore Stephens dated 27 April 2006, showed that the reason for using a Lebanese company was to conduct Middle Eastern trading. However, Mr Bosworth made clear that that was not his understanding of the position, whatever Mr Lance may have told the auditors. It was not, of course, possible to ascertain Mr Lance’s thinking on this matter as he was not called to give evidence. I found Mr Bosworth’s evidence on this matter, both in his witness statement and his oral evidence, to be measured and plausible.

Mr Hurley said in his witness statement:

“85.

As for Beirut, the only recollection I have of Lebanon being discussed at any time during Farahead’s takeover was as a non-group, or standalone, company, not as an office for the Arcadia Group.

86.

This was part of the proposal as to how to handle the service provider payments that caused them concern. Beirut would be an operational office, but not in the group – that is the only conversation I can recall with regards to Lebanon. I cannot recall any discussions of other business being run through Lebanon, only that it would act in a way that would provide the necessary shield under the structure proposed for the Arcadia Group.

87.

I have refreshed my memory on this subject by looking at a spreadsheet that I sent to Trøim on 15 September 2005. The spreadsheet has 5 tabs – including the overhead expense budget for the Singapore office, which was a proposal, as we did not have an office there yet. Then there is a tab titled ‘Beirut’. The costs were fairly low on the whole, around USD 1 million including all overhead costs. I remember that we didn’t plan to have any traders in that entity, nor would any have gone to Beirut. It can be seen from the salary budget, which is quite low. It wasn’t proposed as a trading office, it doesn’t involve any traders’ salaries, just the salaries for operational and support staff. What was being proposed for Beirut was a limited operation that would enable us to book certain trading in that location. That is my only understanding of any discussions about a Beirut office in 2005.”

Mr Fredriksen and Mr Trøim in their written evidence did not address the presence in the 2005 pre-acquisition documents of a budget for a Beirut office. In cross-examination, Mr Fredriksen gave this evidence about it:

“Q. So this is what was presented to you at the time?

A. I can seriously not recall to have seen this document, number one. And I still wonder why a headhunter would make a document like this. Somebody must have prepared a document.

Q. Yes, it comes from Arcadia, a presentation for you and Mr Trøim to discuss at the Old Rectory in early April 2005; do you understand?

A. I understand what you are saying but I don't believe it.

Q. Okay. Let's have a look at what is said, {I/9039/68}. The proposal that is coming from Arcadia: "The company shall operate from four regional office ... " Do you see that?

A. Yes.

Q. So the proposal in the business plan is for Arcadia company to have four offices in the world; yes?

A. Yes, I see that.

Q. And you knew that one proposed office was in Beirut?

A. I didn't know.

Q. Well, you are being told at the time, "This is the proposal".

A. No, I don't accept that.

Q. Why don't you accept that?

A. Because I can't recall it.

Q. So is your evidence that you can't recall as opposed to I deny. Do you understand the difference?

A. I deny.

Q. Why do you deny?

A. Why did that happen at that office in Beirut?

Q. I think the transcriber didn't get the answer there. I was asking why you deny?

A. I didn't know about it, put it that way, whatever that means. I didn't know about the Beirut office.

Q. You are being told --

A. I might have been told but I can't recall and I never accepted any Beirut office.

Q. Yes, but do you understand the distinction between not being able to recall something and --

A. I understand that.

Q. -- actually positively saying that didn't happen?

A. This didn't happen. Beirut office didn't happen.”

and, later:-

“Q. From the outset of the discussions with Mr Bosworth and Mr Hurley to acquire Arcadia, Farahead, you and Mr Trøim, were discussing the establishment of an Arcadia office in Beirut; that's right, isn't it?

A. It could be, but I don't remember and also, it never happened so, not as far as I know. I'm not sure I was in that meeting. I don't recall seeing this document.

Q. So your evidence is you don't recall seeing this document?

A. No, I don't recall seeing the document. That is the reason.”

I find this evidence unsatisfactory. It would have been understandable if Mr Fredriksen had simply said that he could not remember this matter, given the lapse of time. However, the flat denials quoted above are hard to credit bearing in mind that (a) the business plan, which must have been a key document at the time, clearly included a budget for a Beirut office and (b) a Beirut office was indeed established in due course: see section (I)(1) below. Mr Fredriksen accepted that he knew that the compliance regime in Lebanon was looser than in “some places of the world”.

Mr Trøim in his cross-examination said the budget in the business plan related to “a rep office the way we saw it, for doing business in the Middle East. We never saw this as a commercial office. You can’t run a commercial trading operation with US$ 1 million in fees, it is impossible.” He denied that the Lebanese office would be a place through which to book trades. Further:-

“Q. You knew that in Lebanon, the compliance environment was more relaxed than it was in London, didn't you?

A. I don't think we knew that but it was stated in that document so if we had read that document thoroughly which you said, it said that there was less compliance there. But we never paid any attention to that.”

Mr Trøim also suggested that if one wanted to be close to the Middle East, Beirut was “a very natural place to be because that is where the Middle Eastern activities are driven, to a large extent from”.

I do not find that evidence entirely satisfactory either. If the objective was simply to have an office for Middle Eastern business, or as a rep office for such business, it is unclear why one would select Beirut or Lebanon for that purpose, given the reference to a looser compliance environment. There is no contemporary evidence that any of the commercial people (including Messrs Fredriksen, Trøim and Bosworth) were in fact envisaging using a Beirut office to conduct Middle Eastern oil trading; and nor is there any evidence that Arcadia Lebanon was in fact so used. It seems to me far more plausible that, as Mr Bosworth and Mr Hurley explained, the budget for a Beirut office was in the plan for a particular reason, viz a potential response to compliance concerns arising from West African oil trading that might be harder to manage in jurisdictions with tighter compliance environments such as the UK and Switzerland. Subsequent events, showing the way in which Arcadia Lebanon was in fact deployed, tend to bear this out, as do the entries in the Hannas Note.

The tax environment in Lebanon also appears to have been favourable. Arcadia Lebanon, as a Lebanese offshore company, paid low levels of tax on profits. For example, its 2009 audited financial statements indicated that it paid US$663 of tax on profits of US$5.7 million. Mr Fredriksen gave this evidence:

“Q. And is it fair to say that when you were looking at the Arcadia business, you wanted to set up offices in the world that had tax and compliance advantages; is that fair?

A. That’s true, but so do all the oil companies, Shell, BP, everybody in the world do the same so that is the reason why I don’t understand your concern.

Q. There is nothing necessarily wrong, is there?

A. Because it is what you are saying, it is common for all of this type of business.”

The Claimants suggest that the passages in the February 2005 briefing documents quoted in §§ 164-166 above stating that “all the trading contracts are in his name, not Mitsui’s” and “all physical contracts are in his name not Mitsui's” showed that Mr Bosworth must have told Principal Search that he personally held the term contracts. The Claimants hence plead that:

“In the course of the negotiations, Mr Bosworth told Mr Trøim (acting on behalf of Farahead) that some of the principal trading contracts under which Arcadia London operated in Africa were held by and in the name of an entity in Mauritius which was owned or controlled by Mr Bosworth (as opposed to being owned by Arcadia London). The Claimants aver that the entity being referred to by Mr Bosworth was Arcadia Mauritius. Mr Bosworth expressly represented to Mr Trøim that after the acquisition by Farahead, such a practice would be brought to an end, and those contracts would be transferred to Arcadia London (i.e. cease to be held in the name of Arcadia Mauritius and rather be held in the name of and by Arcadia London).”

At the same time, the Claimants also plead that Arcadia Mauritius was beneficially owned by Mr Decker, possibly through Tristar Switzerland. This case was repeated in Mr Adams’s affidavit in support of the Claimants’ application for the worldwide freezing order obtained in February 2015. The source of this information was later said to have been Mr Trøim (attachment to Freshfields letter of 17 July 2015).

By the time of his witness statement for trial, Mr Trøim’s evidence introduced the possibility of Mr Bosworth owning or controlling Arcadia Mauritius only indirectly. He said that Mr Bosworth told him certain valuable West African term contracts “were held in the name of an entity in Mauritius, and that this was owned or controlled by Mr Bosworth, possibly via one of his close associates, for the benefit of Arcadia London, with the profits ultimately being passed through to Arcadia London” and that “this arrangement gave him some leverage to secure a favourable deal with Mitsui”. Mr Fredriksen and Mr Trøim’s written evidence was to the effect that, during the subsequent acquisition negotiations, Mr Bosworth told them that he would bring with him personally a number of valuable physical trading contracts to lift oil out of West Africa, which would be transferred to Arcadia London after the purchase.

However, the briefing document is unclear about the person or entity in whose name the contracts were held. As quoted above, it also includes the statements that “Arcadia has very recently renewed its term contracts with the NNPC, for total of 160,000 bbls/day”, that “we have secured under contract a further 85,000 bbls/day from indirect sources of Nigerian crude oil” and that, in Equatorial Guinea “[w]e have just concluded a term supply purchase of Zafiro crude oil with the Govt., via a fronting company” (emphasis added in each case). The first reference is plainly to Arcadia, as opposed to Mr Bosworth personally, and “we” in the second and third statements also naturally refers to Arcadia itself, which is the entity who had for example entered into the Sao Tome Contract. It seems more likely that the emphasis in the earlier parts of the briefing document is on the contracts being held by Arcadia as opposed to Mitsui. Further, none of the other contemporary documents suggests that any contract was held in the name of Mr Bosworth or a nominee for him.

Mr Bosworth’s written evidence was that:

“I told Mr Trøim that one contract (singular) was held by an entity in Mauritius but I never said that it was owned or controlled by me as it never was. I have never held shares in Arcadia Mauritius or otherwise controlled it. As I have already explained (see above), Arcadia Mauritius was transferred to JP Decker from (I believe) Mark Lance with the full knowledge and approval of Mitsui. I never said that the contract (there was only one) would be transferred to Arcadia London (and it never was).”

That evidence is in my view entirely plausible. In the light of Mr Decker’s position as an established oil trader and the arrangements made in relation to Arcadia Mauritius (see §§ 15 and 140-147 above), it is inherently unlikely that Mr Bosworth retained any control over Arcadia Mauritius, or that he would have told Mr Trøim that he did. Arcadia Mauritius was fully under Mr Decker’s control, with Arcadia having merely a generic volumetric entitlement to certain quantities of oil.

In cross-examination, Mr Bosworth explained that Mr Chrispin had prepared the briefing document after a couple of conversations with Mr Bosworth in a pub, and that Mr Bosworth had not written the passages about holding the term contracts in his own name. He said “It wasn’t true that I personally owned or controlled those contracts. What I was saying to him was that those contracts were not in Mitsui’s name, they were in other people’s name[s] and therefore if [Mr Fredriksen] wanted to buy the company [i.e. Arcadia], Mitsui could not squeeze him as a result of the contracts”. One of the companies holding a contract with NNPC was Arcadia Mauritius, and, Mr Bosworth said, he would have hoped to be able to move it from Mitsui to Mr Fredriksen, and “the same would have applied to their other term contract holders, who were refiners, that if they changed I would be able to get them”. However, he could not be sure of this because “Mr Decker at any point in time could turn to me and say no”.

Mr Trøim in the course of his oral evidence said he knew Arcadia Mauritius was not owned by Arcadia London; that he thought he was told that Mr Bosworth “controlled directly or indirectly some of the major contract to Arcadia Mauritius”, and that “I think it was controlled by some people he knew and that is the way he described it.” There was also this exchange:

“Q. … Mr Trøim, Mr Bosworth did not say that he owned or controlled Arcadia Mauritius, did he?

A. He didn't say that he controlled that contract/contracts. We still don't know what kind of volume of contracts we are talking about, but he said that was part of the leverage to get the deal out from Mitsui. He said several times that he controlled subcontracts through that group. He said he didn't, him personally, but he controlled, which he probably did, through friends.”

and:-

“A. He said he controlled it, because that surprised me a bit, and he could use that as a leverage but I don't think he could say that was specifically him. It was some close friends, from what I remember.”

That evidence is considerably more tentative and limited than the Claimants’ longstanding assertion in their pleaded case, and in Mr Adams’s affidavit in support of the freezing order, that Mr Bosworth told Mr Trøim that some of the principal trading contracts were held in the name of an entity in Mauritius “owned or controlled by Mr Bosworth”.

Mr Trøim also said in evidence that he and Mr Fredriksen would not have entered into an agreement where Mr Bosworth had a ‘side business’ where he could make significant money on the side, and that buying a company meant buying the contracts and everything that was in it. However, that point would be relevant only if Arcadia Mauritius was (or was represented to be) a business in which Mr Bosworth had an interest and from which he could make money outside of Arcadia London’s business. There is in fact no evidence that Arcadia Mauritius was in fact such a company, and I do not accept Mr Trøim’s evidence that Mr Bosworth told him anything to that effect.

Mr Fredriksen’s written evidence included the statement, early in his fourth witness statement, that:

“… during negotiations, Mr Bosworth told me and Mr Trøim that certain contracts for West African trading were held outside the Arcadia Group by him through an entity in Mauritius, and these would be transferred to Arcadia London following the acquisition.” (§ 6.4)

On the other hand, later on in the same witness statement Mr Fredriksen said:

“As I have previously explained in my first witness statement, I have a recollection that, during the negotiations, Mr Trøim and I were told by Mr Bosworth that he (Mr Bosworth) was able to bring with him a number of valuable physical trading contracts to lift oil out of West Africa, which would be transferred to Arcadia London after the purchase. Given the passage of time, I cannot be more specific about when Mr Bosworth told me this or what precise words he used. I am however clear that this is what I was led to believe. As far as I recall, I wasn’t told the name or further details about the entity at the time” (§ 42)

It is notable that the Claimants’ pleaded case was that the alleged statement about Mr Bosworth’s ownership or control of Arcadia Mauritius was made to Mr Trøim, not to both Mr Fredriksen and Mr Trøim. In his oral evidence, Mr Fredriksen said “I never heard about Mauritius before later, afterwards”. He was asked about § 6.4 of his witness statement:

“Q. … Can I take it that that is not your evidence from what you recall at the time; is that right?

A. Give me a second ... No, I did not. Mauritius came later. I heard Mauritius. But what happened was that Arcadia was whatever it was. Arcadia was Arcadia, so I didn't pay any attention to it, if you understand what I mean.”

I return later to the meeting summary dating from much later, in March 2008, on which the Claimants also place reliance in this regard.

Based on the evidence as a whole, I find that (i) Arcadia Mauritius, following its transfer by Arcadia to Mr Decker, was controlled by Mr Decker; (ii) it was not owned or controlled by Mr Bosworth at any time; (iii) Mr Bosworth did not tell either Mr Fredriksen or Mr Trøim that he owned or controlled Arcadia Mauritius, or that its contracts would be transferred to Arcadia London; and (iv) at most, Mr Bosworth told Mr Fredriksen and Mr Trøim that he hoped, given his relationship with Mr Decker, to be able to bring the benefit of the Arcadia Mauritius contract with him.

At the same time, the fact that the briefing document referred to Arcadia obtaining some of its oil via a ‘fronting company’, and the fact that Mr Bosworth told Mr Fredriksen and Mr Trøim about Arcadia Mauritius (Mr Trøim confirmed in cross-examination that he was broadly aware of the existence of Arcadia Mauritius and that it held certain contracts), has significance in two respects. First, the fact that Arcadia Mauritius was disclosed at all does not fit easily with the Claimants’ case that it formed part of a fraud by which the benefit of valuable contracts was secretly diverted away from Arcadia London. Secondly, it is to be considered alongside Mr Bosworth’s evidence that the concepts of front and sleeve companies were discussed with Mr Fredriksen and Mr Trøim before they acquired Arcadia. Mr Bosworth said that, although he could not remember the detail, the principle of sleeving would have been discussed with them and they were well aware of it. Though he could not remember whether he discussed the name “Tristar” as being the sleeve (or seller of record to Arcadia), Tristar was identified as a key customer in the documents made available to Mr Fredriksen and Mr Trøim, including the Arcadia budget forming part of the Principal Search briefing document. Tristar Petroleum was indeed listed as a major spot seller of crude to Arcadia in that document.

Mr Fredriksen in his witness statement denied that he had been told about the contract holding arrangements between Arcadia Mauritius, Tristar and Arcadia London; but in cross-examination he veered between maintaining that he had never heard of Tristar and accepting that he could not remember. He accepted in principle that it could be quite normal to have an intermediary between a seller and buyer of a cargo:

“Q. Is it right to say that the concept of sleeving isn’t particularly difficult; it’s not a difficult concept, is it?

A. No, but I have never used the expression in my line of business.

Q. It is about the terminology, the language?

A. Yes, that is what I’m saying.

Q. Because if you have an entity that sits between a buyer and a seller in the middle, Mr Bosworth and Mr Hurley might call it a sleeve, what would you call it?

A. For me it looks like a back-to-back operation. They are paying off somebody and they are back-to-back, they sell the cargo and make some margin. That is the way it looks to me.

Q. There is an intermediary there in the middle, isn’t there, an entity in the middle?

A. It could be, yes.

Q. And there might be all sorts of reasons why you have that entity in the middle?

A. Yes.

Q. So there is nothing particularly unusual about having an intermediary between the buyer and the seller?

A. That’s -- it can be quite normal.”

Mr Trøim in his witness statement said he was not familiar with the concept of a ‘sleeve’ or the use of ‘contract holding’ entities in oil trading. In his oral evidence he said he had no idea of the existing arrangement between Arcadia Mauritius, Tristar and Arcadia London, and denied being aware that Mitsui knew about them. When it was pointed out that Mr Adams, in his affidavit, said that Mr Trøim “does not now recall whether he was told that Mitsui was aware of this arrangement”, Mr Trøim said “I say now I don’t know if we were aware of the arrangement”. He accepted that the concept of sleeving was later referred to in an email Mr Adams sent him in 2011 and which Mr Trøim printed out; and in Arcadia’s restructuring plan in August 2013 (though he was unable to confirm whether or not he saw it at the time). In addition, in the context of a question about the Deloitte management letter (see below), Mr Trøim gave this evidence:

“Q. … Now, you had been told about Arcadia's use of service providers in the financial statements, hadn't you?

A. I think, as I said yesterday, we were told that contracts was hold outside the contracts, that is later defined as sleeve contracts. Sleeve contracts I first noticed in 15/16 but it is the same as the contract that is held in Mauritius, it is just another name for it. But it is the same thing. When it comes to service provider, I said yesterday that we are used to paying commission for getting ships fixed and we are paying that regularly to institutions and that is a part of the business.”

In the light of the evidence as a whole, I consider it more likely than not that Mr Bosworth did explain the concept of sleeving, in the context of West African oil trading, to Mr Fredriksen and Mr Trøim.

During the acquisition negotiations, Mr Fredriksen/Mr Trøim agreed with Mr Bosworth and Mr Hurley that the Arcadia traders/staff would receive 30% of the net trading profits (as they had under Mitsui), with Farahead to receive 70%. The share was later increased from 30% to 35%.

Mr Adams said in his affidavit:

“The 30% bonus entitlement initially agreed to by Farahead was understood at the time to be in excess of the bonus percentages which traders within other similar energy trading companies could expect to receive. This was agreed to by Farahead in recognition of the need to retain and incentivise Mr Bosworth and Mr Hurley and also reflected the fact that no ‘signing on’ bonuses or other lump sums were being paid at the point of purchase.”

The source of information for that evidence was said to be Mr Fredriksen. However, Mr Fredriksen accepted in cross-examination that the 30% share was the same as applied during Mitsui’s ownership of Arcadia.

It is Mr Bosworth’s case that, since the profit share remained unchanged when Farahead bought Arcadia, more needed to be done in order to incentivise and retain Mr Bosworth, particularly bearing in mind that (as Mr Trøim put it in his witness statement), the “real assets of the business” were the traders and “we were, in essence, buying Mr Bosworth, Mr Hurley and their traders”. It is common ground that there were discussions about providing a U$20 million loan to Mr Bosworth to purchase a house in London. Early on in the acquisition discussions, on 19 May 2005, Mr Fredriksen arranged for a company to be incorporated in Liberia, Fulham Properties (Belgravia) Limited. In his witness statement, Mr Fredriksen said:

“During the negotiations for the acquisition of the Arcadia Group, I had agreed that I would personally loan Mr Bosworth the sum of US$20 million to buy a house in London – this loan was made entirely outside of the Arcadia Group, essentially a personal matter between me and Mr Bosworth.”

According to Mr Adams’s affidavit, a Cypriot entity, also called Fulham Properties (Belgravia) Limited, in fact entered into the loan agreement. On 11 August 2005, a loan facility letter was signed between Fulham Properties (Belgravia) Limited and Mr Bosworth (and his wife). On 12 August 2005, a charge was registered over the house, referring to Cyprus as being the lender’s country of incorporation. Mr Fredriksen said in cross-examination that he “absolutely” expected the loan to be repaid: it was not a gift.

According to Mr Bosworth, Farahead agreed to pay him a US$20 million bonus, payable over the following years, to incentivise him to stay at Arcadia. Mr Bosworth says the figure was chosen to correspond to the amount of the loan, which Farahead could convert into bonus (as, he says, occurred in 2011).

I consider the merits of Mr Bosworth’s retention bonus claim in section (M)(2) below.

Farahead instructed Linklaters to undertake due diligence on Arcadia. Mr Trøim said in his oral evidence, “we were very afraid of buying a company…that there was no legacy issues in the company, which occur mostly the day after”. Linklaters produced a memo dated 13 July 2005, addressed to Mr Trøim and Mr Erling Lind. Mr Lind was a Norwegian lawyer with whom Mr Trøim had worked since 1996 and whom he trusted.

The Linklaters memo included the following sections relevant to the Pang Ling episode:

“3.6

FSA private warning letter

We have seen two letters from the FSA dated 1 November 2002, one addressed as a private warning to Mr Peter Bosworth, the other addressed to Arcadia. Both letters concern Mr Bosworth’s failure to inform the auditors of material information and his management of a specific trading contract. The FSA decided not to make a formal determination or enforcement action. We note that the FSA could take this matter into account in future applications for approval of Mr Bosworth or enforcement actions against Arcadia generally, although we are not aware of any such action having occurred.”

“5.1

Tax query regarding contracts with Pang Ling

We have been informed that Mitsui will not be providing any warranties on a potential tax dispute that may arise as a result of agreements with a Nigerian company, Pang Ling Nigeria Limited ("Pang Ling"). We have been provided with various correspondence between the Inland Revenue and Deloitte & Touche, Arcadia’s auditors.

Pang Ling was retained as a consultant under various agreements dated between January 2000 and February 2002. Pang Ling’s role was to provide various oil brokerage services in Nigeria to Arcadia. Originally Pang Ling was remunerated on a discretionary basis. Arcadia nominated on which cargo or cargoes Pang Ling’s right to remuneration would arise. For such cargoes Pang Ling was entitled to a "share of the profit". We understand that this was arranged on an ad-hoc basis between Peter Bosworth, on behalf of Arcadia, and Pang Ling.

However, an agreement dated 18 February 2002 provides that Pang Ling is entitled to a fee of "US$0.10 for each and every net US barrel lifted during the term of the agreement pursuant to any contract for the sale of Nigerian crude oil entered into by Mitsui or Arcadia and the Nigerian National Petroleum Corporation". Pang Ling was also entitled to a discretionary bonus at the option of Arcadia, such bonus never to exceed US$3,000,000 in any one year.

In each case Pang Ling was to invoice Arcadia for any amounts due to it under the agreements.

We have been informed by Arcadia that the [sic] it has a potential exposure to taxation liability in relation to these payments of US$19million, but that this is theoretical as there is no basis for any such liability and there is no dispute with the Inland Revenue.

It is not readily apparent what any dispute with the Inland Revenue would concern. We have been provided with correspondence between the Inland Revenue and Deloitte & Touche. In this correspondence the Inland Revenue has only asked for further information from Arcadia regarding its arrangements with Pang Ling. The Inland Revenue has thus far requested evidence of invoices, copies of correspondence between Pang Ling and Arcadia and copies of the agreements between the two companies. The majority of the requests relate to the financial year ending December 2000.

We are unable to assess whether the Company is exposed to any taxation liability and Arcadia have requested that we do not discuss the issue with Deloitte & Touche at this stage.”

It is common ground that the acquisition discussions between Messrs Fredriksen, Trøim, Bosworth and Hurley covered the FSA investigation of the Arcadia Group in relation to Pang Ling, though the Claimants say Farahead understood the issue to have been resolved by that time.

The discussions with Farahead continued into autumn 2005.

On 15 September 2005, Mr Hurley emailed Mr Trøim financial information about Arcadia, attaching a draft budget for “Arcadia existing and proposed offices”, including the US$1 million overheads budget for a Beirut office. Mr Trøim sent the email to his secretary Ms Turnbull with the instruction “pp”, meaning “please print”. In cross-examination, Mr Trøim said that he read “kilos of paper every week” and “read through reports and everything”, though given the extent of his other responsibilities he did not think he would have bothered about “a 1 million-dollar management fee for an office in Beirut”. Mr Fredriksen said he could not recall whether he read the print-out of the draft budget, but accepted that he and Mr Trøim were considering Arcadia’s existing and proposed offices at this time. On balance I consider it more likely than not that Mr Fredriksen and Mr Trøim did read the draft budget.

As part of the acquisition documentation, Mitsui as seller provided a disclosure letter dated 4 October 2005 addressed to the Farahead directors. The documents disclosed to Farahead included trading-related documents such as deal sheets, trading contracts and correspondence, Arcadia’s contracts with Pang Ling, the Pang Ling company brochure, Pang Ling invoices to Arcadia and the FSA warning letter.

On 13 October 2005, Farahead and Mitsui entered into a sale and purchase agreement (“the SPA”), with completion to follow upon fulfilment of regulatory conditions.

Shortly afterwards, Deloitte issued their management letter for the Arcadia audit for the year ending 31 March 2005. The management letter was dated 9 November 2005 and was provided to Farahead and to Mr Lind. The first page of the letter explained that:

“The primary purpose of this letter is to draw your attention to the areas which gave rise to concerns during the course of our audit. We have also, as a separate section within the letter, carried forward and updated those points raised in our previous audit letters which we still consider to be pertinent. We consider those areas prioritised as "high" within this letter to be of major importance to ensure compliance with the statutory and regulatory obligations of the Company and its management, and for managing the risks faced by the Company. Those areas prioritised as "medium" and "low" do not majorly impact the ability of the company to comply with its statutory and regulatory obligations but still require attention from management in order to improve the company’s internal control environment. You will be aware that during prior years’ audits we have discussed with management significant specific matters of control and operations which have given cause for us to have concerns relating to the overall corporate governance structure within the Company and to its oversight and control from within the overall Mitsui Group. During the current year we have seen that management have made significant improvements in the areas of corporate governance, compliance and information technology and have considered all and acted on the majority of comments raised in prior years’ management letters.”

The attachment to the Deloitte management letter was divided into sections. Section 1, on “Brokerage transactions”, noted that during the year ended 31 March 2005 Arcadia had paid US$5.9 million in physical brokerage to 12 different brokers. “Signed agreements” setting out the brokerage services to be provided and the brokerage per barrel were in place for only six of these brokers. All of these agreements had been signed by the traders rather than by the directors. US$1.6 million of physical brokerage in total was paid to the other six brokers during the year without any agreements in place. In addition, due diligence procedures had been carried out on only 3 of the 12 brokers. Deloitte’s recommendation was:

“Given the fact that many of these brokers are based in countries with poor regulatory records and that substantial payments are made to the brokers by Arcadia, it is essential that signed agreements are in place with all brokers which fully detail the services to be provided and the specific remuneration arrangements. These need to be put into place with immediate effect. Traders should also maintain a regular log of services provided by each broker so there is formal documentation of the exact nature of these services. It is also vital that all such agreements entered into with brokers are properly authorised by the Arcadia Internal Committee ("AIC”) and that formal due diligence procedures are carried out on all new brokers used, and existing brokers on a five year rotational basis, going forwards.”

The Deloitte management letter also recorded the management’s response on this topic:

“Please refer to the AIC Meeting minutes on 19 May 2005 which were forwarded to you. We believe that all brokerage payments represent valid commercial transactions and the level of brokerage is in the normal practice in the industry. Further, a number of the brokerage payments are with FSA registered entities. As the above minutes mentioned, the AIC decided that in order to avoid confusion in the future, all brokerage contracts being revolved, together with any new brokerage contracts, shall be formally ratified by the AIC.”

Section 10 of the Deloitte letter was headed “Due diligence reports on service providers”. It stated:

“There has been a fairly significant change in Arcadia’s business in that they are no longer sourcing oil directly from national oil companies such as NNPC and therefore are no longer using their service provider network in sourcing this oil. As a result Arcadia have terminated their contracts with service providers and now buy oil from the secondary market. Hence the issue regarding regular due diligence reports on service providers being commissioned is no longer relevant.”

That passage made clear that, if and when Arcadia were to buy oil direct from NOCs such as NNPC, it would, or would be likely to, need to use service providers again.

Deloitte recommended that:

“Should Arcadia choose to employ service providers in the future then management’s proposals for the AIC to appoint an independent research firm to carry out a programme of ongoing due diligence, in such a way that all service providers were covered at least once every five years and that this due diligence work would be put out to tender on the basis of criteria set by the AIC, would again become relevant.”

The management response was:

“As you point out, Arcadia is no longer sourcing crude oil directly from national oil companies such as NNPC and therefore is no longer using its service provider network. It is certain that should Arcadia employ service providers in the future then all relevant details will be included in the relevant agreements and discussed by the AIC for its approval”

The Deloitte letter also noted that Arcadia’s head trader (Mr Bosworth) had a non-Arcadia-related business arrangement with Arcadia’s principal Nigerian broker, namely joint directorship of a London-based restaurant. That was a reference to Mr Asibelua.

Mr Fredriksen in his witness statement said:

“I understand from Grosvenor Law that Mr Bosworth and Mr Hurley also allege that I was aware at this time and in March 2006 that the use of so-called “service providers” was “necessary to acquire West African oil”, and that “it was not possible for Arcadia London to conduct West African oil trading … without the use of and/or payment of commissions and/or fees to service providers”. These allegations are also untrue. Many of my businesses are listed on the New York stock exchange. I would risk serious penalty, including potential criminal sanction and imprisonment if my companies participated in bribery. I would not have entertained the prospect of this, particularly in relation to a company which represented such a small and frankly insignificant part of my business interests” (§ 48)

He was asked about this in cross-examination by reference to Arcadia’s financial statements and the Deloitte management letter, in particular his statement that he did not know that Arcadia could not conduct West African oil trading without using and paying service providers:

“Q. You had been told about the use of service providers in the financial statements; yes?

A. Yes, I see it but I hadn't been told. Okay.”

…

[in relation to the Deloitte management letter]

“Q. So what Farahead is being told at the time is that Arcadia has a network of service providers which is no longer necessary because Arcadia Group is no longer sourcing oil directly from the national oil companies; yes?

A. Yes.

…

A. I haven't read this. As I tried to say -- you have to listen for two seconds -- I have seven or eight big companies, huge companies, on the New York Stock Exchange, believe it or not, and we have 40 or 50,000 employees. How can I -- we have people to check this for us.

Q. The reason I ask the question, Mr Fredriksen --

A. And this is a small detail. The question is was it stolen or not stolen. This is what it is all about.

Q. The reason I ask the question, Mr Fredriksen, is you are the Farahead representative at the time.

A. I'm not the Farahead representative. I have been referred to, yes, but I'm not. It was done by Trøim more than me and our lawyers.

…

Q. Right. If we go then back to paragraph 48 then of your statement … just so I understand exactly what the evidence is, you accept that Farahead was told about the service providers, not you. Your evidence is that you were not told but do you accept that Farahead was told?

A. Yes, I can -- service provider.

Q. And do you also accept that Farahead was told about a service provider network to acquire the crude directly from the national oil company?

A. Yes.

Q. Is it right to say that of course if Arcadia was to source the crude directly, there would be a risk?

A. Risk?

Q. A risk to Arcadia. If Arcadia uses its service provider network, there are risks, aren't there?

A. There is always risk in business. What can I reply to these questions?

Q. Well, you wanted to minimise those risks?

A. Of course, obviously.”

Mr Trøim in his witness statement said he understood from his experience in the shipping industry that commission payments to regulated brokerages were common practice, but that he was not aware of commission payments being made to “so-called service providers”. When asked about the Deloitte management letter, Mr Trøim said that he and Mr Fredriksen had a team of auditors and, in particular, Mr Lind to review the documents and make sure they were happy with the transaction. He confirmed that Mr Lind was representing Farahead in the transaction, and that he trusted Mr Lind, who was “a very experienced lawyer and he has good judgment and he makes business decisions as well”. He assumed that Mr Lind would have looked at the Deloitte management letter. Asked whether Deloitte were telling Farahead about payments to service providers in 2005, Mr Trøim said “It was in the document. They didn’t tell me. But it was in the document, so if I read the document properly, I would be able to pick it up”. He was willing to accept that Deloitte “told our lawyer” about service provider payments, and was willing to take responsibility for what the lawyers ultimately did, adding that “you trust the lawyer and trust that he gives you the good advice”.

In addition, Mr Trøim accepted that (as the documents indicate) he recalled the issues regarding Pang Ling some years later when in 2013 he asked Mr Lind to investigate Equinox and wondered whether the matter could be linked to Pang Ling. He also gave this evidence:

“Q. You say in paragraph 51:

"I certainly would not have accepted potentially unlawful payments being made, particularly those giving rise to compliance risks."

Do you see that in your statement?

A. Yes.

Q. Is it right that your concern at the time was about Arcadia itself making payments to service providers; correct?

A. I think that was from the beginning and as I said yesterday, we are a big group. I think to kind of come in under compliance problems ... but an assurance of that was of course also the report provided by the headhunter who said that this group was kind of super compliant and everything was fixed in order, which later on found was not the case.”

This evidence taken as a whole indicates, first of all, that there was no secret about the fact that Arcadia had made payments to service providers, significant enough to merit mention as a matter of concern in the Deloitte management letter. Secondly, it was clear, and no secret, that Arcadia would need to resume making payments to service providers should it again contract to buy oil direct from a NOC in West Africa. Thirdly, the issue would have been sufficiently prominent in the context of the acquisition of Arcadia to have come to the attention of at least Mr Trøim, and probably also Mr Fredriksen; and that is to a degree borne out by Pang Ling coming to Mr Trøim’s mind some years later. Whether or not Mr Fredriksen and Mr Trøim recollect their state of mind in 2005/6 now, some 19 years later, I consider it more likely than not that they were aware, by the time the Deloitte letter had been reviewed and considered, of the service provider issue, including the potential resumption of payments to service providers (and consequent risks) in the event of resumption of direct NOC business.

In July 2005, still well before any of the events said to form part of the alleged conspiracy in the present case, Mr Decker bought Attock Mauritius. Its owner, Mr Dossa, wished to sell Attock Mauritius, and offered the company to Arcadia. Mitsui did not want to add new entities to its group and so Arcadia declined. Mr Decker bid for the company, in competition with Glencore and Vitol. However, to strengthen its business relationship with Mr Decker (see section (G)(5) above), Arcadia provided a US$13 million loan to Mr Decker (which was subsequently repaid) to assist in his purchase of Attock Mauritius. In return, Attock Mauritius supplied Arcadia with Nigerian crude sourced from NNPC. Asked about the loan in cross-examination, Mr Bosworth said this:

“So, Attock was an offshoot, Attock Trading was an offshoot of a Pakistani refinery company. It was run by a gentleman called Imtiaz Dossa. I had had a long term relationship with him when I was working for SUN. He was one of the largest lifters of crude oil in Nigeria and SUN Refining and Marketing was the largest refiner of Nigerian crude oil at the time. So we had a good relationship with him. [The company] was owned by a gentleman called Ghaith Pharaon, who was somewhat of a colourful character.

…

Ghaith Pharaon is my best recollection. He ran a bank or owned a bank called BCCI which went belly up. All of the financing for Attock at the time was done by BCCI. Mr Dossa took over the entity from Ghaith Pharaon is my recollection. We, as SUN at the time, financed him on one of the cargoes in order to keep the relationship with him going. He then continued. At a certain point in time, Mr Imtiaz Dossa put the company up for sale. He approached us, he approached Vitol, he approached Glencore. I duly approached Mitsui who rejected it and said, "We don't want another entity to be purchased", and Mr Decker took over the entity. And there was a loan from Mitsui/Arcadia to Mr Decker to buy what was in the bank, I understand. I don't know if I will get the terminology right, but one is not allowed to do financial assistance, or something like that. So, yes, we lent Mr Decker the money. He bought the name. It was much to the chagrin or discomfort of Vitol who were very keen to do it and he bought the name and paid Mitsui back.

…

MR HAYDON: Now, again, I suggest to you that Attock Mauritius, having been procured in this way, you had a sufficient interest in Attock Mauritius to be able to insist that Mr Decker transfer it to Mr Kelbrick and Mr Mounzer in 2009?

A. Not correct.”

I accept that evidence.

An email dated 17 October 2005 shows Mr Hurley and Ms Takahashi waiting for counterparty approval from Mitsui in relation to Attock Mauritius. That approval was granted by Mitsui by 31 October 2005, when Attock Mauritius appeared on the approved counterparty list. It is notable that Attock Mauritius’s status as an approved counterparty for the Arcadia Group happened at a time when Mr Kelbrick was not employed by Arcadia London, and before he acquired Attock Mauritius. The counterparty approval decision was taken by Mitsui, and Mr Hurley said, it involved considering Attock Mauritius’s creditworthiness and track record, along with KYC checks.

In December 2005 (again prior to the 144 Transactions), Arcadia London started buying Nigerian oil cargoes from Attock Mauritius and selling them on. Later, in 2007, the Arcadia Group and Attock Mauritius did petroleum products business together, in which Attock Mauritius bought fuel oil from the Arcadia Group for around US$8 million (another transaction that does not feature in the 144 allegedly fraudulent transactions). Attock Mauritius continued to feature on the Arcadia Group’s approved and assessed counterparty list during the period to which this claim relates.

In December 2005 Arcadia London entered into a term contract with GEPetrol to lift Zafiro crude oil. The contract was for cargoes of 1,000,000 barrels (+/- 5%) of Zafiro blend crude oil, scheduled to be lifted whenever there was a cargo nomination according to the monthly loading program at Serpentina Terminal in line with the terms and conditions of the contract (§ 1). Clause 7, dealing with “Price”, stated:

“The price in US Dollars (U.S. $) FOB FPSO Serpentina terminal offshore Equatorial Guinea in barrels of the bill of lading will be determined in the following way:

P = Dated Brent plus or minus a differential X in USD per net barrel X is a differential to be negotiated for each cargo strictly on the basis of the market conditions between the Seller and the Buyer, by mutual agreement latest 28 days prior to the first day of the preliminary loading dates range of two days. Dated Brent corresponds to the arithmetic average of five (5) consecutive mean quotations of the Dated Brent published by PLATT’S Crude Oil Marketwise during the month of loading and shall be advised by the Buyer to the Seller latest the second working day of the month following the month of loading.”

I referred earlier to the role and influence of Mr Driot and Stag in relation to GEPetrol. Prior to the Zafiro Contract, Arcadia’s relationship with GEPetrol was limited to some cargo purchases from Stag. Mr Bosworth’s evidence was that the Zafiro Contract flowed entirely from, and depended on, having a relationship with Mr Driot/Stag. In his witness statement, he gave this evidence:

“130.

It was through JP Driot that I travelled to Equatorial Guinea. By this stage, Arcadia was already purchasing spot cargoes from JP Driot’s company, Stag. However, I wanted to expand Arcadia’s business with Equatorial Guinea. I do not now recall whether it was me who brought up the idea of Arcadia entering into a term contract directly with the Equatorial Guinean Government or whether this was something JP Driot proposed to me. I would imagine it was me, but as I say I am not sure about this. Whoever started the discussion, at some point JP Driot suggested that I should travel to Equatorial Guinea. He made all of the necessary arrangements.

131.

During my trip to Equatorial Guinea I was introduced by Mr Driot to representatives from GEPetrol (Equatorial Guinea’s state oil company) and some of the traditional rulers who Mr Driot told me were associated with a company called Sonergy Limited. As I explain below, Sonergy was the sponsor in the term contract which Arcadia London ultimately secured with GEPetrol. I do not recall precisely the name of the individuals that I met with. Mr Driot had built these relationships from his time working in Equatorial Guinea. I understood at this time that Mr Driot had a close relationship with the owners of Sonergy and that he provided them with assistance and services in relation to crude oil trading and other businesses. I recall that Sonergy were involved in other assets in Equatorial Guinea aside from crude oil contracts.

132.

Sonergy could not trade on its own because it did not have the expertise, the contacts or the resources to do so. It needed an oil trading company to sell its crude oil into the international market, similarly to how the Equatorial Guinean Government used JP Driot’s company, Stag. Sonergy was not a trading company.

133.

Arcadia London entered into the term contract with GEPetrol to lift Zafiro grade crude oil in December 2005. ...

134.

It was because of JP Driot that we were able to secure the Zafiro Contract. He sourced the opportunity and introduced us to Sonergy. In return for this, we agreed to pay him a profit share. I do not remember exactly what the share was. I believe from memory that he used his company, Bergamot, to receive them. I believe that Bergamot signed a service provider contract with Arcadia London at about this time but I have not seen that document. All the payments to Bergamot were made by Arcadia London.

135.

As I note above, the sponsor was Sonergy. Arcadia paid Sonergy a profit share in return for securing and maintaining the Zafiro Contract for Arcadia. I believe from memory that it was about the same as the profit share later paid by Arcadia Lebanon, i.e. about 60 or 65% of the gross profit. My belief and understanding at the time was that Sonergy acted as a sponsor for multiple trading companies, including Stag, but I didn’t have any concrete information showing this.

136.

For all intents and purposes, while the Zafiro Contract was in the name of Arcadia London, it was in substance Sonergy’s contract. It was Sonergy who held great power with GEPetrol. They decided which oil trading company would get the Zafiro Contract and whether they would get to keep it. For example, if Sonergy decided that they did not like Arcadia and they wanted to go with a different company, they had the ability to annul the contract with around three months’ notice.

137.

JP Driot’s main role in the trading under the Zafiro Contract was negotiating the price paid by Arcadia London (and later, Arcadia Lebanon) to GEPetrol. The price Arcadia London was to pay GEPetrol for cargoes lifted under the Zafiro Contract was not fixed. Rather, JP Driot negotiated with GEPetrol the price of each cargo. He tried to agree with GEPetrol purchase prices which were lower than Arcadia London’s sale prices. The price paid to GEPetrol was based on the average of the Dated Brent pricing measure over a five day period, normally falling within the month of loading. To the best of my understanding at the time, this was a cargo by cargo negotiation between Mr Driot and GEPetrol, and took place after the cargoes had been lifted, not before. This was how the Zafiro Contract worked throughout its entire existence, including after it moved to Arcadia Lebanon. Mr Driot frequently negotiated a price that was lower than the price Arcadia London sold the cargoes for. This produced a profit which we shared with Mr Driot’s companies and Sonergy. (When I talk about ‘profit share’ with sponsors and service providers, I am talking about this profit, the simple profit resulting from the difference between the purchase prices negotiated by Mr Driot / Sonergy and the sale prices achieved by Arcadia London. i.e. the gross trading profit on the physical cargo. Arcadia did not share the profits that we made in other ways such as from contracts for difference trading.)

138.

To the best of my recollection and knowledge, the Zafiro Contract became operational at the very end of 2005. From the last couple of days of 2005 through into 2006, Arcadia lifted Zafiro Contract cargoes. I have been shown an email from Ann Bickerstaffe (Arcadia’s West Africa operations manager) sent to me and a number of other Arcadia traders / employees (as well as Mr Kelbrick) dated 14 December 2005. I am reminded by this document that Arcadia London lifted its first cargo pursuant to the Zafiro Contract in or around 30-31 December 2005. I have also been show a further email from which I can see that the cargo was carried on a vessel called “MT Front Energy”. The MT Front Energy was a ship owned by Mr Fredriksen’s shipping company, Frontline.”

Mr Bosworth similarly said that “it was Sonergy and Mr Driot who held the real power in Equatorial Guinea. The commercial reality was that this was Sonergy’s contract, and the only reason they used Arcadia was of their inability to trade it themselves”.

Mr Bosworth’s written evidence about negotiation of the price for cargoes under the Zafiro Contract is consistent with the terms of the contract quoted above, clause 7 of which provides for the price differential to be negotiated on a cargo by cargo basis.

In his oral evidence, Mr Bosworth confirmed that Sonergy’s blessing was needed for Arcadia to obtain the Zafiro Contract, “and without them, we would not have got the contract and if they decided to take that contract somewhere else, which they did later on, to Mercuria, we wouldn’t have been able to lift the oil”. He said Sonergy provided the contract, and that “[w]e are to all intents and purposes the junior partner in this relationship”. He said the meeting with the traditional rulers was handled by Mr Driot, and “laid down what in effect were their terms”.

Mr Kelbrick’s evidence was to similar effect:

“Q. The reason why any oil company in West Africa needs to pay Mr Driot and his companies is because he controlled access to GEPetrol, didn’t he?

A. Yes.

Q. So if Arcadia wanted oil from GEPetrol, it was necessary to get the oil to pay Mr Driot and his companies?

A. True.

Q. And those payments were to Arcadia’s commercial benefit because Arcadia secured the oil; correct?

A. Yes, they were to Arcadia’s benefit in total, yes.

Q. Because if Mr Driot wanted to, he could simply move any GEPetrol contract to a competitor?

A. And he threatened that almost constantly.”

Mr Bosworth also confirmed in his oral evidence Mr Driot’s role in negotiating cargo prices. He was asked about the part of clause 7 of the Zafiro Contract allowing the buyer to advise the seller, by the second working day of the month after loading, which five consecutive mean quotations of published Dated Brent would apply (see § 354 below). Mr Bosworth said it was “a negotiation”, and:

“my recollection of this is Mr Driot would negotiate on our behalf as Arcadia, both when this contract was in Arcadia London and when it was moved to Arcadia Lebanon. And he would negotiate with GEPetrol a five-day pricing period”

Further:-

“A. To the best of my recollection on this, this was a negotiation.

Q. But the contract allows you to pick a five-day period?

A. It does. In Africa, certainly at this time, a contract may say what it did there but in my experience of watching this when Mr Driot was doing this, it was a negotiation.

Q. So there would be some records of this negotiation, wouldn't there? Some correspondence?

A. No. This was a time when one used facsimiles, so probably not.

Q. No, we have not seen any evidence of any negotiation of price?

A. I wouldn't expect there to be.”

Mr Bosworth also explained that it was possible that Mr Driot’s son, Gregory, or Mr Kelbrick sometimes acted on Mr Driot’s behalf in this regard, but that from his (Mr Bosworth’s) perspective, it was always Mr Driot who handled the negotiation on Arcadia’s behalf. Mr Kelbrick similarly said in his oral evidence that, despite the word “advise” in the contract, in practice it was always a matter of negotiation. That was, he said, why an analysis showed that there were some cargoes where Arcadia Lebanon could (in theory) have negotiated a lower or more favourable purchase price that it in fact paid. I accept their evidence on this point.

The Claimants at trial sought to put an unpleaded case that Sonergy was in fact owned not by traditional rulers but by a member of the ruling family of Equatorial Guinea; and that Obexys and Rodexkia were owned by Mr Oburu of GEPetrol. The Claimants then alleged in their written closing that:

“Not only was PB prepared to expose the Arcadia Group and Farahead to high risks of reputational and compliance issues, contrary to Farahead’s instructions. In the case of the Zafiro Contract, he knew (or turned a blind eye) to the fact that bribery was involved, as Sonergy was connected to the family of the President of Equatorial Guinea and Obexys/Rodexkia were companies owned by Mr Oburu who was an official at GE Petrol who dealt with pricing …”

That allegation was based in part on a due diligence report obtained by Mr Bosworth in relation to Sonergy in 2019. The report said that Sonergy was formed in 2002 to acquire an interest in the Luba Oil Terminal (or “Loteg”), and that it was part of the Abayac group, a “regional enterprise” set up by Mr Driot and the Lebanese businessman, Mr Hassan Hachem. The Tacoma oil group originally had a majority shareholding in Loteg, with GEPetrol holding 19% and Sonergy 1%. However, the report said, Sonergy rapidly bought out GEPetrol and went on to build a terminal next door. Tacoma closed in 2008 and its supply contracts were passed on to Mercuria, a Swiss-based trading house. However, Mercuria later lost those contracts as Sonergy’s management placed them with Tradex, which may have had links to the ruling family of Equatorial Guinea. The report goes on to say:

“[Sonergy] is currently controlled by Justo Obiang, one of the sons of President Teodoro Ngema Mbaso Obiang. He was 16 at the time Sonergy was formed and only became involved at the time of the acquisition of the shares from Tacoma. The takeover of the Tacoma shares is understood to have been the start of increasing influence over the company by a branch of the President’s family led by his wife, Constancia Mangue Nsue Okomo, and this takeover involved the buy-out of a local traditional ruler who set-up the company. But it is known that the family only fully assumed control of Sonergy in 2015 when Justo severed the relationship with Mercuria.”

The report thus indicated that it was only in 2015, some two years after the last of the transactions to which the present case relates (and long after the formation of the Zafiro Contract), that Sonergy became fully controlled by the ruling family; and that the takeover of the Tacoma shares involved the buy-out of a local traditional ruler who set up the company: consistent with Mr Bosworth’s evidence about having met traditional rulers with Mr Driot. In oral openings, counsel for Mr Bosworth and Mr Hurley made brief reference to the report. The Claimants cross-examined Mr Bosworth on the basis that the report indicated that the ruling family began to exert control from 2008, when it said Tacoma closed, to which Mr Bosworth replied “It is possible, I certainly didn’t know at the time” and “The people I met in their presentation to me that they were traditional rulers which seems to be supported here”. Later in the cross-examination of Mr Bosworth, the following exchanges occurred:

“Q. It is inconceivable that you did not know who was behind Sonergy either. You did know who was behind Sonergy?

A. I had no idea who was behind Sonergy. Firstly, when I met with Sonergy, with Mr Driot, they presented themselves, the gentlemen, as traditional rulers. And if, later on, it became apparent to the world that Sonergy was associated with the President, I didn't know at the time at all. No, I didn't.

Q. You must have known, Mr Bosworth, you would have asked and that is what you would have been finding out when you went there?

A. No.

Q. And in the absence of any other credible explanation as to why this payment was made to Sonergy, it should be regarded as a bribe?

A. No.

Q. And you knew that payment had no legitimate purpose, didn't you?

A. Absolutely not.

Q. And nor did the payments to Mr Driot's companies since he is being paid for giving access to Oburu and Sonergy?

A. No, Mr Driot brought us the opportunity. It was not access. He brought us the opportunity and we paid him commensurably with that.”

As I have indicated, there was no such pleaded allegation. The Claimants did not plead that Sonergy was under the ownership of the ruling family of Equatorial Guinea, nor that Mr Bosworth knew any such fact, nor that any payments to Sonergy – or, for that matter, any other service provider – was a bribe. The Claimants’ approach to this matter was in my view unacceptable. Nor, in any event, did the due diligence report provide any basis for concluding that the ruling family acquired control over Sonergy at any particular time between 2008 and 2015, still less that Mr Bosworth knew any such thing. Mr Bosworth’s evidence on this point was entirely credible and, in my view, honestly given. I accept his evidence.

Similar considerations apply to the Claimants’ unpleaded allegations regarding Obexys and Rodexkia. The Claimants referred to Mr Bosworth/Mr Hurley’s statement of case indicating that Rodexkia was “currently” owned by Mr Oburu and/or members of his family or entourage; evidence from Mr Scheepers that the VTN/Rodexkia agreement had been given to him by Mr Oburu; and to email communications between Ms Azzariti and Mr Oburu/Obexys/Rodexkia apparently connecting Mr Oburu with the two companies. However, Mr Bosworth’s evidence in cross-examination was he did not at the time know of a connection between Mr Oburu and Obexys/Rodexkia, having learned of it only in the last couple of years from a journalist who had spent some months investigating a possible connection between Mr Oburu and Rodexkia. Mr Bosworth added that it was difficult to get a due diligence report in Equatorial Guinea at the time of the transactions. He said Mr Driot introduced Rodexkia and Obexys to both Arcadia Lebanon and to GEPVTN, and that it was Mr Driot who negotiated the service provider agreements. Mr Oburu was at the time working for GEPetrol in operations, assisting in the shipping of Zafiro cargoes for both Arcadia and GEPVTN. Mr Bosworth said he dealt with Mr Driot, not Mr Oburu, and was not involved in the details of the operational and invoicing matters. I accept his evidence.

In connection with the Zafiro Contract, on 24 March 2006 Arcadia London entered into a contract with Sonergy (prepared with the assistance of the Arcadia Group’s solicitors, Clifford Chance). The recitals to the contract provided that Sonergy was an Equatoguinean company with expertise and knowledge in relation to crude oil, with a business network of professionals and contractors it could call on, from which the Arcadia Group wished to benefit in trading oil in Equatorial Guinea. Clause 18 provided that Sonergy was entitled to a payment of US$1,128,480 for office and set-up costs, and §§ 19 and 20 provided:

“19.

During the term of this Agreement, Arcadia may pay the Service Provider in its sole and unfettered discretion at the end of each loading month and upon receipt of invoice, a bonus of such amount as it may decide in response to any request or proposal made from the Service Provider at any time and from time to time (never in a sum exceeding US$2.000.000 or equivalent per bonus).

20.

Without in any way fettering Arcadia’s discretion under clause 19 above, Arcadia may take into account the following factors when considering whether to make any payments under clause 19 above, and if so, how much, namely: the volumes, grades, timing of crude oil lifted by Arcadia under its contracts of sale with GEPetrol [La Compania Nacional de Petroleos de Guinea Ecuatorial], the overall demurrage liabilities incurred by Arcadia; the net profits per cargo made by Arcadia the performance by the Service Provider of the Services set out in Schedule One of this Agreement; and any other special factors which Arcadia may consider to be relevant for the period to which any such request or proposal relates. The decision of Arcadia to award commission or bonus, or as to the amount of any commission or bonus if it decides to make such an award, shall be final and binding between the Parties, and the Service Provider shall not be entitled to know or be advised of the internal process (if any) it applied. The Service Provider will be notified in writing by Arcadia of the amount of any commission or bonus which Arcadia may decide to pay.”

The Table of Services in Schedule One was blank.

When the Zafiro Contract was transferred to Arcadia Lebanon (whose role I explain later) a replacement service provider agreement was signed with Sonergy. In that contract, Schedule One (“Services”) stated that Sonergy would “[a]t the request of [Arcadia Lebanon]: Introduce to [Arcadia Lebanon] crude oil purchase opportunities in Equatorial Guinea and manage the operations of those deals”. Schedule Two provided that Sonergy’s profit sharing percentage would be 65% of the difference between (A) the average of the five Dated Brent quotations after the bill of lading date and (B) the average of the five Dated Brent quotations for the elected pricing period (the latter being, in effect, the price at which Arcadia Lebanon bought the oil). The difference was referred to as the “Quotation Differential Profit”. Arcadia also paid 5% of the Quotation Differential Profit to each of Mr Driot’s three service providers Bergamot Assets SA (“Bergamot”) (incorporated in mid-January 2006 around the time the Zafiro Contract commenced), Fenton Advisors Corp (“Fenton”) and Orange (“Orange”). In addition, Arcadia Lebanon paid a commission based on the discount that it obtained on each cargo purchase, as negotiated by Mr Driot. This was the “Discount Differential Profit” and was paid to two of Mr Driot’s service providers. Mr Bosworth explained that Sonergy, Mr Driot and the other service providers associated with Mr Driot received substantial sums under the Zafiro Contract, because they had originated the contract for Arcadia London, and without them Arcadia London would not have been able to obtain the oil.

An Arcadia accounting spreadsheet dating from 31 May 2007 (disclosed by the Claimants only in October 2023) lists inter alia four payments to Sonergy totalling US$11.3 million, including three between September 2006 and March 2007 specifically referenced to various Zafiro cargoes. The documents show that these were disclosed to the auditors. On 31 May 2007 Mr Gingell of Moore Stephens, the auditors, requested breakdowns of various “Other costs” including payments to Sonergy totalling US$11,259,342, to MRS Oil and Gas totalling US$4,140,920 and to Projector totalling US$987,578. In response, Mr Fox of Arcadia sent Mr Gingell the same day a spreadsheet entitled “Audit – Other Chgs – Testing – MS” including details of the payments.

In addition, the documents include a handwritten table listing vessels names, bill of lading dates (all in 2006), sums of money in a column headed “P/S” and payment dates between 21 March 2006 and 15 September 2006. This was referred to at trial as the “Driot Schedule”. Mr Bosworth in his witness statement referred to the document as a handwritten document prepared by Mr Driot showing ten cargoes lifted pursuant to the Zafiro contract. He said he believed that “P/S” meant “profit share”.

The provenance of the Driot schedule was not entirely clear. In cross-examination, it was suggested to Mr Bosworth that two columns of the table referred to portfolio and allocation numbers in Arcadia’s Trade Capture system, which Mr Bosworth said he doubted, “if” the table was prepared by Mr Driot. He also said in his witness statement:

“Having refreshed my memory by reference to the Driot Schedule, I can see that Arcadia London made payments to Sonergy and/or Bergamot and/or other of Mr Driot’s associated companies from 21 March 2006 to 15 September 2006. I recall that the majority of the “profits” made by Arcadia London in connection with its contract with GEPetrol were passed on to Sonergy and JP Driot (via his companies). This made commercial sense because, as I explain above, it was Sonergy and Mr Driot who held the real power in Equatorial Guinea. The commercial reality was that this was Sonergy’s contract, and the only reason they used Arcadia was of their inability to trade it themselves.” (§ 145)

The Trade Capture system referred to a number of Arcadia payments whose dollar amounts matched those on the Driot schedule and/or the information given to Mr Gingell in May 2007 mentioned above. Trade Capture variously gave ‘payee’ references as ‘Arcadia Petroleum UK’, ‘GE Petrol’, Bergamot, Fenton and Orange (the latter three being Driot companies). For example, the spreadsheet given to Mr Gingell included a payment of US$43,195,754 made in September 2006 with the description “Other Chgs: Sonergy” said to relate to three cargoes, one of which was the “Mayfair” cargo with bill of lading dated 7 August 2006. The “Mayfair” amount was said to be €1,067,909 = $1,368,061. The Driot Schedule similarly included an entry for the “Mayfair” cargo stating the same bill of lading date and dollar sum, with payment date 15 September 2006. Trade Capture showed the same details, but identified the payee as “Arcadia Petroleum UK”. As Mr Bosworth pointed out, it made no sense for Arcadia to be paying itself these sums. There is no reason to believe this payment was not made to or for the benefit of Sonergy as the auditors were given to understand. Equally, there is no evidence that Arcadia was paying GEPetrol commissions on each cargo. Trade Capture variously recorded the ‘cost code’ as ‘Zafiro’ or ‘Confee’ (e.g. ‘Confee’ in the case of the Mayfair payment). Again, it is difficult to see any real significance in that.

The Claimants suggest that insofar as some of the payments recorded in the Driot Schedule were made, it has not been proven that they were received by Sonergy, because the payments were:

That line of argument may form part of an unpleaded case of bribery, which cannot fairly be advanced. There is no pleaded case that the Defendants made payments by cheque in order to conceal the true recipients, or that any of these payments was illegitimate. It is inappropriate for the Claimants to seek to advance submissions to that effect. Moreover, the Claimants’ points are inherently illogical. The “Mayfair” payment I mention above was an example of a payment recorded on Trade Capture as payment by Arcadia to itself. That would be sufficiently obvious as an anomaly to be an ineffective form of concealment. The details of that and other payments were disclosed to the auditors by return, in the form of an emailed spreadsheet (not a couriered document), as soon as they enquired about the composition of the ‘other charges’ sum of which it formed part. The point about the sending of documents to the auditors by courier was never put to Mr Hurley. The notion that one might seek to conceal anything improper by sending it to the auditors, but taking care to do so by courier so as not to leave a record, is nonsensical. The Claimants’ concealment suggestion is entirely without merit.

The Claimants also submit that as not all of the payments were included in the information sent to Mr Gingell, the remainder were not brought to the auditors’ attention at all and were not (it can be strongly inferred) paid to Sonergy at all. Given the paucity of the available records, I do not consider it correct to draw either inference.

I have already outlined above the evidence of Mr Bosworth and Mr Kelbrick about why it was necessary to make payments to Sonergy and Mr Driot. Mr Fredriksen was not in a position to dispute this evidence:

“Q. … Mr Bosworth says that he was able to secure the Zafiro contract because of someone called Mr Driot, Jean-Paul Driot, do you see that in paragraph 134?

A. Yes.

Q. And he also says that it was necessary to have a sponsor called Sonergy, in paragraph 135; do you see that?

A. Yes.

Q. And you yourself, you have no basis to say that it was not necessary for Mr Bosworth to obtain the Zafiro contract without the assistance of Mr Driot and Mr Sonergy?

A. I don't know the actual details but it could have been like this. I'm not --

Q. Because you left it to the experts, the oil traders?

A. I was that much involved in this. I don't really recall it, but it could have happened.

Q. So you don't say that the payments that Arcadia made to Sonergy were not necessary to obtain this contract?

A. I don't know.

Q. And likewise, you don't say that payments that Arcadia made to Mr Driot and Bergamot were not necessary for Arcadia to obtain the Zafiro contract?

A. I don't know the details.

Q. And you don't know the details because you left it to Mr Bosworth to obtain and secure the contracts; is that correct?

A. That's correct.

Q. And you were happy or you were content for Mr Bosworth to obtain and secure the contract as he saw fit?

A. That was his job.

Q. And it is right also that you don’t say, do you, that the payments that Arcadia made to service providers under your ownership to carry on West African trading are somehow wrong or illegitimate; that’s right, isn’t it ?

A. It depends on the circumstances, but as we spoke about yesterday, that happened from time to time, that much I know. But I don’t call it -- I would call it rather the correct word, a commission. A commission, that is what I would call it.

Q. Insofar as Arcadia was making commission payments to Sonergy or Mr Driot’s company, there is nothing wrong in that, is there?

A. As long as it is done in a legally correct way, there is nothing wrong with it.

Q. If it is important for those payments to be made to obtain the business, you would be content with those payments; yes?

A. As long as it is done correctly. It happens.”

Mr Trøim also accepted that he had no basis to dispute what Mr Bosworth said about the Sonergy contract, or that Arcadia’s payments to Mr Driot were necessary for Arcadia to secure and maintain the Zafiro Contract, adding that he and Mr Fredriksen were simply presented with the contract.

The Claimants submitted that the payments to Sonergy cannot have been necessary because no payment was made to it in relation to a final Zafiro cargo in October 2013: I address this point in §730 below. The Claimants also submit that the payments were not commercially justified, citing the brevity of the description of services in the written agreement that Arcadia Lebanon in due course entered into with Sonergy (which Ms McDonald said was less detailed than she would normally expect), the size of the Sonergy profit share (at the upper echelon of what the Defendants’ expert Mr Hendry would expect) and the lack of detail in Sonergy’s invoices about what services they provided. They point out that Mr Bosworth in cross-examination said Sonergy “may well have assisted Jean-Paul Driot, they didn’t directly assist us, because he managed” the Zafiro Contract. However, the Claimants have (despite the warning given by Bryan J on this point referred to in § 757 below) pleaded no case on oil trading practice, and no positive case to the effect that any of the service provider payments were commercially unjustifiable. In any event, the evidence given by Mr Bosworth and Mr Kelbrick on these topics to which I have already referred was, in my view, credible and consistent. I reject the Claimants’ contentions.

Farahead’s purchase of Arcadia was completed on 16 March 2006. It paid US$5.66m, a sum equivalent to Arcadia’s cash at bank. Mr Fredriksen and Mr Hurley both said in evidence that Mitsui were keen to dispose of Arcadia. Though Mr Trøim suggested in his oral evidence that the price was so low because Mr Bosworth controlled Arcadia’s contracts, the evidence as a whole does not support the view either that he did control them or that that was any part of Mitsui’s thinking.

Following the acquisition, with Mitsui’s backing gone, Farahead pledged a portion of its share portfolio in support of Arcadia’s credit facilities. In return, Farahead received a guarantee fee of some US$67 million a year.

On 1 April 2006 Arcadia entered into a Memorandum of Understanding with Concerto, a member of a corporate group held by Mr Main’s family trust, the Highland Trust. The Memorandum of Understanding provided for Concerto to identify and appraise mining opportunities for Arcadia in sub-Sahara African countries, in respect of which Arcadia would pay the costs and fees. This followed Mr Bosworth having introduced Mr Main to Mr Fredriksen in 2005, and Mr Fredriksen taking Mr Main on a shooting trip. They had met several times and discussed the idea that (as Mr Main put it in his evidence) “Arcadia Petroleum should become like some of the other trading, oil trading houses that had become also involved in mining such as Glencore and Trafigura”. (The discussions had also included the Pangea Diamonds opportunity referred to later). Subsequently, in February 2007 Mr Main set up Arcadia Energy and Mining Limited (“Arcem”) to represent the joint venture’s interests. Mr Main’s evidence was that he found and evaluated the opportunities; and if Arcadia wanted to participate, then it would fund the costs in return for share of future profits (if any). Mr Main used Pareto Securities to advise on potential funding options for certain transactions. Pareto was the Norwegian investment bank that Mr Fredriksen also used for his shipping activities. In late 2006 and 2007, Arcadia made payments to Concerto in respect of business development costs to investigate African asset opportunities. The payments were made pursuant to the terms of the Memorandum of Understanding. In July 2007, Mr Main renamed another of his Highland Trust companies (established in February 2005) as Arcafrica Holdings Limited (“Arcafrica”).

The Claimants at trial sought to advance a case (for which permission to amend had been disallowed) that the payments to Concerto were for Mr Bosworth/Mr Hurley’s benefit, and that Mr Bosworth was the ultimate beneficial owner of Arcafrica. Quite apart from that case being unpleaded, it was not supported by the evidence. The documents indicate that the company, originally known as Mining Development Africa Limited, was incorporated in Mauritius in February 2005. It changed its name to Arcafrica on 20 July 2007. Its sole shareholder was a nominee company called Aculsha Nominees Ltd until 14 August 2007, when the shareholding was transferred to Maitland (Mauritius) Nominees. Aculsha and Maitland share the same address as Concerto in Barkly Wharf Port Louis, Mauritius. From December 2013 onwards, the sole shareholder of Arcafrica was Southern Ocean Holdings Limited as trustee for the Highland Trust. Mr Bosworth’s evidence was that he contemplated taking an interest in Arcafrica at one stage, but decided not to. In that connection, a company called Great Lakes BVI was set up in August 2011 and dissolved on 11 November 2011. Mr Main’s evidence, unequivocally, was that “[t]he only owner of ArcAfrica from inception until today has always been the Highland Trust’, which was ‘my family trust”, and that Mr Bosworth was not (as was suggested to him) the ultimate beneficial owner of Arcafrica: “Not from inception, never has been and is still not today in 2024.” I accept his evidence.

SUBSEQUENT EVENTS

A significant factual issue between the parties is the reason for the use of Arcadia Lebanon as a contracting entity in oil trading contracts.

The Claimants’ pleaded case is that Arcadia Lebanon is a private offshore company owned by Mr Bosworth and Mr Hurley which “has never formed, part of the Arcadia Group” and “On the contrary … has been centrally involved in, and has profited from, the fraud perpetrated on the Claimants” (RRRRAPC § 15). As elaborated later, their case is the fraud was perpetrated by “inserting” Arcadia Lebanon and other entities into transactions involving Arcadia London, thus using Arcadia Lebanon to divert profits that ought to have been made by Arcadia London.

However, it is not alleged that Arcadia Lebanon’s existence was concealed from Mr Fredriksen and Mr Trøim. Rather, it is said to have been explained to them in the following way:

“53.

Shortly after the acquisition of Arcadia London, Farahead was told by Mr Bosworth that he and Mr Hurley had secured a particularly lucrative trading contract, but that because they did not want to share the 30% “bonus pot” with the remainder of Arcadia London’s trading team and staff in relation to this particular contract, they had established a separately owned company, Arcadia Lebanon, for the sole purpose of being the counterparty to this particular contract.

54.

In connection with this:

54.1.

Mr Bosworth assured Farahead that the Arcadia Group would ultimately receive 70% of the net profits generated by the “particularly lucrative contract” held by Arcadia Lebanon, and as a result that 70% of the net profit would be received by Farahead in due course.

54.2.

Whilst discussions took place in the course of 2008 and early 2009 relating to the payment by Arcadia Lebanon of a “dividend” of c. US$10 to 15 million to the Arcadia Group or Farahead, no record has yet been found of any such payment (or any further “dividend” payments) having been made. The Claimants’ rights in this regard are reserved at present.

54.3.

In late 2008 Mr Bosworth and Mr Hurley represented to Farahead, that the contract for which Arcadia Lebanon had been established had come to an end and that the company had become dormant. As such, as Farahead understood the position, no purpose was to be served by the bringing of Arcadia Lebanon under its control, since it was no longer active, and the issue was not pursued further by Farahead.

55.

This last statement was false, and was known by Mr Bosworth and Mr Hurley to be false, since Arcadia Lebanon was not dormant in late 2008; on the contrary, it was an active company, and an active participant in the fraud being perpetrated on the Claimants. This statement served to conceal the fraud from the Claimants, as, it is averred, it was intended to.” (RRRRAPC)

Mr Bosworth’s and Mr Hurley’s case is encapsulated in the following paragraphs of their Amended Defence and Counterclaim:

“24.

Farahead’s acquisition of Arcadia London completed on 16 March 2006. Mr Fredriksen and Mr Trøim were sensitive about regulatory issues, in particular corruption allegations, because of previous investigations into Mr Fredriksen’s businesses. Mr Fredriksen and Mr Trøim wanted Arcadia London to continue its higher-risk West African crude oil trading, but in a way that mitigated the regulatory and reputational risks to Arcadia London, Farahead and (above all) to Mr Fredriksen and Mr Trøim themselves.

25.

Accordingly, in around late spring/early summer 2006, Mr Fredriksen and Mr Trøim instructed Mr Bosworth and Mr Hurley to establish a new company in an offshore jurisdiction whose purpose was to handle and/or facilitate the higher risk oil trading business on behalf of the Arcadia Group. This company was Arcadia Lebanon. Farahead (in particular Mr Fredriksen and Mr Trøim) required Mr Bosworth and Mr Hurley personally to hold the shares in Arcadia Lebanon (such that it was not officially part of the Arcadia Group), but to hold the shares to Farahead’s instruction and/or order. Farahead (in particular Mr Fredriksen and Mr Trøim) at all times had the ability to determine Arcadia Lebanon’s activities. Mr Fredriksen and Mr Trøim negotiated a profit share with Mr Bosworth and Mr Hurley in respect of any of Arcadia Lebanon’s net trading profits. The profit share arrangement in respect of Arcadia Lebanon reflected the wider profit share arrangements between the Claimants (and Farahead in particular) and the Arcadia Group’s management and traders. As such, Mr Bosworth and Mr Hurley became entitled to retain at least 30% (subsequently 35%) of Arcadia Lebanon’s net trading profits; the remaining net trading profits were to be paid to Farahead or otherwise used for the Claimants’ benefit.

26.

In summer and/or autumn 2006, Mr Fredriksen instructed Mr Bosworth to move Arcadia London’s high risk term contracts with West African national oil companies (and its dealings with the associated service providers) to Arcadia Lebanon and to establish sleeving arrangements to insulate the Claimants (and Mr Fredriksen) from the risks associated with such contracts. In particular, Mr Fredriksen instructed Mr Bosworth to move the Zafiro Contract to Arcadia Lebanon. The Sao Tome Contract was also required to be moved to Arcadia Lebanon.

27.

Over the following months Arcadia Lebanon became operational, and it became the contract holder (i.e. the immediate buyer of the crude oil) for the Zafiro Contract and Sao Tome Contract by around April 2007. The Arcadia Group and Arcadia Lebanon established sleeving arrangements so that the latter could transfer the cargoes which it had acquired under its term contracts to the former. In order to make the sleeving arrangements effective (see paragraphs 124 to 126 below), Arcadia Lebanon could not contract directly with the Arcadia Group. Instead, arrangements were made to sell the crude oil to Attock Mauritius/Tristar group entities. Such entities acted as sleeve entities through which crude oil acquired by Arcadia Lebanon was transferred to the Arcadia Group. ”

The Claimants’ allegation that Arcadia Lebanon was later, in 2008, represented to have become dormant is denied. It is also denied that Farahead ever understood Arcadia Lebanon to have become dormant. To the contrary, Mr Bosworth and Mr Hurley say, Arcadia Lebanon was under Farahead’s ultimate control at all times, and in spring 2009 Farahead arranged for Arcadia Lebanon to pay it dividends (ADC § 228 ff).

Mr Fredriksen said in his witness statement:

“6.9

… some time after the acquisition of Arcadia London, Mr Bosworth and Mr Hurley indicated to us that there was a Lebanese entity that they had established for a particularly lucrative oil trading contract involving a handful of trades, which I refer to as “Arcadia Lebanon”. While I was not happy about this arrangement, I did not object strenuously to it or seek to stop it at the time. I accepted assurances from Mr Bosworth and Mr Hurley that it was a one-off, and would not be repeated, and that 70% of the profits would be paid to Farahead. I also understood from Mr Bosworth in particular that, after the small number of trades was complete, this entity would not carry out any further trading, and would be closed down. Mr Trøim and I were only informed of this after the company had been set up.

6.10

Mr Bosworth and Mr Hurley suggest in these proceedings that I directed the establishment of Arcadia Lebanon, that it be held outside of the Arcadia Group in order to distance the Arcadia Group generally and me personally from “high risk” business, that I was aware of the payments made by Arcadia Lebanon to what Mr Bosworth and Mr Hurley call “service providers” and that I was aware of who some of those “service providers” are, what they did and how they were used and the very large payments made to them. This is simply not true. They also suggest that dividends were paid to Farahead by Arcadia Lebanon and that I and Mr Trøim authorised Arcadia Lebanon to pay away various funds. These allegations are also untrue.”

“84 Mr Bosworth and Mr Hurley told me and Mr Trøim, as best I recall in 2008, that they had established an entity in Lebanon, which I refer to as “Arcadia Lebanon”, in their own names, to carry out a small number of African trades under a particular oil trading contract or opportunity. Mr Bosworth indicated that he and Mr Hurley did not want to share their bonus on these trades, which were highly profitable, with their Arcadia Group colleagues pursuant to the 70/30 bonus pot arrangements. Arcadia Lebanon was therefore established without my knowledge or authority and, so far as I am aware, without Mr Trøim’s knowledge or authority either.

85

I was not at all happy with this arrangement. However, Mr Bosworth assured me and Mr Trøim that 70% of the net profits from these trades would be returned to Farahead (which mirrored the bonus pot arrangement for the trading profits of the Arcadia Group more generally), and because this was to apply only to the handful specific trades in issue, as a short term arrangement. So far as I was concerned, this was a problem that had already happened.

86 I fully believed that Arcadia Lebanon ought to be treated as a part of the Arcadia Group – it did after all have the Arcadia name. My concerns were really ones of corporate governance – it would never have occurred to me that this was not a legitimate part of the Arcadia business. I would certainly not have entertained the idea of some sort of shadow group company being used to engage in borderline illegal trading – I would not risk my reputation, nor the success of the multi-billion dollar companies that I run, for the sake of a couple of trades in small part of my business.

87

I also understood from the explanation above and what Mr Bosworth told us that Arcadia Lebanon would not be, and was not, involved in any ongoing activity after those trades had been completed, was (by about 2009) no longer active and was to be closed down. Given the passage of time, it is difficult now to remember precisely on what occasions which discussions took place. I am, however, clear that this is what I was led to believe by Mr Bosworth (in particular) and Mr Hurley. I am also clear that neither Mr Bosworth nor Mr Hurley ever told me that Arcadia Lebanon had been involved in any further trading activity in West Africa or elsewhere (beyond the specific trades for which I was told it had been established) and I did not know about its ongoing involvement in West African oil trading until it was discovered during the investigations leading to these proceedings.

…

90.1

I did not instruct Mr Bosworth or Mr Hurley to establish Arcadia Lebanon to deal with high-risk business or otherwise. Rather, as I have explained, the true position is that Mr Bosworth and Mr Hurley told me about it after it had been established, as best I recall in early 2008.

90.2

I did not entertain the idea of some sort of shadow company being used to engage in “high risk” business. I did not direct this. This idea is fanciful. My reputation is very important to me and my companies. Allegations of bribery against any of my companies would put it in jeopardy. I would not have risked my reputation, and with it the success of the multi-billion dollar companies that I ran and run (and which I have worked very hard to build up, as I have explained) the sake of a small and relatively insignificant company. If Mr Bosworth and Mr Hurley had told me this was “high risk” business or I had thought it might be illegitimate, I would have told them not to do it, unless and until they had proper processes to reduce the risk to acceptable levels and ensure the Arcadia Group was not doing anything unlawful.

91

I am also told by Grosvenor Law that Mr Bosworth and Mr Hurley further allege that Mr Trøim and I approved the establishment of Arcadia Lebanon, that we required Mr Bosworth and Mr Hurley to hold their shares in Arcadia Lebanon to Farahead’s instruction or order so that Farahead “could have ultimate control and direction over Arcadia Lebanon”, that we required Mr Bosworth and Mr Hurley personally to hold the shares so as to avoid Arcadia Lebanon being part of the official Arcadia Group and to protect the Claimants (and me and Mr Trøim) from the risks associated with West African trading (including the possibility of regulatory investigation), and that we directed that Arcadia Lebanon was to be used to make or receive high-risk payments on behalf of Arcadia London (later the Arcadia Group) in respect of its West African oil trading activities. I am told it is also said that Mr Trøim and I insisted on Mr Bosworth and Mr Hurley holding the shares in Arcadia Lebanon over their express hesitation and concerns and that Farahead determined the ownership arrangements for Arcadia Lebanon.

92

Again, none of this is true.

93 It is moreover bizarre to suggest that I would think that the Arcadia Group and Farahead would be protected by requiring Mr Bosworth and Mr Hurley - the Arcadia Group’s Group CEO and Group CFO - to hold shares in Arcadia Lebanon - an entity with “Arcadia” in its name, so that Farahead could control them, and by using this company to make “high-risk payments” on behalf of the Arcadia Group. How such an arrangement could offer any protection at all to any of the Claimants or to me and Mr Trøim is not apparent to me. The suggestion seems silly to me. That idea that I would have directed and insisted upon it is ridiculous. So too is the idea that we required Mr Bosworth and Mr Hurley personally to hold the shares or (otherwise) determined the ownership arrangements for Arcadia Lebanon.

94

I am told by Grosvenor Law that Mr Bosworth and Mr Hurley allege that: (i) in “summer and/or autumn 2006”, Mr Bosworth and I discussed the Arcadia Group’s existing West African business, “including in particular its payment of large commissions to service providers such as Sonergy and Mr [Jean Paul] Driot’s companies”, at my office at Sloane Square and during drinks at a hotel in that location later that day; (ii) given the establishment of Arcadia Lebanon (of which it is seemingly suggested I was aware) I instructed Mr Bosworth to move Arcadia London’s dealings with GEPetrol “and the associated service providers (including Sonergy and Mr Driot’s companies), including the Zafiro Contract, to Arcadia Lebanon and to establish a sleeving arrangements to insulate the Arcadia Group from the risks associated with those dealings”; and (iii) (it seems) I required the “Sao Tome Contract and associated dealings with Equinox” to be moved to Arcadia Lebanon.

95

Once more, none of this is true, except that we would have discussed the Arcadia Group’s business generally and, as mentioned, I would have known this was or included West African trading, because that is what Mr Bosworth did.”

Mr Trøim was stated to have been the source of the information set out in Mr Adams’ affidavit reflected in § 53 of the Particulars of Claim (quoted above), which referred to Farahead having been told that Arcadia Lebanon was established for the purpose of one particular lucrative contract. In his witness statement for trial, Mr Trøim gave this evidence:

“78 I remember that Mr Bosworth and Mr Hurley told me that they had established an entity in Lebanon (which I now understand to be Arcadia Petroleum SAL Offshore, or “Arcadia Lebanon”), in their own names, to carry out a very limited number of specific trades over a very short time span of activity.

79 I do not recall precisely when I found out about this, save that I recall that the company was already in existence when I was told. Grosvenor Law has advised me that Arcadia Lebanon was set up in July 2006, so it must have been sometime after that.

80 I recall that Mr Bosworth told us that he and Mr Hurley had set up this company this because they wanted one specific trade or counterparty trades to be separate from the rest of the Arcadia Group business. I recall that this trade or counterparty may have been related to Sao Tome and Principe but I cannot be sure so many years later.

81 Mr Bosworth said to me that he and Mr Hurley had done this because they wanted those specific trades to be separate from the bonus pool arrangements in which the Arcadia Group’s traders as a whole participated (and which I have described above) because they were particularly lucrative.

82 At the time, my response (beyond being unhappy at being told about this after the event) was to request that the situation to be regularised by the return of 70 per cent of the net profits from these trades / counterparty transactions to Farahead and that, in future, all profits and losses for all trading activity must be included within the profit and loss reports provided to us by Mr Bosworth and Mr Hurley on a daily basis.

83 At the time, I was assured by Mr Bosworth that Arcadia Lebanon was only being used for this specific trade and that Farahead's 70 per cent share of the net profit from the same that had been put through Arcadia Lebanon would be transferred to Farahead in accordance with the arrangements we had made.

84 I understood clearly from the explanation above Mr Bosworth told us that Arcadia Lebanon would not be involved in any ongoing activity after those trades had been completed. My clear understanding was that, once those trades were complete, it was no longer active and was to be closed down.

85 I was not told by Mr Bosworth or Mr Hurley, and I was not aware, that Arcadia Lebanon had been involved in any further trading activity in West Africa or elsewhere (beyond the specific trades for which I was told it had been established).

…

89.1

I did not instruct Mr Bosworth or Mr Hurley to establish Arcadia Lebanon, whether to deal with high-risk business or otherwise.

89.2

I was told about the existence of Arcadia Lebanon after the acquisition by Farahead and at some point after the incorporation of Arcadia Lebanon.

89.3

It was Mr Bosworth who told me that he had set up Arcadia Lebanon and it was in respect of one specific trade or counterparty (which I believe may have had some connection to Sao Tome).

89.4

I had no knowledge and was not told that Arcadia Mauritius or Arcadia Lebanon were being used as intermediaries (or “sleeves” or “contract holders”).

89.5

It was suggested to me that Arcadia Lebanon profits would flow to the Arcadia Group/Farahead; I would not have agreed to any other approach. Indeed, had I been consulted before the event rather than after the event, I would not have agreed to any approach that saw profits accumulate in a company that was not part of the Arcadia Group.”

Mr Bosworth gave this evidence in his witness statement, which I quote at some length in order to give the flavour of his recollection and manner of expressing it:

“120.

… Having had my memory refreshed by reference to [an email dated 15 September 2005 from Mr Hurley to Mr Trøim attaching a draft budget, including a budget relating to a Beirut office], I recall that we discussed with John and Tor Olav possibly opening an office in Beirut early on in the process of their takeover. I do not however remember the precise details of those discussions as they took place almost 20 years ago. I do however remember that John and Tor said at this time that it was very important for John to be distanced from the potentially riskier aspects of Arcadia’s business in West Africa, and I believe that the discussion of a Beirut office was part of the discussion of how to distance and protect both John (and his business interests) and the Arcadia group from any the compliance risks associated with Arcadia’s West African trading activities. This is just one example of the way in which John wished to be insulated from the Arcadia business and the lengths he went to so as to ensure that there was a separation between him and any risk to his other business interests (I explain at paragraph 179 below further instances of this, including the instruction from John and Tor that we should no longer send emails about Arcadia’s daily reporting to John’s personal email address). It had been communicated to me by John and/or Tor Olav on a number of occasions that the risk to John’s business interests of any compliance-related issue would be critical, and – this was something John and Tor said several times, I think as a way of hammering home the message – that Arcadia could never make enough money to make up for such an issue.

121.

As far as I can remember, the commercial rationale for opening an office in Beirut rather than some other country would be to take advantage of the low compliance environment (it being outside of the UK and the US and with as I understand it less strict legislation on anti-corruption practices) and banking secrecy laws. There was not (as far as I can recall) any other business case for establishing an office in Beirut. If Arcadia wanted to expand in that geographical area, we would have established an office in Dubai, rather than Lebanon.

122.

I also do not specifically recall who came up with the idea of establishing an offshore vehicle for engaging in Arcadia’s riskier oil trading activities, but I do remember that the idea was proposed as a way of solving John’s desire to be distanced from the riskier aspects of Arcadia’s business in West Africa, as I have already explained. As I have said, this was a long time ago and I am not sure, but I think it was probably either Colin or myself who raised the idea – we were the ones who had been tasked with finding a specific solution to the problem John had identified. Our discussions at that time mostly took place at John’s office in Sloane Square (I recall that as you walked into the Sloane Square offices and turned right, there were two meeting rooms, and the one that we held most of these discussions in was the large meeting room on the right hand side, close to the kitchen). Similarly, I think that the jurisdiction of Lebanon was probably recommended by one or both of Colin and I, then agreed to by John and Tor Olav as suitable. I understand from what John told me at the time as well from publicly available sources that John had close political ties with the hierarchy in Lebanon and I believe that he actually lived there while he was trading oil for a period of time.”

Mr Bosworth said that, in the course of the early discussions at Mr Fredriksen’s offices in Sloane Square, he and Mr Hurley agreed with Mr Fredriksen and Mr Trøim that Mr Bosworth and Mr Hurley were entitled to a share of Arcadia Lebanon’s profits that was at least the same as the share the traders received of the Arcadia Group profits, i.e. at least 30-35% of Arcadia Lebanon’s profits, adding “I say ‘at least’ because Colin and I wanted more, but the final split was never definitively settled with John and Tor.” The 30-35% would go only to Mr Bosworth and Mr Hurley, because other Arcadia Group employees did not play a role in the Arcadia Lebanon business “and because of the personal risks which Colin and I were taking by being named personally as shareholders of Arcadia Lebanon”.

Later in his statement, Bosworth said this:

“164.

… I do not recall much about the process by which Arcadia Lebanon was incorporated and set up. ...

165.

John and Tor Olav told Colin and I that we would have to hold the Arcadia Lebanon shares on behalf of Farahead and this is what we did.

166.

Upon incorporation, Arcadia Lebanon did not have any members of staff or offices. This came later in early 2007 when the company become operational. I remember that in one or several of the management meetings in (to the best of my recollection) the latter part of 2006, John and Tor Olav instructed Colin and I to make Arcadia Lebanon operational towards the end of the 2006 financial year. I believe that was because there were anticipated questions from the auditor due to sizeable funds being paid to Sonergy in connection with the Zafiro Contract which I describe above. As such, the Zafiro Contract was transferred from Arcadia London to Arcadia Lebanon. I believe that this probably took place in early 2007 and we would have had to inform the Equatorial Guinean government. At or around the same time, the Sao Tome Contract was also transferred to Arcadia Lebanon.”

“183.

From the period when Arcadia Lebanon became operational until its entry into a liquidation process in 2013 ...it continued to operate the Zafiro, Sao Tome and Senegal Contracts until they were not renewed by the relevant governments. Arcadia Lebanon assumed the risks associated with those contracts and had dealings with, and made payments to, the relevant service providers. During this time, I would typically have to travel to Lebanon for short periods of time. This was purely for administrative purposes for example signing off on payments and making sure all documentation was in order.”

“185.

I understand from Quinn Emanuel that the Claimants state in their Re-Re-Re Amended Particulars of Claim that shortly after the acquisition, I told John and Tor that Colin and I had secured a “particularly lucrative” trading contract but that because we did not want to share the bonus pot with the remainder of Arcadia London’s trading team and staff, we had established Arcadia Lebanon for the sole purpose of being the counterparty to the contract. This is false. I do not know which contract John and Tor are referring to and I understand from my solicitors that they have so far refused to say. The only significant new contract that I can remember being secured in 2005 or 2006 was the Zafiro Contract. If John and Tor are referring to that contract, I would not describe it as “particularly lucrative”. There was very little risk or downside to Arcadia because JP Driot had negotiated favourable pricing at which the oil was lifted and so it was unlikely that Arcadia would lose money. But it was not especially “lucrative”.

186.

I also did not say that the reason that Arcadia Lebanon was to be established was because I did not want to share the bonus pot with the other Arcadia group traders. This is simply false. While it is true that Arcadia Lebanon’s profits were agreed (with Farahead) to be split at least 30-35% to Colin and me and 65% to Farahead under the Arcadia Lebanon Profit Share Agreement (see paragraphs 157 and 159), this was not the reason for the establishment of Arcadia Lebanon or the transfer of the Zafiro Contract and the Sao Tome Contract to Arcadia Lebanon. I explain the reasons for their transfer at paragraph 166 above.

187.

I also understand that in their Re-Re-Re-Amended Particulars of Claim, the Claimants allege that in late 2008 I told Farahead that the contract for which Arcadia Lebanon had been established had come to an end and that the company had become dormant. This is not true, I never said this and it is inconsistent with the payments made by Arcadia Lebanon to GEPVTN which continued well after 2008 (see paragraph 184 above). The only contract that was operated by Arcadia Lebanon that came to an end in 2008 was the Sao Tome Contract. Farahead knew about and authorised Arcadia Lebanon’s activities from 2008 until it ceased operating in 2013.

…

189.

Quinn Emanuel have told me that in Mr Fredriksen’s first witness statement dated 15 July 2016, he states that he had authorised Arcadia Lebanon to participate only in “a handful of specific trades” or “a very limited number of specific trades over a very short time span of activity” This is not true. There was never any time limit imposed by John / Farahead on Arcadia Lebanon’s trading activity. I also don’t believe that John / Farahead told us that we could only use Arcadia Lebanon for specific trades. However, the fact is that the only trades which Arcadia Lebanon entered into were pursuant to three specific contracts, i.e. trades under the Zafiro Contract, the Sao Tome Contract and the Senegal Contract …

190.

Quinn Emanuel have also told me that Mr Fredriksen said in the same that evidence that Arcadia Lebanon’s authorised purpose was only: “to carry out a small number of African trades under a particular oil trading contract or opportunity”. I don’t know what “opportunity” means or what the “particular opportunity” is supposed to be, and I understand from Quinn Emanuel that the Claimants have refused to say. I don’t think I used the words “particular opportunity” and it doesn’t sound like something John would say – it sounds like a lawyer has written this. As I have explained above, the Zafiro Contract and the Sao Tome Contract were transferred from Arcadia London to Arcadia Lebanon and then later Arcadia Lebanon entered into the Senegal Contract directly. There was not any “particular opportunity” that was discussed, as far as I can remember. ... As I’ve explained above, the conversations about Arcadia Lebanon began, at the latest, in 2005. It is true that John and I discussed several times the fact that Arcadia Lebanon was being used for the Arcadia Group’s West Africa trading but I never told John that Arcadia Lebanon was no longer being used for regular, ongoing West African trading. I also never told John that Arcadia Lebanon had ceased its operations. ... ”

“208.

Mr Fredriksen and Mr Trøim also knew that as part of its West African trading Arcadia established “off the books” or “front” companies like Arcadia Lebanon and Arcadia Mauritius. Such companies were used on John Fredriksen’s instructions to manage the compliance and other risks of the trading. As I have said, we set up Arcadia Lebanon because Mr Fredriksen told us to, and we became and remained its shareholders for the same reason. It was not our choice and it was certainly not our preference. As I will explain, there were numerous discussions about Arcadia Lebanon both with Mr Fredriksen and Mr Trøim and their helpers, like Dimitris Hannas and John Skilton. Mr Fredriksen and Mr Trøim at least knew why we had companies like Arcadia Lebanon and why they were necessary to do business in West Africa.”

Mr Hurley’s witness evidence included this:

“85.

As for Beirut, the only recollection I have of Lebanon being discussed at any time during Farahead’s takeover was as a non-group, or standalone, company, not as an office for the Arcadia Group.

86.

This was part of the proposal as to how to handle the service provider payments that caused them concern. Beirut would be an operational office, but not in the group – that is the only conversation I can recall with regards to Lebanon. I cannot recall any discussions of other business being run through Lebanon, only that it would act in a way that would provide the necessary shield under the structure proposed for the Arcadia Group.

87.

I have refreshed my memory on this subject by looking at a spreadsheet that I sent to Trøim on 15 September 2005. … The spreadsheet has 5 tabs – including the overhead expense budget for the Singapore office, which was a proposal, as we did not have an office there yet. Then there is a tab titled ‘Beirut’. The costs were fairly low on the whole, around USD 1 million including all overhead costs. I remember that we didn’t plan to have any traders in that entity, nor would any have gone to Beirut. It can be seen from the salary budget, which is quite low. It wasn’t proposed as a trading office, it doesn’t involve any traders’ salaries, just the salaries for operational and support staff. What was being proposed for Beirut was a limited operation that would enable us to book certain trading in that location. That is my only understanding of any discussions about a Beirut office in 2005.

88.

To be clear on my terminology, when I refer to ‘offices’, I’m not talking about subsidiaries necessarily, or even at all. I’m not talking about trading operations. I’m simply talking about the locations for offices, a building with some employees, whether they were inside or outside the Arcadia Group. Obviously, there would have to be an entity to own all of that. But it was clear in these discussions that the Lebanese entity would not be a group company.

89.

In the course of these meetings, Lebanon was proposed by Pete, I believe, as a jurisdiction to help address the compliance issues, and it was decided that we would incorporate a standalone company in that jurisdiction. Fredriksen and Trøim approved of it, and instructed Pete and I to become the shareholders. Fredriksen may have even jabbed his finger at us physically to emphasise the point.

90.

In the same discussions, we agreed with Fredriksen and Trøim that we would get at least the same percentage bonus from the Arcadia Lebanon distributable profits as the Group traders got from the Group bonus pool. The remaining amount would be for Fredriksen to decide how to use. The arrangement was not an exact copy of the bonus arrangements at Arcadia London, but the central tenets were the same. ...

91.

As I have said, the Arcadia Lebanon Profit Share Agreement was analogous to the bonus policy in place at the Arcadia Group. The policy changed a little over time but it was always along the same lines. When Farahead took over, the arrangement was that a similar percentage of the Group’s net trading profits would go into a bonus pool to be distributed among the traders. ...

92.

The Arcadia Lebanon Profit Share Agreement was reached during the discussions with Fredriksen and Trøim in which they told us to incorporate the company, which I have addressed above at paragraph 89. The discussions were face to face and took place (I think) at Fredriksen’s offices at Sloane Square. I think they were all in 2005 (and if so in the latter part of 2005) or 2006. It was not a very detailed or completely thought-through agreement. There was no contract or anything like that. I regarded it as a stopgap while more formal arrangements were concluded, but as I said Farahead did not follow through with more formal arrangements but just left things as they were.”

“119.

At Fredriksen’s instructions, Pete and I were appointed the main shareholders of Arcadia Lebanon on Fredriksen’s behalf. The intention, as far as I’m concerned, was for that to be the temporary measure. Farahead were going to find a permanent solution to the ownership of Arcadia Lebanon. I didn’t want to be a shareholder at all. To me, it was a risk and responsibility that I did not believe I should be required to take on. To this end, Farahead vaguely explored measures to regularise this entity, which I have discussed below. None of the measures were ever seriously pursued, and none happened ultimately.”

In considering these competing accounts, I begin with some of the context and the contemporary documents.

Part of the context was that Mr Fredriksen and Mr Trøim were having frequent discussions with Mr Bosworth and Mr Hurley, partly because (as Mr Fredriksen accepted in cross-examination) they wanted to understand the Arcadia business and the details of how the oil trading business worked. Further, they wanted Arcadia to expand, and (as Mr Trøim said) encouraged Mr Bosworth and Mr Hurley to grow the business by doing “new deals, new profitable leads”.

At the same time, Mr Fredriksen and Mr Trøim knew, at least in general terms, of some of the risks of West African oil trading, in particular that involving purchases from NOCs, and were concerned to prevent them from eventuating: see §§ 176 above. They knew that Arcadia had made payments to service providers in the past, significant enough to merit mention as a matter of concern in the Deloitte letter, and about the potential resumption of payments to service providers and consequent risks in the event of resumption of direct NOC business (§ 224 above). They knew about the problems such payments, to Pang Ling, had created in the past.

Furthermore, in December 2005 Arcadia entered into the Zafiro Contract, thus contracting directly with a NOC again, and on 24 March 2006 entered into a service provider agreement with it. The text of the agreement was based on a draft that Arcadia’s lawyers, Clifford Chance, had specifically prepared. On 27 March 2006, Mr Hurley provided the draft Sonergy agreement to Arcadia’s incoming auditors, Moore Stephens (who had replaced Deloitte) to ensure that they were satisfied with it. Mr Hurley’s email forwarded Clifford Chance’s advice in relation to its drafting, in particular the remuneration provisions. Mr Hurley’s email said:

“Please see below a service provider agreement drawn up by Clifford Chance in respect of our business with Equatorial Guinea. As we expect to be appointing you as auditors of the company we wanted to be certain that this was sufficient for audit purposes.”

The Claimants have not disclosed Moore Stephens’ response. Mr Hurley’s oral evidence was that they had no objection to it.

Turning to documents about Arcadia Lebanon, these indicate that in late April 2006 Mr Lance enquired with a Moore Stephens contact in Beirut about incorporating a company in Lebanon. Mr Lance said “The company is to be called “Arcadia Petroleum Limited” and it is intended that the company will trade crude oil”. The contact put Mr Lance in touch with Mr Nadi Najjar of the firm’s affiliate law office. In an email of 27 April 2006 to Mr Najjar, Mr Lance said:

“Initially the new Lebanese Company will be formed to protect the name in Lebanon. However the plan is that it will be used for Middle Eastern oil trading activity. It will open a bank account in Beirut and it may have an office. It will not be trading with any Lebanese entities. Initially its director and shareholder will be a British national, resident in Dubai. Obviously we want the new company to be as tax efficient as possible. I am assuming therefore that it can be a Lebanese offshore company”

On 2 May 2006, Mr Lance said, in an email to Mr Najjar:

“The client is Arcadia Petroleum, one of the largest crude oil traders in the word. … I am a director of Arcadia and am able to sign the proxy to which you refer. Arcadia is also a client of Moore Stephens London. Arcadia will not be the registered shareholder of this entity – we will use nominee shareholders.”

Arcadia Lebanon was to be like a number of the other Arcadia offshore shelf companies, held by nominees, and ready to be used to further Arcadia’s business as and when necessary. Mr Lance kept a roster of companies that Arcadia could use for its business, some of which bore the name ‘Arcadia’, but which Arcadia did not necessarily directly or formally own. In late May 2006, Mr Lance discussed with Mr Hurley the business set-up costs and told Mr Hurley that the name ‘Arcadia Petroleum Limited’ was available for use as a Lebanese company.

It is therefore evident that the Defendants made no attempt to keep the creation of Arcadia Lebanon a secret. On the contrary, it was done through Mr Lance, Arcadia’s corporate secretary; and Mr Lance in turn chose to approach a contact at the group’s auditors, Moore Stephens, about setting the new company up.

It was suggested to Mr Bosworth in cross-examination that he must have told Mr Lance that Arcadia Lebanon was going to be used for Middle Eastern trading activity, as indicated in Mr Lance’s email to Mr Najjar. Mr Bosworth said he did not recall talking to Mr Lance about that, “but in practical terms, Beirut was set up to handle high risk or potentially high risk payments to service providers in West Africa”. If Mr Bosworth is right about that, then it seems fairly unlikely that Mr Lance would have put it in those terms to Moore Stephens, Beirut, i.e. that Arcadia wished to take advantage of the ‘much looser’ compliance standards in Lebanon. Further, as I note earlier, there is no contemporary evidence that any of the commercial people were in fact envisaging using a Beirut office to conduct Middle Eastern oil trading, and it was not so used.

The court did not have the benefit of Mr Lance’s evidence on this point, as the Claimants chose not to call him, in the circumstances outlined in § 44 above. However, there is some contemporary evidence of Mr Lance’s actual understanding of Arcadia Lebanon’s purpose dating from a little under two years later, recorded in the Hannas Note. The Hannas Note is an important document, in four versions (textually the same apart from highlighting and annotations), which the Claimants eventually disclosed in March 2024 i.e. a few weeks before trial after some debate about privilege. As I mention earlier, it is a page of manuscript notes written by Mr Hannas, recording a series of 19 conversations between February 2008 and September 2009. Mr Hannas said he made the entries in the Note by copying or reproducing the telephone logs in his notebooks, which he then destroyed. In cross-examination he said that he prepared the Note by “flicking through my notebooks and if any conversation was related, important information related to Arcadia Lebanon, I would summarise it here.” The Hannas Note is therefore a copy or reproduction of other contemporaneous (and non-privileged) notes that have been destroyed.

It is convenient to set out at this stage a transcription of the Hannas Note in full:

“25.02.2008

Mark [Lance] – Arcadia Lebanon = Fredriksen’s stand alone company

16.04.2008

Skilton – Arcadia Lebanon shares to a Liberian co.

12.06

Skilton – Arcadia London meeting in London yesterday – Arcadia Lebanon kept out of discussion per Fredriksen/Trøim

24.06

Skilton – Advised of Arcadia London meeting in Limassol with 3rd party present

08.07 Skilton – Saleh memo on reporting requirements

06.10 Skilton – Trøim told him that it was not necessary for him to participate in the Arcadia London meeting in Limassol

07.10 Skilton – asked me to request from Hurley financials of Arcadia Lebanon

13.10

Skilton – Frederiksen advised him not to bother attending Arcadia London meeting in Limassol

16.10

Skilton - $15m dividend from Arcadia Lebanon to Beirut Holdings??

03.11 Erling [Lind] – he advised that transfer of shares of Arcadia Lebanon to Beirut Holdings are on hold – he will talk to Skilton

05.11

05.11 Skilton – Trøim should advise Arcadia Lebanon dividend payment and how

09.12 Trøim - $15m Arcadia Lebanon dividend will be used to reduce Bosworth loan from Fulham

22.01.2009

Skilton – Arcadia Lebanon financial from Trøim

10.03

Hurley – Arcadia Lebanon accounts 31.12.2008 are being reviewed.

26.03

Skilton – discussed meeting in London between Farahead/APL – Erling [Lind] is drafting minutes

24.06

Hurley – advised of $10m (e) Arcadia Beirut profits for 2008

25.08

Hurley – advised that he is talking to Fredriksen/Trøim re Arcadia Lebanon cash availability

04.09 Skilton – pointed out that we should chase “them” for Arcadia Lebanon info

09.09 Skilton – he was advised by Fredriksen/ Trøim that we should not make any more enquiries on Arcadia Lebanon”

I have replaced initials by names.

The first entry refers to “Mark”. Mr Hannas said the entry reflected a call with Mr Lance on 25 February 2008:

“in which he told me that Arcadia Lebanon was Mr Fredriksen’s stand-alone company. I understand it to mean that Arcadia Lebanon was not under Farahead’s ownership, but was held for Mr Fredriksen’s benefit (or for the benefit of entities associated with him).”

Similarly, Mr Lance stated in his Defence in these proceedings that he believed at all times that Arcadia Lebanon “was operating for the benefit of Mr Fredriksen” (§ 37(4)).

Mr Hannas went on to say that he believed that “stand alone” was used in the same sense as in the notes of a meeting on 11 March 2008 – which Mr Hannas did not attend – to which I refer later. He highlights a passage that read “Shares should be transferred to ‘stand alone’ Liberian Company”. Mr Hannas also said it was not his understanding that Arcadia Lebanon was set up at Mr Fredriksen’s direction or with his knowledge, but then added that “I was not aware of how Arcadia Lebanon had come to be incorporated”. In cross-examination, Mr Hannas agreed that, as the person in charge of corporate administration for Arcadia, Mr Lance was the individual who would know about the Arcadia subsidiaries and their set-up. Mr Lance explained to him that the company “is not owned by the group formally but it was a standalone of JF”; and, Mr Hannas accepted, it was Mr Fredriksen’s company. This evidence, and the first entry in the Hannas Note, are more consistent with the First and Second Defendants’ account than with the notion that Messrs Fredriksen and Trøim were told that Arcadia Lebanon was a company to be used by Mr Bosworth and Mr Hurley for a discrete transaction in order to avoid having to share bonuses.

The documents also include correspondence in June 2007 opening an account for Arcadia Lebanon at Credit Agricole (Suisse), including an unsigned form on which Mr Bosworth/Mr Hurley were said to be its ultimate beneficial owners. However, as the Defendants point out, even if it was submitted in that form, Mr Bosworth/Mr Hurley may have been reluctant to be open about the fact that they held the shares as nominees for Mr Fredriksen, in case that undermined the objective of setting up a ‘stand alone’ Fredriksen company outside the Arcadia Group. I refer later to subsequent discussions in August 2008 about the basis on which the shares in Arcadia Lebanon were held.

The Claimants note that Arcadia Lebanon’s offices were in the same building (308 Sursock, Beirut) in which Mr Bosworth bought his first apartment in Beirut on 21 April 2007; and that Arcadia Lebanon used the same auditors, an individual from Eura Audit International, as Attock Mauritius. In circumstances where Arcadia Lebanon was set up as a new presence in Lebanon, I do not consider any real significance can be ascribed to either of those matters.

The Claimants also note that from April 2007 Mr Bosworth/Mr Hurley recruited Cristina Azzariti and Sergio Morgado (a married couple) to work for Arcadia Lebanon in Nigeria. They were originally employed as junior support staff in Nigeria by Arcadia London, and Mr Morgado sometimes signed term sheets on Arcadia London’s behalf. In addition, Ms Azzariti and Mr Morgado sometimes performed tasks for Mr Decker and his team representing Attock Mauritius in Switzerland. While in Nigeria, Mr Morgado dealt with Ms Felica Sanni, who was in charge of operations for Attock Mauritius. In an email exchange in March 2008, Mr Morgado said “Whatever Peter or Steve ask me to do I will do it for them and it will be a pleasure to be there for them as I know they are there for me”, and that although Ms Sanni worked for Mr Kelbrick, “we still work in the same company”. Mr Bosworth was asked about this, and said Mr Morgado did work for him at some stage, and Mr Kelbrick may also have used his services; and that Ms Sanni worked for Mr Kelbrick. It was not suggested to Mr Bosworth that any of this showed that Arcadia Lebanon was Mr Bosworth’s own company, though the Claimants did put the (unpleaded) suggestion that Mr Morgado held Attock Lebanon as nominee for Mr Bosworth (which Mr Bosworth denied). Mr Kelbrick was also asked about the Morgado/Sanni email exchange. He said Mr Bosworth was Mr Morgado’s boss and he, Mr Kelbrick, was Ms Sanni’s boss. He said he would from time to time give instructions to Mr Morgado, but worked mainly with Ms Sanni. I do not consider that any of this evidence gives any significant support to the proposition that Arcadia Lebanon was run by Mr Bosworth and Mr Hurley for their own purposes, as opposed to in the interests of the Arcadia Group.

I should record that Mr Bosworth also volunteered the following somewhat troubling evidence:

“We had approached Cristina Azzariti and Morgado I phoned them probably a year or so ago to see if their situation had changed from what it was previously. I spoke to her son, Azzariti's son, which is Morgado's son as well. And he said, look, my mum can't and won't speak to you. The reason for that, my Lord, is when -- just before Freshfields left, I believe, I received a call from Azzariti in a very distressed state from Dubai saying that she had been approached by two gentlemen in a shopping mall on behalf of Tom Francisco [of Arcadia] who was having a coffee close by and he wanted to have a word with her. Upon saying no, she didn't want to, the two gentlemen said to her if she did not cooperate with -- I think the law firm was Jones Day, that it was possible they would bring criminal action against her and under Dubai law, that meant she could potentially lose access to her children. So I would love for Morgado and Cristina to have come here but unfortunately, I don't have access to them, they did sign with Jones Day, and I have not spoken to them since so that is by way of background to this.”

There was no disclosure of any agreement between the Claimants and Ms Azzariti. I should also record that, asked about this matter in correspondence, the Claimants’ then solicitors, Freshfields, stated that they were instructed that no threats had been made; and I make no findings about the matter.

The Claimants make the point that no contemporaneous record has been found of instructions from Farahead for the establishment or use of Arcadia Lebanon. That is not, however, a compelling point in circumstances where, as noted earlier, there has been significant loss of documents on the Farahead side, including the destruction of Mr Hannas’s notebooks (save to the extent that certain key extracts have been preserved via the Hannas Note). I also note the evidence given by Mr Hurley that Mr Fredriksen and Mr Trøim “don’t put anything in writing, hardly at all. It is very, very rare that you will see something from these two individuals that is in writing. Most of the communication you have with John and Tor Olav is oral”.

Mr Bosworth was cross-examined about the accuracy of his recollection, including whether there could have been discussions about Arcadia Lebanon back in 2005 when the company was incorporated only in 2006; why, in that event, Arcadia London would have entered into the Zafiro Contract in its own name; and why Arcadia Lebanon remained inactive until April 2007 when it lifted its first cargo. It was also pointed out to Mr Bosworth that in his third affidavit, sworn in 2016, Mr Bosworth had provided less detail, saying only that Mr Fredriksen knew about the use of third party service providers and that it would not be possible to conduct West African oil trading without paying them.

In his oral evidence, Mr Bosworth said he raised at the outset the potential of having a Beirut office for compliance reasons, but the plan was not implemented until 2006. As to the Zafiro Contract, he said:

“… at that time we were in between the two and we didn't know whether this would be a problem internally. The problem was always going to come, potential problem, from the auditor and at that time we didn't know and so we put the deal in Arcadia London. They were aware of it. And once there was an indication of a potential issue with the auditor, we then enacted what had been discussed before was the setting up of Arcadia London.”

and:

“Look, we had a situation whereby you start one way, you have a plan if something goes wrong. If it continued and there was no problem, then no problem. But there became a potential issue with the auditor and therefore it was moved out.”

The following exchanges also occurred:

“Q. How do you account for the fact that if you had instructed them to move everything to Arcadia Lebanon, you didn't do it until March 2007?

A. Because the -- we were instructed to set it up, to do it, a trigger for that was the movement or the questioning at certain points in time by the auditor of payments to Sonergy. That became the trigger for the enactment.

Q. But the summer of 2006, we might be talking about eight months to implement your alleged instruction.

A. We had set it up ready to go. It was a name that was held, but it was not enacted.

Q. Well, if you had been given an instruction, you could have done it quickly, wouldn't you?

A. I had a day job which was running or trying to be a CEO of a business which my boss used to describe as moment to moment intensity. So perhaps I could have done. But I didn't.

Q. On your case, on your recollection, this was important to Mr Fredriksen. You have explained that no amount of money could be worth taking a risk. You wouldn't have just left it lying there while you did your day job?

A. There were lots of things that we were involved in. The timing of doing it, trying to get there, setting it up etc took time. That is perfectly normal.”

Mr Bosworth accepted that Arcadia Lebanon had been established “pre-emptively”, and he did not know whether Messrs Fredriksen and Trøim were aware of its incorporation at the time, as opposed to when the company became operational. When the company was set up, he said, he and Mr Hurley owned it because somebody had to own it. There was also the following exchange (whose value is somewhat undermined by the fact that the answer was cut off by counsel’s next question):

“Q. When you spoke to Mr Trøim about Arcadia Lebanon for the first time, he was simply told that it was owned by you and Mr Hurley?

A. When it was originally set up. There was then a later discussion as to the enactment of it which had been ...”

However, Mr Bosworth’s evidence was clear that there had been discussions with Mr Fredriksen and Mr Trøim at the operational stage, and that those had not been confined to a limited or specific trade. There were, he said, “discussions of examples of what we would move there and I believe that two contracts discussed were GEPetrol and Sao Tome but it was a principle that was agreed with them that these things, if they occurred again, we should handle them out of Lebanon.” As to ownership of the Arcadia Lebanon shares, he added:

“Later on, when the decision was gone through with John and Tor, authorised by them, we remained at their request the shareholders, holding the shares in effect -- I don't know the legal term but to their benefit”

This evidence is consistent with the documents I refer to later about formalising the ownership structure of Arcadia Lebanon.

Mr Bosworth said the instruction from Mr Fredriksen and Mr Trøim was that “[t]hey wanted to be distanced from any high risk areas as best we could do. That was our instruction”. Asked whether he sought permission to put the later Senegal Contract (entered into in November 2007) directly into Arcadia Lebanon’s name, Mr Bosworth said “No, I don’t think I did. But it came under the umbrella of the reason for moving the first two contracts there was exactly the same there”. The Claimants highlight a later passage where Mr Bosworth said the shareholders “were aware of the contract, they had authorised the set-up that we had and they knew about its ongoing activity” as indicating that the discussions about Arcadia Lebanon were limited to a single contract. That is a false point. Mr Bosworth at this stage in his evidence was being asked about a specific contract; and, in any event, his reference to authorisation of the ‘set-up’ is capable of general application, particularly when seen in the light of his evidence as a whole. Elsewhere, Mr Bosworth said, in response to a suggestion that Arcadia Lebanon was not Mr Fredriksen’s standalone company, “Yes. They had the rights to close it down, they gave us instructions to set it up and they gave us instructions of what to do with the money.”

The Claimants also note that Mr Bosworth said the Zafiro Contract had “limited downside”, suggesting that that fits their version of events, in which Arcadia Lebanon had been put forward as a vehicle for a particularly lucrative contract. To the contrary, however, Mr Bosworth in the same answer specifically rejected the idea that the Zafiro Contract was particularly lucrative. His evidence contradicted rather than supported the Claimants’ case.

Mr Bosworth rejected the notion that Arcadia Lebanon would have been used merely as a vehicle to avoid sharing bonuses on particular contracts: “it’s not the reason for setting it up in any way, shape or form. I could have told the traders in London you don’t get a share of it, full stop”. The point about bonuses was merely “part of the discussion”: “The reason for setting it up was the compliance issues and I will have said to [Mr Trøim] that I don’t anticipate having to share that bonus pool with anybody who is not involved in that aspect of it”. Mr Bosworth reiterated his evidence about why Arcadia Lebanon was in fact set up:

“Q. You did not tell Mr Fredriksen or Mr Trøim that it was necessary to engage service providers to acquire West African oil, did you?

A. You cannot engage in West African crude oil trading without a service provider is my experience over the last 30 years.

Q. Mr Fredriksen and Mr Trøim had no reason to suggest to you that an offshore vehicle should be set up for engaging in Arcadia's riskier oil trading activities, did they?

A. They agreed to it. … Or instructed it.”

“Q. Sleeving arrangements are not used to hide transactions from a company’s auditors, are they?

A. They are used in this, in what we did, to hide the significant payments to service providers for the business from Arcadia Lebanon.

Q. That must mean that you recognised that the payments to the Zafiro service providers were unjustifiable?

A. No, not at all. They were part of the contract. That is the way that contract was done. It is the way you enter into the contract. And if you don’t want to do it, then you don’t get the contract.

Q. You would be unable to demonstrate to the auditors that the service provider payments served any legitimate and commercial purpose?

A. We would be able to show them as to why the service provider was there. But it may not have been sufficient for the western auditor, London auditor to accept. Hence the concept of Arcadia Lebanon.

Q. Because they would have had the same concerns that Andersen had, about Pang Ling.

A. They may have done.”

and:

“Q. Mr Trøim and Mr Fredriksen, they are rational businessmen, aren't they?

A. Most of the time.

Q. If you described this contract as high risk business, you would have at least have had to demonstrate that the risk was worth taking, wouldn't you?

A. No, with the conversations with John and Tor, that was not the way the relationship was. We didn't go into those details unless we were asked.

Q. But you are suggesting that they gave you permission to run a high risk business?

A. They didn't give me permission to do it, they asked us to -- well, our business is a high risk business, all of it is. So by buying the company, John knew that, and he asked us to move it out into an entity called Arcadia Lebanon, to distance himself if anything went wrong.”

At one or two points in his oral evidence Mr Bosworth suggested that the trigger to making Arcadia Lebanon operational was some queries from the auditors about payments under the Zafiro Contract, but later qualified this saying “[Mr Fredriksen] and [Mr Trøim] may not have known that the auditors were asking questions at that time, or potentially, it was anticipated questions from the auditors which came later on”. So far as one can tell from the documents, the auditors’ queries seem to have begun around May 2007. However, that is consistent with Mr Bosworth’s evidence, quoted in § 282 above, about “potential problem” and “potential issue” with the auditors. Mr Bosworth was very clear that such concerns led him to incorporate Arcadia Lebanon. He was equally clear that the company would not have been made operational without Mr Fredriksen’s/Mr Trøim’s approval, and that (as he put it) “We were trying to protect our boss as requested to by …” and “We are protecting our boss. He has requested that we put this offshore. That’s what we did”.

As part of his evidence, in response to a suggestion than he had no recollection in 2006 of a discussion with Mr Fredriksen about payments to service providers, Mr Bosworth said:

“If I may, I will tell you why I recall it very well, because I went for a beer with Mr Fredriksen outside of his offices, outside the hotel, and there was a gentleman, there is a square in Sloane Square and there was a gentleman sitting on one of the benches and John explained to me it is better to talk like that [covering his mouth] because some people can be lip readers.”

Mr Bosworth did not provide that degree of detail in any of his witness statements, and the Claimants submitted that he was making it up. I do not accept that submission, for a number of reasons. First, as a general matter, it sometimes happens that evidence about an encounter, or the detail of an encounter, appears for the first time in the witness box. Whilst that may indicate that the evidence is not genuine, it can also arise for other reasons, for example due to a recollection being triggered after the proofing process has occurred. Secondly, my overall impression of Mr Bosworth’s evidence, both written and oral, is that it was candidly and cautiously given. There were numerous passages in both (including in some of the extracts quoted above) where he was tentative and careful about the limits of what he could remember, or how clearly he could remember things, so many years later. Thirdly, late recollection was not in any sense a recurring example of Mr Bosworth’s evidence. Fourthly, his evidence as a whole was broadly consistent with the documents as they emerged, including documents such as the Hannas Note that were not available when he made his witness statements. Overall, I consider that his evidence was honestly given, including on this point.

Mr Hurley in his oral evidence did not suggest that Mr Fredriksen and Mr Trøim had been told at the time about Arcadia Lebanon’s incorporation, but that “We spoke to them about potentially having it as a Beirut office under the structure that I have described before”. He said they had agreed that the structure would be implemented to accommodate the Zafiro Contract “and contracts that were similar to this”. Mr Hurley said “We told them [Farahead] the structure was in place and they were the ones that approved the structure and accepted it”; and that Farahead accepted the Arcadia Lebanon structure “to mitigate the risk as best we could and to their satisfaction”. Mr Hurley added:

Mr Fredriksen said in his oral evidence that he accepted the risks of the oil trading industry, but he wanted to take the opportunity presented by oil trading in a way that did not expose him to reputational risk. He was willing to allow Mr Bosworth/Mr Hurley to manage the risks:

“… But I trusted Bosworth and company to take care of all this, being the CEO of the company.

Q. So if they could manage the risks, you were content?

A. As long as they were legal, yes.

Q. So as long as Mr Bosworth and Mr Hurley managed the risks legally, using structures in oil trading that were commonplace, you were content with their activity in West Africa, yes?

A. As long as they were legal, yes.”

Mr Fredriksen said that, as far as he was concerned, the Beirut office “might have been discussed, but it was never set up”, and that “it could have happened” that Farahead discussed a Beirut office with Mr Bosworth. He agreed that the Zafiro Contract raised again potential compliance issues regarding payments to service providers:

“The problem with Arcadia purchasing oil directly from GEPetrol under the Zafiro contract is that it raised concerns about compliance when dealing directly with national oil companies and service providers; that’s right, isn’t it?

A. Yes, it happened sometimes.

Q. So you had these concerns, but at the same time, you wanted to expand the Arcadia business?

A. Yes, over business: normally if you buy a business, it is to expand.

Q. So you needed to find a way for Arcadia to expand the West African business but also manage and minimise the compliance risk; correct?

A. Yes, you can say it like that. Yes.”

Mr Fredriksen agreed that it made sense to move high risk crude oil business involving purchases from NOCs to Lebanon where compliance was more relaxed:

“Q. Do you remember, Mr Fredriksen, you appreciated that purchases from national oil companies carry particular compliance risks; do you remember that?

A. Yes, of course. But those days it was different.

Q. In those days, purchases from national oil companies involved potential risks concerning bribery and corruption, didn’t they?

A. Oh yes, they always do that. Yes.

Q. So that is why it would make sense for that high risk business involving purchases from West African national oil companies to move to Lebanon, correct; from your perspective?

A. It is hard for me, whether it is Lebanon or wherever but of course generally speaking, if you are in the borderline situation, better to get it to a place like Lebanon or Dubai or wherever. That I accept.”

Mr Fredriksen denied or said he could not recall giving an instruction to Mr Bosworth/Mr Hurley to set up the Beirut office to handle the higher risk West African business, but confirmed that he was content for Mr Bosworth to make the decisions on these matters:

“A. … this was left to Bosworth, all this decision was left to Bosworth. He was running the company and he had the experience.

Q. And you were content for Mr Bosworth and Mr Hurley to structure the trading in a way that they saw fit to protect Arcadia; yes?

A. I guess so.”

Similarly, Mr Trøim agreed that he did not need to know the details of the transactions, because there was daily reporting on the results of the trading.

Mr Fredriksen denied having instructed Mr Bosworth and Mr Hurley to hold the shares in Arcadia Lebanon to his order, though when asked whether “Farahead” could have asked Mr Bosworth and Mr Hurley to hold the shares in Arcadia Lebanon as nominees for Farahead, he replied “I don’t know”. Asked about the bonus share arrangements, Mr Fredriksen said they applied worldwide, though in response to the question whether he was able to impose them because Farahead controlled Arcadia Lebanon he said “No. Not as far as I know.” He said he did not know about Arcadia Lebanon until later.

Mr Fredriksen’s witness statement had referred to ‘an opportunity’ to be transferred to Arcadia Lebanon, which (as quoted earlier) he said was discussed in 2008 to be best of his recollection. It was pointed out to him that the Claimants’ pleaded case was that they were told about Arcadia Lebanon “[s]hortly after the acquisition of Arcadia London”, based on information given by Mr Trøim to Mr Adams in 2015, to which Mr Fredriksen replied “It could be … Arcadia for me was Arcadia, wherever it was … I didn’t pay attention to these things”. In response to the suggestion that he too knew about Arcadia Lebanon before 2008, Mr Fredriksen said he could not recall and didn’t pay attention to it. Asked about the “small number of African trades” referred to in § 84 of his witness statement, he did not seem to dispute that they were the Sao Tome and Zafiro Contracts:

“Q. So those were two term contracts, Sao Tome and Equatorial Guinea, the one we have just been talking about; yes?

A. Yes.

Q. And that was the opportunity, wasn’t it, that you were being presented with for Arcadia Lebanon; correct?

A. I guess so.”

As to whether Mr Fredriksen had authorised Arcadia Lebanon to carry on the Sao Tome and Zafiro Contracts, Mr Fredriksen gave this evidence:

“Q. And you authorised Arcadia Lebanon to carry on those term contracts, Sao Tome and Equatorial Guinea; yes?

A. I did not.

Q. When you say you did not, you can't recall the position, can you?

A. No, I cannot.”

When the question was put more generally as relating to authorisation by Farahead:

“Q. What happened, Mr Fredriksen, was that during the summer and autumn of 2006 after Arcadia Lebanon had been set up, Farahead instructed Arcadia's crude oil West African trading to be transferred to Arcadia Lebanon; correct?

A. Not as far as I know.

Q. So once Arcadia London was up and running, Arcadia Lebanon stepped into the shoes of Arcadia in its dealings with the West African national oil companies and the service providers; yes?

A. No. I don't know.

Q. You don't know?

A. No. It could happen. I'm not denying that.

Q. And Farahead authorised Arcadia Lebanon to have that role as the contract holder with the national oil companies?

A. I don't think they authorised it.

…

Q. And likewise, Farahead authorised Arcadia Lebanon to have this contract holding role for the Sao Tome contract; yes?

A. I paid some contracts.

Q. The Zafiro contracts; yes?

A. Yes.

Q. And later on, the Senegal contract; yes?

A. That I don't recall. But it could have happened. I don't ...”

Mr Fredriksen was then asked about the rationale for Farahead to have agreed to Arcadia Lebanon taking on the role of contract holder:

“Q. And the reason why Farahead wanted this to happen, ie for Arcadia Lebanon to have the contract holding role, was that minimised the risk of any audit investigation into Arcadia; correct?

A. It could be, yes.

Q. And that was an advantage to you and Farahead, wasn’t it?

A. It depends how you look at it. But we didn’t get any money out of it. That is the whole point. Whatever you say, we didn’t receive anything.

Q. We’ll come to the money later. At the moment, it was of benefit to Farahead for Arcadia Lebanon to have the contract holding role for the Sao Tome contract, the Zafiro contract and the Senegal contract; correct?

A. It could be the case, yes.

Q. Because that minimised an audit investigation into Arcadia; do you understand that?

A. Yes.

Q. And that would protect not just Arcadia, but Farahead from any investigation; correct?

A. If they did something illegal, I agree with that. As long as the –

Q. Because you wanted to minimise any possibility of an auditor raising questions about this risky West African business; yes?

A. I hear what you say but of course we don’t want to take any unnecessary risks.

Q. And you accept I think that Arcadia Lebanon was making what you call commission payments; yes?

A. On certain business deals, I accept it, yes.

Q. And there was –

A. This has happened in time of history in the business. It is quite normal in the business.

Q. In particular it would be normal in a West African oil trading business for these commission payments to be made; yes?

A. Yes.”

The Claimants complain that some of the questions put to Mr Fredriksen were vague and hypothetical, and did not address Arcadia Lebanon specifically. However, the exchanges I have quoted in the two preceding paragraphs above included questions specifically relating to Arcadia Lebanon and Farahead’s willingness for it to take on a contract-holding role. They show, in my view, that Mr Fredriksen was not really in a position to say that Farahead had given no such authorisation.

Mr Trøim in his oral evidence initially denied that he knew in spring 2006 that Arcadia Lebanon was being set up. Mr Trøim later accepted in his oral evidence that he knew Arcadia Lebanon was in the process of being set up in April or May 2006:

“Q. So you knew before Arcadia Lebanon had been actually formally incorporated that Arcadia Lebanon was being set up; correct?

A. But you already told me yesterday that Arcadia Lebanon was set up in 2005, in the budget.

Q. No, it is set up in July 2006, Mr Trøim?

A. You said it was in the budget in 2005.

Q. Just answer the question. You knew in April or May 2006 that Arcadia Lebanon was in the process of being set up; correct?

A. Yes, that I knew at that time.”

The documents support the view that Mr Trøim knew, in principle, about Arcadia Lebanon by spring 2006. On 13 June 2006, Mr Hannas emailed Mr Trøim about a new Farahead business, Exoil Petroleum. Mr Trøim’s response was “Exoil is that the New Business in Lebanon”. When asked about this email, Mr Trøim response was:

“As I said, that is from me. I don't know what the date on the Sao Tome contract when that telephone came to me and they wanted to put that into Lebanon but it must have been before there.”

Mr Trøim thus also seemed to recall a telephone conversation (not mentioned in his witness statement) about transferring the Sao Tome Contract to Arcadia Lebanon.

Mr Trøim was asked about the compliance problems that the Zafiro Contract raised:

“Q. The expansion of the new Equatorial Guinea business raised exactly the problem about compliance, didn't it, that Deloitte had warned about, ie contracting directly with national oil companies. Do you remember that?

A. Yes, I remember it from you showed me the document.

Q. And the concern was that you didn't want there to be another Pang Ling investigation to risk into Arcadia; correct?

A. I don't think we assumed it would be another Pang Ling investment because I think we assumed that the guys would follow the rules and thereby you don't have a problem.”

At points in his oral evidence, Mr Trøim suggested that Arcadia Lebanon was put forward as relating (at least in part) to bonus arrangements:

“Q. Effectively you agreed to replicate the arrangement that had happened under Mitsui with Arcadia Lebanon; correct?

A. We did that because we were presented with a fait accompli. This is the way we are going to do it and we are going to run it here and then we effectively don't have to share the bonus pool with the rest of the people and your economic interest is kind of the same as it was before.”

At the same time, however, Mr Trøim did not appear to dispute the notion that Arcadia Lebanon was to be used to mitigate compliance risks: the point he wished to emphasise was that it was not his idea, merely one that he had gone along with:

“Q. And the Lebanese company was to be outside the official group, wasn't it, to distance and protect you from the risks of West African oil trading?

A. That was the idea Pete Bosworth had when he came up and said he had the contract, that he wanted to take it out and he wanted to organise it through Lebanon and he wanted to kind of -- effectively they owned the shares and that was the story.”

“Q. And the reason why you were going to transfer the higher risk business to Lebanon was to ensure that Arcadia itself wouldn't have problems in the future with the auditors; correct?

A. You should not ask me about this question. I said we never came up with this idea, it came from Paul and Pete and -- from Colin and Pete and you should ask them why they did it.

Q. The advantage of Lebanon was that it offshored the risks, didn't it?

A. You should ask Pete and Colin about it.

Q. I'm asking you, Mr Trøim?

A. We never came up with the idea.

Q. But you knew about the idea, didn't you?

A. No, because they presented us with a fait accompli and said, "We are going to do it this way".

Q. And you agreed to the idea, didn't you?

A. We agreed to the idea subject to the fact that our economic interest in the transaction became the same 70%.”

Similarly, Mr Trøim said “Neither Mr Fredriksen or I came up with this design, it was totally driven by Pete Bosworth and Colin Hurley.”

Mr Trøim insisted that the idea was presented as relating to a limited amount of business:

“Q. And the advantage from your point of view was that Arcadia Lebanon could make the payments to the service providers, not Arcadia London; correct?

A. You are putting words in my mouth which I don't like. Listen to what I'm saying. This was presented to us as a way to do it and in retrospect, stupidly enough agreed to do it for that limited amount of trades which we talked about which was kind of I think originally talked about an amount of USD6 million to USD8 million, something like that. It was not to establish a big business with a lot of trades. That was never ever, ever discussed. The first time I actually heard about it was when Tom Francisco started to dig into what had happened in that company.”

Mr Trøim accepted that the figure of US$6 to 8 million he had mentioned did not appear in any of his witness statements or in the Particulars of Claim. Similarly, Mr Trøim said:

“We allowed Arcadia Lebanon to operate that contract based on the recommendation they had and when they had the set-up arranged, in hindsight we should never have done it, but that is the mistake. It was made with a very clear purpose, that this was a very kind of small trade with a kind of very limited economical effect.”

As noted earlier, the Claimants’ pleaded case dating from 2015 is that the Arcadia Lebanon arrangement was said to concern “a particularly lucrative trading contract”, that information having been said to come from Mr Trøim. In his witness statement, in November 2023, Mr Trøim said he recalled Mr Bosworth having set Arcadia Lebanon up because he and Mr Hurley had wanted “one specific trade or counterparty trades to be separate from the rest of the Arcadia Group business. I recall that this trade or counterparty may have been related to Sao Tome and Principe but I cannot be sure so many years later” (§ 80). In his oral evidence, though, Mr Trøim went further, referring first to “those initial contracts”:

“Q. You mentioned Farahead's ownership arrangements earlier, didn't you? You instructed Mr Bosworth and Mr Hurley to hold Arcadia Lebanon shares subject to your instruction or order; correct?

A. No. I said that also two or three times. They came up with the whole idea. They would park those initial contracts in that company and that we would hold harmless economically that they will receive 70% and they will be kept outside the bonus pool. But the 70% will go back to kind of the shareholder in Arcadia.”

and then:-

“Q. Yet nine years later in your third statement you now say the counterparty may have been related to Sao Tome. You have no basis to say that at all, do you, Mr Trøim?

A. I think part of the reason is that I had −− that comes back recollection because I have spent some time in Equatorial Guinea over the last years doing Golar business and then I remember the story and then it came to me. But as I said, have I not given any guarantees. I said it was most likely the Sao Tome contract.

Q. Your memory has improved over nine years; is that right?

A. Yes, because I have been down to the country and I was kind of recollecting the story.

Q. So you have experience –

A. But I have also done it with reservation. I tried to help the court, to advise in one direction but I have not given any assurance that was the case but there was a specific thing. My strong feeling is that it was linked to the Equatorial Guinea/Sao Tome set up with ( indistinct ).

Q. Exactly. The business that was being talked about was Equatorial Guinea, wasn’t it?

A. Yes. That is the Sao Tome/Equatorial Guinea structure.

Q. That was the opportunity that Arcadia Lebanon was going to take, wasn’t it?

A. I have now said that for the fifth time, this was an opportunity, this was an executed contract which they wanted to find a home for.”

That evidence is consistent, in my view, with the Arcadia Lebanon arrangement having, at least in the first instance, covered both the Sao Tome and the Zafiro Contracts (the latter relating to Equatorial Guinea).

Asked about the first entry in the Hannas Note, Mr Trøim said this:

“Q. We were discussing Mr Lance yesterday. He is the Arcadia secretary; yes?

A. Yes.

Q. Mr Hannas is recording that Arcadia Lebanon is Mr Fredriksen's standalone company. Do you see that?

A. Yes.

Q. And the reason why Arcadia Lebanon was the standalone company was because Arcadia Lebanon was Mr Fredriksen's company; correct?

A. That is legally wrong.

Q. So in substance, it is the stand-alone Fredriksen company; correct?

A. No, it is a company where effectively we have a 70% economical interest.”

The Claimants highlight evidence from Mr Trøim to the effect that using Arcadia Lebanon would not provide any protection:

“Q. But it is right, Mr Trøim, that after Arcadia Lebanon is set up and the term contracts are transferred, there was not any audit enquiry or investigation into Arcadia's West African activities, was there?

A. No, but what was more important, there was even no reporting to the 70% economic holder. So this was totally hidden from us.

Q. But the arrangements meant that the auditors no longer raised any questions about payments to service providers; correct?

A. I don't know what kind of audit there is in Lebanon but kind of I assumed there is an audit there as well, if it's not that kind of thorough. But it was not part of the group company because it was owned by Pete Bosworth and Colin Hurley.

Q. And because --

A. But when I see this list, it is far in excess of what was agreed to when they started this company.

Q. Because there was no audit enquiry, you and Mr Fredriksen were able to protect your reputation?

A. If you want to protect your reputation, I think it is pretty stupid to call the company Arcadia Lebanon.

Q. Why do you say that, Mr Trøim?

A. Because that will naturally belong to part of the Arcadia Group.

Q. But Arcadia Lebanon is hidden from the auditors, isn't it; correct?

A. Yes, but if something comes out that you have paid your own money, it does not come out necessarily from audit.”

Mr Fredriksen gave similar evidence in this witness statement. However, it failed to address the point that the use of Arcadia Lebanon mitigated the risk of a repetition of the problems that had arisen with Pang Ling and had been highlighted in the Deloitte letter. Those problems arose because Arcadia London made payments to service providers, which led to audit enquiries. If Arcadia London purchased the oil from Arcadia Lebanon, which itself paid the service providers, then Arcadia London was no longer taking the associated risks, and no payments to service providers appeared on Arcadia London’s books. Arcadia London’s involvement became simply a purchase of crude oil from Arcadia Lebanon (or, as the arrangements, were implemented an intermediary company which had itself purchased the oil from Arcadia Lebanon). As Mr Trøim noted in his last answer quoted above, risks might emerge other than from the audit process. However, it did not follow that the Arcadia Lebanon arrangement did not provide a benefit or perceived benefit. The plan was to mitigate the risks, not to eliminate them. The Claimants object that Arcadia Lebanon’s name meant that it could not realistically be used for the purpose alleged by the Defendants. This too misses the point. The idea was never to pretend to the NOCs that Arcadia was not purchasing the oil. My understanding of the evidence is that the idea was, rather, for the service provider payments not to be made by (or appear on the books of) Arcadia London, where the rigours of the UK audit regime might lead to questions that would be difficult to deal with, since it would be hard to provide detailed documentary support for the payments. In the words of Mr Hurley as part of his oral evidence:

“[T]he entity that is being audited Arcadia Petroleum Limited and latter Arcadia Energy Swiss did not have service provider agreements, so nothing was being hidden from the auditors because they didn’t have any contractual obligation to do that. That was in the circumstance we are talking about here, with Arcadia Lebanon.”

and:

“What is happening is that the Arcadia Lebanon entity that has us as the registered shareholders at the instruction of Mr Fredriksen, that entity does mitigate the risk. That is the entity that is taking the risk. So the risk is out of the group and into the non-group entity which it achieves. It does mitigate the risks to that extent.”

Weighing up this evidence as a whole, I am unable to accept the Claimants’ allegation that Mr Bosworth assured Farahead that Arcadia Lebanon was established merely to be the counterparty to one particularly lucrative trading contract in order to avoid having to share bonus payments with other traders (Particulars of Claim §§ 53, 54.1 and 54.3). I find Mr Bosworth’s and Mr Hurley’s account of the matter far more plausible, as well as being consistent with the contemporary documents. In light of the Pang Lang experience and the Deloitte letter, there was good reason to believe that compliance issues were likely to arise again now that Arcadia had, with the Zafiro Contract in December 2005, entered into another term contract with a NOC directly. The documents show that a Beirut office was being considered by the time of the business plan in 2005, and Arcadia Lebanon was incorporated in spring 2006. The choice of Lebanon is consistent with the reference in the business plan to a looser compliance regime, and to Mr Fredriksen’s acceptance in oral evidence that it would be a good choice of venue for ‘borderline’ business. I find that at least Mr Trøim was aware of its incorporation at or about that time. Mr Bosworth’s evidence on this topic was in my view plausible both in itself and against that context. It was also consistent with Mr Lance’s later reference, recorded in the Hannas Note, to Arcadia Lebanon as Mr Fredriksen’s ‘stand alone’ company, as well as with later events recorded in the Hannas Note to which I come later (see, in particular, sections (I)(10)(d), (e), (f) and (i) and (I)(11)(b) and (e) below).

It is not surprising that Mr Bosworth did not have complete recollection of the chronology, given the passage of time since these events. However, (a) he was clear from the outset, in his witness statements, about the limits of his recollection, and (b) the broad chronology is plausible: the Zafiro Contract was entered into in December 2005, Farahead’s acquisition of Arcadia was completed in early 2006, and by that stage it could readily be anticipated (given the Pang Ling experience) that in due course the auditors might start to ask questions about service provider payments, all the more so if the business were expanded and further contracts entered into direct with NOCs. Mr Hurley’s evidence was similarly clear and consistent. I accept their evidence that it was agreed that Arcadia Lebanon would be used as a contract holder in order to mitigate compliance risks of West African oil trading; that the Sao Tome and Zafiro Contracts should be migrated to it; and that later similar contracts should be treated in the same way.

Conversely, the Claimants’ account has shifted over time and lacks plausibility. The pleaded case was that Arcadia Lebanon was presented as a way of avoiding bonus sharing on one particular contract. By the time of trial, even on the Claimants’ evidence it extended in substance at least to the Zafiro and Sao Tome Contracts. It was never explained why, if the objective were merely to affect bonus distribution – a matter within Mr Bosworth’s gift anyway as CEO, as he pointed out – it would be necessary to go to the lengths of setting up a new company and redesigned contractual chains. Moreover, as set out above, Mr Fredriksen and Mr Trøim in parts of their oral evidence did not feel able to dispute that compliance concerns played a part in the reasons for Arcadia Lebanon’s involvement, although they maintained that that was Mr Bosworth’s idea rather than theirs. I do not accept the Claimants’ case that Mr Fredriksen and Mr Trøim did not wish to take any risks, and that the Defendants’ explanation for Arcadia Lebanon’s purpose makes no sense. To the contrary, I conclude that Mr Fredriksen and Mr Trøim were willing to accept the risks inevitably involved in West African oil trading, including with NOCs, and agreed that they should be mitigated by the use of Arcadia Lebanon and of sleeving arrangements.

More generally, even at this stage in the chronology, the Claimants’ essential case that Arcadia Lebanon was an instrument of fraud used dishonestly to divert profits from Arcadia London, begins to appear counter-intuitive. Far from Arcadia Lebanon being established and used secretly, it was openly discussed with Mr Fredriksen and Mr Trøim, and placed into at least the Zafiro and Sao Tome Contracts with, at the very least, their acquiescence. It was a company in which Mr Trøim regarded Farahead as having a “70% economic interest”. That is a strange way in which to commence a pattern of fraudulent diversion of funds.

I return later to the allegation in Particulars of Claim § 54.3 about the alleged false representation in late 2008 that Arcadia Lebanon had become dormant: see §§ 468-475 below.

It took some time to transition the contracts to Arcadia Lebanon. The company was registered with the Lebanon Ministry of Finance on 6 October 2006, and became operational in about April 2007. Mr Hurley explained that there were contractual, operational and financial transitions to be made, and I accept that evidence.

GEPetrol entered into a contract with Arcadia Lebanon, dated 2 April 2007, though signed on 14 May 2007, for supply of Zafiro crude; and the existing Zafiro Contract with Arcadia London was terminated. The first Arcadia Lebanon transaction under the Zafiro Contract had a bill of lading dated 25 April 2007. The Zafiro Contract continued until 2013.

Similarly, Arcadia Lebanon took over the lifting under the Sao Tome Contract. Instructions were given on 19 April 2007 directing that all further cargoes would be lifted by Arcadia Lebanon. Arcadia Lebanon lifted its first Sao Tome cargo on 22 May 2007 (or possibly 4 June 2007), and later entered into a formal lifting agreement on 5 November 2007 (though NNPC continued to send letters to Arcadia London in relation to the contract until at least October 2007). However, the Sao Tome Contract expired in early 2008 and was not renewed.

Arcadia Lebanon also took over Arcadia’s arrangements to pay the service providers, and entered into its own service provider agreements similar to Arcadia’s arrangements. Arcadia London’s agreement with Sonergy was terminated on 23 March 2007 and on 1 April 2007 Arcadia Lebanon entered into service provider agreements with Sonergy and Bergamot. Some of the payments made under these arrangements were recorded in a document referred to at trial as the ‘Arcadia Lebanon Profit Share Schedule’. For instance, it indicates that in relation to the Zafiro Contract Sonergy received, in broad terms, 65% of the profit represented by the difference between the prices at which Arcadia Lebanon bought and on-sold the oil, and Mr Driot’s companies received 15%. For some of the earlier transactions, between April and July 2007, Arcadia London rather than Arcadia Lebanon made the payments to Sonergy. This may have been the case for the cargoes referred to at trial as EY Deals 1, 2, 4, 5 and 7. In relation to EY Deals 4 and 5, there are bank transfers consistent with Arcadia Lebanon having subsequently reimbursed Arcadia London for the payments to Sonergy, which Mr Bosworth explained may have occurred as this was a “transitionary period” close to when Arcadia Lebanon became fully operational.

Further, it appears that Arcadia Lebanon also took over responsibility for Arcadia’s investments in the Concerto/Main projects I referred to earlier, as evidenced for example by an 18 October 2007 invoice issued to Arcadia London which Concerto reissued on 20 November 2007 and which Arcadia Lebanon settled. Most of the payments to Concerto were for projects in Angola, the DRC and Sudan. One concerned the acquisition of an interest in the Indarama gold mine in Zimbabwe, to which I return later.

In spring 2007, Mr Kelbrick moved to Switzerland for professional and health reasons. However, he said he continued to travel to Nigeria almost every other week to maintain his contacts, as well as undertaking legacy work via Blacksea for Mr Decker. In July 2007, Mr Kelbrick established a separate entity in Switzerland, South Energy, through which to provide his consultancy services. South Energy entered into a consultancy agreement with Arcadia on 1 March 2007.

While Arcadia Lebanon became operational, Mr Kelbrick also began to work as service provider for Arcadia. Mr Kelbrick said that South Energy’s consultancy services for the Arcadia Group included providing assistance with the administration and logistics of the Arcadia Group’s existing business in West Africa, Sudan and India, maintaining commercial relationships, seeking to obtain new supply contracts, providing any information that Arcadia Group used to assist its paper trading (including operational and market information from Nigeria), and attending meetings on Arcadia’s behalf. This included travelling to India with Arcadia Singapore employees to introduce them to Mr Kelbrick’s Indian contacts at Reliance and ESSAR. Mr Scheepers said South Energy paid Arcadia Switzerland rent to use their offices and had separate IT systems.

Mr Kelbrick also set up a new company, Proview, which he and Mr Bosworth agreed would handle all the operations etc in Nigeria on behalf of Arcadia Lebanon, especially all of the operations within NNPC. Proview became operational at about the end of 2007 and received payments from Arcadia Lebanon starting in July 2008. Mr Kelbrick provided services in respect of the Sao Tome Contract (and later the Senegal Contract) in respect of which he received a profit share. Mr Kelbrick operated the Sao Tome Contract from June 2007 to January 2008 for Arcadia Lebanon. He said he maintained and handled the contract “from the NNPC side”. Mr Asibelua/Equinox had the relationship with the Sao Tome Government, but it was Mr Kelbrick’s relationship with NNPC that operated the term contract and secured the lifting of the crude oil for Arcadia Lebanon. Mr Bosworth said Mr Kelbrick lived in Nigeria and “had access to everybody that Arcadia or Sao Tome needed to handle the contract”. Mr Bosworth’s evidence was that Mr Kelbrick’s role on the Sao Tome Contract was to handle all of the operations in Nigeria because the Arcadia Group did not “have people on the ground” in Nigeria.

Mr Bosworth and Mr Kelbrick explained that the only local personnel that Arcadia London could for a time call on in Nigeria were Mr Morgado and Ms Azzariti, both foreigners and too junior to be given significant responsibility (and remunerated far less than service providers). Mr Bosworth explained that Mr Kelbrick and his companies performed a similar role to that previously performed by Pang Ling and Mr Asibelua (in the early 2000s, when the latter was Arcadia’s principal Nigerian broker).

Mr Kelbrick said that, in relation to the Sao Tome Contract between June 2007 and January 2008, he assisted in handling the operational aspects of the contract, principally ensuring that Arcadia Lebanon actually obtained oil in the first place, and then ensured it got its preferred grade of oil and timing from NNPC. His work also included arranging letters of credit, shipping operations, banking operations and pricing operations. Mr Kelbrick also recalls work in relation to the Sao Tome Contract involving chartering a small plane and travelling to Sāo Tomé. As to his remuneration, he said in oral evidence:

“I don’t recall the percentage or the basis for the agreement. I knew that I was working to get the cargoes and for Arcadia and that is all that I can really recall”

and:

“I don’t recall a profit share agreement but if I have been running a contract, if I have been managing a contract, if I’m the only option that they have on the ground, right, then - - and to my knowledge, I was the only option because you know you couldn’t go and hire other people that had the expertise…so these monies would have been due because there are gross profits associated with them. I would have been involved in ensuring that gross profit was made”

The evidence indicated that there were a number of important facets to the services Mr Kelbrick (and similar service providers) provided.

A number of witnesses gave evidence about the importance and difficulty in getting the right grades and volumes of oil at the right time, which is one of the main services Mr Kelbrick said he and Proview provided under both the Sao Tome and Senegal Contracts. Messrs Hendry and Kelbrick gave evidence that obtaining a term contract did not guarantee the supply of oil for the contract holder, because NNPC in particular would generally agree to provide more oil than it in fact had. Mr Kelbrick said NNPC “committed far too much contractually than can be met”, and once one had a term contract, one had “to fight tooth and nail to make sure you get the volume against that contract”. He explained that:

“Within NNPC, you have the crude oil marketing department. Within the crude oil marketing department, you then have the programming department and those are the people that have to try to ally all their commitments with what the production is going to be. And the reason I make it ally like that is you are always going to leave people out, because you have committed the politicians. And everybody else has committed far too much contractually than can be met, especially when there are community disturbances, pipelines broken”.

Similarly, Mr Bosworth said “Start with a contract. The contract may say 30 or 60,000 barrels per day. There is no guarantee that you will get that amount of oil”. Thus, even after a company had secured a term contract, it would need operational assistance on the ground in West Africa to obtain the right volume and grade of oil at the desired time and place. A report by the Oxford Institute for Energy Studies stated that “Adding to the complexity of Nigerian oil contracts is that they allow contract holder to nominate five grades of crude acceptable to the buyer. NNPC can deliver any of these grades of their own choosing. It is not clear what method NNPC uses to allocate these barrels. There is no guarantee on the NNPC part to supply the agreed volumes.”

As I noted earlier, Mr Hendry’s evidence in his report was that obtaining “the correct cargo, with the required quantity, on the stipulated dates, can in fact be challenging” to achieve, and “[t]he NNPC term crude contract, for example, does not specify which of two dozen or so different Nigerian crude grades will be allocated. Some grades are far more attractive than others. The allocation of particular loading dates within a stipulated month can have a significant impact on the trader’s profitability, especially whenever there is steep contango or backwardation in the forward market”. In oral evidence, he added that “NNPC gives NNPC the right not to supply if they don’t wish to. So you may have the allocation of oil but you may not get it, you may not get the oil you want, you may not get it in the timing you hoped to receive it”.

Consistently with that evidence, Mr Kelbrick said that about 6-8 weeks before loading, he would be asking which grades Arcadia Lebanon wanted, when it wanted them in the month, and then when the programme came out 6 weeks in advance, he “would sit with [NNPC] for hours on end and make sure that we got the right grade, the right time in the month”. He said emphatically, “getting the right oil at the right time. Getting the correct laycan. Making sure there are no difficulties in loading etc, etc, is – I’m sorry if everybody thinks that is an easy task but it really isn’t”. Mr Kelbrick described his job as follows: “to get the grades they [Arcadia Lebanon] wanted - - well, number one was to get the molecules…It was number two to get the correct molecules. Number three, to make sure they were arranged on the appropriate dates for the customer”. He described in his witness statement how he “attended NNPC’s offices regularly to ensure that the company for whom I was working…lifted the correct grade of oil, in the correct quantity, at the right time”.

Likewise, Mr Akpata when asked to give an example of a particularly important part of service providers’ work, he said: “Getting grades and getting dates. Those are significant. You know, dates can go into things like getting a month, getting the right month. Then you go into the right decade and then the right two days. That becomes very specific”. Mr Akpata said to achieve this, one had to “sit with” and “harass” individuals at NNPC until you got what you wanted. He said “you can have a situation where everybody wants a certain date. So in the market, the traders know, for example, oh Bonga is good, we need this decade …So if three, four people are looking for Bonga, everyone is looking for Bonga, and there is only so many Bongas… There is only so many. So you have to make sure that your guy is the one who gets that”. Mr Akpata said the operational and logistical services provided made traders a lot of money. Conversely, Mr Kelbrick explained: “If you get one of those three elements wrong [grade, volume, timing], it can result in a multi-million-pound loss”. For example, Mr Kelbrick said, a change in the laycan date would change the pricing period and so could result in a significantly different price for the oil. Thus, securing the right grade of oil in the right quantity at the right time had a significant impact on the profitability of the potential trades.

Others gave similar evidence. Ms McDonald said that “if a service provider didn’t procure or help procure the cargo, Arcadia Group wouldn’t make any money so without them there may not have been a deal”. Mr Duncan said it was “vital” to get the right grade of oil at the right time, and “the grades are allocated on set dates. The challenge is to meet those dates. So – and a lot can go wrong in terms of meeting those dates. You can have civil unrest, you can have power outages, you can have piracy, you can have a whole bunch of things”. He agreed that providing these operational services was highly valuable and important to anybody trading West African crude oil.

Mr Kelbrick said, “the smallest thing can trip you up”. Mr Kelbrick mentioned as an illustration a deal between Arcadia London and IOC in September 2007 where the vessel nomination/loading dates changed. As a result, Mr Duncan noted in an email that IOC had “gone nuts” because IOC said the change in dates “will severely hamper our refineries operations due to crude shortage”. Mr Duncan’s contemporaneous response to this problem was “Kelbrick on the case”.

Significant operational and logistical issues had to be addressed. Mr Duncan said in oral evidence that one of Mr Kelbrick’s services and skills as a service provider was resolving operational issues, which he repeated was “vital” (notwithstanding his evidence that he “did not get on well at all” with Mr Kelbrick). Ms McDonald said that “A lot can go wrong” in trying to secure and lift the right cargo.

“For example in Nigeria, when you would load a cargo of crude oil, you might get it inspected and find that it had a large proportion of water, so you would be paying for water, not oil. Sometimes the quality was not what it should be, so you would have to have it inspected at load port and then you might have to negotiate. Cargoes could be held up because of other vessels in port, they could miss a delivery window, the buyer would say they are not going to receive it now because you have missed your delivery window so you would have to sell it as a distressed cargo. There were lots of things that would go wrong”.

She said that in situations like these, service providers come into their own by resolving these issues.

Mr Bosworth said there were “significant amounts of work” involved in the logistical and operational services Mr Kelbrick provided, which included handling letters of credit, shipping operations, banking operations, and pricing operations. Nominating a vessel in Nigeria was “not a straightforward operation”. Shipping documents had to go through the Department of Petroleum Resources and any delay could cause significant problems with loading, with the terminal, and with the relationship with NNPC. Mr Kelbrick explained that he had to be sure of all the documentation for NNPC because his biggest risk was non-performance, that the cargo could not be lifted. He had to spend hours on end in NNPC’s offices to ensure cargoes were lifted.

The Claimants sought to minimise the nature of the services Mr Kelbrick provided, but I found his explanations credible and indeed compelling. The following example gives a flavour of his oral evidence:

“Q. But these are described as logistical or administrative services, aren't they; making sure the documents are filed?

A. Well, perhaps in any other country and certainly in other countries I have been to, it can be a fairly straightforward task. Finding the right person, getting into NNPC, literally getting into the building itself some days could be a nightmare. I was fenced at the gate for days on end. There could be any number of things that meant you couldn't get in there and once you were in there, you made sure you stayed there because you weren't going to necessarily come out and go back unless everything was more routine. There were times at NNPC genuinely where I would go in the jeep and I would sit there and they would just wave and say go, just pass, we don't want you here. So, it was -- I do understand from your perspective about thinking it's normal. It is really not normal. I lived there as well and I spent a lot of time away from my family, just working hard and doing all of these tasks that everybody thinks is mundane. And it really isn't because if it isn't hit, and if somebody decides to take exception, then again the last thing I want is to be picking up the phone to somebody in Arcadia and saying, "We have a problem".

Q. Mr Kelbrick, this is all very interesting, but it is all a matter that should have been explained in your witness statement, isn't it, if it were true?

A. It is true.

Q. You talk about filing, shipping and letters of credit documents. The only difficulty referred to is not being allowed access to the building. And yet you say you regularly attended day-long meetings for programming?

A. No. I would get into what was called the crude oil marketing department, COMD, I would get in there at 8 o'clock in the morning and you just had to pick off whoever was coming. There was no "I will see you at 10.35", it just didn't work that way. I had to be on the ground in front of people's faces to get things done.

Q. But what you are describing are things that could have been done by any local Nigerian as well?

A. Not necessarily, no.”

I reject the Claimants’ suggestion that Mr Kelbrick, in giving this and similar evidence, was going beyond his witness statement. In my view, the evidence he gave was entirely in line with the contents of his statement, including the passages I have quoted in § 158 above. I bear in mind that, as the Claimants point out, there is little documentation on this topic. However, Mr Kelbrick’s evidence was that his work “was not paper-heavy, it required a lot of face-to-face meetings and telephone calls”; that he did not have significant administrative support; and that he was primarily concerned with operating on the ground in West Africa rather than the preparation of paperwork. I accept that evidence. In addition, his evidence about his work as a service provider is consistent with the evidence from Mr Hendry, Mr Akpata, Ms McDonald, Mr Duncan and Mr Bosworth about the nature of the role.

The Claimants sought to compare Mr Kelbrick with Ms Azzariti and Mr Morgado. I agree with Mr Kelbrick that the comparison was inapt. Mr Kelbrick was very well connected in NNPC. He was a specialist in originating and operating West African crude contracts. By contrast, Ms Azzariti and Mr Morgado were – as Mr Bosworth explained – “very junior”. Mr Kelbrick said, “that sort of person doesn’t generate contracts and doesn’t generate worth”. Mr Bosworth also rejected the notion that Mr Kelbrick could simply have been replaced by a modestly-remunerated Arcadia employee. For example:

“Q. All you are talking about, handling all the operations on the ground, you could have employed someone specifically to do that at a fraction of the cost. A full-time employee in Nigeria, how much do you think you might have spent on that?

A. It's not quite as simple; it's not as black and white as that in that employing somebody who has no experience or employing a local employee is part of the package. In order to get someone who really knows, and as I said before, Mr Kelbrick lived in Nigeria I think at this time or around that time, so he had access to everybody that Arcadia or Sao Tome needed to handle the contract.

Q. And who might that be?

A. Everybody within NNPC, everybody within government, everybody outside of it as well.”

I accept his and Mr Kelbrick’s evidence on this matter.

Mr Bosworth explained that “it’s not an easy job” because “It is a complex job getting documents across a country where there is little or no communications at that time”. Ms McDonald said of pricing declarations that “there was no guarantee it was going to get to the right person, so that is why we would use the service provider”. When asked about whether certain services are administrative in nature by Mr Haydon KC, Mr Hendry said that “nothing in Nigeria works the way it does in any other country”, and “dealing with NNPC, nothing is routine”. In Mr Kelbrick’s words, “It was not a case of just me waltzing in [to NNPC] and dropping papers et cetera”.

A number of witnesses also gave evidence that working in the Nigerian oil sector in the relevant period was dangerous. Mr Kelbrick gave evidence that throughout his time in Nigeria, he used bulletproof cars, and all of the doors in his apartment, including the internal doors, were bulletproof. He said, understandably, that he “did not enjoy working alone in Nigeria and this was not a happy period in my life”. Mr Bosworth said of Mr Kelbrick’s work as a service provider on the ground that it “is not an easy job and it’s not a safe job either”, and when he (Mr Bosworth) had been in Nigeria, one of his expense accounts included a bulletproof vest. Ms Bossley also said she had had some “pretty hair-raising experiences” in Nigeria, and Mr Akpata too referred to needing bulletproof cars when travelling to certain places during “kidnap season”.

It was also suggested to Mr Kelbrick that he was paid far more for the same job than Mr Akpata had been (whose March 2002 agreement provided for per barrel fees along with bonuses not exceeding US$250,000 a year), by reference for example to an invoice from March 2002 setting out activities Mr Akpata carried out on administrative tasks, document handling and advising. Mr Kelbrick explained, however, that this was several years earlier and, in any event, these charges did not relate to Mr Akpata having in substance provided oil: “he hasn’t brought crude oil to the Arcadia stable”. As set out earlier, Mr Akpata himself said his own complaint was that he did not receive more, rather than that Mr Kelbrick was overpaid: once one reached Mr Kelbrick’s level, his remuneration was “what was supposed to happen” (see § 96 above).

As part of the audit of Arcadia for the 2006/2007 year, Moore Stephens raised a number of queries about payments that Arcadia had made to service providers, including to Sonergy and Equinox. These related to the period before the Zafiro and Sao Tome Contracts were transferred to Arcadia Lebanon. The Arcadia audit committee met on 30 April 2007, and on 6 June 2007 Moore Stephens wrote to the committee to identify matters arising from the audit. Moore Stephens identified payments to Sonergy, Equinox, MRS and Concerto (included in ‘Other charges’), among others, for further investigation. The documents suggest that a meeting of Arcadia London’s audit committee, comprising Mr Hurley, Mr Lance and David Ford, with Geoff Woodhouse, the partner at Moore Stephens with carriage of the audit and financial statements, took place on 6 June 2007, with review of draft financial statements being the first agenda item. Mr Woodhouse emailed Mr Hurley on Monday 9 July 2007 to say that he would meet Mr Hurley that Friday 13 July 2007 to finalise the audit and financial statements and then have lunch.

On 12 July 2007, Moore Stephens sent Arcadia a form of representation letter dated 13 July 2007, to be signed by the board and sent back to Moore Stephens. The letter identified that Arcadia’s ‘cost of sales’ included a charge of US$11.3m payable to Sonergy and that the agreement with Sonergy had been approved by the Arcadia board. The letter was formatted so as to be signed by Mr Hurley on behalf of the board and countersigned by Mr Lance, Mr Hannas and Mr Pallaris as directors attesting to the following statements:

“Each of the countersignatories below, each of whom is a director at the time when the directors’ report is approved, in signing this letter confirms that:

(a)

so far as each director is aware, there is no relevant audit information of which the company’s auditors are unaware; and

(b)

each director has taken all the steps that ought to have been taken as a director, including making appropriate enquiries of fellow directors and of the company’s auditors for that purpose, in order to be aware of any information needed by the company’s auditors in connection with preparing their report and to establish that the company’s auditors are aware of that information.”

Later the same day, Mr Hurley emailed Mr Woodhouse to say that he had invited Mr Lance and Mr Ford (of Arcadia) to join the lunch the next day. Mr Woodhouse responded at 17:31, “Many thanks and I look forward to seeing you at midday — I will be bearing ten copies of the 2006/07 financial statements for signing which I will swap for our letter of representation.” Mr Hurley was asked in cross-examination whether he would have been able to sign the representation letter in person at the lunch, to which he replied “As one person, if it was brought along, I would be able to sign it.” I do not read that as meaning that Mr Hurley considered that his signature alone would have been sufficient for the auditors to sign off on the accounts. However, it appears from the documents that the financial statements themselves were signed by Mr Lance, who was due to attend the 13 July 2007 meeting, and that Moore Stephens signed off on the audit on the same day.

The Claimants’ disclosure does not include a signed copy of the letter, and no communication has been found sending the representation letter to Mr Hannas. Mr Hannas in cross-examination confirmed that the 2006/07 audit was completed, and that the auditors would not sign off on the accounts unless these sorts of letters were signed. He said he could not recall signing the letter, nor any reason why he would not have signed the letter. Mr Hannas said he was not involved in the commercial operation of the group and could not remember seeing Arcadia London’s agreement with Sonergy. The Claimants suggested that Mr Hurley had not sent the representation letter to Mr Hannas.

The previous year, 2006, the auditors had sent the representation letter to Mr Hurley, who had replied “No problem I can sign but the two directors in Cyprus may take some time does this have to happen before we can sign the financial statements?” The auditors replied that the other directors’ signatures could follow in due course by pdf or fax. The documents suggest that Mr Hurley then signed the signature page and sent that page only to Mr Hannas for signature. There is no record of a message sending Mr Hannas (or Mr Pallaris, who also signed) the full text of the letter. In addition, the documents suggest that in 2013 Moore Stephens accepted a representation letter signed by Mr Lance but not the other director, Mr Tuke. Conversely, though, it is notable that the auditors in 2006 contemplated that signatures might be provided by fax, and it is possible that Mr Hannas received the 2007 representation letter, and provided his signature to it, by fax.

In the absence of the complete documentation for 2006/07 it is difficult to draw clear conclusions about this matter. Despite the (limited) evidence about what happened in 2013, six years later, I consider it more likely than not that Mr Hannas would have signed the representation letter at some stage, on the basis that in the ordinary course of events the auditors would expect his signature on it (as they evidently did in 2006). The evidence does not indicate whether or not Mr Hannas saw, or asked to see, the full text of the representation letter or the Sonergy agreement. Conversely, though, there is no evidence of any attempt to conceal the representation letter or its contents from Mr Hannas (or anyone else).

The Claimants highlighted a selection of examples taken from the 144 Transactions, used to illustrate the matters said to found their claim. It is convenient to mention two of them here as they related to cargoes lifted pursuant to the Sao Tome and Zafiro Contracts (even though the second of them occurred a little later than the stage in the chronology I have reached).

It is first necessary to summarise the pricing arrangements under the Sao Tome and Zafiro Contracts.

The NNPC term contracts in this case, such as the Sao Tome Contract, priced the oil by reference to the average of prices published by Platts for Dated Brent over a 5-day period defined by reference to the bill of lading date. NNPC published Pricing Schedules setting out an Official Selling Price or “OSP”. The OSP was a combination of the average of published Dated Brent prices over three possible periods (the “Absolute Price”) plus a premium or less a discount according to the grade supplied. The pricing periods were:

The default charging period was “Prompt”. An “option fee” (usually US$ 0.05/bbl) was charged to a buyer if it wanted to select either Advanced or Deferred pricing. If the option was not exercised, the period used would be “Prompt”.

Under NNPC Term Contracts, a cargo was the subject of a nomination which specified an anticipated loading period of the cargo — a window within which the cargo was expected to be loaded and lifted — the “Laycan”. The B/L would be expected to be issued within that period, but there could be delays.

The buyer had to declare its chosen pricing option by the sixth Nigerian working day before the commencement of the agreed loading date range. At the time the option was required to be exercised, the Advanced period would not have started.

To help gauge what the best option might be, it was possible to consult the futures or Contract for Difference market to determine forward prices and compare prices being offered for delivery in each of the three periods. In cases where there was a steep difference in prices being quoted, it might be possible to see value in paying for and exercising the option to select Advanced or Deferred instead of the default pricing period of Prompt.

Two industry terms are used to describe the structure of the forward curve: when a market is in “contango”, the spot price (price for delivery soon) is lower than the futures price (price for delivery in the future), which is reflected in an upward sloping “forward curve”; “backwardation” is where the spot price is higher than future prices, so the forward curve slopes down. Where there is a steep curve one way or another, it might make sense to exercise the option and pick “Deferred” or “Advanced” averaging periods to determine the price paid. Mr Hendry said, “this pricing optionality allows traders to take a view of the market and to exploit differences in value that can occur during the available pricing windows offered”. As Mr Kelbrick explained, if a buyer purchased oil from NNPC using the “Advanced” option and sold the oil using the “Prompt” pricing option, it would make money if the price of Dated Brent rose between: (i) the five-day period before the bill of lading (advanced pricing); and (ii) the five-day period after the bill of lading (prompt pricing). It would lose money if the price of Dated Brent fell across the same two periods. Further, he said, under the terms agreed:

“If Arcadia wanted to exercise a pricing option, the sale contract provided that it had to declare the same to me on or before the 7th Nigerian working day prior to the first day of the pricing option. This was in order that I could then declare AOIL’s pricing option to NNPC. I could either follow the pricing window elected by Arcadia, and take on no pricing exposure, or elect a different pricing window, in which case AOIL took on pricing exposure.” (§ 66)

The Claimants suggested at trial that the one-day difference between the dates on which Arcadia and then Mr Kelbrick had to make a pricing decision gave him an advantage and was what enabled him to make large profits on the transactions. There was no plea to that effect and no evidence in support of it, whether of fact or from the experts. Nor does the point have any inherent logic. It is obvious that Mr Kelbrick’s company would need to know Arcadia’s election so that it could decide what election to pass down the chain, and there can be nothing remotely objectionable about building in a day for that to occur. As Mr Kelbrick said in cross-examination, the additional day might be an advantage or might be no advantage whatsoever: “the purpose was to make sure that I never let Arcadia down on putting the pricing option in”. Building in a day was obviously prudent in circumstances where, as he put it, “nobody in Nigeria can be certain of anything”. Nor was there any evidence that the one-day ‘advantage’ had any intended or actual causal link to the profits made. Nor was there any suggestion that the Arcadia Group elected its pricing period to Attock Mauritius anything other than freely and independently. To the contrary, Ms Driay said “I would typically be given the option to elect a pricing basis by all of the entities I bought crude from (including Attock)”, and there was no evidence that she made that decision according to anything other than her own judgement. As Mr Kelbrick also said, he passed the pricing option on to Arcadia – something he did not have to do – and they could choose whether or not to pass it on to their on-purchaser. Yet further, their modus operandi was, as he understood it, different from his:

“So the idea of them, their MO as a portfolio company being the same as my MO as a small trader, smaller trader before we go any further, their MO is different. Their MO was to stack their paper positions, to stack their Brent positions, to stack their TI positions and my MO was to make money operationally at the front end.

Q. But surely Arcadia would have made money at the front end, if they could, by exercising the option?

A. But they didn't have access to the oil. I was the one who got the contracts. I had those contracts. They were mine to operate and to sell as Attock to Arcadia.”

The Claimants point out that the majority of the profits made by Arcadia Lebanon or Attock Mauritius were made when the price averaging period selected by Arcadia London/Arcadia Switzerland was different from the price averaging period selected by Arcadia Lebanon/Attock Mauritius. The Claimants say Arcadia Lebanon/Attock Mauritius always selected the more favourable price averaging period, apart from EY Deal 130 where it is apparent that Attock Mauritius made a mistake by notifying NNPC of its preferred price averaging period too late.

Under the Term Contracts made with GEPetrol for the supply of Zafiro or Ceiba Crude Oil, the buyer was at least ostensibly permitted to select a price averaging period retrospectively, after the Bill of Lading date. For example, clause 7 of the Zafiro Contract provided:

“7.

PRICE

The price in US Dollars (U.S. $) FOB FPSO Serpentina terminal offshore Equatorial Guinea in barrels of the bill of lading will be determined in the following way:

P = Dated Brent plus or minus a differential X in USD per net barrel X is a differential to be negotiated for each cargo strictly on the basis of the market conditions between the Seller and the Buyer, by mutual agreement latest 28 days prior to the first day of the preliminary loading dates range of two days.

Dated Brent corresponds to the arithmetic average of five (5) consecutive mean quotations of the Dated Brent published by PLATT’S Crude Oil Marketwise during the month of loading and shall be advised by the Buyer to the Seller latest the second working day of the month following the month of loading.”

Ms Bossley described such clauses as “peculiar”, as they allowed the buyer to make a retrospective selection of the applicable five-day price averaging period from the previous month. Mr Hendry commented that: “To be able to buy at the lowest price possible is a very enviable style of contract.”

In reality, however, the pricing was a matter for negotiation: see § 233 above. In most of Arcadia Lebanon’s negotiations with GEPetrol – conducted by Mr Driot until December 2010 and thereafter, by Mr Kelbrick – Arcadia Lebanon did not in fact secure the most advantageous pricing period within the month of loading of the relevant cargo. Of the first 12 cargoes lifted under the Zafiro contract, the most advantageous pricing period was only obtained on 4 occasions by Arcadia Lebanon (33% of the time). The same is true for GEPetrol’s negotiations with (i) Arcadia Lebanon after 2011 – when Mr Kelbrick conducted the relevant cargo-by-cargo negotiations following Mr Driot’s departure from Arcadia Lebanon – and (ii) Attock Mauritius under the Attock Transactions referred to later. Of the 26 cargoes lifted by Arcadia Lebanon after 2011 under the Zafiro Contract and by Attock Mauritius under the Attock-GEPetrol Contract, the most advantageous pricing period was only obtained on 7 occasions by Arcadia Lebanon/Attock Mauritius (as the case may be), i.e. approximately 27% of the time.

The Claimants nonetheless make the point that five-day periods were consistently selected retrospectively that generated significant profits for Arcadia Lebanon under the Zafiro Contract and for Attock Mauritius under the Attock/GEPetrol Contract; and they refer to Mr Bosworth having accepted in cross-examination that the pricing mechanism under the Zafiro Contract was such that “you would break even at worst”.

In relation to both the NNPC and the GEPetrol contracts, however, there is no positive case about the pricing basis for the transactions or that it in any sense amounted to or demonstrated diversion of opportunities. Moreover, on the footing that neither the Arcadia Lebanon Transactions nor the Attock Transactions involved diversion of any opportunities from Arcadia – as I later conclude – the fact that Arcadia Lebanon or Attock managed, by negotiation or by skilful selection of price averaging periods, to obtain advantageous terms, or was successful in its pricing elections, is beside the point.

Aside from the possibility of making a profit by reason of its pricing period election, a participant in a transaction would make a turn by charging its buyer an agreed additional premium (a number of cents per barrel) in excess of the premium that they had been charged by the NOC or other immediate seller.

EY Deal 6, in May 2007, related to a cargo bought from NNPC under the Sao Tome Contract.

Each trade under the Sao Tome Contract had six stages in contractual terms:

The transactions can be shown in diagrammatic form (including the associated letters of credit) as follows:

EY Deal 19, in January 2008, related to a cargo bought from GEPetrol under the Zafiro Contract.

Each trade under the Zafiro Contract had five stages in contractual terms:

The transactions can be shown in diagrammatic form (including the associated letters of credit) as follows:

The Claimants set out the chronological steps involved in EY Deal 19 as follows:

In late 2007, Mr Driot and Mr Kelbrick originated/introduced a number of opportunities to Arcadia to carry on business with various Senegalese national energy companies. The Senegalese NOC, Petrosen, purchased crude on a monthly basis from NNPC (under a government-to-government contract) but wanted Arcadia to lift the crude. The Senegalese opportunities consisted of Arcadia: (i) lifting crude under the term contract with Petrosen (the Senegal Contract); (ii) selling crude to the Senegalese refining company Société Africaine de Raffinage (“SAR”), a joint venture between the oil major Total and the Senegalese state; (iii) arranging with the investment bank Renaissance Capital the potential refinancing of SAR; and (iv) developing a products business in Senegal (such as the sale of fuel products to the Senegalese national electricity company Senelec). Mr Driot used Bergamot as his vehicle for each of these opportunities. A note of a management meeting between Mr Bosworth/Mr Hurley and Mr Fredriksen/Mr Trøim on 5 September 2007 indicates that “Shareholders were given a brief summary of the on-going discussion with the Govt of Senegal regarding the re- scheduling of USD 130 million debt, and the possible commercial benefits of crude and product business in Senegal”.

NNPC invited Petrosen to enter into a term contract on 18 October 2007. Mr Kelbrick described the ensuing events as follows in his witness statement:

“In addition to assisting Mr Decker with his business, I was continuing to develop contacts in West Africa for my own business. It was in this context that, in or around 2007 I became aware that NNPC and the state-owned oil company of Senegal, Société Des Petroles Du Senegal (“PetroSen”) had agreed a government-to-government contract under which PetroSen had an obligation to lift approximately 30,000 barrels of crude oil per day from NNPC (this equated to approximately 1 cargo a month).

NNPC asked me to meet with them and an official from PetroSen in Abuja. At the meeting, PetroSen confirmed they were happy for me to operate the contract with NNPC for and on PetroSen’s behalf. Accordingly, in August 2007, I was granted a power of attorney from PetroSen which gave me the right to execute contracts for sale of oil to third parties on PetroSen’s behalf. While PetroSen had the right of first refusal, in practice it did not have the refinery capacity for the volume contracted for, and instead sought companies to lift the cargo in return for a payment of a number of cents per barrel. I therefore had autonomy as to who to would be granted the right to lift the cargoes. This was a large business opportunity for whoever PetroSen contracted with.

I approached Arcadia to see if they would be interested in lifting the oil under PetroSen’s contract, which they were. I brought the opportunity to Mr Bosworth at Arcadia first out of loyalty, and because I had seen Arcadia lift in government-to-government deals before, including in Guinea, Kenya and Togo, and knew it would be reliable, but I could have offered it to any trader.

PetroSen then entered into a lifting agreement with Arcadia Lebanon; Mr Hurley signed on behalf of Arcadia Lebanon, and I signed on behalf of PetroSen. Arcadia Lebanon never contracted with NNPC directly. As I explain below, I understood that Arcadia Lebanon had been established by Arcadia for the purpose of the contract with PetroSen; but how Arcadia chose to structure its deals was not my concern and I did not give it much thought.” (§§ 31-34)

Mr Bosworth explained that Mr Kelbrick’s role focused on the Nigerian side of the Senegalese business opportunities, because that was his area of expertise, whereas Mr Driot had the relationships in Senegal. There is support in emails dating from 2009 for the point that Mr Driot had influential connections in Senegal. Similarly, Mr Kelbrick said in his oral evidence that “Jean Paul was very influential in Senegal. I was fairly decent in Nigeria and with NNPC and other Nigerian lifters. NNPC introduced me to Petrosen. I spoke with Jean Paul and he said he had already been working the Senegalese side of things and that I should just carry on doing my stuff in Abuja”. At around the same time (early 2007), Mr Driot was also assisting Arcadia in respect of its other West African activities in Equatorial Guinea, such as bidding for an exploration block.

The Claimants make the point that the power of attorney granted to Mr Kelbrick dated 1 September 2007 refers to him as being “of Arcadia Petroleum”, followed by Arcadia London’s address; and suggest that there was no other reason why Mr Kelbrick should have been able to persuade NNPC to grant the term contract, other than his being held out as representing Arcadia London. However, that ignores all the evidence I have summarised already about Mr Kelbrick’s connections with NNPC and Nigeria. Mr Kelbrick gave this response in his oral evidence:

“Well, the appointment -- no, it was my power of attorney, because I had had the meeting with NNPC and with PetroSen in the towers and NNPC is the party that put me forward to manage this contract. Yes? So at that point, once again, you know, I could have gone anywhere with it, and out of loyalty and out of history and also out of knowing the people, then I offered it to Peter Bosworth and then I can't speak to that wording because I don't -- I'm not sure it was my wording. I don't know why it is there. But it was my power of attorney because NNPC had told PetroSen that they wanted me to manage the contract. I think they wanted somebody they trusted that they understood and that they had worked with, because I had been there for a long time.

Q. They wanted Arcadia, didn't they, because they wanted a reliable lifter of the oil to be managing this contract?

A. No, I don't think -- I think once again the power of attorney was struck in my name. Where the Arcadia thing comes from, I can't speak to.

Q. It's an important part of this actually, isn't it, Mr Kelbrick? It's not just Mr Kelbrick passport number. It specifically identifies Mr Kelbrick of Arcadia.

A. That is what it says here.

Q. And that would have been an important part of this document, wouldn't it?

A. Again, I don't know how important because it was -- West Africa is down to an awful lot of individuals and if you trust the individual, then you will trust the organisation that they represent.”

I accept that evidence.

On 5 November 2007, Petrosen then entered a lifting agreement with Arcadia Lebanon (“the Senegal Contract”). Mr Hurley signed on behalf of Arcadia Lebanon and Mr Kelbrick signed on behalf of Petrosen. The Senegal Contract provided for the sale of 30,000 barrels/day of oil from Petrosen to Arcadia Lebanon, from 1 December 2007 to 29 February 2008. Arcadia Lebanon sold the oil to Arcadia London via a sleeving arrangement with the Tristar group, and a lifting agreement was entered into between Arcadia Lebanon and Tristar on the same date.

Mr Bosworth’s evidence, which I accept, is that he regarded the use of Arcadia Lebanon again as coming “under the umbrella of the reason for moving the first two contracts[;] there was exactly the same there”. Conversely, the Senegalese opportunities other than the Senegal Contract itself (which involved the purchase of crude from direct from a NOC) were not taken up through Arcadia Lebanon: consistently with the understanding that Arcadia Lebanon’s role was to mitigate compliance risks on high risk business. The other opportunities did not give rise to such risks. For example, Mr Hurley explained in his witness statement that “The SAR contract was perceived as a lower compliance risk than a term purchase contract with a West African government. This is because not only was it a contract in which Arcadia supplied (rather than purchased) crude oil but also because SAR was a joint venture between the well-known oil major, Total, and the Senegalese state”.

The Claimants suggest that there was confusion internally about whether the lifting agreement should be in the name of Arcadia London or Arcadia Lebanon, which they say contradicts the idea that any instruction had been given to Mr Bosworth/Mr Hurley that the contract should be entered into in Arcadia Lebanon’s name. That suggestion is based on an email from Mr Hurley to Mr Mounzer dated 6 November 2007 attaching a draft lifting agreement between Arcadia London and Petrosen. However, the point was not put to Mr Hurley and I do not consider that any particular conclusions can be drawn from it.

In connection with the Senegal Contract itself, Arcadia Lebanon made payments to service providers. Mr Driot/Bergamot received fees for originating and maintaining the Senegal Contract, the level of fees having been negotiated by Mr Bosworth and Mr Driot as noted earlier. Mr Kelbrick said that Mr Driot controlled access to GEPetrol; that in order to obtain oil from GEPetrol it was necessary to pay Mr Driot; and that Mr Driot “threatened… almost constantly” to move GEPetrol contracts to a competitor, as he ultimately did. Mr Bosworth said Proview was paid by Arcadia Lebanon for having originated the opportunity to buy the oil from Petrosen and for Mr Kelbrick’s operational work on the ground. Mr Kelbrick recalled that there was no formal profit share arrangement between Arcadia Lebanon and Proview, but that the amount received by Proview was calculated by reference to the costs of a given cargo. Proview was also paid sums by Arcadia Lebanon in order to pay some relevant service providers who helped to ensure that Arcadia Lebanon lifted the right grade in the right quantity at the right time.

The Claimants submitted there was no “credible explanation of what SK did so as to receive very large payments from Arcadia Lebanon on Senegal Contract cargoes” In fact, however, Mr Kelbrick originated the Senegal Contract for Arcadia Lebanon, and it was hugely lucrative for Arcadia Lebanon. Across 17 cargoes, the Senegal Contract generated US$50,344,445 in gross profits for Arcadia Lebanon. In addition, as with the Sao Tome Contract, Mr Kelbrick operated the Senegal Contract, which included securing the right grades and volumes of oil on the right dates, which was a hugely competitive and difficult exercise and one which was crucial to Arcadia Lebanon’s profitability. Mr Kelbrick said, “the legitimacy of [Proview’s services] was that, as I said, the crude oil was there every month. And that is the evidence that we have for commercial services; that actually the cargoes were there to be lifted. As I mentioned earlier, I saw that as my key role, to provide this West African crude to Arcadia. Also having, you know, been part of originating the contract”. He added “[I] certainly was operating [the] Sao Tome [Contract] and certainly I brought Senegal’s liftings from NNPC to Arcadia Lebanon.” I accept the evidence of Mr Bosworth and Mr Kelbrick on these matters.

A further contract was entered into in February 2008 (the “SAR Contract”), under which Arcadia sold Nigerian crude to SAR. Later documents dating from 2009 suggest that Mr Driot was also involved in this contract and, for example, was in a position to hold discussions with the Minister of Energy about it. Mr Bosworth in his oral evidence described the Senegal Contract and the SAR Contracts as “an amalgamation of two contracts, one was the sales contract to Senegal [the SAR Contract] and one the lifting agreement [the Senegal Contract]”; and that Arcadia London did not operate the Senegal Contract but “operated the other half of it, which was the deliverables to Senegal”. Bergamot received a service provider fee in respect of the SAR Contract. Arcadia made some of the payments to Bergamot, but Arcadia Lebanon also made service provider payments to Bergamot in respect of the SAR Contract, despite the fact that Arcadia Lebanon was not otherwise involved in the SAR Contract (and received none of its profits). Mr Kelbrick was not involved in the SAR Contract. He said: “I didn’t have the relationship with SAR there to supply the crude oil to SAR so that is the side that Jean-Paul [Driot] was involved in”.

In late January 2008, Stag’s solicitor sent Mr Ford of Arcadia a draft service provider agreement between Bergamot and Arcadia Lebanon; it covered each of the different Senegalese opportunities with various remuneration arrangements. Later, in July 2009 Bergamot entered into a service provider agreement with Arcadia Lebanon only for the Senegal Contract. Arcadia Lebanon paid Bergamot a fee per barrel on the Senegal Contract cargoes.

Altogether the service provider fees paid in respect of the Senegal Contract were as follows:

There were several operational problems with certain SAR Contract cargoes, including difficulties with the financing bank, BNP, and problems with SAR’s unloading of the cargoes. Mr Driot coordinated the communications with Senegalese officials that were necessary to resolve these problems, and he reported his work directly to Arcadia. Mr Driot provided updates on lifting programmes from NNPC, relevant both to the Senegal Contract and the SAR Contract, liaised with the Minister of Energy and SAR officials, and updated Arcadia on relevant political developments in Senegal.

The Senegal Contract was in place for about a year. Thereafter, the evidence of Mr Bosworth and Mr Kelbrick was that Mr Driot caused it to be moved to a competitor, Mercuria, who were willing to pay more.

EY Deal 27, another of the Claimants’ example transactions, related to a cargo of oil bought ultimately from NNPC in June 2008 under the Senegal Contract. The cargo was loaded on board MT “Olympic Future” in the measured quantity of 997,425 barrels. Each trade under the Senegal Contract had six stages in contractual terms:

The transaction can be represented diagrammatically in the way set out in § 362 above (ignoring for these purposes the reference to Sao Tome).

The Claimants set out the chronological steps involved in EY Deal 27 as follows:

The fourth of the Claimants’ example transactions, EY Deal 56, concerned another cargo bought pursuant to the Senegal Contract, in autumn 2009.

On 29 March 2007, shortly before Arcadia Lebanon lifted its first cargo under the Zafiro Contract, a Farahead company, VTN Ship Management Company Ltd (“VTN Ship Management”) entered into a joint venture with GEPetrol. VTN Ship Management was a subsidiary of VTN Holdings Ltd (“VTN Holdings”), which was wholly owned by Farahead. VTN Ship Management were described in the agreement as exclusive agents for Frontline Limited, and the joint venture provided an opportunity for Mr Fredriksen’s Frontline business to manage GEPetrol’s shipping needs. In his oral evidence, Mr Trøim said that the establishment of GEPVTN was part of Mr Fredriksen’s idea to “bundle shipping and the oil in one go”.

The agreement provided that the joint venture should be named “GEPVTN Limited”, and Farahead arranged for the incorporation of a company of that name (“GEPVTN”) on 7 May 2007. Messrs Hannas and Pallaris, who were both Farahead directors, also became directors of GEPVTN; and Farahead’s company secretary Mr Saveriades became GEPVTN’s company secretary.

The joint venture provided for GEPetrol to grant GEPVTN the exclusive right to arrange the provision of tankers for the transportation of oil from Equatorial Guinea in which GEPetrol had an interest. GEPVTN’s principal activity was that of a commission agent. The basic idea of the JV was that GEPetrol would require those lifting its crude oil either to use GEPVTN to ship the crude, or pay 2.5% of the freight to GEPVTN.

GEPVTN’s finances and accounts were run out of a small Cyprus office that also housed Seatankers, Mr Hannas, and Ms Theocharous. Roy French, a former Arcadia Group trader, worked in the office, handling operational matters for GEPVTN. Mr Hannas was, he accepted, a signatory on the GEPVTN account, along with Ms Theocharous, Mr Pallaris and Mr French, though he said he was not involved in the day to day operational running of GEPVTN (which Mr French carried out).

Mr Scheepers, Arcadia’s Head of Shipping, explained that Mr Bosworth introduced him to Mr Driot, and that he (Mr Scheepers) knew that Mr Driot’s company Stag used to lift most of the crude oil contracts from Equatorial Guinea. He explained that GEPVTN was established after discussions with Mr Driot and Mr Oburu (head of crude oil sales at GEPetrol), and:

“As a part of the GEPVTN framework, a profit share arrangement was agreed. GEPVTN’s profits would be shared with GEPetrol, and companies nominated by Jean-Paul. Two of these entities were Obexys and Rodexkia. The names of the participants in the profit plan were provided to Dimitris, who managed GEPVTN’s finances on behalf of Seatankers. I did not know much about these companies, but it wasn’t surprising to me that there should be profit share arrangements with various companies in relation to GEPVTN. Such arrangements were commonplace in the businesses I worked on.”

Mr Scheepers added in his oral evidence that Mr Driot also introduced a third company, Oken Consulting, which he understood to be a Driot company.

On 24 June 2007, Mr Scheepers updated Mr Fredriksen/Mr Trøim with his weekly report on current shipping projects, which on this occasion included GEPVTN. Mr Scheepers said Mr Fredriksen approved the joint venture. The 24 June report referred to the work to put the first million barrels of Zafiro crude oil through the joint venture, and said “our man in GEPetrol is really supporting our shipping venues in Equatorial Guinea and working hard to get this done”. Mr Scheepers in his oral evidence said that was a reference to Mr Oburu.

On 6 August 2007, GEPetrol informed Arcadia Lebanon of GEPVTN’s freight and operational procedures with which it had to comply when lifting Zafiro cargo. GEPVTN regularly invoiced Arcadia Lebanon in relation to Equatoguinean crude oil cargoes, including transactions involving the lifting of Zafiro crude. Arcadia Lebanon in turn regularly made payments to GEPVTN in respect of such transportation and freight services, and such payments continued at least into 2011 and amounted to at least US$939,000 in total.

The joint venture agreement provided for profits to be shared 50/50 between GEPetrol and VTN, but in summer VTN’s share was increased to 80% (because, Mr Scheepers said, GEPetrol was not going to bring much to the table). VTN itself shared the profits it extracted from GEPVTN with the other companies that Mr Driot nominated, including Obexys and Rodexkia.

Mr Hannas was aware of these arrangements. In email correspondence beginning in May 2008, Mr Hannas asked for further details of the profit-sharing arrangements. Mr Scheepers explained on 3 July 2008 that VTN’s new 80% profit share would be divided into quarters, 25% for VTN itself, 25% for a consultant, and 25% each for two third party individuals. His email said “we have documentation” for the consultant and one of the two third party individuals, and referred to having just sent all the documentation by DHL to Mr French. In his oral evidence, Mr Scheepers said “we had all the service agreements, we had the originals and they were all given to Seatankers”. On 10 July 2008 Mr Hannas emailed Mr Scheepers saying, among other things, “I received the original agreements apart from the last one as per your below. I know is confidential but we should know who are the individuals/beneficiaries of these commissions”. The same day, Mr French emailed Mr Hannas setting out his understanding of how the profits should be distributed. This included VTN’s 80% share split between “3 partners” viz 25% to Oken Consulting, 25% to Obeyxs Ltd and 25% to “Partner C”. (‘Partner C’ was in fact Rodexkia.) Mr Hannas on 23 July replied about payment arrangements, also noting that he would like a response about the beneficiaries behind each agreement. Mr Hannas said he never learned who the individuals were. He said he was not sure, but believed he would have raised the issue with Mr Fredriksen or Mr Trøim, explaining in his oral evidence that he would have wanted their approval to sign agreement with parties that were “not acquainted to us”. In due course, service agreements were signed with Oken, Obexys and Rodexkia, which Mr Hannas thought would not have happened unless Mr Fredriksen or Mr Trøim had given their approval.

The payments that Arcadia Lebanon made to GEPVTN were recorded in the Seatankers accounting records. A GEPVTN ledger card (with entries ending in 2011) refers to Arcadia Lebanon and has a tab showing ‘Arcadia’ invoices, listed under the heading “LEDGER: [5175] ARCADIA PETROLEUM SAL (LIBANON)” [sic]. Ms Theocharous’s evidence was that this was a Seatankers document. Another ledger card directly identified payments from “Arc.Petrol (Lib)” in a ledger named “ARCADIA PETROLEUM SAL (LIBANON)”. Ms Theocharous said in cross-examination:

“Q. Mr Hannas told the court that he asked you to print out document for him. Do you remember that?

A. Not 100%, but probably he is correct because, okay, I had noticed at that stage somewhere the name of Libanon mentioned, together with Arcadia Petroleum and I was wondering if we had done a mistake and we did not include this specific company under the consolidation when we were doing the Farahead consolidation. Probably Mr Hannas asked me to print out the letter so he could see what did we have under GEPVTN for this specific company and I printed that and gave it to him. After that, I remember that he returned to me and he told me that company, it's private and should not be consolidated.

Q. As I say, I'm going to come back to that but just on your evidence, Mr Theocharous, can you recall Mr Hannas asking you about Arcadia Petroleum's payments to GEPVTN?

A. Probably he was not asking me. I went, I remember specifically, I went and asked him if he knew anything about that company and then he came back to me and asked me: where did you see that name? And then I went back to him and I told him, okay, I gave him this ledger, probably it was an invoice that I saw or this ledger that I saw, I'm not sure, but one of them and I asked him and I don't know, he questioned somebody, I don't know who, and his response was that it was not consolidated because the shareholders have a private company and we were correct of not consolidating the actual company with the rest of the group.

Q. But this was all in 2009; yes?

A. It must have been then because this is the print-out, yes and I remember also that I was a bit, I don't know, how can you call it, my English is not perfect because it is my second language over here, I was a bit frustrated, you could say, because I thought, okay, 2009 and we have consolidations for 2006/2007. Did I make a mistake to consolidate this company or I missed something out in between but he told me after that that, no, we didn't make a mistake. The accounts were correctly consolidated.”

20 January 2009 was in fact the same day that Mr Hannas emailed Mr Trøim/Mr Fredriksen in respect of Arcadia Lebanon’s financials (see § 497 below).

Somewhat remarkably, the Claimants in their 144 Transactions case stated that they did not admit the “legitimate purpose and/or commercial benefit to the Arcadia Group (alternatively such as to justify the amount)” of the payments to GEPVTN, despite GEPVTN being a Farahead company. Eventually in their written opening, the Claimants accepted that Arcadia Lebanon’s payments to GEPVTN were a legitimate expense. Mr Fredriksen was asked how this squared with the Claimants’ fraud case:

“Q. Did you never question whether it was plausible to say there is a fraud involving Arcadia Lebanon, because a Farahead company is getting payments from Arcadia Lebanon?

A. I think these people, the various market paid out some peanuts money to Farahead. But of course they made hundreds of millions. What happened to those money? That is what I told you yesterday.

…

Q. Why would they be paying peanuts to a Farahead company as part of a fraud?

A. To imply that we are involved in it. Obviously.”

That last answer was patently implausible. It was also illustrative of Mr Fredriksen’s state of mind, as a person who had, for whatever reason and seemingly regardless of the facts, apparently convinced himself that he had been the victim of a fraud.

The payments to GEPVTN are in fact of some significance bearing in mind that, as Mr Bosworth/Mr Hurley point out:

Minutes of meetings in autumn 2007 indicate that Farahead was interested in Arcadia pursuing a range of projects, including developing a partnership with the Nigerian national shipping line NUL; a joint venture involving the vessel ‘African Horizon’ and the opportunities in Senegal mentioned earlier.

There is some evidence of pressure on Arcadia’s cashflow during this period. Minutes indicate that as at 1 October 2007 the group had US$22 million of available cash, which reduced by US$10 million by 12 December 2007. Mr Bosworth said “in 2007, the market was extremely volatile and we had very, very limited cash within the company. Sometimes that got down to, as I recall, less than USD3 million to run a 20 billion turnover company and working capital I believe means that the USD4 million was transferred for that reason, that Arcadia London needed the cash”. The reference to US$4 million was to a payment in that amount which on 1 November 2007 Mr Hurley arranged for Arcadia Lebanon to make to Arcadia London. Mr Hurley recalled that cash was needed to meet various margin calls. An email exchange between Mr Bosworth and Mr Trøim the same day, following a request from Mr Hurley to Farahead for cash to meet margin calls, indicated that Mr Trøim complained about lack of proper cash forecasting and said he “can not afford a situation where I will have to [go] back to JF during the next weeks asking for even more cash”.

The Claimants suggest there is no evidence that Arcadia had any cashflow difficulties, citing a note of a meeting on 9 October 2007 recording that “[Mr Trøim] commented that at a recent open meeting, all APL traders had confirmed to him that they had not experienced any restrictions to their business due to lack of credit lines”, and a ‘treasury.xls’ spreadsheet as at 31 October 2007, indicating US$76.36 million in credit and a further US$30 million available from the Farahead facility. However, credit lines for trading purposes are not the same as available cash to meet margin calls. The evidence of the cash position is as I indicate in the preceding paragraph; and the 1 November 2007 emails speak for themselves: it is clear that Arcadia was indeed encountering a cash flow squeeze. Mr Hurley’s recollection (which the Claimants criticised as being ‘unsatisfactory’ and ‘absurd’) was in fact correct.

The US$4 million payment was connected with a transaction between Arcadia London and Mr Asibelua’s company, Equinox Exploration Limited. In December 2006, Arcadia London had lent Equinox US$5.5 million in connection with an exploration and production opportunity known as “OPL 286” which it appears Equinox had brought at a time when Arcadia was seeking to expand into asset investments. Equinox had in June 2006 been awarded a 10% interest in OPL 286 as a consortium member, with BG Exploration and Production (“BG E&P”) (a British Gas company) as operator. A condition was the consortium paying a US$55 million signature bonus, of which Equinox Exploration’s 10% share was US$5.5 million. In December 2006 Mr Bosworth arranged for Arcadia London to advance that sum to Equinox so that it could satisfy the condition. Mr Bosworth said he planned also to invest up to US$1 million of his own money in the project, and told Farahead so. The payment was invoiced to Arcadia London as a loan, though for some reason it was recorded in Arcadia London’s management accounts as a trade debt.

In submissions and cross-examination, the Claimants sought to advance an unpleaded complaint to the effect that Mr Bosworth did not have Mr Fredriksen’s or Mr Trøim’s authority (and, by necessary implication, that Mr Bosworth would for some reason have required such authority, despite being Arcadia London’s managing director and prima facie having all the powers vested in such an officer). However, it is unnecessary to reach any conclusions about that matter. Nor would it be fair to do so, given that as an unpleaded allegation it has not been subjected to the usual litigation processes, and is not one that the Defendants could reasonably expect to meet at trial.

Almost a year later, on 1 November 2007, Mr Hurley directed Stefan Gallimore of Credit Agricole Switzerland to transfer US$4 million from Arcadia Lebanon to Arcadia London. Mr Gallimore asked for an invoice. Mr Hurley produced an invoice from Arcadia London to Arcadia Lebanon “RE: EQUINOX INVESTMENT” for US$4 million for “EQUINOX FUNDING PARTICIPATION”. Mr Hurley then emailed the invoice to Mr Gallimore. Arcadia London accounted for Arcadia Lebanon’s payment as a part repayment of an outstanding loan to Equinox (“EQUINOX OIL AND GAS RTND INVESTMENT PART OF $5M”), as also reflected in the Arcadia Group’s December 2007 management accounts, where the amount outstanding from Equinox Exploration was reduced to US$1.5 million.

The Claimants suggest that Arcadia Lebanon’s US$4 million payment provided no benefit to Arcadia London, because it merely “replaces missing funds” i.e. money owed by Equinox. That suggestion is, however, commercially nonsensical. Arcadia London had an urgent need for cash. There can have been absolutely no certainty about when (if ever) it would be repaid by Equinox. The payment from Arcadia Lebanon meant it received, to the extent of the US$4 million, immediate repayment. As the Defendants suggest, Arcadia Lebanon was in substance providing a treasury function to Arcadia London in this transaction. The transaction is hard to square with the Claimants’ case that Arcadia Lebanon was a vehicle used by Mr Bosworth and Mr Hurley dishonestly to divert funds from Arcadia London for their own benefit.

In late 2007, Mr Trøim asked Mr Skilton to review the financial arrangements between Farahead and Arcadia. In early December 2007, Mr Skilton asked Mr Lind to draft a memo on financing. The memo explained the financing arrangements, in particular the security structure. Mr Skilton, however, wanted Mr Lind to focus on “the extent to which the shareholders of Farahead could be pursued in the event that Arcadia and/or Farahead were to encounter trading problems or default the guarantee arrangements etc.”. On 11 December 2007, Mr Lind sent Messrs Skilton and Hannas a further memo, which considered the issues of shareholder liability and Farahead’s financing of Arcadia’s activities.

During this period (and continuing into later years), in addition to regular meetings, Mr Fredriksen and Mr Trøim received twice-daily reports on Arcadia’s trading activity (including West African activity), daily profit and loss statements, weekly reports and monthly reports. Farahead received monthly management accounts concerning Arcadia’s operations, business and profits. Arcadia’s accounts were consolidated at Farahead level. The format of the P&L front sheet format used was recorded as having been reviewed at a meeting on 4 September 2007 “and in general met with a favourable response from Shareholders”. Minutes of a meeting on 1 October 2007 indicated that “Shareholders expressed their approval and satisfaction at the current level of intra-day reporting of open position. The lunchtime report should continue in its current form…”. Minutes of a 13 October 2007 meeting recorded that “Shareholders were happy with the current level and method of reporting but did ask for a little more on market view to be included in the closing report.” Mr Ford in January 2008 specifically asked Farahead for any comments on the format of the reports.

One of Arcadia’s objectives was to expand its products business. The April 2005 business plan referred to Arcadia’s aim, using its “extensive contacts in Nigeria”, to make sales of 6 to 9 cargoes of gasoline a month into Nigeria. PPMC was a major purchaser of products for the domestic market at this time. The commercial opportunity to sell products into Nigeria was highly attractive: Mr Kelbrick explained that Nigeria was rich in crude oil but short in oil products. The April 2005 business plan stated that, to support the expansion into products, which were not a traditional area of Arcadia’s trading operations, Arcadia should invest in product storage facilities around strategically important ports in West Africa. In addition, it suggested that “by using vessel storage made available by Front Line, we believe there are substantial savings to be made in providing logistical flexibility to product deliveries in West Africa”.

MRS was one of Nigeria’s leading downstream products suppliers. It was owned by Mr Sayyu Dantata, one of Nigeria’s most influential businessmen. An MRS presentation from its website stated, as of 2013, that it was “one of the largest and leading marketer of refined products, including quality gasoline, marine and aviation fuels in the downstream industry in Nigeria. We market premium fuels under the MRS brand across 416 retail service stations strategically spread all over Nigeria”. It is not difficult to see how a relationship with MRS could be beneficial for Arcadia, as an oil trading company seeking to expand into the Nigerian products market.

When Farahead acquired Arcadia in 2006, Arcadia already had an established relationship and history of trading with MRS and Mr Dantata. Mr Akpata had introduced Arcadia to Mr Dantata and MRS in about 1999/2000, and Arcadia had lifted significant volumes of fuel oil from MRS in the years thereafter. When MRS began trading crude oil in the mid-2000s, having secured an NNPC crude oil contract, its partner was Arcadia.

In 2007, Arcadia developed its existing products business with MRS further with a joint venture with MRS. Arcadia would work with MRS to sell cargoes to PPMC. Mr Scheepers explained that the idea was to use a vessel as floating products storage in a joint venture with MRS. The initial plan indicated in the documents from autumn 2007 was to buy a Frontline vessel, the ‘Front Horizon’ (later renamed the ‘African Horizon’), and use it for floating storage. Farahead was to retain ownership of the vessel, and Arcadia London would “act as vessel operator, and would conduct 100% of the trading and hedging required”. MRS would be the “JV partner”. Mr Fredriksen oversaw the project. There were meetings between Mr Dantata and Mr Fredriksen in 2007, attended by Mr Akpata, who said in evidence that he had introduced Arcadia to MRS some years before. The African Horizon project was a topic of discussion at a series of Farahead/Arcadia meetings.

Mr Kelbrick was aware of the joint venture between Arcadia and MRS, and that MRS and Arcadia had agreed to use the African Horizon for offshore products storage.

By early summer 2008, the project changed. The value of the vessel had increased significantly in the market, and MRS said that it wanted itself to buy the African Horizon for products storage. A Farahead nominee company, Thistle Marine, arranged to sell the vessel to MRS. Mr Fredriksen and Mr Trøim received regular reports on the transaction’s progress. Mr Akpata explained that, late in the negotiations, with a purchase price agreed in principle, Mr Fredriksen increased the price by US$6 million, so MRS had to find additional money to complete the deal. Mr Kelbrick assisted in the transaction, visiting Nigeria in late June to help finalise it. Mr Bosworth reported to Mr Fredriksen and Mr Trøim that “Steve Kelbrick in Nigeria this week to try to finalise african horizon”. The terms of the sale of the African Horizon are set out in a “memorandum of agreement” between Thistle Marine and MRS dated 21 July 2008, under which MRS agreed to pay a total purchase price of US$52 million. Mr Fredriksen realised a profit of about US$7 million on the sale.

Mr Bosworth’s evidence was that Arcadia’s products relationship with MRS, selling cargoes to PPMC, continued throughout this period, both before and after the sale of the African Horizon. In the period from 2007 to 2013, Arcadia delivered a large number of products cargoes (55 in total) to PPMC. MRS was Arcadia’s local partner in this products business, assisting Arcadia with the provision of products to third party buyers, providing logistical support, such as shipping and storage facilities, and receiving commissions in return. As part of the trading relationship, Arcadia had a storage agreement with MRS. Arcadia therefore needed to make commission payments to MRS in respect of its services assisting Arcadia’s products business. Later, minutes of a meeting on 23 February 2011 recorded that “Arcadia and MRS have been collaborating informally in the wholesale supply of refined product to Nigeria and surrounding countries for several years. The two companies have held discussions over this period regarding the formalising of the relationship with a joint venture trading company”; and recorded discussions about the creation of such a new joint venture company.

The documents indicate that in 2008, Arcadia Lebanon made payments of US$8,666,875 to MRS in respect of its services. Mr Bosworth’s evidence was that the sums paid to MRS covered a range of activities in connection with the products sales. Payments by Arcadia Lebanon to MRS were set off against some of Proview’s profit shares on the Senegal Cargoes. It appears that Proview agreed that certain of Proview’s profit shares could be paid to MRS directly instead of to Proview. Mr Kelbrick said he had agreed to this in order to support Arcadia’s products business with MRS, at Mr Bosworth’s request. He believed this to be to his advantage, saying “I wanted everything to grow. I didn’t want anything to wither on the vine. These things take time and effort”. The documents produced by Ms Azzariti indicate that, in all, Arcadia Lebanon allocated US$10.279 million of payments to MRS against sums otherwise due to Proview in respect of Senegal Contract cargoes. In addition, Mr Kelbrick said he was interested in developing his own business, including in products trading. Proview itself therefore made some payments to MRS direct (US$2.15 million on 9 December 2008 and US$4.3 million on 10 February 2009). Two payments, totalling about US$2 million, were made not to MRS itself but to a builder, B Stabilini, at the request (Mr Bosworth said) of MRS’s principal, Mr Dantata. That fact does not, however, shed any light on the purpose for which the payments were made i.e. in return for what services from MRS.

The Claimants suggest that Mr Bosworth/Mr Hurley are required to show that the payments made to MRS were for the benefit of the Arcadia Group. I do not agree. It is not part of the Claimants’ pleaded case that payments to MRS were part of the alleged fraud. The alleged fraud consists, in simple terms, of the insertion of Arcadia Lebanon and other ‘fraudulent entities’ into the transaction chains. It is only if the Claimants could establish that the receipt of funds by Arcadia Lebanon was fraudulent that any question of accounting for payments made to MRS could, in theory, arise. It is for the Claimants to establish that premise. Nothing about the payments by Arcadia Lebanon to MRS is alleged to, or does, in any way support the Claimants’ fraud case. The Claimants complain that the Defendants have given inconsistent explanations for payments made to MRS, which is perhaps unsurprising given the passage of time and their limited relevance to the case, and that they have not been shown to have been for the Arcadia Group’s benefit. However, to the extent that they discharged sums otherwise due to Proview, then they were for the Group’s benefit. At any rate, there is no pleaded case and no evidence that the payments constituted any form of fraudulent diversion of funds away from the Arcadia Group.

From January 2008 to about June 2009, Mr Skilton and Mr Hannas, assisted by Mr Lind and reporting to Mr Fredriksen/Mr Trøim, reviewed the corporate governance and structure of Farahead’s subsidiaries, addressing the treatment of their profits and bonuses and the return of dividends to Farahead. The eventual outcome of the governance review was a set of draft Farahead minutes and a draft Corporate Governance Bible Index, both dated about June 2009.

At the start of this process, in January 2008, Mr Skilton prepared a memo for Mr Fredriksen/Mr Trøim about the current state of the Arcadia governance structure. On 10 January 2008, Mr Skilton emailed a draft of the memo to Mr Hannas for comments. Mr Hannas marked up the draft in manuscript, and noted on the covering email some headline points including “Actively involved in the setting up and funding approvals of new offices/FH subsidiaries”.

The draft memo observed that Arcadia’s operations were not self-financing, as Farahead had originally wanted, and noted Farahead’s financial exposure. It then stressed the need for Farahead, not Arcadia, to deal with all the subsidiaries in order to preserve Farahead’s tax position:

“Of equal importance is that APL should NOT under any circumstances be entering into obligations of any nature “on behalf” of Farahead. This simply should NOT happen and could lead to argument from the UK revenue that APL and Farahead are one and the same operation and therefore Farahead should be taxed in the UK on any profits etc. (- at the very least it will not enhance the defence of the guarantee fee arrangements when faced with attack from the UK revenue-). It is Farahead which should be dealing with its subsidiaries NOT APL.”

Mr Hannas wrote next to that text the words “e.g. setting up new companies and operations (US/Swiss/Spore/Beirut)”.

The draft memo had a section on reporting, which included the following:

“It is clear that there is a general lack of reporting from APL. This to an extent is understandable – APL has moved from a controlled environment under Mitsui to a situation where it is largely autonomous. HOWEVER the current situation is surely untenable.

For Example:-

Beirut Office: Farahead has no information on this structure which we understand now — not just to be a simple representative office of Arcadia but rather a corporate entity which is owned by Colin Hurley and Pete Bosworth!!?? .WHY? Has this company been funded? How has this been accounted for considering it is “not part of the group” ?”

The memo made recommendations to strengthen Farahead’s control of the business, including:

“The motives of management need to be monitored: It is important that shareholders are in a position to fully understand the motives/rationale of the management and traders in order to assess whether such actions are in the interests of the shareholders or whether there is a hidden agenda in operating the business in a "particular" way for their own ultimate objectives. (eg: Beirut office — why has it been set up in this way with no explanation to shareholders??)”

Mr Trøim’s reaction to this last passage, in his oral evidence, was to say “But the shareholders had been told about it.” He also said that Mr Skilton was “pretty remote to this process” and had no administrative role in the company.

Mr Skilton updated this draft later in the day on 10 January 2008, and sent the revised version to Mr Hannas. The updated draft included these passages:

“Of equal importance is that APL should NOT under any circumstances be entering into obligations of any nature “on behalf” of Farahead. This simply should NOT happen and could lead to argument from the UK revenue that APL and Farahead are one and the same operation and therefore Farahead should be taxed in the UK on any profits etc. (- at the very least it will not enhance the defence of the guarantee fee arrangements when faced with attack from the UK revenue-). It is Farahead which should be dealing with its subsidiaries NOT APL.

PRESENT SITUATION is of concern:

There are a number of companies now established (-and seemingly operating-) in various jurisdictions —eg: Switzerland, Singapore, Beirut etc. It is understood that these companies “should” be owned by Farahead. HOWEVER Farahead does not have any information whatsoever nor have they been involved in the establishment of any “subsidiary”. The overseas companies have been established by the management of APL with no reporting to Farahead and a number of inter-company loans have been established between APL and the overseas companies.

With such non-existent reporting to Farahead and given the manner in which these “subsidiaries” have been established and their financial arrangements with APL — it would be reasonable to assume that the said overseas companies/subsidiaries are nothing short than an extension of the operations of APL and therefore should be fully subject to UK taxation etc etc. This is surely NOT the intention!’ (emphasis in original)

The memo included the same passages as the draft about the Beirut office. In its conclusion, the memo set out a number of recommendations for Farahead to implement. It suggested that Ms Elbjorg Sture, who had worked at DNB bank and was involved in other Fredriksen companies, assist with a better reporting system.

Mr Trøim in cross-examination said he did not recall the memo, and that Messrs Hannas and Skilton reported as much to Mr Lind and to Mr Fredriksen as they did to him. However, given the purpose and importance of the memorandum in the context of group taxation, it seems likely that at least the gist of it was conveyed to Mr Trøim at or around this time. Mr Fredriksen also said he did not recall the memo, but said it made sense that Mr Skilton wanted to formalise the position in respect of all the Arcadia subsidiaries so that there were structures in place to preserve the tax advantages for Arcadia and Farahead. Consideration of the memo may have led to the discussions I mention shortly about formalising the arrangements regarding the ownership of Arcadia Lebanon.

On 3 March 2008, at one of the regular meetings with the Arcadia management, Farahead was informed that West African crude had had a ‘poor year’. Nevertheless, Farahead set a 2008/2009 trading target of US$20 million/US$25 million for Arcadia’s West African crude trading. The minutes referred to Arcadia’s plans to expand its products business in West Africa. They recorded that current cash stood at US$8 million.

The 3 March 2008 meeting also discussed various projects, one of which was a potential acquisition of a Zimbabwe-based ore and minerals company, Indarama. This was an opportunity which Mr Main/Concerto had identified. The meeting minutes said:

“This Zimbabwe based ore and minerals company (mainly gold, but they do own some rigs) is still available to acquire at USD 7 million with additional cost of USD 3 million to cover the first year over-head. We are awaiting a report from Pareto, who will view the asset in the near future, to get a better understanding of what value we could see in acquiring this business.”

As I have noted already, Pareto was a Norwegian investment bank with whom Farahead worked.

The Claimants at trial sought to advance an unpleaded complaint to the effect that Mr Bosworth/Mr Hurley had no authority to make payments to Concerto. However, aside from being unpleaded, the argument had no merit. As Mr Bosworth said in his oral evidence:

“I was given the normal powers of a CEO over a company which was involved in oil trading and I was instructed or authorised to expand that business to become like a Glencore or Trafigura or Vitol ie into the asset businesses which may be oil related and some of them not oil related.”

It could not be realistically suggested that the Memorandum of Understanding with Concerto was unauthorised; and the payments were made pursuant to the joint venture for which it provided.

Mr Ford’s 10 March 2008 weekly report to Farahead included a brief update about the Indarama project (“Indarama Gold: Pereto [sic] in Zimbabwe this week. Hold option until 19th March with payment due 5 working days later”).

Mr Trøim in his oral evidence said he would never have authorised a mining investment, having lost money on mining in the past. However, there is no evidence that Mr Bosworth was told not to continue investigating the project after March 2008, and it was prima facie within his ordinary powers (and the general mandate mentioned above) for him to do so. In the second half of 2008 Farahead decided to ask for Arcadia’s money back from Concerto, but it does not follow that any expenditure up to that date was improper, and there is no pleaded case to that effect.

In early April 2008, Arcadia Lebanon paid US$7.5 million to Concerto, and Concerto paid the same amount to Arcadia London. The evidence of Mr Bosworth and Mr Hurley was that this in substance represented Arcadia Lebanon assuming the expenses that Arcadia London had incurred on Concerto projects, consistent with Arcadia Lebanon having taken over responsibility for Concerto project payments. Including that US$7.5 million, Arcadia Lebanon paid a total of US$15 million to Concerto from November 2007 to June 2008 as contributions to the costs of the joint venture.

The minutes of the 11 March 2008 meeting, prepared by Mr Skilton, include an entry stating that “[Mr Bosworth] and [Mr Ford] have confirmed that Arcadia Mauritius has been closed and that business had been moved to London and “products” business to Switzerland”. It is notable that (i) the statement is said to have been made by Mr Ford as well as Mr Bosworth, and (ii) it refers to Arcadia Mauritius having had, and moved, a products business. The Claimants allege:

“51.

In early 2008, Farahead was told by Mr Bosworth that Arcadia Mauritius had been closed and its business had been moved to Arcadia London or to Arcadia Switzerland.

52.

This statement was false, and was known by Mr Bosworth to be false, since Arcadia Mauritius had not been closed in or by early 2008, nor had all of its business been moved to Arcadia London or Arcadia Switzerland; on the contrary, it remained an active company, and an active participant in the fraud being perpetrated on the Claimants. This statement served to conceal the fraud from the Claimants, as, it is averred, it was intended to.”

Mr Skilton was not called to give evidence. As noted above, Mr Trøim’s evidence was that Mr Skilton was not closely involved in the operational side of the business. Mr Trøim in his witness statement said he did not recall the specifics of the meeting, but that the entry accurately reflected what he recalled to be his understanding at the time. However, he described Mr Ford as being, despite loyalty to Mr Bosworth and Mr Hurley, “a proper gentleman”. No allegation has ever been made against Mr Ford, who is recorded as having made the statement along with Mr Bosworth. That is a problem for any case based on Mr Skilton’s minute as recording a statement made dishonestly in order to conceal a fraud. Further problems about the entry are that (i) there is no evidence that Arcadia Mauritius ever had a products business as the entry suggests; (ii) the first transaction with Arcadia Mauritius alleged in these proceedings to have been part of the fraud occurred in September 2009, making it difficult to see what a statement made in March 2008 would have been intended to conceal; and (iii) Arcadia Mauritius was Mr Decker’s company, not Mr Bosworth’s company, making it difficult to see why Mr Bosworth would have known, or wished to make a statement about, whether it had been closed. (In addition, late disclosure by the Claimants of documents from Mr Lance includes his notes of a meeting with Farahead on 23 June 2008 which has a line referring to Arcadia Mauritius, though the content of the discussion is unclear.)

Mr Bosworth in his witness statement said:

“175.

While I do not specifically recall this meeting, I believe that the person who prepared this summary is likely someone from Farahead who misinterpreted or misunderstood what I (or David Ford) had said. I believe this because Arcadia Mauritius had no other business that I was aware of except the NNPC contract – it had no “products” business. Nor was any such business transferred to Arcadia London or Arcadia Switzerland – and I would have no reason to tell Farahead that it had been.

176.

I have been shown a copy of an email from John Skilton dated 15 March 2008 in which he sent a copy of the 11 March 2008 minutes to me, Colin and David Ford. I note that Mr Skilton says in this email “Please give me a shout if you have any queries etc (-or if I have misunderstood anything!-).”. I do not remember receiving this email and nor do I remember whether I reviewed the minutes.

177.

At this time, while I do not recall specifically given the passage of time, I believe that Arcadia Mauritius might have been dormant (although I wouldn’t have used the word “dormant” in any discussions with Farahead, as this is not a term that I would have used). I never told Farahead that Arcadia Mauritius had closed down. While it is true that Arcadia London’s product business was moved to Arcadia Switzerland, that had nothing to do with Arcadia Mauritius.

178.

Farahead was at all times aware of the sleeving structure with respect to Arcadia Mauritius – I had informed them that this is how the contract operated and I never told them that it had come to an end. I understand from Quinn Emanuel that none of the 144 transactions which the Claimants allege to be fraudulent concern this sleeving arrangement.”

Asked in cross-examination about receipt of the minutes, Mr Bosworth added that it tended to be Mr Ford and to an extent Mr Hurley who would deal with such matters, and he did not know whether Mr Ford had phoned Mr Skilton or not.

I consider it very unlikely that Mr Bosworth made the statement recorded in the minutes. His evidence was that he would not have done so; Mr Trøim was unable to say positively that Mr Bosworth had done so; and for the reasons given in § 431 above, it is inherently unlikely that the statement was made, and more likely that the minute is simply inaccurate. I conclude that the alleged representation was not made. I would add that, had it been necessary, I would have drawn an adverse inference (as to the accuracy of the minute) from the Claimants’ failure to call Mr Skilton to give evidence, something which would appear to have been within their power to do, given their heavy reliance on his meeting note as the basis for an important and serious allegation of deliberate deception.

At about this time, Farahead instructed Mr Bosworth/Mr Hurley not to send reports about Arcadia by email to Mr Fredriksen’s private email address, but instead to email his secretary, Ms Gunn Skei. The Claimants have stated that her email account has been lost.

At around this time, Farahead embarked on a restructuring of the Arcadia group, for tax reasons, including moving Arcadia’s trading operations from the UK to Switzerland, where Arcadia Switzerland had been established on 7 February 2007. In this context, Farahead instructed PwC to review Arcadia’s corporate structure. PwC prepared a memo dated 28 March 2008 about the restructuring of the Arcadia Group. On 23 April 2008 Mr Ford emailed Mr Trøim and others the PwC memo. PwC warned about the risk to Farahead of moving the management of the group to Switzerland. The Swiss authorities had granted a 0% withholding tax rate on the dividend paid to Farahead because “the Cyprus holding company had a real holding function”. Farahead’s functions were described as “the control of the shareholdings, the decisions relating to the acquisition and sale of a shareholding, the strategic decisions for the group, etc. Those types of activities must be differentiated from a simple administrative activity.” No doubt reflecting this advice, Mr Skilton in an email to Mr Hannas on 8 July 2008 said:

“In general terms I cannot emphasise enough the importance I attach to Farahead being in "control" of the group and for this control to be exercised from Cyprus. Farahead must receive full reporting from its subsidiaries on their activities and approve inter-company arrangements etc. I do not like Farahead "delegating" authority to Arcadia management etc. Farahead should have the opportunity to discuss at Board level all important decisions and especially those decisions which require it to be party to agreements/contracts etc.”

A further PwC memo dated 12 September 2008 reiterated the risks, stating that Farahead “cannot delegate the power to decide”. Mr Ford summarised the position in a manuscript note as being that “Farahead may delegate a supervisory role” to the Swiss subsidiary, “providing all strategic decisions and core matters at decided at Farahead level !!”.

Mr Trøim appeared to suggest in his oral evidence that Farahead did not take the strategic decisions, though he accepted that Farahead could demand answers from Mr Bosworth/Mr Hurley at any time. Asked whether he accepted that Farahead exercised ‘mind management and control’ over the Arcadia Group, Mr Fredriksen said “That never happened in practice: that is for the taxman to find out”. Further:-

“Q. Is it fair to say that to preserve the tax position, Farahead needed to call the shots for the Arcadia business?

A. At least according to business regulations.

Q. Farahead had to call the shots because otherwise Farahead’s tax advantages would be at risk, wouldn’t they?

A. That I understand.

Q. Well, do you agree?

A. Yes, I agree.”

In accordance with the restructuring plan, from late 2008 many of the London operations migrated to Switzerland, and Arcadia Switzerland rather than Arcadia London began to conduct Arcadia’s principal trading activities in the Western hemisphere.

During spring and summer 2008, there were also discussions relating specifically to the ownership structure of Arcadia Lebanon. It is necessary to go back slightly in the chronology in order to explain these.

As noted earlier, the first entry in the Hannas Note records a conversation between Mr Lance and Mr Hannas on 25 February 2008 in which Mr Lance said Arcadia Lebanon was “Mr Fredriksen’s stand alone company”. Mr Hannas did not recall who had called whom, but said the conversation took place because he was enquiring about Arcadia Lebanon, and Mr Lance “called me to explain this is not owned by the group formally but it was a standalone of JF”. Mr Hannas agreed several times in cross-examination that he knew Arcadia Lebanon was “Mr Fredriksen’s company”.

Mr Skilton’s note of the 11 March 2008 meeting included a section relating to Arcadia Lebanon:

“8.

Beirut Dimitris and Colin to travel together to Beirut. Shares should be transferred to "stand alone" Liberian Company. Company administrators/lawyers to be changed to those already known to Farahead Dave F confirmed that there were no inter-company balances/loans with this Beirut Co All details ie: management accounts since incorporation, name of administration office in Beirut & list of assets should be passed to Dimitris asap”

Mr Hannas in his witness statement said:

“60

I remember independently that, at some point (I do not recall when), Mr Trøim and Mr Fredriksen were informed by Mr Bosworth and Mr Hurley that Arcadia Lebanon had profits to distribute to Farahead of up to US$15 million, and that I was then instructed to take the steps necessary to take over ownership of Arcadia Lebanon and therefore enable the payment of a dividend from Arcadia Lebanon to a Farahead entity. Without ownership, there would be no connection through which to bring the dividends into Farahead. I recall, however, that this is not what ultimately happened, and to the best of my knowledge, the ownership structure of Arcadia Lebanon never changed.”

However, he accepted in cross-examination that the matter of the US$15 million dividend came up only later in 2008. Asked what the purpose was of formalising the structure, Mr Hannas gave this evidence:

“A. Maybe it was to divert the shareholders of Arcadia Lebanon who at that time was Mr Bosworth and Mr Hurley, to divert it to a company or two individuals as nominees from our group.

Q. Yes, what you wanted to do was to, as you say, formalise the position; the reality was Arcadia Lebanon was a standalone Fredriksen company; yes?

A. Yes.

Q. And you wanted to formalise the position with a different corporate structure; correct?

A. That's right.

Q. But to retain the standalone status of Arcadia Lebanon?

A. This was my understanding at that time. Yes.”

Mr Hannas said Liberia was chosen because Liberian companies were accepted in the world of trading and shipping, and might be able to issue bearer shares. Asked who the bearer would be, Mr Hannas said they might have been held in his office or in Mr Fredriksen’s or Mr Trøim’s office. The idea of transferring the shares in Arcadia Lebanon to a Liberia company is reflected in the second entry in the Hannas Note (“Skilton – AL shares to a Liberian co”).

The share ownership of Arcadia Lebanon was on the agenda for a meeting on 25 April 2008, and the summary of the meeting (in the form of an action list) included “[Mr Hurley] and [Mr Bosworth] to sign appropriate declaration of trust” and “Administration office of Company to be moved to office of [Farahead] lawyers”. Mr Skilton emailed the summary to Mr Trøim on 30 April 2008 for his approval.

Subsequently, Mr Skilton emailed Mr Hannas’s private email address (to which, Mr Hannas said, only he had access) on 5 June 2008 saying he was trying to get Mr Bosworth and Mr Hurley to sign a declaration of trust, and that they had told him that the Beirut operation must be kept outside Farahead. It was suggested to Mr Bosworth that it was he and Mr Hurley who were the ones insisting on that, to which he replied “No. It had to be kept outside of Arcadia Group Inc over here but it was up to Mr Fredriksen and co whether it went to Farahead directly or didn’t or was held in trust by a third party.” Mr Skilton’s email went on to ask Mr Hannas whether Mr Hannas had a standalone company that he could name as the ‘beneficial owner’ in the declaration of trust, and whether he had received any further information about the Beirut operation such as the company name and administrators’ address.

Mr Hannas first sent Mr Skilton an email from his official Seatankers address, not responding directly to Mr Skilton’s queries, but listing various action points regarding the Group’s operations including one on ‘Arcadia Beirut’ saying “No development so far most probably due to political situation, but as discussed earlier it will be interesting to find out how the operations/office is funded and what the status of the profits is (if any were distributed) and the bank balances”. Three hours later Mr Hannas did reply to Mr Skilton’s message (from his private email account), to which Mr Skilton’s message had been sent), saying:

“JOHN

I TRIED TO CALL YOU BUT YOU MUST BE VERY BUSY

I WILL PROVIDE TO YOU WITH ALL THE INFORMATION AND DOCUMENTS YOU REQUIRE LATER ON TODAY BUT WHEN YOU HAVE TIME PLEASE GIVE ME A CALL.

BEST REGARDS

DIMITRIS”

The electronic copies of this message have been lost from both Mr Hannas’s and Mr Skilton’s email accounts. Mr Hannas’s practice, he said, was to print out important emails but then delete any electronic record of them. Only a hard copy which Mr Hannas had printed out was disclosed, following a specific disclosure application. There is also no record of the call Mr Hannas asked Mr Skilton to make, if it occurred.

The following day, 6 June 2008, Mr Hannas replied again to Mr Skilton’s queries, but this time from his official email account, saying:

“The name of the company is "ARCADIA PETROLEUM SAL (OFFSHORE)" but I do not know who are the administrators although apart from Pete and Colin the board consists of another 2 directors Naji Mouzannar and Youssef Mouzannar - who together with Sally Sfeir were the founders of the company. Please also note that according to the incorporation documents of the company, out the 100,000 shares (of $2.50 each) of the company "every director shall own at least three shares during this period in office".

I hope the above is of some assistance.”

The ‘Beirut Operation’ was on the agenda for a meeting at Sloane Square on 11 June 2008, with a note stating “Status: see item 9 meeting note of 25^th April”. That was a reference to the action list referred to in § 446 above, which included reference to Mr Bosworth and Mr Hurley signing a declaration of trust and Arcadia Lebanon’s administration office being moved to Farahead’s lawyers’ office. However, the minutes of the 11 June 2008 meeting record no discussion about any of this. The Hannas Note records a conversation with Mr Skilton the following day:

“Skilton – [Arcadia London] meeting in London yesterday – [Arcadia Lebanon] kept out of discussion per [Mr Fredriksen/Mr Trøim]”

Asked about this, Mr Trøim gave the following evidence:

“Q. So you decided to take the item of Arcadia Lebanon off the agenda, didn't you?

A. Yes, because we said can it remain like this. There was kind a lock box effectively where some profit had been made on initial contracts and there was no further activity going on.

Q. No, Mr Trøim, you decided at this time when Mr Skilton was wanting to formalise the arrangements, to take Arcadia Lebanon off the agenda, didn't you?

A. I don't think it was specifically that but this company -- we didn't own this company. It was owned by two of our employees who owned the company. So from a corporate way, it didn't fit in here. That is another discussion.

Q. You don't refer to this direction in your witness statement, do you?

A. What is wrong with the witness statements? What are you lacking?

Q. You saw this note, didn't you?

A. I specifically said I didn't know if I saw that note. I saw it when I went to the documents here. What should I have added?

Q. You wanted to keep references to Arcadia Lebanon to a minimum because --

A. Because it was not owned by us.

Q. You had concerns, didn't you, that if the structure was formalised, that could create a paper trail that would lead back to Farahead; correct?

A. The money had to be paid back to Farahead/Arcadia anyway.

Q. By --

A. The 70%.

Q. By creating another paper trail, correct?

A. Yes, if you send money, I get the paper trail.”

I find that explanation unconvincing. It would have made no sense for Farahead to be planning to seek a declaration of trust in respect of the Arcadia Lebanon shares, and moving the company’s offices to those of Farahead’s lawyers, if Farahead understood the company to be an inactive one owned by Mr Bosworth and Mr Hurley that had undertaken only a very limited number of specific trades over a very short time span (that having been Mr Trøim’s evidence in his witness statement). Nor do any of those matters explain why Mr Trøim would positively wish the matter to be omitted from the discussion at the meeting (or the minuting of it). It is considerably more likely, in my view, that the reason for the instruction reflected a desire to reduce or eliminate references to Arcadia Lebanon in Arcadia London’s official documents, such as meeting minutes. Farahead wished to have control over the shares in Arcadia Lebanon, but it also wished to avoid a paper trail. Both matters are difficult to square with the Claimants’ thesis that Arcadia Lebanon was presented as a discrete operation used for a small amount of business but was then used as a vehicle for Mr Bosworth and Mr Hurley to perpetrate a large-scale fraud on Arcadia London and Farahead.

On 17 June 2008 the auditors signed off on Arcadia Lebanon’s financial statements for 2007. Mr Hurley said he provided a copy to Mr Trøim in Farahead’s Sloane Square offices, and a copy of them was disclosed from a Frontline file. They recorded a net profit for the year of US$7,268,005 and shareholders’ equity of US$7,508,979.

On 18 June 2008, a Farahead group structure chart was updated to remove reference to ‘Arcadia Beirut’, which in the 2007 version of the same chart had been shown as a Farahead subsidiary.

On 23 June 2008, Farahead met the Arcadia management in Cyprus. Mr Lance’s notes of the meeting contain a heading “Beirut” but there is no record of the/any discussion. The Hannas Note records a conversation the following day in which Mr Skilton “[a]dvised of [Arcadia London] meeting in [Limassol] with 3^rd party present”.

On 28 August 2008, Mr Lind emailed Mr Skilton and Mr Hannas saying:

“I have completely run out of excuses in relation to my non-performance of the tasks I was assigned responsibility for in our meeting in respect of Arcadia on 11 June. Please forgive me. Having finally found the time to attack my file on this, I can report back as follows:

1.

Arcadia Petroleum SAL (Offshore)

I have noted the Legal Opinion provided by Mr. Elie Chamoun of the law firm Abouhamad, Merheb, Nohra, Chamoun, Chedid of 13 March 2007. This provides relevant information on Arcadia Petroleum SAL (Offshore) which appeared to be in good corporate order in March last year. I have also made a quick check on the law firm and can confirm that it is one of the most reputable in Beirut. What we need to do is obviously to document, in relation to the current 4 recorded shareholders, that they agree and accept to act as nominees for the beneficial shareholder, Beirut Holdings Limited. In order to complete this, I need to make contact with the law firm and ask them to help us preparing the documents required in order to have the shares now held by these nominees transferred to Beirut Holdings as their beneficial owner in undated form so that we can have the shareholders execute these and allow us to keep it and be ready to execute a transfer if and when we feel this is required. I need, in this connection, to find out whether the shares are evidenced by physical share certificates or not. We could, in this connection, also ask Mr. Chamoun to update his Legal Opinion so that we are certain that no changes have taken place which we have not been informed of. In so doing we should obtain a copy of the Company" s Articles of Association. Finally, we need to establish some form of communication between the directors of Arcadia Petroleum SAL (Offshore) and Cyprus so that we can keep an eye on the company’s accounts and other activities. I attach a draft letter agreement between the nominal shareholders and Beirut Holdings Limited for your review and comments.”

It appears from the opening of this letter that Arcadia Lebanon was in fact discussed at the 11 June 2008 meeting, which might indicate that the Fredriksen/Trøim instruction referred to in Mr Skilton/Mr Hannas conversation the following day was that discussion of Arcadia Lebanon should not be minuted, rather than that no discussion should occur. However, that point was not explored in cross-examination and I make no finding about it.

Mr Lind’s understanding that there was a need to keep an eye on Arcadia Lebanon’s accounts and other activities is consistent with the company being viewed by Farahead as still active, and inconsistent with the notion that Farahead believed Arcadia Lebanon to be inactive or dormant.

Mr Lind’s email attached a draft letter to be sent by Beirut Holdings Limited to Mr Bosworth/Mr Hurley and the two Mouzannar shareholders of Arcadia Lebanon, saying:

“We write to you to document our joint understanding and agreement on the ownership and corporate governance of Arcadia Petroleum SAL (Offshore) (the “Company”).

By way of background the following should be noted:

…

(v)

You are the shareholders of record in the Company, its shares being distributed between you as follows:

Mr. P. Bosworth 49,999 shares

Mr. C. Hurley 49,999 shares

Mr. N. Mouzannar 3 shares

Mr. Y. Mouzannar 3 shares

100,000 shares

(vi)

You constitute the Company’s board of directors with Mr. Bosworth being the chairman.

(vii)

Mr. Hurley has been appointed the Company’s manager with responsibility for its day-to-day operations.

Based on this, we have the following joint understanding and agreement:

1.

You are holding the shares in the Company which are nominally registered in your name as nominees for ourselves and have done so since you subscribed for the same.

Accordingly, you recognize that we are the true and beneficial owner of the said shares.

2.

You agree to continue as nominee shareholder on record in the Company on our behalf and will, as such, not sell, transfer, encumber or, in any other way, dispose over the shares in the Company without our prior written approval having been obtained.

…

5.

You confirm that you, in your capacity as registered shareholders in the Company, will ensure that you are present, by proxy or in person, on the Company’s general meetings.

You will seek our instructions prior to voting on the items on the agenda for the Company’s general meeting.

Failing receipt of such instructions, you shall vote in the general meeting according to your best business judgment, always provided that:

•

you shall never vote in favour of any dividend or other distribution from the Company;

•

you shall never vote in favour of any payment, distribution or other consideration to yourself, whether as nominal shareholders or directors; and always having the Company’s and our best interests in mind.

…

8.

You will supervise and operate the Company as you have in the past, always having our best interests as the Company’s sole beneficial shareholder in mind.

9.

You will keep us regularly informed of the activities of the Company and provide us with a copy of the Company’s annual accounts as and when the same become available.”

Clearly, Mr Bosworth and Mr Hurley had not always held their shares in Arcadia Lebanon as nominees for Beirut Holdings, which was a new company. However, it was their case that they had always held them as nominees for Farahead and that Arcadia Lebanon was operated in the interests of the Group as a whole and subject to Farahead’s ultimate control. In that sense, §§ 1, 2 and 8 of the draft letter were entirely consistent with their case. Mr Trøim was hard pressed to dispute this point in cross-examination:

“Q. That was the reality, wasn't it? Mr Lind was putting into paper the reality that since 2006, Bosworth and Hurley held the shares as nominees for you; correct?

A.

I don't know if you can call it nominee. As I said, the important thing in that telephone call will come when they are effectively asked to close the trade to Lebanon office. Effectively what we reacted to was we said that is fine, as long as we keep the 70% and they hold the shares, that's what they said.”

At the more general level, though, Mr Trøim appeared willing to accept that the proposed formalisation was intended to do no more than record the actual position:

“Q. Let's go to paragraph 97 of your statement, {Mr Bosworth.2/1/19}. You say in 2008 Farahead attempted to formalise the ownership of Arcadia Lebanon and then you say that "as far as we were concerned it was a normal part of the group". Do you see that?

A. Yes.

Q. So from your perspective, Farahead's perspective, Arcadia Lebanon was just like any other Arcadia company, a normal part of the group; correct?

A. Yes.

Q. And that is why you wanted to formalise the position. You wanted to put into effect legally, formally, what was already the informal position, yes?

A. That is what is stated there.

Q. No. You wanted to put into effect legally what was already the informal position; correct?

A. Yes.”

On or about 8 April 2008, Arcadia Lebanon paid US$2 million as a signing-on bonus for Albert Quek, a trader employed by Arcadia Singapore. This payment may later have been reimbursed, in March and April 2009, by Cathay Petroleum Holdings.

In September 2008, Farahead was informed at one of the regular meetings that the business in West Africa remained very limited, but that Arcadia wanted to expand its West African activities and increase its cargoes from 2 to 5 per month.

On 14 October 2008, Mr Bosworth told Mr Trøim that the Arcadia business plan was ‘retrenching to core business’ and that it would now concentrate its efforts on seven of its books: which included West African crude oil physical trading.

At a Farahead/Arcadia quarterly meeting on 15 October 2008, the board was told that it was the intention of the group to distribute an amount of cash to Farahead over the coming months in the form of loan repayments, dividends and redemption of preference shares. The summary of the “estimated repayment schedule” was recorded as including US$15 million from “other sources”. A manuscript note on a copy of the minutes indicated that Mr Lance had said that that was a reference to Arcadia Lebanon. The Hannas Note recorded a conversation the following day: “Skilton - $15m dividend from [Arcadia Lebanon] to Beirut Holdings??”

Mr Hannas, who was at the meeting, accepted in cross-examination that there was discussion of a US$15 million payment at the meeting and that everyone in attendance knew that this payment was to come from Arcadia Lebanon. He also accepted that the reason for the minutes’ circumspect language was the need to comply with the Fredriksen/Trøim instruction to minimise the references to Arcadia Lebanon in the documentation so far as possible. Further:-

“Q. And these minutes are the sorts of documents that an auditor perhaps would look at?

A. Mm−hm.

Q. Sorry, Mr Hannas, when you nod, you need to say either yes or no.

A. Yes, sorry .

Q. So, yes. So you agree that the minutes are potentially the sort of important documents that go on the file which, later on, an auditor or an investigator might look at?

A. Yes.

Q. And that is why, in this minute, there was no reference to Lebanon. Correct?

A. Yes”

That evidence is consistent with Mr Bosworth/Mr Hurley’s case, and inconsistent with the Claimants’ case as to their alleged understanding of the position regarding Arcadia Lebanon. As the Defendants point out, there would be no reason, on the Claimants’ case, for Farahead to give instructions to avoid references to Arcadia Lebanon in auditor-facing documents.

In the end, however, the plan to formalise the position regarding Arcadia Lebanon was not carried through. Mr Hurley said in his witness statement:

“In the end, it would appear that Farahead decided that something more formal actually carried more risk, and it may be better to just leave things as is. The risk profile was considerably lower if it were Pete and I as directors and shareholders, because Farahead could then attempt to claim ignorance at all points.”

The Hannas Note records a conversation between Mr Lind and Mr Hannas on 3 November 2008:

“Erling – he advised that transfer of shares of Arcadia Lebanon to Beirut Holdings are on hold – he will talk to Skilton”

Mr Trøim confirmed in his oral evidence that Mr Lind took his instructions from Mr Fredriksen and himself (and Mr Fredriksen, asked about this matter, said “Remember Trøim was running the company, not me”). Mr Trøim insisted that the reason for the decision was that Arcadia Lebanon was a “dormant company … It was a box with USD15 million to USD18 million in it and that was it”: in other words, the same explanation as Mr Trøim had given for the formalisation plan to be devised in the first place. However, as I explain below, there is no evidence that Arcadia Lebanon was dormant by late 2008 – it was not – and no plausible evidence that Farahead was told that it was. It was also a different explanation from that given in Mr Trøim’s witness statement, where he said:

“I do not believe that these efforts were ever ultimately successful, though I do not recall the particular steps taken. As I have explained in paragraph 61 above, I decided not to press these issues, given the profitability of the Arcadia Group around this time”

At about this time, Mr Trøim considered how Farahead could extract money from Arcadia Lebanon given the lack of any formal structure. He said in cross-examination:

“The accountants met and it was a matter of how those monies could be recouped to us and I said let’s find a way to do that in a smart way. It was also overhanging the agreement which is touched upon in my affidavit, that they owed Mr Bosworth some money if the transaction turned out to be a good transaction.”

The Hannas Note records Mr Skilton saying to Mr Hannas on 5 November 2008:

“Mr Trøim should advise Arcadia Lebanon dividend payment and how”.

The Claimants allege that:-

“54.3

In late 2008 Mr Bosworth and Mr Hurley represented to Farahead that the contract for which Arcadia Lebanon had been established had come to an end and that the company had become dormant. As such, as Farahead understood the position, no purpose was to be served by the bringing of Arcadia Lebanon under its control, since it was no longer active, and the issue was not pursued further by Farahead.

55.

This last statement was false, and was known by Mr Bosworth and Mr Hurley to be false, since Arcadia Lebanon was not dormant in late 2008; on the contrary, it was an active company, and an active participant in the fraud being perpetrated on the Claimants. This statement served to conceal the fraud from the Claimants, as, it is averred, it was intended to.”

The alleged representation was set out in Mr Adams’s affidavit, and the Claimants identified Mr Trøim as its source. However, Mr Trøim made no such suggestion in his witness statement. In cross-examination, Mr Trøim gave this evidence:

“Q. Just go back to the question. Is your evidence that in late 2008, Bosworth and Hurley did not make any representation that Arcadia Lebanon had become dormant?

A. I think the best I can say about this is that they presented us a P&L which didn't move which had effectively then come up to the 15/16 million and which was constant there. There was no activity going on.

Q. You knew that in late 2008, Arcadia Lebanon had not closed down, didn't you?

A. It hasn't closed down but the 70% was not distributed and the money was there.

Q. Exactly. Shall we go to the Hannas note, please, at bundle {I/880.2/1}. You can see that in late 2008, you were discussing money and activity in Arcadia Lebanon, weren't you; yes?

A. Yes.

Q. So if you look at the entry for 5 November, 9 December, there is a highlighted reference about the USD15 million dividend?

A. Yes.

Q. So you knew in 2008 Arcadia Lebanon is still in business; correct?

A. Yes, because we hadn't got our cash out from the …., Farahead hadn't got the money out from the company.

Q. You don't mention in your statement these discussions about the Arcadia Lebanon dividend in late 2008, do you?

A. I can't remember exactly what I said in the statement but I don't think so.

Q. Despite the fact that you had looked at this note for witness statement; correct?

A. Yes.”

That evidence provides no support for the deceitful misrepresentation alleged in the Particulars of Claim. The allegation was denied by Mr Bosworth, who said in his witness statement:

“187.

I also understand that in their Re-Re-Re-Amended Particulars of Claim, the Claimants allege that in late 2008 I told Farahead that the contract for which Arcadia Lebanon had been established had come to an end and that the company had become dormant. This is not true, I never said this and it is inconsistent with the payments made by Arcadia Lebanon to GEPVTN which continued well after 2008 (see paragraph 184 above). The only contract that was operated by Arcadia Lebanon that came to an end in 2008 was the Sao Tome Contract. Farahead knew about and authorised Arcadia Lebanon’s activities from 2008 until it ceased operating in 2013.” (§ 187)

It was not even suggested to Mr Bosworth in cross-examination that he had made the alleged misrepresentation in 2008, let alone that he had done so with intent to deceive. The Claimants now seek to rely on the following passage of his cross-examination:

“Q. [Mr Trøim] said once the trades under the particular contract had stopped, it was no longer active and was to be closed down?

A. Well, Zafiro by way of example continued through the whole period.

Q. Yes, it did.

A. So it is clearly not true.

Q. He didn't know that.

A. He had access to know that.

Q. You didn't tell him it was still running?

A. I don't know if I did or I didn't. But we did discuss it with -- and we were well aware of GEPVTN which shows ongoing activity right through the period, nothing hidden. … There was a company that was set up between VTN, the shipping entity, which was based in Cyprus, and GEPetrol as a joint venture which basically charged a levy on lifters --

…

MR HAYDON: You didn't tell him about the features of the Zafiro contract, did you, in terms of the ones we have been looking at, the pricing mechanism.

A. I told him it had limited risk. How much detail I went into about the limited risk, I don't recall.”

Again, this provides no support for the alleged deceitful misrepresentation.

Mr Fredriksen in his witness statement said nothing about any misrepresentation in late 2008 as alleged in the Particulars of Claim. He gave the evidence in §§ 84-87 of his witness statement quoted in § 259 above which I have already considered. That included reference to an understanding arrived at “by about 2009” that Arcadia Lebanon was no longer active and to be closed down. Similarly, in § 117 he said:

“As I have explained in paragraph 87 above, I understood from what Mr Bosworth and Mr Hurley said that, from around 2009, Arcadia Lebanon was no longer active, so would not be generating further profits from crude oil trading.”

In cross-examination, Mr Fredriksen gave this evidence:

“Q. If we go back to the Hannas note, please, bundle I/8802.2/1}, June 2008, at this point Arcadia Lebanon is obviously not dormant; correct?

A. What date did you say?

Q. This is June 2008.

A. I don't know on this, whether it was dormant or not. obviously thought it was dormant but I cannot say yes or no on it.

Q. Well, I wanted to ask you that, Mr Fredriksen. In the middle of 2008, you are talking about Arcadia Lebanon with Mr Skilton, aren't you?

A. I don't recall that.

Q. Is it fair to say that you wouldn't have been talking about Arcadia Lebanon with Mr Skilton if you knew that Lebanon in mid-2008 was dormant?

A. I don't know. I don't recall it.

Q. It's not likely that you would have spoken about Arcadia Lebanon with Mr Skilton in mid-2008 if in fact, Arcadia Lebanon was already dormant; correct?

A. This -- I had no idea when this company was closed or dormant. I have no idea which year or when.”

and:-

“Q. In the pleaded case, it is said that at the end of 2008, there was a representation to Farahead that the company, Arcadia Lebanon, had come to an end and now was dormant. Yes?

A. Yes.

Q. It is right that you don't yourself give any evidence as to what was happening in late 2008 concerning Arcadia Lebanon?

A. I was not involved in the details.

Q. Yes. So, well, you then say that you were aware that by about 2009, Arcadia Lebanon was no longer active. Yes?

A. Yes.

Q. But Arcadia Lebanon on the pleaded case had already closed down by 2008; yes?

A. I don't exactly remember it.”

Mr Hannas accepted in cross-examination that he was never told by Mr Fredriksen or Mr Trøim that Arcadia Lebanon was dormant.

Viewing the evidence in the round, the making of the alleged representation about Arcadia Lebanon being closed or dormant is in my view entirely unsupported by the evidence, and (if it was ever properly made) should have been withdrawn at the latest by the time the Claimants served their witness statements.

Moreover, any suggestion that Mr Bosworth or Mr Hurley dishonestly intended to conceal Arcadia Lebanon’s activities from Farahead is irreconcilable with the evidence as a whole. Quite apart from the dealings referred to in the Hannas Note, Arcadia Lebanon’s trading and continued existence was known to numerous people within the Arcadia operation. One of them was Mr Ford, who was involved in the plans to formalise the company’s ownership in April 2008, the plans in late 2008 and 2009 for Arcadia Lebanon to pay a dividend, and meetings at which Arcadia Lebanon was discussed with Farahead (until Mr Fredriksen/Mr Trøim in June 2008 gave the instruction that the company be ‘kept out’ of discussions). Arcadia Lebanon continued to make payments to GEPVTN until at least 2011. In May 2010, Mr Espen Westeren of Frontline, an associate of Mr Fredriksen who was based in the Sloane Square office, stayed at Mr Bosworth’s flat in 308 Sursock Street in Beirut, which also housed Arcadia Lebanon’s office. Mr Westeren visited again in May 2012.

A Farahead Group cash liquidation report as at 30 November 2008 records a US$5 million dividend payment from Arcadia Lebanon.

The Hannas Note records a conversation between Mr Trøim and Mr Hannas on 9 December 2008 as follows:

“[Mr Trøim] - $15m [Arcadia Lebanon] dividend will be used to reduce PB loan from Fulham”

Neither Mr Trøim nor Mr Hannas made any mention of this conversation, or the decision it reflected, in their witness statements for trial. Mr Hannas, to the contrary, in his witness statement for trial said:

“I understand from Grosvenor Law that it is alleged in these proceedings that the US$5 million payment was in fact a payment of a dividend from Arcadia Lebanon, in a manner directed by Farahead. This is not correct, as far as I recall and can see. I do not understand this allegation. As I have described above, the US$5 million payment was initially understood to be a loan repayment and was ultimately applied for that purpose, even if there was some doubt for a period and, in consequence, we held the payments in a suspense account. Mr Bosworth had the benefit of that payment when he redeemed the Fulham Loan.

In those circumstances, I do not understand how this payment could be considered a dividend from Arcadia Lebanon. As I note above, I was generally aware that Mr Fredriksen and Mr Trøim had anticipated receiving dividends from Arcadia Lebanon when I asked about this. I was not aware of any agreement on this, however, or how this would operate in practice. Certainly, it would not in my view make any commercial sense for a dividend to be paid via repayment of the Fulham Loan, as this would mean not only that Farahead gave up the dividend, but also that Mr Fredriksen via Fulham Properties effectively gifted Mr Bosworth the same amount again as a loan reduction.” (§§ 96 and 97)

In his later witness statement, after the Hannas Note had finally been disclosed, Mr Hannas backtracked, saying:

“This entry reflects a conversation between me and Mr Trøim (“TOT”) on 9 December 2008, in which Mr Trøim told me that Arcadia Lebanon would pay a USD 15 million dividend which would be used to reduce the Fulham Loan …, which was outstanding from Mr Bosworth to Fulham Properties. I explained in Hannas3/97 … that it would not in my view make any commercial sense for a dividend to be paid via repayment of the Fulham Loan. However, I think I would have thought at the time that Mr Trøim’s comment made sense if this were a way for a bonus to be paid to Mr Bosworth.

As I have mentioned, Arcadia Lebanon did not pay a USD 15 million dividend or otherwise pay this amount to Farahead. I have addressed at Hannas3/89–97 … a USD 5 million payment that was ultimately applied to reduce to the Fulham Loan, which Mr Bosworth and Mr Hurley say originated from Arcadia Lebanon. I am not aware of Mr Bosworth having treated this amount as part of his bonus.”

Mr Hannas said in cross-examination that he knew that Mr Trøim wanted to get the dividend payment from Arcadia Lebanon, and that he had a conversation with Mr Trøim on 9 December 2008 about the mechanics of it. He did not dispute that Mr Trøim told him that the Arcadia Lebanon dividend was going to be used to reduce the Fulham Properties loan. Mr Hannas said the omission of this from his witness statement was an oversight.

In the evidence quoted in § 469 above, Mr Trøim similarly accepted that he wished to get the dividend from Arcadia Lebanon, but made no mention of it in his witness statement despite having looked at the Hannas Note for his witness statement.

Given the allegations the Claimants had made about Farahead’s knowledge of Arcadia Lebanon and its activities, these dividend discussions were clearly a relevant matter that ought to have been addressed in order for Mr Trøim’s and Mr Hannas’s witness statements to give a fair account of their involvement, and their notable omission from their trial witness statements makes them unsatisfactory.

There was a meeting between Farahead and Mr Bosworth/Mr Hurley on 16 December 2008. The pack of papers for the meeting included a cash repayment schedule and some handwritten notes. Mr Bosworth said “the purpose of the meeting was all about cash, and how much cash we had and where we could get more from”. Mr Trøim accepted he was interested in the cash available from Arcadia Lebanon. Someone marked the net profit figure in a copy of Arcadia Lebanon’s financial statements. Mr Hurley made the handwritten notes on the cash repayment schedule. These notes include: (i) a reference to “2nd April”, with arrows showing a payment of US$15 million, and another payment of US$7.5 million with an arrow pointing towards the words “Leb → UK”; (ii) a reference to “August 22” followed by “→ 7.5m → Lebanon.”; and (iii) an entry saying “PPMC Settlement $21m Mar/April - $14m Leb + 7m”.

Mr Trøim agreed in cross-examination that there was a discussion at the meeting about “how to get the money out of Arcadia Lebanon” and “how is Arcadia Lebanon to transfer value from Lebanon to London. Transfer money back to the group”. He said “I think we needed to have the money back and there were some different feelings in the group, if we should take it back as a dividend or how we should organise, or if it should wait since the cash was there anyway”. Further:

“Q. You discussed with Mr Fredriksen how to get the Arcadia Lebanon dividend payment from Lebanon to Farahead; yes?

A. What I said earlier which is in line with what I said two minutes ago, we were considering how to get that profit out from Arcadia Lebanon. One thing, if there was USD15 million there, was to effectively let them take the company which they already owned and they took the 15 million and then we would have that retention bonus which I talked about several times. Another alternative was effectively to forgive that Fulham Properties property loan at some stage if you felt it had been a successful business, to compensate their obligation which was there −− undocumented from 2005 if this turned out very good, that there should be some extra money for Pete Bosworth.

Q. And this was discussed with Mr Fredriksen, wasn’t it?

A. Yes.”

Another version of the board meeting pack includes a manuscript note saying “Seatankers invoice 2 x 2.5 PC”, which may reflect a discussion about what in due course became the two payments of US$2.5 million each that Mr Bosworth and Mr Hurley in due course made, referred to in §§ 499 and 502 below.

There was also discussion of bonuses at the 16 December 2008 meeting. Manuscript notes made by Mr Bosworth on the meeting pack appear to envisage bonus payments to various traders: ‘JD’ (Mr Dyer), ‘NW’ (Mr Wildgoose) and ‘GA’/’DS’ (Mr Antonucci and Mr Striano, who ran the Mediterranean book). Mr Trøim in cross-examination was willing to accept that one way for Arcadia Lebanon to transfer money back to the Arcadia Group was for Arcadia Lebanon to pay bonuses:

“A. You can say −− because that is Arcadia’s responsibility so if you use Arcadia’s cash which they belong from Lebanon to pay their bonuses, that is kind of within the same pocket.”

The word “Concerto” appears a number of times in the manuscript annotations. As I have mentioned, Farahead by this stage wanted the money that Arcadia had invested in Concerto to be refunded. The manuscript notes record the US$15 million paid to Concerto that Farahead wanted back, and a payment of US$7.5 million that Concerto had paid to Arcadia in early April 2008, to which I referred earlier. Mr Trøim said that he did not know that Arcadia Lebanon had paid US$15 million to Concerto, whereas Mr Bosworth said that “I think the 15 million Concerto was discussed at the time and getting it back”. The manuscript annotations tend to support Mr Bosworth’s recollection on this point.

The manuscript note “August 22” followed by “→ 7.5m → Lebanon” may be a reference to a transfer of US$7.5 million which Arcadia Lebanon made to Arcadia London on 22 August 2008. An email to Mr Hurley the preceding day indicated that Arcadia London needed to pay US$7.17 million immediately to cover a margin call, and that Arcadia London’s cashflow situation was tight at that time.

The manuscript note “PPMC Settlement $21m Mar/April - $14m Leb + 7m” appears to refer to transactions with Projector. Since the early to mid 2000s, Arcadia London had had a joint venture with Projector, under which Projector sourced products for Arcadia London to sell to PPMC. The joint venture ended in about spring 2008, and on 19 March 2008 Arcadia Lebanon paid Projector its US$3,305,525 profit share in respect of venture. However, PPMC still owed money for the products, which was not paid until March 2009: see § 515 below.

In about January 2009, Attock Mauritius entered into a term contract with GEPetrol for the purchase of Ceiba grade crude oil (the “Attock/GEPetrol Contract”). An unsigned term contract dated 8 January 2009 envisaged a quantity of 1,000,000 barrels/year and a price of Dated Brent plus or minus a market differential to be agreed between the parties. (A later email from Mr Mounzer in January 2010 suggested that Attock Mauritius’s term contract with GEPetrol was for 15,000 barrels/day.)

At this stage, January 2009, Attock Mauritius was still owned by Mr Decker: Mr Kelbrick did not acquire it until much later in 2009. Nonetheless, the Claimants submit that the transactions by which Arcadia went on, between September 2009 and November 2012, to buy 14 cargos of oil from Attock Mauritius, sourced via this term contract, were opportunities that had been fraudulently diverted from Arcadia London to Attock Mauritius. It is unclear why Mr Bosworth might be thought to have wished to divert opportunities to Attock Mauritius, thereby benefitting Mr Decker, who is not a Defendant and has never been alleged to have formed part of the conspiracy. Mr Bosworth’s evidence was that “it [was] an Attock contract” and that Mr Driot “did not offer us the term contract”. Similarly, Mr Oburu of GEPetrol on 13 July 2009 emailed Attock Mauritius and Mr Paul Greenslade of Vitol (in relation to September 2009 Ceiba cargoes) saying: “Let me remind you that Vitol and Attock shares the GEPetrol Ceiba cargoes on a 50% basis. And this is Attock’s turn”. That piece of contemporary evidence strongly supports the view that – as one would expect – the contract belonged to Attock, Mr Decker’s company, and had nothing to do with Arcadia.

The Claimants submit that it can be inferred that the term contract was in fact an Arcadia opportunity, because:

I do not accept that any such inference can be drawn (still less that an inference of fraud is more probable than an innocent explanation). As Mr Bosworth said, it would be entirely up to Mr Driot where he took the term contract. Mr Oburu’s email, quoted above, makes clear that GEPetrol was selling to both Vitol and Attack: there is no basis for the suggestion that any GEPetrol term contract would ‘naturally’ go to Arcadia. Arcadia Lebanon, having taken up one spot cargo, did not (as was put to Mr Bosworth) “give you the opportunity to discuss with GEPetrol a term contract in relation to Ceiba oil”. Given the existing relationships with GEPetrol as summarised earlier, that suggestion strikes me as completely unrealistic. Mr Bosworth responded “I didn’t have discussions with GEPetrol about term contracts. This was handed – this opportunity was given to us by Mr Driot. We lifted the cargo and after that, we didn’t lift any more.” He felt sure that GEPetrol would have regarded Mr Driot as reliable, and that Mr Driot would be likely to have been involved in providing the opportunity to Attock. So far as Mr Kelbrick was concerned, he was not in a position to explain exactly how Attock, then under Mr Decker, had obtained the term contract, and his evidence carries matters no further.

In my view, the evidence does not come close to establishing that the term contract was diverted from the Arcadia Group, still less that it was fraudulently or dishonestly diverted.

On 20 January 2009, Mr Hannas emailed Mr Fredriksen/Mr Trøim, email subject ‘ARCADIA BEIRUT’, saying

“[a]s soon as I feel there is some peace/security, I will visit Beirut's offices. I understand that you have the company's last financials and I would like to have a copy of them plus any management accounts they have prepared afterwards. Please ask Maria to make copies and courier to me.”

‘Maria’ was Maria Turnbull, Mr Fredriksen’s and Mr Trøim’s secretary. Mr Fredriksen’s secretary, Gunn Skei, was copied in, and Mr Hannas had written ‘cc John Fredriksen’. Mr Trøim forwarded the email to Ms Turnbull. Ms Skei printed out emails that she received for Mr Fredriksen. Mr Hannas accepted in cross-examination that the reason for which he requested the 2007 accounts was that he knew that Mr Trøim had devised a plan to extract a US$15 million dividend from Arcadia Lebanon.

On the same day, 20 January 2009, Mr Hannas arranged for the Seatankers ledger ‘ARCADIA PETROLEUM SAL (LIBANON)’ for Arcadia Lebanon’s payments to GEPVTN to be printed out for him by Ms Theocharous.

On 22 January 2009, Ms Turnbull wrote to Mr Hurley: “Tor Olav is after the accounts for the Beirut office? Please let me know when he may expect them”. In response, on 26 January 2009 Mr Hurley said Mr Trøim should already have the accounts for the year ending 31 December 2007, but in a response to a request from Ms Turnbull to send them, he arranged for them to be couriered over to her. Ms Turnbull confirmed receipt the same day, and then emailed the accounts to Mr Hannas on 4 February 2009.

Under the Arcadia Lebanon profit sharing arrangement, Farahead was supposed to receive 70% of Arcadia Lebanon’s net trading profits. The 2007 accounts showed net profits of US$7,268,005, 70% of which would be approximately US$5 million. Mr Hurley’s evidence was that Mr Trøim required a payment to Farahead of that amount (having originally wanted Arcadia Lebanon to declare a dividend of around US$10 million), regardless of cash availability, even if it meant the share due to Mr Bosworth and Mr Hurley could not be paid until later. Mr Hurley continued:

“140.

As a result, we declared a dividend of USD 6 million in early 2009. This resulted in USD 3 million being paid to Pete and I each. From these amounts, we each paid USD 2.5 million in accordance with Farahead instructions. This constituted a dividend distribution to Farahead of USD 5 million in total. Pete and I retained USD 500,000 each on account of the amounts due to us under the Arcadia Lebanon Profit Share Agreement. This was well below the minimum amount that Pete and I should have received in accordance with the Profit Sharing Agreement. We retained the residual amount of the dividend payment (USD 500,000 each) in order to partially cover our bonuses due under the Arcadia Lebanon Profit Share Agreement.

141.

Once we had declared the 2009 dividend, I was told by Trøim that Pete and I would receive instructions from Hannas as to how, when and where the payment(s) due to Farahead should be paid. In due course, Pete and I received invoices from Hannas, which were in the name of an entity called ‘Fulham Properties’. Pete and I were to pay USD 2.5 million each to an account which was held by Fredriksen’s Seatankers Greenwich group of companies. Seatankers was Fredriksen’s chosen vehicle through which to receive this payment. This USD 5 million amount appeared on many spreadsheets that I gave to Farahead as ‘other dividend’ or ‘other payment’. They saw this amount described in this manner on a regular basis and knew exactly what it was.

142.

The structure in place for the dividends and invoices was in line with Farahead’s instructions. Therefore, in order to facilitate payment of Farahead’s share of the profits of Arcadia Lebanon in accordance with Farahead’s instructions we first had to declare a dividend that would be paid to Pete and me as shareholders of Arcadia Lebanon. Only then did Hannas provide instructions for how this money was to make its way to Fredriksen’s nominated account.

143.

Other than that, I don’t know what Fulham Properties is. I don’t know what role it plays nor why it was Fulham Properties that was invoicing us. It was made clear to me by Trøim that I would receive payment instructions from Hannas and that I was to comply with those instructions. You don’t question these things. I got the invoice, I paid the money. There was no in-depth conversation about it, at least not with me. It would just be to the tune of “this is the amount that we are getting and this is the invoice. Let me know when you have paid it”.

144.

A year later, on 17 June 2010, following receipt of further payments made to Arcadia Lebanon, we declared a further dividend of USD 2 million, out of which Pete and I received an additional USD 1 million each, which we retained to bring the amount held back towards the ratio agreed in accordance with the Arcadia Lebanon Profit Share Agreement.”

The dividend was paid to Mr Bosworth and Mr Hurley on 13 January 2009. As noted earlier, the Hannas Note recorded that Mr Trøim had on 9 December 2008 said that the dividend (at that stage anticipated to be US$15 million) should be “used to reduce PB loan from Fulham”; and Mr Trøim gave oral evidence that one potential route for extracting a dividend from Arcadia Lebanon was to forgive part of the Fulham Properties loan thereby fulfilling the undocumented ‘obligation’ to give Mr Bosworth a bonus if Arcadia turned out to be successful: see § 485 above.

On 4 February 2009, Mr Hurley emailed Mr Hannas noting that he had yet to receive Farahead’s instructions specifying the means by which it wished to receive the sum of US$5 million. Mr Hannas drafted repayment letters in Fulham Properties’ name. On 10/11 March 2009, he emailed Mr Hurley at his Arcadia Lebanon email account with the subject “Loan repayment”, even though Mr Hurley did not have a loan from Fulham Properties. On 24 March 2009, Mr Hannas emailed Mr Hurley at his Arcadia Lebanon address, asking “whether the $5m has been transferred”. Mr Hannas referred in his email to a meeting later that morning with Mr Fredriksen and Mr Trøim. An email from Mr Hurley two days later indicates that, at the meeting, Mr Hurley told Mr Fredriksen and Mr Trøim that there had been a delay in the payment because the bank had for some reason put funds on a time deposit.

On 15 April 2009, Mr Hurley transferred US$2.5 million to Fulham Properties, making payment to a Seatankers account. On 29 April 2009, Mr Hannas asked when Mr Bosworth would pay US$2.5 million, and said “Also advise whether there will be any dividends for the year 2008 and whether any accounts have been done for this year” (which Mr Hannas in his witness statement said he assumed related to dividends and accounts for Arcadia Lebanon). Mr Bosworth made the payment of U$2.5 million on 7 May 2009.

On 8 May 2009 Mr Hurley advised Mr Hannas that Arcadia Lebanon’s 2008 audited accounts had not yet been produced, but that he would “advise when we have expected date which will determine any available dividend payment”.

On 18 May 2009, Ms Theocharous emailed Mr Bosworth about the Fulham Properties loan. She indicated that the total of US$5 million received on 11 May 2009 had been converted into sterling, as per the original loan, and:

“We have arranged settlement of the interest and the balance against the Principal amount due.

As at 11.05.09 your loan balance is Stg 9,363,877.

Please confirm that you are in agreement with our attached calculations.”

However, it seems that the US$5 million payment originating with Arcadia Lebanon was not, at least at this stage, shown as a dividend receipt in the records held at Seatankers. Instead, in a memo dated 23 June 2009 Mr Hannas asked Ms Theocharous to account for the sum as “Creditors” and “not as reduction of the loan”. Mr Hannas said in a witness statement that he did not recall writing the note, could not remember, but did not believe that he would have made such a request on his own initiative, so he believed this would have been based on something Mr Trøim or Mr Fredriksen had said. In his oral evidence, Mr Hannas said that was “because we were waiting for further instructions from Mr Trøim to tell him about this”; and he agreed that the reason why the money was not put against the Fulham Properties loan straight away was that it was an Arcadia Lebanon payment into the group. At the same time, there may well have been reluctance to record the payment as an Arcadia Lebanon dividend. As noted earlier, Mr Trøim had wished to keep Arcadia Lebanon ‘out of discussion’. In cross-examination, Mr Hannas accepted that he deleted the electronic copies of his email exchange with Mr Hurley over 10-11 March 2009 in relation to the dividend. He also admitted destroying the electronic copy of Ms Turnbull’s email sending him the Arcadia Lebanon financial statements for 2007. The documents showing the dividend from Arcadia Lebanon to Farahead were printed off and kept hidden in a locked filing cabinet in Mr Hannas’s offices. It was only much later, in mid 2011, that Farahead’s records showed the US$5 million payment as reducing the Fulham Properties loan.

The Claimants conceded on the second day of trial that the US$5 million payment by Arcadia Lebanon had been a dividend payment. Their pleaded case was that no record had been found of any payment by Arcadia Lebanon of any dividend to the Arcadia Group or Farahead, and to deny that Mr Fredriksen, Mr Trøim or Mr Hannas (or Farahead in general) were aware of the payments by Arcadia Lebanon (Reply §§ 69 and 73.4). Mr Fredriksen in his witness statement said it was “untrue’ that the Bosworth and Hurley payments derived from Arcadia Lebanon were in fact dividends from Arcadia Lebanon made by a structure that he and Mr Trøim instructed them to use. Further, in his oral evidence he denied (despite the Claimants’ concession) that the US$5 million was a share of profits from Arcadia Lebanon. Mr Trøim said nothing in his witness statement about the US$5 million divided or how it was applied. Mr Hannas in his witness statement denied that the US$5 million was an Arcadia Lebanon dividend. Instead, he said he recalled that at some point he had been asked to take the steps necessary to take over ownership of Arcadia Lebanon so that it could distribute profits of US$15 million to Farahead. However, the contemporary documents and evidence given at trial, to which I refer above (in particular at §§ 478, 479, 485, 500 and 505 above) flatly contradict the Claimants’ denial that Mr Trøim and Mr Hannas (at least) were aware of the payments by Arcadia Lebanon.

The Claimants in their submissions maintained that the US$5 million payment from Arcadia Lebanon was applied for Mr Bosworth’s benefit, and not by way of part payment of a bonus due to him, hence (by implication) not for Arcadia London’s benefit at all. However, that submission is inconsistent with Mr Trøim’s own evidence quoted in § 485 above and with the fact that Mr Trøim was so concerned to extract the payment from Arcadia Lebanon at all. He would hardly have had any such interest in procuring a payment from Arcadia Lebanon to Mr Bosworth that did not in some way benefit the Arcadia Group.

As noted in §§ 488-489 above, it is likely that there was discussion at the 16 December 2008 meeting about getting back the money Arcadia had invested in Concerto joint venture projects. Mr Bosworth said, “we asked to try and get back as much as we could for the group”. Mr Main arranged for the Highland Trust group to pay back Arcadia; it sold a 60% stake in the Indarama gold mine to raise funds to do so. Thereafter, Concerto (and other Highland Trust companies) made a series of repayments to Arcadia and/or Arcadia Lebanon.

On 8 April 2009, Arcadia London invoiced Concerto to remit US$9.8 million to Arcadia London for “Reimbursement of expenses”. A Highland Trust company paid that amount on 14 April 2009. As Mr Hurley noted, the money “would otherwise have been due back to Lebanon who incurred the expense”. For the purposes of Arcadia London’s accounts, the money was allocated against various items. In substance, Mr Hurley said, there was an “internal transfer in effect between two group companies”, and “[i]t is a loan in effect between Lebanon and London because the 9.8 could be repaid to Lebanon because that is who has paid the initial amount out”.

The Claimants suggested at trial that there was in fact no net benefit to Arcadia London, because the US$9.8 million was used to satisfy debts owed to it by Equinox, MRS and Concerto itself. However, (as the Claimants’ solicitors pointed out in a letter of 4 May 2024) Arcadia London had debited the outgoing payments to those entities (which occurred at various times in December 2007, May, September and November 2008) to an “Other Charges” account “that is, an expense account where there is no expectation of repayment”. It is only after the US$9.8 million was received in May 2009 that the accounting treatment was changed to reflect them as debts which had been repaid. Since the payments out were made with no expectation of repayment, the benefit to Arcadia London from the Concerto payment is clear. The Claimants also referred to an email of 8 April 2009 from Mr Fox to Arcadia to Mr Hurley, asking whether he was right to think that the incoming payment from Concerto related to US$3.75 million CNL (Concerto) and MRS, US$5.8 million Equinox and “$250k = balance (assume interest)”; to which Mr Hurley replied “[t]hat is correct but will say fee rather than interest as not allowed to make loans”. That exchange does not, however, demonstrate that the amounts did in fact reflect loans, and the accounting treatment suggests that they were not. Even if they were loans, there remained a benefit to Arcadia London in receiving actual payment of sums whose recovery may well have been uncertain as to occurrence and/or as to timing.

In May 2009, Arcafrica paid US$3 million to Arcadia Lebanon. Arcafrica also paid CHF 2.892 million to a Swiss notary in respect of a property purchase by Mr Bosworth in Switzerland.

By summer 2009, Mr Main’s group had refunded the Arcadia contributions in respect of the various projects that the joint venture had pursued. Mr Main said this “was very costly to us”; in the Highland Trust’s view, it had overpaid its refunds to Arcadia, but it wanted to settle and move on.

Viewing the figures in the round, Arcadia London had payments to Concerto of about US$12 million, but was repaid US$17.3 million in total. Arcadia Lebanon had made payments of about US$15 million, but was repaid only US$3 million. Arcadia London was thus made whole, and received an overpayment (of US$5.3m), and Arcadia Lebanon bore the remaining costs. In that sense, there was a transfer of value from Arcadia Lebanon to Arcadia London, and this was an example of Arcadia Lebanon contributing funds to Arcadia London. Moreover, since Arcadia Lebanon, not Arcadia London, bore the overall costs, this was to the financial detriment of Mr Bosworth/Mr Hurley because it reduced Arcadia Lebanon’s net trading profits to which Mr Bosworth/Mr Hurley had a profit share.

Following the end of the joint venture, Mr Main changed Arcem’s name to ARCEM Resources Limited. However, Mr Main continued to carry on business both with Arcadia and Mr Fredriksen’s other companies. For example, Mr Main continued to assist Arcadia in trying to obtain onshore oil and gas licences in Angola as well as offshore oil and gas licenses in Mozambique; and on 28 March 2012 there were discussions of an effort to build a products business in Mozambique. This was discussed with Farahead on 8 May 2012 and 30 October 2012. This ongoing assistance for projects that Mr Main provided is likely to explain further payments that Arcadia Lebanon made to ARCEM Resources in 2009 and 2012. Mr Fredriksen also asked Mr Main to assist him with a number of issues that he had in Angola (where Mr Main had strong relationships) to sell a ship to Sonangol, the Angolan state oil company; and also to assist with drilling opportunities for Seadrill.

On 9 April 2009 Arcadia Lebanon paid US$13,972,585 to Arcadia London. This followed a payment by Projector to Arcadia Lebanon of US$21,939,533 on 27 March 2009 arising from the joint venture with Projector mentioned earlier. Mr Hurley explained this in his witness statement:

“202.

Between 2007 and 2009, Arcadia Lebanon made two major payments to Arcadia London. One was a payment of c. USD 14 million made in April 2009, which was related to a former joint venture between Arcadia London and Projector SA. My understanding is that Projector sourced products which Arcadia London would sell to PPMC. In March 2009, PPMC made a delayed payment of funds owed to Arcadia London. Arcadia London had nominated Arcadia Lebanon to receive these funds, as Arcadia Lebanon had already incurred some of the liabilities of the costs attached to this joint venture. And so PPMC paid Arcadia Lebanon. Arcadia Lebanon, after deducting its own costs and payments made to Projector and others, possibly MRS, paid USD 14 million to Arcadia London.”

In late April 2009, Mr Bosworth attended a meeting with Farahead, after which Mr Bosworth travelled straight to Beirut to visit the Arcadia Lebanon office. He said in his witness statement that Mr Fredriksen and Mr Trøim were aware he was travelling to the Beirut office directly after the meeting. Steven Eglin, the head of chartering at Frontline, who was at the meeting, emailed Mr Bosworth “have fun in Beirut”. I accept Mr Bosworth’s evidence on this point.

In or around June 2009, Mr Lind produced a set of draft Farahead minutes and a draft Corporate Governance Bible Index. Neither made any mention of Arcadia Lebanon being dormant, even though the draft minutes recorded that another group company (Thistle Maritime Co Ltd) had become dormant. Nor was anything said about remaining undistributed profits in Arcadia Lebanon.

Mr Bosworth’s evidence was that, after the payment of the Arcadia Lebanon dividend for the 2007 year, there was a further discussion with Farahead as to the sums that would be available to be distributed as future Arcadia Lebanon dividends. Mr Fredriksen said he recalled “some discussions between me (and Mr Trøim) and Mr Bosworth and Mr Hurley regarding a dividend in 2008 and early 2009, and my recollection is that we discussed an amount of dividend of US$10-15 million”.

The Hannas Note records that on 10 March 2009, Mr Hurley said Arcadia Lebanon’s 2008 accounts were being reviewed, and that on 24 June 2009 Mr Hurley:

“advised of US$10 million [Arcadia Beirut] profits for 2008”.

The audited accounts for 2008 ultimately recorded net profits of US$9,844,054. Mr Hannas accepted in cross-examination that the Hannas Note indicated that Mr Hurley was telling him about expected Arcadia Lebanon profits, and said he did not mention this in his witness statement because he “overlooked it”. His witness statement was clearly unsatisfactory in circumstances where the Claimants were alleging that they had been (fraudulently) told that Arcadia Lebanon was used for a single transaction and had become dormant by some time in 2008.

The Hannas Note also records that on 25 August 2009 Mr Hurley:

“advised that he is talking to [Mr Fredriksen/[Mr Trøim] re [Arcadia Lebanon] cash availability”

Mr Fredriksen accepted in his oral evidence that he was “apparently” talking about Arcadia Lebanon’s cash position at that time.

On 27 August 2009, Mr Hannas emailed Mr Trøim (copying in Mr Fredriksen) to report that he had spoken with Mr Hurley about Arcadia Lebanon’s cash availability for the 2008 year and that Mr Hurley replied “that he has discussed this with you”. Mr Trøim said nothing about this in his witness statement. In his oral evidence, he said “I think we saw this as a closed issue. We kind of did a deal we originally agreed to and we wanted the money out from what we deserved on our 70%”. However, as Mr Fredriksen accepted in cross-examination:

“Q. ..The reason why Farahead is interested in the financial statements for Arcadia Lebanon is because those statements set out the Arcadia Lebanon profits, don’t they?

A. Yes, that must be correct.”

The Hannas Note records that on 4 September 2009, Mr Skilton “pointed out that we should chase “them” for [Arcadia Lebanon] info”. However, it then records, as the final entry, that on 9 September 2009 Mr Skilton said:

“he was advised by [Mr Fredriksen]/[Mr Trøim] that we should not make any more enquiries on [Arcadia Lebanon]”

Neither Mr Fredriksen nor Mr Trøim made any mention of that instruction in their witness statements.

The question thus arises of why, in circumstances where Mr Hurley had advised of US$10 million Arcadia Lebanon profits for 2008, Mr Fredriksen and Mr Trøim gave that instruction to Mr Skilton to stop making enquiries about Arcadia Lebanon. Mr Bosworth said in his witness statement:

“I recall that after the 2009 dividend payment described above, there was a request from Farahead as to how much would be available to distribute as a dividend from Arcadia Lebanon. I recall informing Farahead that there was around USD 11 million in profits from Arcadia Lebanon that could be distributed. I had discussions, I believe with either John Fredriksen and/or Tor Olav as how payment of that USD 11 million could be made to Farahead. I think ultimately I suggested that instead of there being a dividend payment and therefore a trail of this payment to Farahead, that Arcadia Lebanon would pay costs on behalf of Arcadia group which would otherwise be paid by the group. This was a means of therefore reducing the costs of the Arcadia group by the amount which Arcadia Lebanon would pay to third parties on behalf of the Arcadia group. I discuss in detail further at paragraphs 236 to 246 the specific payments made by Arcadia Lebanon on behalf the group.” (§ 201)

“There were a number of payments made by Arcadia Lebanon, as recorded in the Arcadia Lebanon bank account statements, which were made by Arcadia Lebanon on behalf of the Arcadia group. As I explain above, this was discussed with Farahead and it was decided that Arcadia Lebanon’s profits would be used to reduce the costs payable by the Arcadia group, which was a means of Farahead transferring value from Arcadia Lebanon to the group without having to pay dividends from Arcadia Lebanon to Farahead directly, which would have left a trace. This would have undermined the purpose of having Arcadia Lebanon be an offshore, “off the books” company, its purpose to engage in Arcadia’s potentially riskier oil trading business and keep Farahead and the Arcadia group insulated from the compliance risks associated with that business.” (§ 236)

In cross-examination, Mr Bosworth said he could not recall precisely when the discussion occurred, but it was “a discussion that we had and again, there was no authorisation in writing but it was agreed that we would spend that money on costs for the group, be those trading costs and/or other cost”.

Mr Fredriksen in his witness statement denied that he had been part of or known about any such agreement. He insisted that he understood Arcadia Lebanon to be no longer active from “around 2009”. In cross-examination, Mr Fredriksen gave this evidence:

“Q. …But in 2009, do you recall, you or Farahead, you agreed that Arcadia Lebanon would use its cash to pay the costs and expenses of Arcadia, the Arcadia Group, instead of distributing those profits via a dividend payment to Farahead. Do you recall that agreement?

A. I don’t recall it, no.

Q. Do you recall that the reason for the agreement was if Arcadia Lebanon paid Arcadia’s costs, that would reduce Arcadia’s costs, yes?

A. That I accept in principle what you are saying.

Q. That would of course mean that Arcadia’s profits would be higher, net profits would be higher, of the group?

A. That’s correct, yes.

Q. And that would mean that Farahead and of course the mechanism for Farahead to get its profits from Arcadia Group was set in stone, was in place; yes?

A. Depends on the certain circumstances. I don’t know the details on this.

Q. But in principle, that would be a more effective way -- Arcadia Lebanon is reducing Arcadia London’s costs such that Arcadia London’s profits were higher, that is a more effective way for you, Farahead, to get money out of the Arcadia pockets; correct?

A. Yes, I see what you are saying.

Q. And just to show what Mr Bosworth says, at his seventh statement, paragraph 201, … he says -- well, you see what he says there, Mr Fredriksen. And that’s right, isn’t it: there was this agreement to use the Arcadia Lebanon cash to pay Arcadia Group’s expenses; yes?

A. Yes. I hear what you are saying but I cannot recall the reason and I’m not an auditor or anything like that. I understand what you are saying to me….”

and:

“Q. The reason why there were not going to be any further enquiries is because of this agreement with Mr Bosworth and Mr Hurley for Arcadia Lebanon to make the payments. That is why there was no need for Mr Skilton and Mr Hannas to make further enquiries, was there?

A. It could be, I don't know.”

Mr Trøim also denied in his witness statement that any such understanding had been reached, adding he would not have agreed to Arcadia Lebanon’s profits being used in this way without knowing exactly how they were going to be used. I find the latter proposition hard to accept: Mr Fredriksen and Mr Trøim had vested Mr Bosworth with all the usual powers of a chief executive in relation to Arcadia London/Switzerland, and trusted him to run that business. If Arcadia Lebanon was to make payments to cover Arcadia London expenses or otherwise for its benefit, it is difficult to see why, logically, Mr Trøim would expect to know exactly how Arcadia London was spending that particular portion of the funds available to it. In cross-examination, Mr Trøim said he had not said anything in his statement about telling Mr Skilton to stop making enquiries about Arcadia Lebanon because he could not specifically remember it, and:

“I was focused because there was a hunger to get the dividend out quickly and we said we need to be careful how this dividend is taken out and we still probably owed Pete Bosworth some money if things have worked out in the way it has worked out until that date.”

Yet Mr Trøim knew that there was another US$10 million in Arcadia Lebanon, which (Mr Trøim said) “was standing there as cash anyway”. He was not aware of any further payment via Fulham Properties, yet continued to deny that he authorised Arcadia Lebanon funds to be used to pay Arcadia London expenses. It is unclear how, on Mr Trøim’s approach, the money remaining in Arcadia Lebanon would ever be realised for the benefit of the group. It seems unlikely that it would simply have been left there. Mr Bosworth’s explanation seems to me more inherently probable. It is also more consistent with the fact that, as I outline elsewhere, Arcadia Lebanon did go on to make certain payments for the benefit of the Arcadia Group (see §§ 403, 489, 509-513, 580, 648 and 677).

The Claimants alleged that:

“60.

In around 2009, and in light of (a) (as Farahead understood it) the Arcadia Group’s engagement in physical trading activity in West Africa; and (b) the forthcoming anti-bribery and anti-corruption regime that was to be introduced in the United Kingdom the following year, Farahead raised with Mr Bosworth the need for there to be adequate training and controls within the Arcadia Group.

61.

In response to this, Mr Bosworth told Farahead that the Arcadia Group had ceased its regular trading activities in West Africa.

62.

This assertion was re-affirmed thereafter by the book-by-book profit/loss and bonus figures that were presented to Farahead by Mr Bosworth and Mr Hurley, which purported to show little or no activity in West Africa (with such activity as there was being explained by Mr Bosworth and Mr Hurley as being the result of legacy issues).

63.

From these statements (and each of them), Farahead understood that by and from 2009 the Arcadia Group was not engaged in any ongoing regular trading activities in West Africa. As was known to Mr Bosworth and Mr Hurley, however, this was not true: the Arcadia Group had not in, by or from 2009 ceased its regular trading activities in West Africa; on the contrary, it remained actively engaged in ongoing regular trading activities in West Africa. These statements served to conceal the fraud from the Claimants, as, it is averred, they were intended to.” (RRRRAPC)

This serious allegation was in fact entirely unsustainable. Starting with the documents, Farahead received regular updates on Arcadia’s West African trading activities.

Mr Hannas in his statement said “at no point was I aware of any specific representations about the continuation or stopping of oil trading in West Africa, either before or after 2009”. Mr Trøim in his witness statement said the daily P&L reports, which he looked at, “did sometimes indicate some limited West African trading”, but “I do not consider that these reports can be fairly described as disclosing material or ongoing West African oil trading”. However, confronted with a daily report from January 2010, he accepted that it showed a daily change in the West African book, and that that indicated that the business was regular and ongoing. More generally, he accepted that the information he was receiving showed the activity was still going on, claiming instead that he did not know the size of the operation. Mr Trøim said “[w]e were never informed that the West African trading had stopped”. When asked about the statement to that effect in Mr Adams’s affidavit, Mr Trøim said:

“But as I said, it’s too stupid because we got a report every day, as you just showed me. I think what he can mean, when it is said there, reduced activity level down to a level where there was no hard political risk in any of the contracts but that you can trade. The fact is here, they traded West Africa. They sent us a report every day where we had West African trading in there.”

and:

“As I said, this must stand for him. I never said that we stopped the trade in West African oil. How can I say that when I get a report every day which shows that there is a result on West African trading? I’m not stupid.”

Mr Fredriksen similarly accepted that he knew that there was West African trading: “I knew what was happening, obviously”. In his witness statement, he had referred to a “representative example” of a daily P&L report, from 14 January 2010, which he had claimed was unintelligible. The report indicated that the West African book had had the largest P&L change of the main trading books. (The Claimants are wrong, in my view, to suggest the contrary. The report included a column for “Daily” P&L movement.) In cross-examination he said:

“Q. So looking at this particular report, you can see that West Africa is changing on a daily basis, isn’t it ?

A. Yes, but that’s normal. This changed every day, this market.

Q. It’s regular?

A. Every second of the day.

Q. It is regular and ongoing; correct?

A. Yes. Whether it is regular, I don’t know.”

Mr Fredriksen accepted that Arcadia’s West African trading had not been hidden from anyone: “No, I’m not saying that, but I’m saying what happened to the profits, where did they go? In which pockets? That is what it is all about, the whole case”; and said:

“A. I am not worried about the trading in West Africa, as long as it was done in the proper matter.

Q. And of course profit, you get profit after paying costs, don’t you?

A. Correct.”

Arcadia’s direct West African profits in fact increased in 2011-2013 after a slump in the 2010-2011 year (as at the end of March 2011), when Mr Adams had said there was a difficult trading environment.

Both Mr Trøim and Mr Fredriksen in their witness statements for trial suggested that Mr Bosworth had told them, not that regular West African trading had ceased (i.e. the Claimants’ allegation), but that he said it had been “significantly scaled back” (both using the same form of words). That was a notable departure from the Claimants’ pleaded case, which was nonetheless maintained. On 8 June 2011 (in the context of the difficult trading environment), Mr Adams emailed to Farahead a proposal to restructure the Arcadia business, which included an option to “significantly reduce our exposure” for the West African book. That is in itself hard to square with Mr Fredriksen’s and Mr Trøim’s belated evidence that they had been told two years previously, in 2009, that the business had already been significantly scaled back.

It is also difficult to see how, in those circumstances, Mr Adams could have given evidence on affidavit to the effect that Farahead was told in 2009 that regular West African business had ceased altogether. In his affidavit he said:

“111.

The Farahead Representatives also raised with Mr Bosworth the need for adequate controls within the Arcadia Group in the light of the new anti-bribery and corruption regime that was to be introduced in the UK in 2010 (the Bribery Act 2010). This was seen as important because of the Group's high risk physical trading activity in West Africa. However, at that time, they were assured by Mr Bosworth that the Arcadia Group had ceased its regular trading activities in West Africa because of the increased risks involved, and that the necessary training and guidance was being provided to the Arcadia Group's staff in relation to the Group’s ongoing activities elsewhere.

112.

This first assurance was supported by the book-by-book profit/loss and bonus figures that were presented to the Farahead Representatives by Mr Bosworth and Mr Hurley at the time, which showed very little or no activity in West Africa (the little there was being explained away by Mr Bosworth and Mr Hurley as the result of legacy issues). This assurance in particular was an important one; the Farahead Representatives believed, as a result of what they were told, that the Arcadia Group was not engaged in any regular ongoing trading in West Africa. I was not aware at the time that this representation was being made. At the time, even from my US base, I understood that the Arcadia Group continued to trade in West Africa. It is clear that this representation to the Farahead Representatives was not true and that the Arcadia Group continued to be involved in extensive trading in West Africa, albeit the benefit of that trading was being dive1ied away from the Arcadia Group as is further described below.” (§§ 111 and 112)

and:

“The transaction structures used were concealed from the Arcadia Group's owners and appear to have led to the diversion of substantial profits to entities outside of the Arcadia Group. This is all the more striking given that, for much of the period in question: (a) the Farahead Representatives had been told that the Arcadia Group had ceased its regular trading activities in West Africa…” (§ 148)

Although in that evidence Mr Adams said he was not aware of the alleged representation at the time, and himself was aware of continuing West African activity, his evidence also appears to be the source of the allegation that the representation was made and that Farahead was misled by it. It is entirely unclear, given the documentary records and the evidence given at trial, how Mr Adams could have been in a position to say so. As already noted, Mr Adams was not called to give evidence so that he could explain himself.

In my view, the Claimants’ case on this matter is wholly unsatisfactory and inconsistent with the documentary evidence. There is no tenable evidence in support of the allegation of deception made in §§ 60-63 of the Particulars of Claim, and it is not clear to me that there ever was.

In around June 2009, Arcadia Mauritius entered into a term contract with NNPC for 60,000 barrels/day (the “Arcadia Mauritius-NNPC Contract”). Attock Mauritius then entered into a lifting agreement with Arcadia Mauritius pursuant to which Arcadia Mauritius transferred title to the oil to Attock Mauritius. Arcadia London/Switzerland went on to buy 20 cargoes of oil from Attock Mauritius sourced under this term contract.

Similarly to the Attock/GEPetrol term contract in January 2009, the Arcadia Mauritius/NNPC Contract was obtained while both companies were owned by Mr Decker. As described earlier, Arcadia London (with Mitsui’s knowledge) had transferred Arcadia Mauritius to Mr Decker in 2003. Thereafter, it was Mr Decker’s company until September 2009, when Mr Kelbrick bought it (see below). Mr Kelbrick bought Arcadia Mauritius from Mr Decker because it had a term contract with NNPC, and that is what made it an attractive purchase: see section (I)(11)(h) below. Mr Kelbrick said:

“My understanding is that Arcadia Mauritius was set up by the Claimants and subsequently transferred to Mr Decker. All I knew at that time was that Mr Decker had a company which had a long history of lifting cargoes from NNPC and an ongoing contract and I was offered the chance to acquire the company which held the contract. It did not occur to me to change the name or the stationery of Arcadia Mauritius, which I inherited from Mr Decker. It would have defeated the purpose, which was simply to continue the business as it had been successfully operating for a number of years in order that its contract with NNPC would be renewed.”

The Claimants nonetheless suggest that this contract was obtained by Mr Bosworth using the Arcadia Group’s name and network. Their chain of reasoning is as follows:

I do not accept that line of argument. The evidence indicates that Arcadia London, back in 2003, transferred Arcadia Mauritius to Mr Decker for his use. It appears to have been considered mutually beneficial that he should be able use a company with the Arcadia name, and then contract to supply oil to the Arcadia Group. As I have found earlier, there is no evidence that Arcadia or Mr Bosworth thereafter retained any control over or interest in Arcadia Mauritius, still less that Mr Bosworth was “able to ensure that Decker transferred Arcadia Mauritius to Mr Kelbrick”. Moreover, by 2009 Mr Decker had for four years owned Attock, with its long history of oil trading in West Africa and other places, including with NNPC. The fact that, when selling oil to Arcadia, Mr Decker used transaction chains (involving contract holders and sleeves) similar to those used by Arcadia Lebanon is entirely unsurprising: they reflected common practice. Overall, there is simply no evidence to indicate, or from which any reliable inference could be drawn, that term contracts obtained by Arcadia Mauritius after 2003 were opportunities diverted by Mr Bosworth away from the Arcadia Group.

From late 2007, Mr Decker fell ill and began to wind-down his business activities. In so doing, he put Arcadia Mauritius and Attock Mauritius up for sale. In late September 2009 Mr Kelbrick and Mr Mounzer acquired Arcadia Mauritius, and Mr Kelbrick acquired Attock Mauritius, becoming its sole director and shareholder. Mr Kelbrick explained in his witness statement that he had known the previous owner of Attock, Mr Imtiaz Dossa, at least from when Mr Kelbrick was working for PetroChina in 2004. Attock Mauritius had, he said, an ongoing crude oil supply contract with NNPC. It was Mr Kelbrick who had later introduced Mr Decker to the idea of buying Attock Mauritius from Mr Dossa, which Mr Decker did in 2005. Mr Kelbrick said that Mr Decker used Attock Mauritius to lift crude oil from West Africa and to provide trade finance to companies within the Tristar Group as well as third parties. When the opportunity to buy Attock Mauritius arose in 2009, Mr Kelbrick said it was attractive:

“45.

I acquired AOIL [Attock Mauritius] jointly with Mr Salem Mounzer, who had previously worked with Mr Decker at one of his other companies, Tristar. Mr Mounzer and I were of equal seniority at AOIL, I cannot recall what formal titles we used at the time. I knew Mr Mounzer through Mr Decker. Mr Mounzer had provided financing services to Tristar, and I think he may also have been Tristar’s accountant. Purchasing AOIL made total commercial sense for me; Mr Mounzer and I could each carry on the same type of work we were already doing but become principals in the business.

46.

AOIL was such an attractive investment because it already had contracts with national oil companies, and already had credit lines with banks that would enable it to lift cargoes. AOIL had extensive credit lines with Credit Agricole, Credit Suisse, ING, and Société Générale. Mr Mounzer and I therefore acquired a ready-made business, which we continued to run. AOIL already regularly sold cargoes to Arcadia, which also continued after we acquired the company on 26 September 2009.

47.

AOIL and Arcadia were therefore counterparties in the transactions which the Claimants now object to. I expand on how AOIL’s business operated elsewhere in this statement. At all times AOIL acted in accordance with its own commercial interests. It was not required to act in accordance with Arcadia’s own commercial interests. Mr Mounzer and I acquired the company on a 50/50 basis and granted AOIL subordinated loans totalling US$6 million in the process.”

Mr Kelbrick added:

“48.

To the best of my knowledge, neither Mr Bosworth nor Mr Hurley has ever had any interest or control over AOIL. They certainly had no ownership or control over the company after its acquisition by Mr Mounzer and me.”

Mr Kelbrick said in oral evidence that operating the contract with NNPC was the whole point of his having bought Attock Mauritius: “the attraction was that it had I think it might have been 30,000 barrels a day contract with NNPC”.

The Claimants submit that Mr Bosworth/Mr Hurley had and retained an interest or control over Attock Mauritius. They note that, as I have already said, Arcadia lent US$13 million to Mr Decker to purchase it (which Mr Bosworth said was repaid). The Claimants says it is to be inferred that Mr Bosworth/Mr Hurley retained control and were able to ensure that Mr Decker transferred the shares to Mr Mounzer and Mr Kelbrick in 2009 so that it could continue to be used in the scheme. They refer also to the following matters:

Having considered these points carefully, individually and in the context of the evidence as a whole, I do not consider them to demonstrate that Mr Hurley, let alone Mr Bosworth, had a beneficial interest in Attock Mauritius. The email exchange mentioned at (i) above refers to an assumption made by Mr Lance, an individual whom the Claimants chose not to call to give evidence despite the fact that it appears he continues to provide services for them. As Mr Bosworth said, there are a number of situations in which it is possible to envisage Mr Lance seeking advice from Mr Hurley. (One possibility, though it is speculative, might be that Mr Kelbrick had sought Mr Hurley’s help, as someone he had worked or done business with for a long time and trusted, and as someone familiar with corporate documentation, about the documentation of this new venture with Mr Mounzer.) Without evidence from Mr Lance, or any documentation showing what happened next, and absent any actual recollections from Mr Hurley or Mr Kelbrick, I do not think it correct to infer that Mr Hurley must have had a beneficial interest in Attock Mauritius. As to point (ii), as Mr Hurley points out, the email was sent to his Arcadia account, rather than to any personal account (or to Arcadia Lebanon), and neither Mr Hurley nor the Arcadia Group in fact made any payment. These circumstances are not suggestive of Mr Hurley having a beneficial interest in Attock Mauritius, and seem more likely to have been a mistake as Mr Hurley suggested. I do not consider point (iii) probative, in circumstances where it is unclear precisely what Mr Hurley was seeking to be able to access, and it seems possible that it was indeed connected with the logistics of transactions between Attock and Arcadia Lebanon or the Arcadia Group. Viewed together, and in the light of the totality of the evidence about the Attock group, I do not consider these matters to indicate that Mr Bosworth or Mr Hurley had a beneficial interest in Attock Mauritius or other Attock companies.

It was also suggested to Mr Bosworth that he ‘procured’ Mr Decker to sell Arcadia Mauritius to Mr Kelbrick, and was able to do so because he (Mr Bosworth) had retained control of Arcadia Mauritius. I have already rejected the premise that Mr Bosworth retained any control over Arcadia Mauritius, and there is no basis on which to consider that he procured its sale to Mr Kelbrick (which he denied).

A third company which Mr Kelbrick acquired from Mr Decker in around September 2009 was Attock Oil Services Lebanon (“Attock Lebanon”), a Lebanese company. Mr Kelbrick explained that Mr Decker had used Attock Lebanon to make the payments of the costs associated with acquiring cargoes and running business in West Africa. Mr Kelbrick and Mr Mounzer used Attock Lebanon in the same way, including through a co-operation agreement between Attock Mauritius and Attock Lebanon dated 2 January 2009. Typically, service providers invoiced Attock Lebanon for their services, and Attock Lebanon invoiced Attock Mauritius for payment. Later, in 2011, Mr Kelbrick transferred Attock Lebanon to Mr Morgado, albeit he said in cross-examination that he retained a beneficial interest in it. It was suggested to Mr Bosworth and Mr Kelbrick in cross-examination that Mr Bosworth was the beneficial owner of Attock Lebanon, despite the Claimants in their statements of case having made no such allegation save to the extent that it might be implicit (on one reading) in an allegation in the 144 Transactions Case that:

“Attock Mauritius, Attock Lebanon and Arcadia Lebanon all operated out of premises at 308 Sursock Street, Beirut, in which building both Mr Decker and Mr Bosworth also owned properties. In light of the overlap of staff between the three entities, the Claimants aver that it is likely that all three companies were in fact operated out of the same premises (by the same people).” (§ A42)

Mr Bosworth denied that he had any interest in Attock Lebanon. He confirmed that, having worked for Arcadia for a time, Mr Morgado went to work for Attock. There is in my view no cogent evidential basis for the suggestion that Mr Bosworth had an interest in Attock Lebanon, and I accept his evidence on this point. The Claimants also suggested, in their written closing, that Mr Kelbrick gave “false information” in his witness statement, where he said:

“Sergio Morgado was Ms Azzariti’s husband. Mr Morgado was also employed by AOS and also occasionally provided operational services to AOIL. I transferred the shares in AOS to Mr Morgado in 2011 as I understood from Mr Mounzer at that time that the owner of a Lebanese company had to be resident in Lebanon under local law.”

In oral evidence, Mr Kelbrick said he nonetheless retained the beneficial interest in the company, having transferred the shares in order to comply with the Lebanese law he mentioned. It was not put to Mr Kelbrick that he had therefore given “false information” and I reject that suggestion.

Having acquired Attock Mauritius, Mr Kelbrick and Mr Mounzer used entities in the Attock group to source West African crude on behalf of the Attock group and/or its own trading purposes. Mr Kelbrick sourced crude oil from the NOCs and Attock Mauritius arranged the finance for the purchases. Mr Kelbrick subsequently sold such crude oil through Attock Mauritius to Arcadia and to other third parties. Arcadia Lebanon was not involved in any of these transactions. The Claimants put to Mr Kelbrick in cross-examination the point that if a crude oil supply chain included Attock Mauritius rather than Arcadia Lebanon, then Attock Mauritius rather than Arcadia Lebanon would make profits. That was, however, merely a statement of the obvious: as Mr Kelbrick said, “I knew that if we as Attock … if we were the contract holder, it was up to us to make money”. In addition, Mr Kelbrick said:

“The requirements were aligned. I needed Attock when I bought to make money. Arcadia needed to buy the oil from Attock to make money.

Q. It wouldn't have needed to buy the oil from Attock if it had made the term contracts for its own benefit, would it?

A. You and I said should it have so wished it could have gone and done it. If it had set up its own office in Nigeria, if it had hired somebody like me, then that would have been a lot of money.”

Further, the notion that the Defendants introduced Attock Mauritius as a replacement for Arcadia Lebanon does not ring true: as the Defendants point out, there were crude oil transactions involving Arcadia Lebanon after, as well as before, Arcadia London began purchasing oil from Attock Mauritius.

Arcadia’s West African traders regularly emailed ‘West African Updates’ and ‘West African Wraps’ to a large number of Arcadia individuals, including Mr Adams. The West African Updates gave general updates on Arcadia’s oil trading in West Africa and referred to particular West African oil transactions, including those involving Attock Mauritius. Arcadia also held annual conferences for its traders at which Arcadia’s trading books were discussed. One such conference took place in October 2009. The conference papers included a presentation on ‘West Africa crude’. At the October 2010 Singapore group conference, there was another presentation on Arcadia’s West African oil trading; Mr Adams attended. Ms Driay said information about Arcadia’s West African dealings was widespread: “[n]othing about the ongoing Arcadia West African oil trading was hidden”; and that Mr Fredriksen himself met Ms Driay on the West African trading desk.

In 2009/2010, Farahead put in place arrangements for an Arcadia bonus scheme to cover 2009 to 2012: the scheme made specific provision for bonus payments for West African oil trading each year. On 26 April 2010, Mr Lind emailed a draft of the group bonus scheme to Mr Hurley, Mr Trøim and Mr Skilton. Section 5 of the scheme identified eight bonus pools, by reference to the trading portfolios of the Arcadia Group, which included the “West Africa Trading Book (the “West Africa Pool”)”. Mr Hannas said of this document:

“Looking at it now I do not find it surprising that West African trading was included in the draft bonus scheme. This is because, as I noted above, I was aware that at some point Arcadia conducted trading in West Africa and I was never told or became aware that this had stopped, so it would make sense for that trading, like the other trading, to be included in a bonus scheme.”

The Arcadia bonus calculations and overhead allocation documents that Mr Bosworth/Mr Hurley provided every year to Farahead and which Farahead approved, specifically identified Arcadia’s West African trading and the traders in the West African pool. The documents identified the ‘West African’ book and the trading. The total gross trading profit for the West African crude trading book between 2009 and 2013 was approximately US$24.6 million, comprising US$3 million in 2009, US$7.3 million in 2010, a loss of US$210,000 in 2011, US$4.8 million in 2012 and US$9.5 million in 2013.

In January 2010, Mr Kelbrick incorporated a company called Crudex Oil International Limited (“Crudex”), which in about March 2010 entered into a term contract with NNPC for the purchase of 30,000 barrels/day (the “Crudex/NNPC Contract”). Attock Mauritius then entered into a lifting agreement with Crudex. Mr Kelbrick’s evidence was that one of his contacts in Nigeria was a local sponsor called Chief Tony Anenih, whom Mr Kelbrick had pursued after learning that Chief Anenih had an oil contract with NNPC to offer. Mr Kelbrick said he persuaded Chief Anenih to sponsor him to operate that contract. Chief Anenih instructed Mr Kelbrick to use the name ‘Crudex’ as the name of the company that Chief Anenih would sponsor to lift the oil, and Mr Kelbrick duly incorporated Crudex. Mr Kelbrick used Crudex as a contract-holder in 19 of the 144 Transactions.

Mr Kelbrick said in his witness statement:

“Deals in which Crudex was the contract holder came about as a result of a local sponsor in Nigeria called Tony Anenih. I got Tony Anenih’s phone number from someone at NNPC while I was in Nigeria because somebody told me he was going to have a contract for the supply of crude oil. I rang his mobile, introduced myself and he invited me to meet with him. Tony Anenih was a very respectable man and I sat down with him and explained how I would operate a contract. I know that, at that time, Total, Vitol and BP were also actively pursuing Tony Anenih for his contract rights. Tony Anenih gave me the name Crudex as the name of the company he would sponsor to lift oil. He told me to go away and make sure it happens. I therefore incorporated Crudex in January 2010. At Mr Mounzer’s suggestion, Mr Lance and the Cornhill Group Limited provided administrative support. It is a measure of my relationship with Tony Anenih that the Crudex contract was regularly renewed. [Arcadia Mauritius] (via [African Oil Services]) paid Tony Anenih a referral fee in return for his sponsorship and for bringing the contract to [Arcadia Mauritius] (using Crudex as the contract holder).”

Mr Bosworth said in his evidence that he had never met Chief Anenih and did not know him; and that “without [Mr Kelbrick’s] relationship with Anenih, I would not have had access to that crude”. Mr Kelbrick said “without me being there on the ground being known by NNPC, and without me being able to go at the drop of a hat because I was there all the time to see Chief Anenih…this oil would not have gone to Arcadia”.

On 28 December 2009, Mr Kelbrick had drafted a letter of comfort to be sent from Mr Bosworth addressed to Chief Anenih. The draft letter stated:

“We as the Arcadia Group of Companies wish to convey our sincere thanks for opening a dialogue and consummating business together in the form of the 30,000 bbls/day Crudex contract.

We also wish to underline our commitment to you in this matter by stating that where cargoes are scheduled by NNPC under the NNPC/Crudex contract, we as Arcadia Group commit to lifting said volumes irrespective of prevailing market conditions.”

The disclosed letter is in draft form only and there is no evidence that it was in fact sent. There is no other evidence of any communication or relationship between Mr Bosworth and Chief Anenih. The draft letter did not state who originated the contract. Mr Kelbrick said “… Chief Anenih had some advisers and one of the advisers came to him and said perhaps this would be a good idea…it was … supposed to give a degree – if it was required and I just don’t think it was required …if Chief Anenih raised anything with me, then I would be equipped to say that we would be selling to this group of companies”. Mr Bosworth said Mr Kelbrick had requested the letter and he had no problem in giving it to him. He said the reference to a contract with Chief Anenih was incorrect because he did not have a deal with Chief Anenih, and doubted the letter would have been sent in this form. Mr Bosworth said the reference to a commitment by Arcadia was relatively standard wording that “we did give to more than one person on occasions”.

As quoted above, Mr Kelbrick’s evidence was that Mr Lance and the Cornhill Group provided administrative support in setting Crudex up. An email from Mr Lance on 9 April 2010 contained a list of “Arcadia companies” which included Crudex. Mr Bosworth and Mr Kelbrick indicated that that must have been an error. Mr Kelbrick said this:

“No. I think Mr Lance, that is an error, why he put there, I don't know. Crudex was Chief Anenih's -- well, my company that Chief Anenih sponsored, we then took the oil into Attock and then sold it to Arcadia. It wasn't an Arcadia company.

Q. And he reflects the fact that it was Arcadia who had arranged for the Crudex company to be set up.

A. Arcadia hadn't, no. I had told Salem to set up Crudex and he said it will be in Mauritius. I believe that he had -- he used Mark Lance to do that, because I think that is what Cornhill -- that was their business. And that's that. There was no mention of Arcadia.”

In June 2010, Mr Hurley told Moore Stephens that Arcadia London had paid NNPC the US$2.5 million deposit in relation to the Crudex/NNPC Contract. Mr Hurley said in an email to Moore Stephens on 28 June 2010:

“This was paid to lift a third-party cargo (Crudex). The $2.5m will be deducted from a cargo being loaded in June (scheduled). NNPC demand a prepayment of $2.5m on all new contracts. We have paid previously or new contracts and renewals and have always recovered.”

and in his oral evidence said:

“Why wouldn’t we do that? It seems perfectly normal…the trader may have agreed to make that payment on behalf of Attock, if they were receiving the cargo which…I suspect we [the Arcadia Group] may have done”.

Mr Bosworth said that it was “quite normal” to assist business partners with putting up deposits, that they always get deducted from the first cargo, and “That is what you do in this business. We did it for other people as well”. Mr Kelbrick said: “I don’t see that as particularly unusual because they knew they were going to get the money back and again they were happy with the reliability of it…the objectives of the two companies were to make money”.

Mr Kelbrick said in cross-examination that the fee for Chief Anenih’s sponsorship was paid via a company called Stratar, which was the Chief’s service provider company. On 28 December 2009, Mr Kelbrick sent Mr Bosworth an email headed “agreement for Chief company” asked him to see whether the attachment looked ok. Attached was a draft agreement between Arcadia London and Stratar Energy Resources Limited, to be dated as of 4 January 2010. The recitals stated:

“(A)

The Service Provider is a company incorporated in Nigeria and by virtue of its activities globally has developed extensive expertise and knowledge specifically in relation to Crude oil, products and oil derivatives.

(B)

As a direct result of the services and extensive work performed by the Service Provider, a supply contract was awarded to Crudex Oil by NNPC for the delivery of Nigerian crude oil of 30,000 bbls per day, and that said contract shall be exclusively executed and operated by Arcadia Petroleum Limited.

(C)

The Service Provider has developed an extensive business network of professionals and subcontractors located globally on whose expertise it can call.

(D)

Arcadia Petroleum Limited to benefit from the Service Provider’s activities and expertise for the purpose of assisting Arcadia Petroleum Limited in oil and products trading business globally, including assistance in logistics and operations as well as in the smooth performance of concluded contracts.”

The proposed operative provisions appointed Stratar as a service provider for a year in return for a per barrel fee together with discretionary additional renumeration by way of additional fees. Mr Kelbrick said he did not recall this document but it might have been another type of comfort that may not have in fact been provided to Chief Anenih.

Mr Andre Gagiano sent an email to Mr Mounzer on 5 April 2011, stating:

“Morning Salem, please find attached crude contracts which banking details are provided on the second page. Please commence with Crudex Azenith please prepare but don't do anything as of yet. Any questions please speak with SK.”

The email appears to have attached two Crudex offer letters and an Azenith Crude Contract. The Claimants point out that Mr Gagiano was formally employed by the Arcadia Group at the time, albeit Mr Akpata said Mr Gagiano was working in his office by this time, and the email quoted above was sent from a personal yahoo address. The contents of the email are cryptic. Mr Bosworth thought perhaps Mr Gagiano was merely providing documents to Mr Kelbrick or his staff while they were abroad, as Mr Gagiano “doesn’t give instructions to commence with Crudex”. Mr Kelbrick similarly thought he might have asked Mr Gagiano to help him in some way with documents.

The Claimants submit that:

I am unable to accept those submissions, or that the Crudex/NNPC Contract was diverted from Arcadia to Attock, fraudulently or otherwise. There is no evidence that Mr Bosworth had a relationship with Chief Anenih or would have been able to obtain this term contract for Arcadia by himself. Conversely, given Mr Kelbrick’s extensive and current relationships with NNPC and in Nigeria generally (which Mr Bosworth lacked, certainly by this stage), it is entirely plausible that Mr Kelbrick obtained the opportunity in the way he suggested. Whether or not Mr Kelbrick in the event found it helpful or necessary to be able to tell Chief Anenih that Arcadia would be his onward purchaser, or even that Arcadia would agree to make service provider payments to him, that would not mean that the opportunity had been diverted. It remained a Kelbrick opportunity. I see nothing implausible about the evidence given by Mr Bosworth, Mr Hurley and Mr Kelbrick about the practice in relation to the temporary funding of term contract deposits. The provision of assistance from the Cornhill Group as to the mechanics of incorporation are, in context, of no significance; and it is perfectly possible that, having incorporated the company, Mr Lance erroneously listed it as an Arcadia company. Mr Lance was the Claimants’ witness to call: their settlement agreement with him stipulated that he would co-operate with them, and he continues to provide services to them via Cornhill, yet they chose not to call him. No conclusions of any kind can be drawn from the cryptic email sent by Mr Gagiano, from a personal email address, over a year later.

I have also considered the Claimants’ point, made in relation to this and the other term contracts pursuant to which oil was supplied under the Attock Transactions, that Mr Kelbrick has disclosed no copies of any paperwork produced for his applications for the contracts. However, leaving aside the point that the first two contracts were obtained by Mr Decker rather than Mr Kelbrick, Mr Kelbrick’s evidence (also quoted earlier in the context of service provider work) was that his work “was not paper-heavy, it required a lot of face-to-face meetings and telephone calls”; that he did not have significant administrative support; and that he was primarily concerned with operating on the ground in West Africa rather than the preparation of paperwork. I accept that evidence.

Further, for the reasons given above and elsewhere in relation to the other term contracts (which I have considered in the round), I do not agree with the Claimants that such documentation as exists or the evidence as a whole indicates that Mr Bosworth was involved in obtaining them.

In all the circumstances, I reject the Claimants’ case about this contract.

In or about May 2010, Attock Mauritius entered into a term contract with NNPC. Attock Mauritius then sold that oil on to the Arcadia Group, pursuant to 8 of the 144 Transactions, between July 2010 and February 2011.

An email dated 7 May 2010 from Mr Mounzer to Mr Dos Santos, copying Mr Kelbrick, said “As per documents attached, you’ll see that we have two new contracts to start as soon as Steve would have signed with NNPC. The signing is taking place next week in Nigeria”. There is no documentary evidence at all that Mr Bosworth or Arcadia London originated it.

The Claimants’ basis for alleging that this term contract was fraudulently diverted from the Arcadia Group is paper thin. They submit that:

Those points ignore the facts that Attock, which Mr Decker acquired in 2005 and Mr Kelbrick bought in 2009, was well-established, with a reputation and extensive experience of crude oil trading, including in West Africa and with NNPC specifically. Further, as I mention earlier, Mr Kelbrick’s evidence was that in 2004 Attock had an ongoing term contract with NNPC. I have already set out the evidence about Attock Mauritius’s long history as a “five star boutique” with NNPC, dating back to the 1990s, and Mr Kelbrick’s connections in West Africa, including Nigeria and NNPC. Further, there is no evidence, or reason to believe, that Mr Kelbrick in obtaining this term contract was holding himself out as representing Arcadia. The Claimants have failed to establish that this was an opportunity diverted by Mr Bosworth (or anyone else) from the Arcadia Group, still less that it was fraudulently diverted.

Also in or about May 2010, Cathay Petroleum International Limited (“Cathay”) entered into a term contract with NNPC for the purchase of 30,000 barrels of crude oil per day (the “Cathay/NNPC Contract”). Attock Mauritius then entered into a lifting agreement with Cathay to take the oil under the Cathay/NNPC Contract. It on-sold oil to Arcadia pursuant to 5 of the 144 Transactions.

Mr Kelbrick in his witness statement said that, after he bought Attock Mauritius, Cathay was one of the companies in whose names he applied for contracts (along with Attock Mauritius itself, Arcadia Mauritius, Azenith and Crudex). He said he did not own Cathay, but used it as a contract holder for the benefit of Attock Mauritius. He added:

“114.

Cathay Petroleum was the contract holder in 5 transactions of the 144 Transactions after Mr Mounzer and I acquired AOIL in September 2009. Cathay Petroleum operated slightly differently to Azenith and Crudex, as I did not own the company. My memory of Cathay Petroleum is poor, but to the best of my recollection, Cathay Petroleum was a company owned by, or at least associated with an individual named Jason Chen, who I knew from his dealings with Arcadia, through Mr Gibbons.

115.

Otherwise, the deals operated in a similar fashion to those where Azenith or Crudex was the contract holder. Cathay Petroleum and AOIL entered into a lifting agreement, and Cathay Petroleum sent letters of authorization to AOIL’s banks confirming that AOIL was authorized to open letters of credit using Cathay Petroleum’s name, in favour of the NNPC, and at AOIL’s risk”

Mr Adams in his affidavit stated that one of Mr Gibbons’ close business associates, Jason Chen was believed to be a shareholder in and managing director of Cathay, and that the focus of Mr Chen’s and Mr Gibbons’ business interests was believed to be in the Far East. Mr Adams said Cathay was incorporated in Hong Kong in 2003, and since March 2008 its majority shareholder had been Cathay Petroleum Holdings Limited with Mr Chen retaining a minority stake. Mr Chen had been a director throughout. The Claimants in their closing referred to a document from February 2011 in which it was said that Cathay was recorded as stating itself to be a wholly owned subsidiary of “Arcadia Energy”, but that point was not put to any of the witnesses.

The term contract offer letter to Cathay dated 3 May 2010 bore the name of the then previous Minister of Petroleum, Dr Rilwanu Lukman. By 20 May 2010, letters from NNPC bore the name of Dr Lukman’s replacement, Mrs Diezani Alison-Madueke. In his oral evidence, Mr Kelbrick said that though he did not recall much about Cathay itself, he remembered how this term contract came about. He said:

“I can tell you exactly how it came about because this was a period of flux in Nigeria in terms of the power of sponsors, the arrival potentially of -- there was a new oil minister and so everything in terms of cargoes, everything in NNPC was up in the air. It was a time of real -- what's the word, not foment. It was just a chaotic time and NNPC knew that I would operate anything that they gave to me. I don't know how many, there weren't many contracts -- sorry, liftings under the Cathay contract so I think that indicates that when all the sponsors had finished their turf wars etc, Cathay didn't have a sponsor. It was a name I had given to NNPC and they gave me those liftings, I don't know how many liftings, half a dozen liftings I think it was. That is how it came about.

Q. You say "NNPC knew I would operate anything that came to me" and that is because they knew you had the backing of the Arcadia Group?

A. It's not because of that, it is because they knew Steven Kelbrick.

Q. Jason Chen was a friend of Mr Gibbons, wasn't he?

A. I don't know how friendly they were, but he was involved, I think, in the Far East.

Q. And Mr Gibbons worked for Arcadia Singapore?

A. Post Arcadia London, yes, I believe anyway. I don't know where he was employed but I started with him. I was in London with him when I started with Arcadia. He had joined before me. And then I think he went to be head of Singapore.”

Mr Kelbrick was shown an email chain on 10-11 May 2010 initiated by Tony Cartwright of Arcadia Switzerland, in which Mr Chen said he would be visiting Geneva and that Mr Mounzer would pick him up and go to a few banks “as per Pete [Mr Bosworth] instruction”. Later in the exchange, Mr Hurley said “[Mr Mounzer] and [Mr Chen] with the banks is not a good approach”. Mr Gibbons asked how Mr Mounzer got involved; Mr Hurley responded that he did not know Mr Mounzer was “part of the equation on this”, and Mr Gibbons replied “I check – perhaps its coz [Mr Bosworth] got cathay a nigerian contract but even then salem not introduce to all”. Mr Kelbrick in his oral evidence said:

“Pete didn’t get Cathay a Nigerian contract. Now, whatever Gibbons says or intends or whatever, there, I can’t speak for him. Nor was I copied on any of this because had I been copied on it, I would have corrected him immediately”

and:

“Q. And you haven't explained in your witness evidence how you got either of them.

A. I would have thought it was fairly evident the amount of time and efforts I put in as to who exactly obtained these. Given that Bosworth was seldom in Nigeria, seldom on the ground, was seldom in NNPC Towers, then as far as I’m concerned, I know what I did and I obtained both of these contracts.”

Mr Bosworth, in his (10^th) witness statement, said he was not and never had been a shareholder in Cathay Petroleum Holdings, which in 2009 made certain payments to Arcadia Lebanon, nor at any time held any beneficial or legal interest in it. Mr Bosworth in his oral evidence said Mr Chen was similar to Mr Kelbrick but operated in the Far East; he had at least one trading company, Cathay, and was also a service provider. He thought Cathay had been a consultant or broker to Arcadia London in the past when Arcadia was owned by Mitsui. He was shown an email from June 2003 where Arcadia talked about a potential agreement with Cathay, but did not recall it. Asked about Mr Gibbons’ email comment, Mr Bosworth said:

“Well, I didn’t get Cathay the contract. I don’t know the sponsor for Cathay’s contract. I think what happened here was Mr Kelbrick asked if we could provide them or assist them with a company name and I put forward, having spoken to Gibbons, Cathay to him and hence the confusion as to whether it was Arcadia’s contract or Kelbrick’s contract. But in all the circumstances I did not get Cathay the contract. Mr Gibbons, sitting in Singapore, I would understand him not being close to this and thinking that I did but I didn't. Mr Kelbrick was responsible for getting the contract. I may have assisted him or we may have assisted him in introducing him to Mr Chen for the use of that name. But I didn't get Cathay the contract.”

As noted earlier, the Claimants not only refrained from calling Mr Gibbons from giving evidence, but also made a settlement agreement with him including a provision prohibiting (or purporting to prohibit) him from assisting other Defendants. The net result is that the Defendants and the court were unable to explore why Mr Gibbons had, in this email, suggested that Mr Bosworth had, or might have, obtained a Nigerian contract for Cathay, or which contract, or how. Further, Mr Gibbons was not a West Africa oil trader, and was based in Singapore. In these circumstances I can ascribe little weight to Mr Gibbons’ unexplained hearsay assertion.

Mr Hurley in his witness statement referred to Mr Kelbrick having asked Cathay Holdings to lend Mr Hurley some money to buy a house in Switzerland, which he said Cathay Holdings agreed to do. The Claimants rely on a payment made by Cathay to Mr Hurley, in March 2013, of US$2.7 million to buy the house in Switzerland, and Mr Hurley’s explanation to his financial intermediary that “I do not have a contract with Cathay but I have helped them in all financial issues for financing of their business including arranging finance facilities, deal structuring for trade finance and tax optimisation”. Mr Hurley gave this evidence in cross-examination:

“Q. … So no reference to any arrangement with Mr Bosworth but you are saying you are being paid by Cathay for helping them with their financial arrangements?

A. I had to give a reason to the bank as to why I was receiving the money and Cathay I think wanted it to be as a consultant or service fee, something of that nature. I gave them the details and it's not -- I had helped Cathay or Arcadia Petroleum Limited as a group had certainly helped Cathay in the past as well. So a part of that is a justification. But that is not -- it's not the only reason. It is Cathay providing the money to me and I'm going to say as a loan, because if all of the bonus payments came in, I would expect Cathay to be repaid.

…

Q. And what you are telling them, information to be provided to a bank as to a reason for payment to Collafin, is that you are to [be] paid by Cathay for having helped them in relation to finance – the business including arranging finance facilities and that is the truth, isn't it?

A. No, it's not. It is the fact that it is a loan being made to me but Cathay wanted it as a service or consultancy agreement.

Q. There is no reference to any loan there?

A. No, there isn't, because we have said what it is for, which is for helping them in other services but the real purpose is a loan.

Q. This is a reference to the work you did for them in connection with the arrangements with Attock Mauritius?

A. That is simply not true.

Q. It was part of the profit share arrangement with Mr Bosworth and Mr Kelbrick?

A. Also not true.”

Viewing this evidence in the round, I consider it most likely that Cathay was, as Mr Bosworth said, a company with whom the Arcadia Group had cooperated from time to time, as they had (on a larger scale) with Mr Decker and Mr Kelbrick and their companies, but which nonetheless remained an independent company in which the Arcadia Group, Mr Bosworth, Mr Hurley, and indeed Mr Kelbrick, had no interest or control. The evidence does not, in my view, provide any basis for concluding that the Cathay/NNPC Contract was an Arcadia opportunity that Mr Bosworth (or anyone else) diverted from the Arcadia Group, still less that it was fraudulently or dishonestly diverted.

On 3 March 2010, Arcadia Lebanon paid US$3.045 million to Scantic Assets Corporate, a Panamanian company. The evidence of Mr Bosworth and Mr Hurley was that this was the corporate vehicle of the Arcadia traders of Mediterranean crude oil, Guilio Antonucci and Dario Striano, who wanted their Arcadia bonus to be paid offshore because they wished to handle their own tax affairs rather than for tax to be deducted at source.

The documents indicate that bonus allocations of Messrs Antonucci and Striano were reduced in Arcadia’s records as compared to the allocated bonuses, reflecting the fact that Arcadia Lebanon paid the remainder to Scantic. A bonus report for the 2009 year emailed on 8 September 2009 recorded them as having a total bonus allocation of US$5.25 million, with the note ‘pd’ i.e. paid. A set of bonus figures which Mr Hurley later emailed to Mr Francisco on 22 May 2013 had the note ‘pd’ removed. On 4 July 2013 Mr Francisco emailed Mr Hurley a further schedule indicating that for the 2009 year Arcadia paid Messrs Antonucci and Striano US$1.88 million. Mr Bosworth/Mr Hurley point out that the US$3.37 million difference between the US$5.25 million allocated to the two traders and US$1.88 million that Arcadia paid them approximates to the sum Arcadia Lebanon paid to Scantic.

Mr Hurley gave this evidence in re-examination:

“Q. Why in this document are the bonus payments for Mr Antonucci and Mr Striano different from the bonus payments that we saw in the September 2009 schedule?

A. The amounts that we’ve got here -- this is Mr Francisco’s schedule, so I’m suggesting he has been through the payroll records and found this is what was paid by the group.

Q. And can you recall why there would be a change in Arcadia’s records, the group’s records, of the bonuses for Mr Striano and Mr Antonucci?

A. Yes, because they were paid from somewhere else.

Q. And where was that?

A. Arcadia Lebanon.

Q. Via?

A. Via Scantic.”

Mr Duncan likewise gave evidence (in connection with a personal transaction in 2010) that Messrs Striano and Antonucci had told him that Scantic was their company.

The Claimants suggest that there is no documentary support for the view that Scantic was the traders’ company or that they had requested this payment. They also note that the previous year, in May 2009, Arcadia Lebanon paid US$3,165,975 to Proview and Proview paid US$1.4 million to Scantic; and suggest that Proview’s involvement is impossible to understand and casts doubt on the payment being for Arcadia’s benefit. In my view, however, the combination of the documentary and witness evidence summarised above points to the conclusion that the payment was made as part payment of bonuses due to Messrs Striano and Antonucci, and hence was made for the benefit of the Arcadia Group.

On 5 July 2010 Arcadia Lebanon made a payment of US$3,250,030 to Hansa, and on 26 August 2010 it paid US$2,500,020 to Froreiep Renggli. Mr Bosworth in his witness statement explained those payments as follows:

“244.

Arcadia Lebanon made payments for expenses in connection with exploration and production blocks owned by the Arcadia group which included blocks in the Falklands, Namibia and Australia. All of these assets I believe started within the group and at various stages were either removed and put back in, or removed altogether. This is because at a certain point John did not want them to be in the group. I believe that Namibia was removed out of the group and then put back in. I recall John requested that the Falklands assets be removed from the group as John had certain interests in Argentina and faced a number of queries about these assets. Various members of Arcadia management had interests in these projects – when John decided that he didn’t want Farahead or Arcadia to invest, he was happy for us to take them forward on the basis that he could always tell us to give them back or require us to pay him a share of the returns. The [above] payments were made in relation to such projects.”

That evidence was not challenged.

In August 2010 Mr Bosworth and Mr Hurley made a proposal to Farahead to set up an Arcadia management committee, which would be authorised by Farahead to take the decisions for all subsidiaries. On 20 August 2010, Mr Hurley emailed the proposal to Mr Trøim. Mr Trøim emailed Mr Fredriksen. Mr Hannas replied:

“To me this will result in shifting management and control out of Cyprus with all possible adverse tax consequences. This is a very serious issue”.

The proposal was not accepted.

An Arcadia Singapore Information Memorandum dated 3 September 2010, a copy of which was sent to Mr Trøim at this request, referred to Arcadia’s “particularly strong position in procuring and securing crude supplies from Africa…” and gave details of its oil trading in Africa. It also noted that Arcadia’s trading limits were “approved by the ultimate beneficial controller”. A bank presentation dated 7 September 2010 made a similar statement, as did an Arcadia Singapore Information Memorandum dated 23 August 2012 (and listing Attock as one of Arcadia’s key suppliers). A Press Release sent for Mr Trøim’s approval in November 2010 said Arcadia had, since inception, maintained very long-lasting relationships with key counterparts in Africa and the Middle East.

In around December 2010, Arcadia developed a new website with the involvement of Mr Adams. In conjunction with the new website, an Arcadia Group Company Overview was drafted for client presentations. Mr Adams was one of the authors. The Company Overview section made repeated reference to Arcadia’s West African oil trading. It noted that “Arcadia has been and continues to be involved in Government contracts with a number of African nations including, Nigeria, Guinea, Benin, Kenya (NOCK), Togo and Senegal” and had a specific section on ‘West African Focus’, setting out the diversified portfolio of oil and customer bases.

As I have summarised in §§ 539-546 above, in 2009 Mr Kelbrick bought Attock Mauritius and began to use entities in the Attock group to source West African crude in its own right; and on-sold the oil through Attock Mauritius to Arcadia and other third parties under transactions in which Arcadia Lebanon was not involved. The fifth and sixth of the Claimants’ example transactions were of this kind: EY Deal 101 and EY Deal 118.

EY Deal 101 was initiated in December 2010. The chronological steps were:

It is convenient also to refer to EY Deal 118 here. It took place in July 2011. The chronological steps were:

In 2011, a company called Azenith Energy Resources Ltd, Nigeria (“Azenith Nigeria”), owned by Mr Akpata, acquired a term contract with NNPC but did not have the credit lines to lift the cargoes. Mr Kelbrick incorporated another company, called Azenith Energy Resources Ltd, Mauritius (“Azenith Mauritius”), to operate the contract using Attock Mauritius’s credit lines. Attock Mauritius (via Attock Lebanon) paid Azenith Nigeria a fee for sourcing the contract and allowing Mr Kelbrick to use the Azenith name. Mr Kelbrick then used Azenith Mauritius as a contract-holder, and on-sold oil to Arcadia in 9 of the 144 Transactions.

Mr Kelbrick in his witness statement said:

“110.

Azenith was the contract holder in 9 of the 144 Transactions after Mr Mounzer and I acquired AOIL in September 2009. There are two companies with near identical names – Azenith Energy Resources Ltd, Nigeria (“Azenith Nigeria”) and Azenith Energy Resources Ltd, Mauritius (Azenith). Azenith Nigeria was the company of Mr Akpata; he was a former consultant for Arcadia and a contact of Mr Bosworth, which is how I first met him in around 1999. When Mr Akpata moved away from Arcadia, he started trading a number of things including products, doing business with Total and BP.

111.

Azenith Nigeria secured a crude contract with NNPC but did not have the credit lines to lift the cargoes. Mr Akpata came to me and we agreed that I would incorporate Azenith to operate the contract, using AOIL’s credit lines. I was the owner of, and controlled, Azenith. AOIL (via AOS) paid Azenith Nigeria a fee for sourcing the contract and allowing me to use the Azenith name.”

In his witness statement, Mr Akpata did not appear to remember this transaction (if he was asked about it). He said he recalled that Mr Kelbrick had at some unspecified time incorporated a company called Azenith Mauritius without telling him, in order to benefit from Azenith’s goodwill, and that he found out two years later. The Claimants highlighted, however, parts of Mr Akpata’s witness statement describing dealings he had had with Arcadia and Mr Bosworth, occasions on which he acted as a service provider obtaining contracts for Arcadia, and the following paragraphs about a company called Arcadia Nigeria:

“Around 2000, a company called Arcadia Nigeria was set up. Peter and Mohammed Asibelua were the original shareholders. Later that year, Mitsui became a shareholder. Eventually, it was only myself and Mohammed who were the shareholders. The idea was to have a company in Nigeria that Mohammed and myself could use to bid for business opportunities. At the time, the Arcadia name carried a lot of weight in the market; there was a lot of brand recognition.

47.

As well as my Arcadia UK business card, I also had an Arcadia Nigeria business card. It was useful to have both of these cards. They could be used as a shortcut to show that I had a bona fide connection with Arcadia. Sometimes, if you weren’t sure of the people that you were approaching for a potential deal were serious, or they hadn’t yet been properly vetted, I would give them my Arcadia Nigeria card. If things developed, I would then share the details of Arcadia London so that we could move things forward. In this way, we were able to effectively engage with opportunities that may or may not lead to a deal, without having to rope in London unless the deal was a serious one. Arcadia Nigeria itself never did any transactions, but it was a useful vehicle nonetheless for the reasons I have just described.”

It was suggested to Mr Kelbrick that being able to present himself as backed by the Arcadia Group enabled Mr Akpata to obtain this term contract for Azenith Nigeria. Mr Kelbrick responded:

“Not to my knowledge. I think Osagie had sponsors that were the ones that helped him get the contract rather than anything to do with, you know ... there is, even when you are applying for a contract, they only ask for turnover etc, etc. They don't ask for who you are selling to. They need to know that you are a bona fide company, which Attock was. So, what Osagie did in the period of military leadership of the country from 2000 onwards, until the interim government came in about 2008 I can't speak to.”

In addition, Mr Kelbrick was asked about the email of 5 April 2011 from Mr Gagiano to Mr Mounzer, which I quote in § 558 above, which includes the line “Azenith please prepare but don't do anything as of yet”. It was suggested that that showed that Arcadia was in control of this contract, to which Mr Kelbrick replied “I don’t think so, no”. Asked about the setting up of Azenith Mauritius, Mr Kelbrick said:

“[Mr Akpata] didn't have the ability to open an LC, to my knowledge. And then we would have to open the LC for and on behalf. As far as Mounzer told me, the banks would only do it if we had full control of the company. So that is why Crudex was -- sorry, Azenith was set up.

…

Azenith Mauritius was set up so that Salem and I, as far as I can recall from Salem, we would be able to show that we had control of it so that we could open an LC and then there was an agreement signed between Azenith Nigeria and I think -- I think Azenith Mauritius somewhere that shows that I think Osagie [i.e. Mr Akpata] knew from the start. There was no need to hide anything from Osagie.”

Mr Kelbrick also denied the suggestion that Mr Bosworth “remained the point of contact in relation to the Azenith Nigeria term contract”.

Mr Bosworth in cross-examination said he did not arrange for the Azenith Contract to be used for the benefit of Attock Mauritius. He said he permitted Mr Akpata to use an Arcadia business card in the early days, up to the early 1990s, but did not believe Mr Akpata was doing so in 2010. Further:

“Q. So, in this paragraph he is talking about working with Mr Kelbrick as someone working with Arcadia, all the way through to 2013, isn't he?

A. I kept working with him until 2013. And he said -- you will have to ask him about the timing of these things. It would not surprise me, he is the first point of call for trading matters. Mr Kelbrick was the West African trader when he worked for us and they continued the relationship.”

Insofar as any part of that answer might suggest that Mr Bosworth would not have been surprised if Mr Akpata continued to link Mr Kelbrick to Arcadia in his mind, that does not appear to be reflected in Mr Akpata’s actual thinking according to his oral evidence summarised below. In any event, Mr Bosworth was very clear that he had no involvement in the allocation of the term contract, and was not in control of the relationship between Azenith Mauritius and Azenith Nigeria.

Mr Akpata in cross-examination said he obtained the contract for his own company, not for Arcadia, and did not tell NNPC that Arcadia would be backing it. He said Mr Gagiano would have been working in his office around this time. Further:

“Q. But he is acting for Arcadia at this time?

A. Perhaps, yes.

Q. And he has a copy of the term contract?

A. Yes. Because if he is in the office and we have just won a term contract or whatever, he is there. He is right there. The first person one of my staff may have given a copy to is him and send to your people because we would have got in touch with a number of trading companies to say, oh, we have a contract. But in my mind, I was always sure it was going to go to Steve, in my mind. It was always going to go to my group which is either Steve, Arcadia, or one of them.

Q. In your mind, you said, it was always going to go to Steve?

A. Yes, Steve Kelbrick. Why? Because I had already had a discussion with Arcadia, and they unfortunately were not ready to help with the financing in terms of my company going its own way. For that to happen, they needed to basically join -- we needed to join together and do a joint finance arrangement, but Arcadia were not ready to do that for me, whereas Steve was. So that was the main -- it was not about -- even if another company offered a bit more money, in this instance I wouldn't have gone for it. It was important to grow to be independent and that meant you needed to get your own finance.

Q. So you say got this for Mr Kelbrick?

A. I didn't get it for him. I got it for myself, but when I realised I got it, I offered it to him.”

Asked about § 48 of his witness statement (regarding Mr Kelbrick setting up Azenith Mauritius without telling him), Mr Akpata said:

“Basically what happened, which is what I was saying, when Steve and I discussed this contract, he had suggested that we would be able to get finance from ING in Switzerland and in order to do that, obviously Azenith is the principal of this finance so obviously you would need Azenith papers, CAC, which is registration documents and all the vital details in order to present them to ING. And that is what I did, I gave to him. In the first instance, he is like, oh, it is still taking some time, we are going to have it to do it like this. Then in the end, it was they are not going to do it, and then it turned out that he had done Azenith Mauritius as the way of getting across Azenith having finance in its name. And that is the point I got pissed off -- excuse the language, I got bothered and, yes, I now found out I could get my own finance, which I then did. I got finance on my own for the second year.”

In relation to the lifting agreement between his company, Azenith Nigeria, and Mr Kelbrick’s new company, Azenith Mauritius, Mr Akpata said:

“This is the thing. It was only later I became aware of this contract, as it were. This is my financial -- yes, my accountant person, as opposed to my trader. Yes, so basically in these years, a lot of the back office stuff, a lot of the documentation was done by my staff. I was on the road a lot, like 80% of the time on the road. So a lot of this stuff was done by them and in this base, you have to remember, whether it is Arcadia or Steve, I had known at that point for 13/14 years and worked with. Sometimes documents can come after the fact or whatever. So yes, all I have asked my team is have you signed, yes, but they didn't tell me what they had signed was a service agreement because that was what they were used to and this was the first time we were having our own contract so I guess they didn't think to do a sales/purchase agreement as opposed to a service agreement which they had usually done over the years.”

Mr Akpata was then taken back to § 17 of his witness statement, part of a section on “My early relationship with Arcadia”, where he said:

“I also worked a lot with Steve Kelbrick, a senior West Africa trader who worked for Mr. Bosworth. I interacted with Mr. Kelbrick a lot over the 2000s and 2010s. He was my first port of call for trading matters. I kept on working with him until 2013, when my trading relationship with Arcadia came to an end. Prior to working with Mr. Kelbrick, I had worked with his predecessor, Yasmina, who worked at Arcadia during the 1990s.”

It was suggested to Mr Akpata that that meant that until 2013, he dealt with Mr Kelbrick because of his (Mr Akpata’s) relationship with Arcadia. Mr Akpata said he had met Mr Kelbrick through Arcadia, but they both decided to set up on their own. He said Mr Kelbrick understood that Mr Akpata was trying to grow his own business and did not want to carry on being a service provider for other companies forever. Mr Akpata said he “never discussed Azenith business with Peter, with Arcadia” and this contract “was solely with Steven and his team”. Asked about being upset with Mr Kelbrick, Mr Akpata said “that was the reason why I wasn’t dealing with APL [Arcadia London] and so forth, because they were constantly short-changing me …”. Mr Akpata went on to confirm that he understood Mr Kelbrick and Mr Mounzer to be operating Attock Mauritius after 2009, and that because of the financial matters he had referred to, he did not want to offer the Azenith Contract to Arcadia.

The Claimants submit that Mr Akpata’s oral evidence about why he gave the term contract to Mr Kelbrick was ‘new evidence’. They submit:

“What emerges is that Mr Akpata obtained the contract for himself and had in mind giving it to Arcadia or SK and it went to Attock Mauritius. Cs maintain that it was agreed between PB and SK that Attock Mauritius should take the benefit of this contract.”

In my view, the evidence fails to support that contention. The evidence indicates that it was Mr Akpata’s opportunity and he decided, for his own reasons, to give it to Mr Kelbrick. There is no coherent basis for concluding that Mr Bosworth had any involvement in that decision, still less that he fraudulently diverted the opportunity away from the Arcadia Group.

With the forthcoming implementation in July 2011 of the Bribery Act 2010, Arcadia provided significant further compliance training to its staff.

On 15 April 2011, Ms McDonald circulated to Mr Bosworth, Mr Hurley and Mr Adams a list of current service providers that Arcadia had invited to attend the compliance sessions. Mr Adams and Mr Bosworth considered the list and indicated who should attend. Azenith Nigeria, Equinox and South Energy were all on the list. Mr Fredriksen in oral evidence said Mr Adams did not tell him that he had arranged training for these service providers.

As part of the compliance training, Arcadia engaged Peter Crowther of Dewey & LeBoeuf LLP, who gave training sessions in May 2011. At the same time, Arcadia reviewed its service provider contracts. The Dewey presentation referred to the risks of bribery and specifically noted the use of a “Service Provider” in the transaction chain between “Arcadia” and a “Third Party”. Arcadia’s anti-bribery manual, which referred to dealings with service providers and the potential risks, was updated. The lawyers evaluated compliance risks arising out of Arcadia’s direct agreements with service providers and made recommendations.

In 2011 Arcadia experienced a decline in profitability, during the difficult trading environment to which Mr Adams had referred. In addition, on 24 May 2011 the US Commodities Futures Trading Commission (“CFTC”) filed a Complaint against Arcadia in the US courts. The CFTC had for several years been investigating price manipulation in Arcadia’s US oil trading activities.

Farahead asked Mr Bosworth and Mr Adams to review the future of the Arcadia business. Mr Fredriksen remembered discussing with Mr Bosworth the Arcadia business given the downturn in Arcadia’s profitability.

On 18 May 2011, Mr Bosworth emailed Mr Trøim and Mr Fredriksen to say that Arcadia had completed its last compliance session in advance of the introduction of the Bribery Act (which was to come into force on 1 July 2011). The email continued:

“I have now had time to consider fully my answer to your question, about where we should take the company. We agreed the path forward was either to expand the company or to reduce its size: staying as we are is not an option for the management or shareholders. I would like the opportunity to discuss my ideas, preferences and concerns at your convenience.

I feel we have been moving towards a cross roads over the last year or so and it is time for decisive action.”

On 6 June 2011, Mr Bosworth emailed Mr Trøim, copying in Mr Adams, in advance of a meeting “to discuss the business plan” arranged for 9 June 2011, and on 8 June Mr Adams sent the business plan (which took the form of an email) to Mr Trøim. The email set out three options for Arcadia. The first was:

“(A)

Continue with the existing book structures and personnel.

To do so would presume that each book/business (i) projects to be cash flow positive, (ii) has known and manageable downside potential, and (iii) has material standalone potential, of say $10-15M/year or synergy or information advantage to other company business. This is not our belief and therefore is not the recommended way forward.”

Option (B) was to “[c]ut the businesses that do not fall into the above criteria”, and option (C) was to close all businesses except for WTI (West Texas Intermediate) and related physical/grade trading in Parnon.

The email elaborated what option B would involve on a business by business basis. In relation to West African crude, it said:

“Competitive advantage; pricing optionality, however with the high flat price, potential cash requirements for operating the pricing options have been prohibitive for last year and this.
Risk associated with the options and consistently high OSP’s mean we recommend restructuring this business in order to keep the information flow but significantly reduce our exposure. Personnel 1 trader 1 operator (we will let the trader go once we have trained someone internally to manage the physical positions).”

In relation to West African products, it said:

“Competitive advantage; MRS joint venture could give the largest single gasoline short in West Africa, it also allows for a potential investment in the company. Fuel oil sourcing for AFI. Risk factors are high with regard to operational inefficiencies and delayed payment. We recommend keeping this business basis the profit potential $15 million but will not sell to PPMC until payments of outstanding reconciliations are made.
Personnel 2 traders 2 operators.”

The email expressed this view as between the options:

“Our preferred option- to reduce the company’s footprint as described in (B) above- reaffirms the long term strategy of the company. It keeps the cost base of Arcadia small, the competitive advantage of which is being revalidated in 2011 as larger competitors struggle. Furthermore, this footprint affords good global information and access to a steady stream of both trading and asset opportunity, i.e. it is a cheap "call option".”

The reference to “information flow”, including specifically in relation to West African crude oil trading, is consistent with and supports the conclusions I reach in section (G)(2) above about the links between physical and paper oil trading. In addition, Mr Adams’s suggestion that Arcadia should significantly reduce its exposure to West African trading again cuts against the Claimants’ allegation that Farahead had believed and relied on a deceitful misrepresentation that Arcadia had ceased regular West African trading by 2009 (“the Farahead Representatives believed, as a result of what they were told, that the Arcadia Group was not engaged in any regular ongoing trading in West Africa”). Mr Adams was in this email writing to Mr Trøim on the footing that Arcadia was, by June 2011, still engaged in West African trading on a scale large enough for consideration to be given to whether to “significantly reduce our exposure”. I find it difficult to see how, in those circumstances, Mr Adams could properly have given sworn evidence to the effect quoted in § 533 above.

Also in mid 2011, consideration was given to engaging Ernst & Young (“EY”) (with whom Mr Fredriksen had an existing relationship) to review Arcadia’s risk management and internal controls. On 11 May 2011, Farahead met EY London to discuss this. On 18 May 2011, EY Cyprus emailed Mr Trøim setting out a summary of the issues. Farahead had concerns about the falling profitability and wanted EY to investigate the accounting of the physical trading transactions. In his oral evidence, Mr Trøim added that “it was a much tougher market to trade in as well”. A further meeting took place on 7 June 2011.

On 20 June 2011, EY sent a draft proposal for a risk management and control review across the business, in case any activities caused reputational harm to Farahead. EY would undertake an in-depth internal audit after Arcadia’s statutory audit. The scope of the work was set out in a draft engagement with EY dated 28 July 2011. Ultimately, however, in October 2011 Farahead decided not to proceed with EY or an internal audit; instead, it appointed a Frontline accountant, Grant Creed, to take oversight of Arcadia’s accounting system. Later, in August 2012, Farahead engaged EY in August 2012 to review Arcadia’s trading lines.

In July 2011, it appeared that Mr Bosworth would sell his house on which the Fulham Properties loan was secured. On 8 July 2011, Mr Skilton asked Mr Hannas for a statement detailing the outstanding capital and interest due on the loan. As noted earlier, the US$5 million that Farahead had received as the Arcadia Lebanon dividend in April 2009 had not in fact been applied at that stage, in the company’s books, to reduce the Fulham Properties loan. Now, the decision was taken to apply the US$5 million against the loan. Mr Hannas in his witness statement said he believed this would have been based on an instruction from Mr Trøim or Mr Fredriksen or something one of them said. Mr Trøim in his oral evidence said “I don’t have a problem in saying that I was involved in kind of making that 5 million against Fulham Properties loan”. He said this was not the final settlement with Mr Bosworth but “a kind of intermediate – the balance was 20 million. We reduced the balance to 15 but they didn't kind of give away the possibly that you can still come back and claim for the 20 again”.

One of the concerns that Messrs Trøim, Hannas and Skilton had at the time was that the loan had been advanced in sterling, but was booked in the Seatankers records in US dollars. This exposed Mr Fredriksen to a currency loss upon repayment by Mr Bosworth, which they wished to avoid.

In the event, Mr Bosworth did not manage to sell his house until summer 2012. At that point, the question of the currency loss again became relevant, but there was also a further problem. There had been a mix-up in the charge documentation. The charge deed referred to Cyprus as the place of incorporation of the Fulham Properties entity. The Cypriot entity had (presumably) advanced the loan. However, Mr Hannas had accounted for the loan in the similarly named Liberian entity. Mr Hannas noted in an email to Mr Nordbaek of 11 June 2012 that this was “my mistake” because “we will have to pay taxes on the loan interest”. To resolve the problem, they managed to rectify the charge deed so that it referred to the Liberian entity instead.

In June 2010 Arcadia entered into a pre-financing agreement with Mr Asibelua’s company, Equinox, in respect of the development of an exploration and production project under which Arcadia had the right to lift any oil produced. Two further pre-financing loans were advanced in February 2012. The loans totalled about US$16 million and Equinox made significant repayments. Mr Bosworth in his witness statement said the loans were secured and Arcadia had the first right of refusal to lift oil if oil was produced. Mr Hurley said:

“We advanced several short term loans to Equinox, probably totalling USD 16 million across 2 or 3 different advances. These advancements were to be used for the development of one of the upstream projects that Equinox were working on – I think it was called Tom Shott. It was a production project, with proven reserves. It was a project to get the oil up and running, and get it to the market.

This was with the aim of Arcadia becoming the lifter of any crude that became available to Equinox from an investment in that project. The end goal was to get oil without having to go into tenders with the government, where you might get awarded oil one year and not get it the next year. There was a clear policy to engage with indigenous oil companies to try and secure a supply of oil, independent from government tenders. Our contact was Mohammed Asibelua, who was very well known to Pete, and it would have been a conversation between them that led to us having this opportunity. It is my opinion that it was perfectly within Pete’s remit to try to secure this volume for Arcadia.

There were other operations in similar regions that were up and running, producing oil. So there was no reason why this shouldn’t end up with oil coming to the market. Of course, the profits would have depended on the oil price and commercial viability. But I was quite confident that Arcadia would have gotten oil at some point. I thought it was fine to advance this money.

Given the amounts involved in these loans, I would not say it was necessary to report to Farahead as a specific item, or seek specific approval. These amounts would have been on the receivables list included in Arcadia Group management accounts. If Farahead wanted to know what these receivables were, they could have obtained a detailed breakdown from the accounting team in Arcadia London, who had a full list. It was within Pete and my remit to do such a thing. I don’t think we needed shareholder approval from a company with a turnover of tens of billions of dollars and profits that amounted to c. USD 600 million dollars over six year to extend a short term loan for USD 5 million at a time. For context, a single crude oil cargo could have a value in excess of USD 100 million.

To add, I believe they repaid significant portions of these amounts, and that there was only a residual amount left for Equinox to repay, around USD 5 million. What happened with regards to that, I don’t know, because I wasn’t with Arcadia any longer. I also do not know whether the money was recovered from the particular project it was earmarked for, or from other operations of that company. But I firmly believe that everything would have been repaid if Arcadia had handled the negotiations well. Had Pete in particular still been in place, I am confident that every dollar of that amount would have been repaid.” (§§ 180-184)

The loan agreement was signed by Mr Lance, Arcadia’s corporate secretary at the time. Mr Fredriksen was asked about these loans in cross-examination:

“Q. What is the basis to complain about a loan that the current company secretary signed off on?

A. I can’t -- I don’t know the details, I’m sorry.

Q. There is no basis, is there?

A. I don’t know even who authorised that money, so they must have done that on their own.

Q. The board?

A. I don’t know.”

The Claimants’ RRRRAPC alleged that, like the Atlantic and Capital transactions which I consider later, the Equinox loans were poorly secured and concealed from Farahead, or that Farahead was misled about them. No further details are given there. At trial the Claimants also sought to advance unpleaded complaints of “misconduct” in that that the loans were undocumented or inadequately documented, and were made on terms favourable to Equinox; that Mr Bosworth used Arcadia’s funds to advance his “personal interests in Equinox” (I am not clear whether this allegation was withdrawn, as part of the withdrawal of a similar allegation in § 1106 of the Claimants’ written closing); and that Mr Hurley helped Equinox get a more favourable release when the Claimants were attempting to settle Equinox’s loans. None of these latter allegations can be fairly advanced in circumstances where they were unpleaded and so not subject to the usual processes of litigation, all the more so when they related to details of transactions some 12-14 years ago which the Defendants cannot fairly be expected to address when raised in oral evidence at trial. As to the complaint that the loans were inadequately secured, Mr Bosworth made the point in cross-examination that as Defendants they would not have access to the security documentation unless the Claimants had disclosed it. Mr Bosworth insisted that there was security. It was then put to him that “the security was not effective”¸ to which he replied “I can’t comment on that. There was security at the time. If my memory is correct, there was a company on the Stock Market in Canada that was associated.” Consistently with Mr Bosworth’s evidence, the document include a Loan Facility Agreement dated 10 February 2012, a Charge on Shares in Mira Resources Corp (a Canadian natural resources company) and a Letter Agreement dated 24 June 2012 which refers to the existence of a such security. The Claimants did not explain, or put to Mr Bosworth or Mr Hurley, in what respects those documents did not constitute security for the loans or such security was inadequate. I consider the Claimants to have failed to establish any misconduct in relation to these loans.

From around July 2011 to June 2012, another of the companies with which Mr Fredriksen was concerned, Seadrill Partners LLC (“Seadrill”), was in negotiations with Equinox to enter into a joint venture for offshore drilling opportunities in Nigeria. Mr Fredriksen was Chairman and a director of Seadrill from 2005 until 2019. Contemporary emails show that Farahead was aware of a proposed joint venture between Seadrill and Equinox. Further, in an email of 12 March 2012 to Mr Fredriksen and Mr Trøim, Mr Bosworth said “Equinox chairman Mohammed Asibelua is a friend for over 20 years and is extremely well connected politically, whilst knowing and understanding western compliance concerns.” He continued:

“He has built a company involved in a number of businesses centred in Nigeria. They have a property portfolio, have a construction division and are a shareholder in a marginal field called Tom Shot Bank. They have been successfully active in a number of different aspects of the oil industry from trading to tank farms I believe the Nigerian Government is serious about indigenisation in a number of sectors and any service provider from rigs to shipping not complying will be at a competitive disadvantage in the near future. I believe working with a local company and thus complying with the new law-, will ensure the current business continues. If the business in Nigeria is not important, then better not to engage a partner and wait to see what happens. Most importantly if you go the route of having a partner then I recommend Equinox because I trust the owner and can get him to comply with your requirements rather than impose his own. For the record I have no personal interest in his business and will not benefit from any transaction concluded with Sea Drill.”

As part of Arcadia’s continuing West African oil trading, it sought to diversify its supply sources of crude oil. In September 2011, Farahead approved a loan from Arcadia Switzerland to a Nigerian private oil producer, Atlantic Nigeria (“Atlantic”). Atlantic had been set up by Mr Kolawole Aluko, a business partner of Mr Akpata. It had an agreement to lift crude oil from certain oil mining leases that the Nigerian government had granted. Mr Akpata introduced the opportunity for Arcadia to enter into a pre-financing arrangement with Atlantic pursuant to which Arcadia would make advance payments to purchase the crude that Atlantic lifted.

Arcadia Switzerland and Atlantic entered into a Crude Oil Sales Agreement dated 30 September 2011 and a Prepayment Agreement. The advance payments were by way of loans and the collateral consisted of security rights over delivery of the crude oil. Pursuant to Addenda to the Prepayment Agreement, the amount advanced was increased from US$50 million to US$100 million in June 2012, and to US$150 million in September 2012. Arcadia Switzerland advanced US$50 million in October 2011, June 2012 and (in two tranches) September 2012. The Prepayment Agreement provided that Atlantic Nigeria would give first priority to delivery of crude oil to Arcadia under the Sales Agreement. The files include a memo from DLA Piper, prepared for Arcadia, summarising the transaction. It is reasonable to infer that Arcadia took legal advice about it from them, and Mr Hurley’s evidence quoted below indicates that Arcadia did indeed involve lawyers in the transaction.

Mr Bosworth explained the attraction of the deal in his witness statement:

“The Atlantic transaction had a number of advantages because Atlantic was not a government entity, but a private company and there were a number of reasons for working with a private company. Term contracts with NNPC only tended to be for one year and so, after that year, you would have to start the process all over again to renew the contract and there was no certainty that you would get the same volume. Where you had a deal with a private entity, it was different. You could negotiate a much longer contract where you would have certainty and security regarding volumes of crude oil – this was beneficial for trading. In addition, when you were dealing with a private partner, you would have access to additional information about production volumes and cargoes. To take Atlantic as an example, Atlantic was a producer in an oil field called Forcados. As such, they had access to what is called the “curtailment meeting” i.e. the production figures and information about how many cargoes would be available in the following month and whether there were, for example, maintenance works planned so that there might be fewer cargoes available. This was all valuable information to trade off, and which Arcadia had access to by virtue of its pre-finance with Atlantic.” (§ 213)

Mr Trøim accepted that he understood the structure of the Atlantic deal:

“A. …It’s a very common way of financing oilfield developments that you actually prepay cargoes and help them getting the oil on-stream.

Q. There is nothing unusual about this structure?

A. It is the main business for Trafigura and other people.

Q. So you understood the structure, didn’t you?

A. Yes.

Q. You were [not] misled about it in any way?

A. No.

Q. You knew about Atlantic and Mr Aluko, the chairman, do you remember him?

A. As I said, several times, I’m bad at remembering these specific Africans but I confirmed that we approved a US$100 million financing.”

Between October 2011 and October 2012, Arcadia pre-financed US$150 million under the facility. Emails indicated that Mr Bosworth and Mr Hurley kept Farahead informed of developments in the Atlantic transaction; and Mr Hurley’s evidence was that Farahead was aware of the crude volumes that Arcadia was buying from Atlantic.

In September 2012, Mr Bosworth/Mr Hurley sought to increase the amount of the financing by a further US$125 million. However, in March 2013 Farahead refused to provide further financing, and Atlantic took its business elsewhere. Mr Hurley said in his witness statement:

“The Atlantic deal was structured as a prepayment for crude oil over a period of time, whereby the amount advanced would be repaid, but with a deduction made from the price per barrel of the oil delivered. So, for example, if the oil price was $100, we might pay Atlantic $80 and offset the remaining $20 as a repayment of the loan. Atlantic still needed a revenue flow to cover their costs.

So it’s a loan that is being repaid over a period of time, and the surety for that is the oil in the ground. Initially, we rolled over the loan when the amounts were repaid. This roll-over guarantees us further deliveries. It extended the term of the loan, which was in effect being repaid and topped up each time, until the parties agreed that the loan would no longer be rolled-over. Then, we started to have repayments to reduce the loan. All in accordance with the contract. At the time that I left, everything was in accordance with the agreement.

It was quite a common type of facility to enter into. We did it with Arcadia lawyers involved, with the full approval of the shareholders via Fredriksen and Trøim. Farahead rarely gave written approvals for anything, we got the approvals for this in meetings at their offices. That was the practice. There was nothing unusual about it, as far as I’m concerned. Most companies operating in that region either had or would want such a contract. This was Arcadia utilising Atlantic’s strategic alliance agreement with the Nigerian government. It was a good deal for Arcadia. It was exactly the kind of opportunity John and Tor Olav wanted us to look at – whereby we were not dependent solely on government tenders to receive crude oil. This was a private transaction with a private company. In order to lift the oil, we had to provide the finance facility, which we did.

I have refreshed my memory by reviewing an email chain between the Farahead auditor (Christos), Hannas and me in July 2012 about the amounts lifted under the agreement with Atlantic. Farahead were aware of the volumes that Arcadia was lifting from Atlantic. In particular, this email also highlighted the roll-over practice I discussed above.

It progressed well, as I remember. Oil flow started and we were receiving crude cargoes, we were making money on the deal, and while I was still employed, it was progressing in accordance with the contract. You do get interruptions from time to time. I think there were operational issues at the terminal or pipeline from time to time, such as force majeure delays, which is perfectly normal. ...

The collateral for this deal was the right that Arcadia would have over the delivery of crude oil. This was not just a loan which Atlantic promised to pay back – we would get their crude oil from the production facility until the loan was repaid. Farahead had every opportunity to look at the security before approving it. They had access to all the documentation they needed to see. I don’t know whether they read it – that was for them. Farahead knew or could have known the outstanding amount of the loan at any point in time, so they would be aware of the roll-over I describe above.

To me, the security was good enough. I believe this facility was repaid in full in the end, with perhaps an argument over the final element of it, the last USD 5 million, which is again quite normal. I’m not being flippant, as that is still a large number, but other than that, it worked well. We received the oil, we made money on the oil, the loan was repaid, and we received interest on it. As for the residual USD 5 million, I don’t know the details of that, because I was no longer in the company.

There is a second amount that Atlantic asked us for, of USD 125 million, in addition to the original USD 150 million. This would have given us additional volume. We approached Fredriksen and Trøim to seek approval to increase the loan amount from USD 150 million to USD 275 million. I had a verbal approval from them over the phone to go ahead and do that. I communicated that to Atlantic, and then, a few days later, Farahead reneged on that. We did not go ahead with it. They absolutely walked after I had committed to a company, they didn’t care about the difficult position they had put me in or about putting my professional reputation on the line. They asked me if I had paid the money, I said no, of course I hadn’t yet, so they saw nothing to worry about. They were flippant about it and reversed their decision. It’s not how I conduct myself, but I was forced to on this occasion, and then had to relay that to Atlantic that we were going to pull out.

We tried to find someone else to back it, but couldn’t. I believe that Glencore then entered into this contract, and I think that performed extremely well. I don’t know the details or numbers for that.” (§§ 162-170)

In the RRRRAPC, the Claimants alleged:

“65.

Also in this period, Mr Bosworth and Mr Hurley approached Farahead to seek approval and additional funding to increase an existing loan made by Arcadia Switzerland in September 2011 to a Nigerian entity, Atlantic Oil and Gas Co (“Atlantic”).

66.

The enquiries made by Farahead as a result of that request revealed: (a) that the Arcadia Group, at the instance of (at least) Mr Bosworth and Mr Hurley, had made substantial loans to and/or extended substantial credit to, Nigerian entities engaged in the oil and gas business which were long overdue and poorly secured and that, inter alia, left the Arcadia Group exposed to significant losses; and (b) that the true situation in relation to these transactions had been concealed from Farahead and/or Farahead had been misled in relation to the true situation in relation to these transactions. Such transactions included transactions with, at least: Atlantic; Capital Oil & Gas Limited; and Equinox Oil and Gas Limited and Equinox Group Limited.

67.

The discovery of the Arcadia’s Group exposure in connection with such transactions, and of the associated concealment and/or misleading of Farahead, resulted in increased scrutiny from Farahead of the business and operations of the Arcadia Group.”

In the Reply it was said that Mr Bosworth and Mr Hurley concealed from Farahead the fact that the loan was “poorly secured”, whereas Mr Fredriksen and Mr Trøim “understood from Mr Bosworth and Mr Hurley that the loan … was secured with excellent collateral and that a parallel contract ensured the Arcadia Group had access to Nigeria crude oil on preferential terms”. Reply § 103(b) admitted that the RRRRAPC did not provide details of the Atlantic Nigeria transaction, saying that was of no relevance “as these matters merely form background to the claim”. Paragraph 103(c) alleged that “as at 27 July 2012, Mr Bosworth and Mr Hurley had procured the Arcadia Group to make yet further payments to Atlantic Nigeria when it lifted crude oil cargoes on 20 February 2012, 9 April 2012, 4 June 2012 and 10 July 2012, and had not procured that payments for these cargoes were set off against the US$150 million already advanced to Atlantic Nigeria under the Prepayment Agreement”; and that this was in order to assist Atlantic Nigeria to obtain bank facilities and contrary to Arcadia’s interests.

However, as quoted above, Mr Trøim accepted in this evidence both that he had had approved the transaction from the outset, and that he was not misled about it in any way. Mr Bosworth gave this evidence in cross-examination:

“Q. Mr Bosworth, the assurances you gave Mr Fredriksen about there being excellent collateral were not correct, were they?

A. There was good collateral. This is exactly what -- every pre-finance, be it in the North Sea or in West Africa against production is normally a good -- what is the right word ... can't think.”

and:

“Q. The reason why Mr Fredriksen and Mr Trøim rejected your request for additional funding was because of the large existing exposure; right?

A. They said yes on the Friday and on the Monday they say no.

Q. And the absence of security?

A. There was security in terms of oil coming out of the ground.

Q. It's not traditional security?

A. Yes, it is in pre-financing oil.

Q. And your earlier misrepresentations to them that there was excellent security?

A. That is not a misrepresentation. In our business, that was good security.

Q. You were unable to say whether Atlantic was good for the 150 million you had advanced it?

A. In terms of the offtake, whether they were as a company I couldn't comment, that is not my area of expertise. But in terms of lifting the oil, then we would get our money and we would make money.”

Mr Hurley in cross-examination said this:

“Q. In relation to the Atlantic deal which we have spoken about, Mr Fredriksen's evidence is that when the loan was first approved, it was on the basis that you and Mr Bosworth had told it him that it was secured with excellent collateral and that a parallel contract gave the Arcadia Group access to Nigerian crude oil on preferential terms. That's right, isn't it?

A. I don't recall that wording.

Q. Mr Hurley, you thought the collateral was good, didn't you?

A. I believe the collateral was good and if you refer to Tom Francisco's message to Tor Olav in June, I think, or July of 2013, I think he agrees with me, to say even if the company becomes insolvent, they expect to be able to lift the oil and be fully repaid.

Q. If you look at paragraph 167 of your fourth witness statement, you say the collateral for this deal was the right that Arcadia would have over the delivery of crude oil. But that is just a contractual right, isn't it?

A. As opposed to what right?

Q. A proprietary right of any kind.

A. The way the deal is constructed is through a strategic alliance agreement, I believe, for the volume for Atlantic. So you don't actually have the oil in the ground but you have the oil once it is out of the ground and ready for delivery is my understanding.

Q. And you just had a contractual right to that, didn't you? There was no security interest at all?

A. I think if we look at Tom Francisco's message to Tor Olav, he will also put that in his explanation which might be useful.

Q. There was no charge or proprietary interest in the oil, was there?

A. Oil in the ground, I'm not sure, but rights to the oil once it was capable of being delivered, yes.”

The Claimants submit that that evidence was “vague and evasive”. I do not agree. Mr Hurley was explaining the nature of the collateral in commercial terms. It was the Claimants’ premise, not his, that nothing short of a charge or proprietary interest could amount to good collateral for a deal of this kind (and, indeed, there was no evidence that security of that kind would even have been feasible in the circumstances). As quoted above, Mr Bosworth too considered the arrangements to provide “good security” in the business context in question. The fact that Arcadia took advice from DLA Piper on the transaction also makes it less likely that the Defendants improperly failed to obtain security that ordinarily would and could have been obtained for a transaction of this kind.

Mr Hurley’s reference, in the evidence quoted above, to a letter from Mr Francisco was probably to an email Mr Francsico sent Mr Trøim on 7 August 2013. This attached an updated cover letter to the auditors, including an explanation of the Atlantic and Capital transactions, “which now includes changes from the shareholders”. I infer that Mr Fredriksen and/or Mr Trøim had seen and approved the text of the letter. In relation to Atlantic, the letter said:

“Atlantic Energy Drilling Concept Nigeria Limited (Atlantic) Prepayment- Arcadia Energy (Suisse) SA has a US$150 million pre-payment for Forcados crude oil with Atlantic as at FYE 31 March 2013. Operational problems have caused deliveries of oil for repayment of the loan amount to be erratic. Amortisation of the prepayment facility commenced in May and the balance currently stands at approximately US$146 million. The facility is ultimately repayable in February 2014, at which time the balance is estimated to be approximately US$110 - 120 million. Management is working closing with Atlantic in order to identify a mechanism to allow for early repayment of this facility. Shareholder commentary: The Atlantic and Capital contracts were executed without the shareholders understanding the risks inherent in these deals. In order to address this issue, changes have been made to the Arcadia management team, and additional controls implemented within the business. Management and shareholders are fully focused on the recovery of both of these outstanding balances.

As a result of the Atlantic and Capital contracts, there is a risk that payment is not received prior to the expiration or extension of the revolving credit facility (RCF). The shareholders have, within the context of the guarantee agreement with Arcadia, expressed willingness to provide liquidity should the need arise as a result of the timing of these collections.”

This communication tends to suggest that the problem was not that anyone was misled, but simply that Mr Fredriksen and Mr Trøim did not understand the risks.

In the light of the evidence as a whole, I consider that the Claimants have failed to establish that Mr Fredriksen or Mr Trøim were misled, or that Mr Bosworth/Mr Hurley failed to obtain security that could and should have been obtained as part of the transaction.

The Claimants at trial complained that Mr Fredriksen and Mr Trøim were not asked to approve the June 2012 extension of the facility. However, there is no pleaded allegation to that effect. In any event, it assumes that approval would have been necessary, which is highly questionable in circumstances where Mr Bosworth had all the usual powers of a chief executive officer of Arcadia.

It was also alleged in the Reply that, in an email of 27 July 2012, Mr Hurley discussed the Arcadia transaction with Farahead’s auditors but “did not mention that he and Mr Bosworth intended to increase the exposure to Atlantic Nigeria by US$100 million”. At trial, that was elevated into a complaint that Mr Hurley had misrepresented the matter to the auditors, by telling them that US$50 million had been advanced to Atlantic but not that the amount had, by the date of the email, increased to US$100 million in June 2012. Mr Hurley replied that he imagined he was giving the figure relevant as at the year-end (31 March), which was US$50 million. The query from the auditors on its face related to the financial statements for the period ended 31 March 2012. The auditors asked for details of purchases made from the start of the contract to date; and, in addition, asked for the estimated monetary commitment in order to put a note in the financial statements. I do not consider that it would have been obvious to Mr Hurley that the latter query called for post-year-end details. Further, given that Mr Trøim accepted that he had approved US$100 million of financing, it is unclear why Mr Hurley would have had any reason to seek to mislead Farahead’s auditors about the increase in June 2012 from US$50 million to US$100 million.

As noted above, the Reply included a complaint that, as at 27 July 2012, Mr Bosworth and Mr Hurley had procured the Arcadia Group to make yet further payments to Atlantic Nigeria when it lifted crude oil cargoes on 20 February 2012, 9 April 2012, 4 June 2012 and 10 July 2012, and had not procured that payments for these cargoes were set off against the US$150 million already advanced to Atlantic Nigeria under the Prepayment Agreement. This seems to be a complaint about the practice of rolling over the loan (as Mr Hurley put it), rather than making deductions so as to reduce the loan transaction by transaction, as summarised in the evidence from Mr Hurley quoted in § 624 above. Section 4.4.2 of the Prepayment Agreement provided that Arcadia had made an advance payment of US$20 for each barrel. This meant that Arcadia had the right to deduct the US$20 advance payment from the price of oil purchased from Atlantic.

The email which Mr Hurley in his witness statement said highlighted the roll-over practice was the 27 July 2012 email to the auditors, mentioned above, which included the following:

“We continue to roll the amount forward to be deducted from a cargo in the future. Standard business practice - we are looking to assist Atlantic in obtaining a bank facility of circ $300m in the near future and will continue to lift the volume and roll the loan during this period.”

It was suggested to Mr Hurley in cross-examination that Arcadia was waiving the US$20 per barrel advance payment that was supposed to be repaid on each cargo. He said:

“A. It's not a waiver. It's not how I would describe it. It is a rollover. So what you do is you can get yourself more deliveries. So you are rolling the loan continually from one cargo to the next. So if under the agreement you were only going to get for example 10 cargoes, in effect they are paying and then we are relending. It is just a rollover of the loan and that way you get additional volume. And that was known because there is communication with Dimitrios Hannas on that. He knew that that is what we were doing. There is an email or a correspondence with the group auditor. So he was aware that is what we were doing.

Q. Whether it is a rollover or whatever, you were waiving your present right to repayment, weren't you?

A. No, we were not waiving. We were rolling the loan over. We were extending it. We weren't waiving any repayment, we were changing the time.”

Mr Hurley accepted that the February 2012 Addendum to the Prepayment Agreement said that Arcadia had “agreed to waive the $20/barrel advance payment”, but maintained that in substance the loan was being rolled over so that the period was extended and additional volumes could be loaded. Further:

“Q. You seem to have retained the right to apply the USD20 per barrel reduction against future cargoes, if you look down, but what you are not doing is enforcing your present right to repayment?

A. No, because I'm rolling it to the month later. The full amount still remains outstanding and we have the right to take USD20 per barrel on future cargoes until the amount is fully repaid.”

That is consistent with the relevant paragraphs of the Addendum, which read:

“Further to discussions between Atlantic and Arcadia, Arcadia has agreed to waive the $20/barrel advance payment for the lifting occurring on Bill of Lading date 20 February 2012 and shall not deduct this Advance Payment from the purchase price of the 906,027 barrels purchased from Atlantic. Arcadia shall, however, retain the right to apply this $20/barrel deduction against future cargoes, and this addendum in no way reduces the overall obligation of Atlantic with regard to the Agreement.”

The documents include email exchanges between Mr Bosworth and Mr Trøim on this subject in March 2013. On 24 March 2013, Mr Trøim said:

“refer to our conversation earlier today. The shareholders of Arcadia would if possible like to see an earlier repayment of the existing USD 150 million Atlantic loan. In line with what we discussed you will work with Atlantic to seek to arrange a take out of Arcadias existing USD 150 million facility prior to scheduled repayment in 2014. Until such repayment take place it is of vital importance that we stick to the existing agreement which gives Arcadia the right to net USD 20 per barrels of any sale of Atlantics oil cargos. Such proceeds will be used to reduce the outstanding loan balance. Please confirm your commitment to this.”

and the following day:

“Sorry for being a pain in the neck, however we would appreciate if you can confirm that we will use the USD 20 per barrels net of for all planned Atlantic cargoes, and thereby not wave the right to net of as Arcadia has done so far.”

On 27 March Mr Bosworth told Messrs Trøim, Adams, Hurley and Lance:

“I was not able to meet face to face with Atlantic today, due to their travel arrangements. However I had a good discussion and made it clear my priority is to have Arcadia paid back its money as soon as possible. They confirmed they have two NDA’s signed and are negotiating with a view to getting the new off taker/financier to take Arcadia out of its current position. We have agreed to meet next thursday in Swiss to agree a timetable for actions to be taken by both parties. I will update you if I hear anything further and would like to have a call to discuss strategy next wednesday.”

Mr Trøim responded:

“We appreciate the update.

1.

Did you also inform them that Arcadia is likely to use their contractual right to net off USD 20 per barrels for future cargoes?

2.

Did you get an overview cargo program including Arcadia lifting’s?”

Mr Bosworth replied:

“I pointed out we had not elected the $20 per barrel discount but did not threaten them. I will request the overview for my meeting next week.”

Asked about this in cross-examination, Mr Bosworth said “It was a tense situation. That was my view at the time and I told Tor Olav what it was.” There was also the following exchange:

“Q. And you waived the repayment for the USD20 per barrel mechanism?

A. Perhaps on one occasion we may have done, I don't recall.

Q. It is on over 4 million barrels of oil which would be special times USD20 per barrel, that is 80 million repayment that had been waived?

A. I don't know if that is accurate or not.

Q. {I/7146/1} please. Yes. There is the reference to the 4 million on the second paragraph --

A. No, I'm not doubting the volumes. I'm saying --

Q. That is a matter of documentary record which we will refer to.

A. I'm not doubting that.

Q. Again, this is gross misconduct in relation to the management of Arcadia's money.

A. No, it was not.”

In their closings, the Claimants submitted that Mr Bosworth’s and Mr Hurley’s failure to exercise the deduction right “constituted a deliberate decision to avoid an opportunity to reduce Arcadia’s significant exposure to Atlantic”. In my view the evidence does not establish that. Rather, it appears to have been a matter of business judgement on how best to promote Arcadia’s interests. Moreover, the notion that Mr Bosworth or Mr Hurley deliberately set out to damage Arcadia’s interests makes little sense in circumstances where (i) they prospectively stood to benefit from Arcadia via bonuses and (ii) even after his departure from Arcadia, Mr Bosworth continued to provide assistance in recovering money owed by Atlantic, Capital and Equinox (see below).

No cause of action is pleaded in relation to the Atlantic transaction. However, the Claimants seek to rely on their gross misconduct allegation as part of their defence to the Counterclaims, which I consider later.

Three final points arise from the Atlantic transaction.

First, Mr Bosworth’s evidence was that there was a profit sharing arrangement between Arcadia Switzerland, Azenith Nigeria (Mr Akpata’s company) and Earnshaw (Mr Aluko’s company) who had brokered the transaction. He said:

“238.

Arcadia Lebanon made a number of payments to Azenith Energy Resources Limited and Earnshaw Associates including payments made on 20 March 2012 and 7 September 2012 of USD 967,030 and USD 250,035 respectively. This was in connection with a contract held by Arcadia Switzerland with Atlantic Petroleum which was fully authorised by Farahead. Pursuant to that contract, there was a profit share agreement whereby Arcadia Switzerland, Azenith Energy and Earnshaw Associates were each entitled to 1/3 of the profits. These payments made by Arcadia Lebanon to Azenith Energy and Earnshaw Associates were pursuant to that profit sharing arrangement with Arcadia Switzerland.”

Mr Akpata in his witness statement explained the situation and his role and that of Mr Aluko in this way:

“63.

In the 2000s, the crude oil business in Nigeria began to change a little bit. The traditional form of ‘sponsorship’ by contract holders, often retired generals and traditional rulers, remained, but new players started entering the scene. These were often Nigerian companies which had been granted permission by the Nigerian government to extract and sell crude oil, and were known as private producers. Previously, only NNPC and foreign majors like Shell had been able to extract crude oil from Nigerian oil fields and sell this on the international oil markets. Over time, however, more Nigerians in private business acquired more of the knowhow needed to manage crude oil production. Oil traders would seek to enter into contracts with these private producers just as with NNPC.

64.

One of these private producers was a company called Atlantic Energy Drilling Concepts Nigeria Limited. Atlantic was owned by various Nigerians, one of the most influential of which was a man called Kola Aluko. Mr. Aluko was someone I had come to know as a prominent figure in the Nigerian energy sector. Atlantic had been granted licences and an opportunity to extract crude oil from a particular set of oil fields. One of the major deals that I helped Arcadia win was a contract with Atlantic, which was entered into on 30 September 2011. Atlantic been granted the rights to extract crude oil in certain Nigerian oil fields. However, as is often the case with private producers in Nigeria, Atlantic did not have the financial firepower to fund the process that would allow it to exploit the rights it had been granted.

65.

Atlantic was therefore looking for a foreign partner to help fund the extraction and lift the crude oil. Atlantic could have offered the opportunity to any number of oil traders. I know, for example, various of the big oil traders, such as Trafigura, were competing for the opportunity.

66.

The kind of contract that Atlantic was contemplating entering into was a “pre-finance” contract. A pre-finance contract is where a buyer advances to the producer the sums of money necessary to start producing the crude oil. The outside investor is then repaid in barrels of crude oil once production comes online. Arcadia did a pre-finance deal with Atlantic, in which it advanced USD 150 million to Atlantic. This became the Atlantic contract.

67.

I was, I think it is fair to say, instrumental in securing the Atlantic contract for Arcadia. A couple of years before the Atlantic contract, I became aware of what Atlantic was doing and that it was looking for a partner. In order to try and win this opportunity for Arcadia, I spent many months working hard to persuade Mr. Aluko and Atlantic that Atlantic should work with Arcadia as their lifter when production started. The process of securing Atlantic’s favour towards Arcadia was long and took a lot of effort. I handled this work for Arcadia, which, essentially, consisted of fronting its bid for the Atlantic contract. I arranged for and attended a number of meetings with Atlantic at which I advocated for Arcadia to be granted the Atlantic contract. Critical meetings took place with Arcadia both in London and in Switzerland between Atlantic and Arcadia from an early stage. I arranged lots of those meetings but I did not always participate. What they were negotiating was technical and specific and that part I had to leave to them, it was outside my expertise. In many respects, this work was similar to the work I did in trying to obtain sponsorship for Arcadia from contract holders in respect of oil contracts, when it bid for crude oil contracts with NNPC or products contracts with PPMC.

68.

Mr. Bosworth and the other traders at Arcadia were not very involved in this work, just as they were not normally involved in most of the negotiations for other crude oil contracts or products contracts. They left this work to me. As a Nigerian active in the Nigerian oil sector, I was far better placed than Mr. Bosworth or his colleagues in London and Geneva to do this work. I don‘t think they could have done it to themselves, even if they had had the time to around their day jobs as oil traders. I chased the business down, especially with Mr. Aluko. All in all it was about two years of work. And in the end, Arcadia beat off other bids from other major oil traders to win the Atlantic contract.

69.

I would normally expect to be paid a substantial fee by Arcadia for my work securing the Atlantic contract on the barrels lifted under the Atlantic contract. But instead, I negotiated a profit share, and everyone was receptive to that. From memory, a third was kept by Arcadia, a third went to Mr. Aluko, and a third went to me. On this occasion, Arcadia did pay me my share of the profit share and the fee I was due.”

Mr Akpata in his oral evidence agreed that Mr Aluko was one of the owners of Atlantic (as he had said in his witness statement). He was taken to certain invoices for profit sharing which he had addressed to Mr Hurley rather than Arcadia (though one was addressed to Arcadia Lebanon), and did not know the reason for that. He had not been able to locate any written profit share agreement with Arcadia Switzerland. It was not suggested to Mr Akpata that his evidence was untrue or that he had not been entitled to a profit share (although it was suggested that there would be no reason for Arcadia to pay Mr Aluko).

In cross-examination, Mr Bosworth agreed that the Crude Oil Sales and Prepayment Agreements did not refer to a profit sharing agreement, but said that “I wouldn't expect them to because those were with Arcadia Switzerland and pursuant to our agreement with John and Tor to pay bills on behalf of Switzerland, I wouldn't expect them to”. He agreed that Mr Aluko was also an owner of Atlantic, was asked these questions:

“Q. Now you are paying side payments to the owner of Atlantic?

A. That is what he requested.

Q. For no legitimate commercial purpose?

A. It was the joint venture that we had with him in order to be able to get the contract and if we hadn't done it, for sure our competitors would have done.”

One of the problems with this line of questioning is that there was no extant pleaded allegation that these payments were made for no proper purpose. A late amendment, to the effect that the allegation of a profit share was false, was disallowed for the reasons given in the Annex to this judgment. In any event, on the available evidence I am not persuaded that there was no profit sharing arrangement. I found Mr Akpata’s evidence on that point, as well as Mr Bosworth’s, plausible and coherent. One consequence of that is that payments which Arcadia Lebanon made for Azenith Nigeria in 2011 and 2012 pursuant to the profit sharing arrangements are likely to have been made for the benefit of Arcadia Switzerland, thus supporting Mr Bosworth/Mr Hurley’s case about the understanding referred to in section (I)(11)(e) above.

The second further matter arising in relation to the Atlantic transaction is how it could square with the Claimants’ allegation that they were told that Arcadia had ceased all regular trading activities in West African business by 2009. In their Reply, the Claimants said that they had, since Mr Adams’s first affidavit, stated that it was “a particular and specific exception to Mr Fredriksen’s and Mr Trøim’s general understanding that the Arcadia Group had ceased ongoing regular crude oil trading in West Africa” (§ 96) and that Mr Fredriksen and Mr Trøim were willing to agree to it as a project not involving purchasing crude oil from a NOC (§ 107.10). I have already found that there was no such understanding. It is therefore unnecessary to consider whether the Claimants’ allegation could be reconciled with the position regarding Atlantic.

The third matter is that the Claimants sought to advance an entirely unpleaded allegation that Mr Bosworth and Mr Hurley had a personal interest in a company called Ark Exploration, to which Arcadia Lebanon paid US$1,000,030 on 10 October 2011. Once again, that is not a contention that could or can fairly be advanced. I am in any event unpersuaded that it had any merit. Ark was owned by Mr Aluko, the owner of Atlantic. As noted earlier, Arcadia Switzerland and Atlantic entered into a Crude Oil Sales Agreement dated 30 September 2011 and a Prepayment Agreement, under which Arcadia Switzerland obtained NNPC crude oil. The invoice for the payment in question included the description “ratification of NNPC crude lifting schedule contract for 2012 on OML 4 and 41”. Blocks OML 4 and 41 were not referred to in the Atlantic agreement but were referred to in a term sheet for loans to Arcadia Upstream, a company set up by Mr Hurley/Mr Bosworth in connection with the Seven Energy project. The Claimants suggested in cross-examination that the payment thus related to Arcadia Upstream’s investment with Seven Energy rather than to Arcadia’s own business. Mr Bosworth said that he believed the payment did relate to Arcadia Switzerland’s lifting of the oil under the Atlantic contract. Mr Bosworth/Mr Hurley point out that, whereas Arcadia Switzerland did continue to lift crude in 2012 under the Atlantic contract, it was Shell who lifted crude for blocks OML 4 and 41: by the time of the invoice, Arcadia Upstream had decided not to participate in OML 4 and 41 any longer and had reached an agreement for Seven Energy to buy out its interest (as evidenced by a letter of 28 September 2011 from Arcadia upstream to First Bank of Nigeria). I agree with Mr Bosworth and Mr Hurley that the rubric of the invoice is more likely simply to have resulted from a clerical mix-up by someone working for Mr Aluko.

I noted earlier that Arcadia sought to expand its activities in West Africa to include products business. Trading in West African products also involved Arcadia entering into service provider agreements, although the risks involved in products trading were somewhat reduced compared with trading in West African crude.

Arcadia Switzerland had service provider agreements in respect of West African products. These agreements included two dated 1 April 2011, one with Equinox and one with Azenith Nigeria. Both were signed by Mr Tuke. Until 30 November 2023, Mr Tuke was a director of Arcadia London, along with Mr Mills-Webb, the Seatankers in-house counsel in charge of this litigation.

Between 2011 and 2012, as part of that expansion, Arcadia Switzerland contracted to deliver gasoline to Capital in Nigeria. Arcadia arranged the sale of one of Frontline’s vessels (the ‘Mongolia’) to Capital to help deliver the cargoes.

It appears from a witness statement of Mr Duncan dated 28 December 2012, sworn in Rotterdam proceedings for the arrest of the ‘Mongolia’, that Arcadia’s deliveries of cargoes of gasoline to Capital were originally secured by letters of credit. However, for a transaction in December 2011 relating to a cargo on the ‘Arctic Flounder’, Capital, having agreed to provide a letter of credit, was unable to do so (apparently due to cash-flow difficulties arising from delays in local subsidy payments from the Nigerian Petroleum Products Pricing Regulatory Authority (“PPPRA”)). Mr Duncan said that in discussions in early 2012, Patrick Ubah (the owner of Capital) said it was usual for companies in the region to trade on terms where payment was due 60-90 days after delivery, to give the purchaser time to receive the subsidy before paying for the cargo. Those were not the terms on which Arcadia usually operated. However, as the oil price was rising, and in an attempt to accommodate Capital’s payment difficulties, Arcadia agreed to change to a bills of collection system for the Arctic Flounder cargo. Mr Duncan said that in practice, payments and deliveries were piecemeal, and that Arcadia decided to change the payment terms with a view to preserving the relationship with Capital and helping it through a period of financial difficulty; and also in an attempt to ensure that payments from Capital were made more frequently and on time.

Mr Cartwright sent an email to Mr Hurley on 19 April 2012 stating “UBA are not going to sign the documentation we presented, this is going to take some serious work to get all this fully documented and operating as we want. The attached is from Capital and I have asked UBA to confirm that they will honour these instructions. At this point in time we will get no better so we have to make a call on whether we go with this or not.” Mr Hurley responded: “This I agree is now pure judgment call as to whether we release any further volume my concern is that unpaid amounts on vessel plus accrued charges plus 20 kt of product removes any real leverage in terms of collateral value we would otherwise have.”

By June 2012, in light of Capital’s continuing failures to pay for the cargoes and to honour Mr Ubah’s repeated promises to pay, Messrs Bosworth, Hurley, Duncan and Cartwright considered alternative payment mechanisms. They received legal advice from their Nigerian lawyers, Olaniwun Ajayi LP, on an arrangement between Arcadia and Capital. This email was forwarded to Mr Bosworth and Mr Hurley on 13 June 2012. In Olaniwun Ajayi LP’s email, the existing supply structure and payment mechanism between Arcadia and Capital were summarised as follows: