IMSML Website Article 37/2025: Orin Energy Investments Ltd v Futura Asia Ltd [2024] MLJU 2347 - ‘Hot-Tubbing’ Expert Evidence on US Sanctions Law (Part 2 of 2)

Mr Justice Ong Chee Kwan departed from ‘traditional procedure’. Usually, each party’s expert would testify through the process of examination-in-chief, followed by cross-examination. Instead, his Lordship allowed ‘hot-tubbing’ and both litigating sides agreed to this, see Paragraph [100]. Under this procedure, two or more experts at a hearing give their evidence concurrently, enabling simultaneous questioning and discussions on key issues, see Paragraph [101].

Preparation for ‘hot-tubbing’ is dependent on good pre-trial preparation. Each expert issue their written reports before the trial. The experts engage in pre-trial meetings or conclaves to identify areas of agreement and disagreements. Later at the trial, the experts are sworn in together. The judge will then chair a discussion between them, shaped by the agreed agenda derived from a joint statement or court approved issues of contentions, see Paragraph [101].

In order to implement ‘hot-tubbing’ Mr Justice Ong Chee Kwan prepared an agreed procedural framework on how the experts’ testimonies shall be taken by the Court. His Lordship explained that the processes and protocols may be useful for future cases, perhaps adopted with suitable modifications to suit the circumstances of the case. His Lordship annexed the entire order and protocol for reference, see Paragraph [102].

Mr Justice Ong Chee Kwan identified two (2) issues which emerged from the substance and material differences of the expert opinions of Mr Skoufalos (Orin’s expert) and Mr Bravo (Futura’s expert), see Paragraph [103].

FIRST ISSUE - Was a Non-US Person Potentially Exposed to a Secondary Sanction in Buying and Accepting the Fuel Oil and the Consequences of such Secondary Sanction?

SECOND ISSUE - Was the Fuel Oil Blocked Property or Sanctioned Cargo in the Hands of Futura, and Consequently did such Sanctioned Status Remain Throughout the Subsequent Sale of Fuel Oil from Futura to Orin?

The main authority issuing directives and regulation for sanctions under the US legal system is the Office of Foreign Asset Control (OFAC), see Paragraph [105]. The Court in this case can interpret the Executive Orders issued by OFAC, and is not constrained by the interpretation of either Sanctions Law expert, see Paragraph [106]. In adopting this approach, Mr Justice adopted the English case of Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514 which was cited in the Malaysian case of Padiberas National Bhd v Kontena National Bhd [2010] 3 MLJ 134 which said that ‘it is for the judge to decide for himself what the law is, not to accept it from any or even all of the parties to the suit’, see Paragraph [107].

What is the scope of Executive Order 13850 on Blocking Property of Additional Persons Contributing to the Situation in Venezuela?

Any property in possession or control of any US person, determined by the Secretary of State of the Treasury, in consultation with the Secretary of State, may be blocked. The property may be in any sector of the Venezuelan economy (including gold sector). The person blocked must have materially assisted, sponsored, or provided financial, material, or technological support for, or goods, or services to or in support of, any activity or transaction, see Paragraph [108].

What is the Scope of Executive Order 13884 on Blocking Property of the Government of Venezuela?

Any US person who is blocked may not transfer, pay, export, withdraw or otherwise deal with any person determined by the Secretary of the Treasury, in consultation with the Secretary of State. This list of Specially Designated Nationals and Blocked Persons are maintained by the OFAC.

What is the Combined Effect of Both Executive Orders?

When in control of a US person, there cannot be dealings involving blocked property, see Paragraph [111] and [112]. It is not disputed that PdVSA is on the Sanction’s List, see Paragraph [113]. Hence its properties are blocked property when they come within the control of a US persons. Both experts on Sanctions Law agree on this, see Paragraph [113]. Both experts, however, differ on whether when both seller and buyer are non-US persons, in such circumstances would the mere Venezuelan origin of the commodity make the transaction subject to sanctions, see Paragraph [114].

Orin’s Sanctions Law expert, Mr Skoufalos’ opinion is that the Fuel Oil is property of the Government of Venezuela or PdVSA, both of which are on the sanctions list. His view is that the Fuel Oil is blocked property immediately and even non-US persons would be prohibited from entering into any transactions or activities involving the Fuel Oil, see Paragraph [115]. Hence, even though Futura was a non-US person, it would be exposed to secondary sanctions since it purchased the Fuel Oil from PdVSA, see Paragraph [116]. Even when the property is sold to a subsequent non-sanctioned entity, it remained blocked property as it was originally owned by a sanctioned entity. The transfer of a blocked property is ‘null and void’. The subsequent buyers could still be exposed to to secondary sanctions for ‘operating within the sector’ or for ‘material support of a blocked entity’ as there was dealing with blocked property, see Paragraph [117]. Further, the ‘purchase’ even by a non-sanction party constitutes ‘financial or material support’ or an operation in the oil sector of Venezuela, see Paragraph [119].

By contrast, Mr Bravo (Futura’s Sanctions Law expert) took the opposite view. He explained that as a non-US person, there was no prohibition for Futura to deal with the Fuel Oil, even though PdVSA was a sanctioned entity. Further OFAC had not designated Futura as an entity subjected to secondary sanctions, see Paragraph [121]. Oncer a sanctioned entity sells its property to a non-US person, that property is no longer blocked property. When PdVSA sold the Fuel Oil to Futura, the blocked property was no longer treated as such. Hence with the subsequent sale to Orin, the parties were in fact not dealing with blocked property. Orin was not subject to any exposure to US Sanctions Law, see Paragraph [122].

Mr Justice Ong Chee Kwan preferred this second view by Mr Bravo. His Lordship clearly said that he was unable to agree with Mr Skoufalos, see Paragraph [124]. The mere purchase of the Fuel Oil from PdVSA is not ‘supporting’ as there must be an overt act, more than merely purchasing the products, see Paragraph [125]. Only if there were multiple transaction would there be evidence that it was done for the benefit of PdVSA. Further, it was not shown that Futura did play a significant role in the Venezuelan oil sector or its related commercial network, see Paragraph [126].

Mr Justice Ong Chee Kwan concluded that the Sale Contract was merely a commercial transaction between two non-US parties, see Paragraph [128]. His Lordship explained that he accepted Mr Bravo’s distinction between the OFAC’s country-based sanctions and secondary sanctions. OFAC’s Venezuelan Sanctions Program falls under the category of country-based sanctions whereby the primary sanctions target a designated country like Venezuela, see Paragraph [129]. According to his Lordship, the ‘U.S. sanctions against Venezuela is not an open sanction. The entity or individual needs to be specified and determined by OFAC or by an executive order to be placed under the SDN list before a U.S. person is prohibited from dealing with them’, see Paragraph [130].

Not every non-US person conducting business with the Venezuelan market  is automatically subjected to secondary sanctions as contended by Mr Skoufalos. This analysis is too simplistic, see Paragraph [132]. Mr Justice Ong Chee Kwan held a determination would have to be first made  by the Department of Treasury , whether the individual concerned had materially assisted PdVSA or the Venezuelan Government. As to what is ‘materially assisted’, that remained subjective and fully up to the discretion of the Department of Treasury, see Paragraph [131]. Only after a determination is made by the Secretary of the Treasury in consultation with the Secretary of State that a person has violated the Executive Orders, would a person be designated as a Sanctioned Entity. Only then would a person as a non-US person be effectively cut-off from the US dollar denominated innate financial system, see Paragraph [133].

Mr Justice Ong Chee Kwan also held that the sanctions are only applicable to US persons who trade with Sanctioned Entities. Neither Orin nor Futura have any US nexus. As neither has been placed on the Sanctions List, there is no risk of a sanction applying even when dealing with an entity or individual designated on the Sanctions List, see Paragraph [134]. When the cargo was loaded onto the ‘Nordic Sirius’ from the ‘Eser K’, it was a transfer from a non-US person and non-sanctioned entity (Futura) to a US person (Nordic Sirius). Such a transaction does not attract US Sanctions Laws at all, see Paragraph [136].

Is the Fuel Oil ‘Blocked Property’ merely because it had originated from PdVSA?

No. Mr Justice Ong Chee Kwan explained that ‘blocked property’ means that it cannot be transferred, paid, exported, withdrawn, or otherwise dealt with. This only happens when the property is in the control of a ‘US Person’. If the Fuel Oil was ‘blocked property’, this would mean that there was a total embargo on all products from PdVSA, ie prohibiting the whole world from dealing with its products, see Paragraph [139]. This is inconsistent with the existing facts since there are still some countries that continue to trade with Venezuela. Further, accepting this ‘total prohibition’ would also mean that the US is exercising extraterritorial coercive powers which in any case can hardly be enforced, see Paragraph [140].

In the previous case of Unicious Energy Pte Ltd v The Owners and/or Demise Charterers of the Ship or Vessel “Alpine Mathilde” [2023] CLJU 2516, Mr Justice Ong Chee Kwan had said that once property is blocked, it cannot be unblocked by the sanctioned owner by selling the property to a non-sanctioned third party. This view still held true as his Lordship distinguished the Unicious case from the facts of the present dispute, see Paragraph [141]. His Lordship pointed out that in the Unicious case, the Plaintiff was designated as a Sanctioned Entity. The Vessel Owner was a ‘US Person’ and was thus prohibited from dealing with the cargo which was ‘blocked property’. The Plaintiff in the Uncoils case had sought to unblock the property by selling it to a Third Party. Mr Justice Ong Chee Kwan’s remark that once property was blocked, it could not be unblocked, was made in this context, see Paragraph [141].

On the facts in dispute before the Court, the Master of the ‘Nordic Sirius’ had no legal basis to stop the STS operation when the Fuel Oil was being transferred from the ‘Eser K’. Merely because the Fuel Oil originated from Venezuela does not mean that it was blocked property. His Lordship pointed out that neither Orin nor Futura were listed on the Sanctions List at that time by OFAC, see Paragraph [142].

If the Fuel Oil was indeed blocked property, then even when it was board the ‘Nordic Sirius’, it could not have been dealt with by the owner, a US Person, unless a license was obtained from OFAC. However, what happened in reality was that after the STS operation, a settlement agreement was reached between the owner of the ’Nordic Sirius’ and Orin, for the cargo to be released to Orin, see Paragraph [143].

What was the Implication of Orin’s Suspension of the Contract and Failure to Pay?

As Orin knew the true origin of the Fuel Oil and that it was never blocked property or sanctioned property, Orin therefore had no right to suspend future performance of its contractual obligations under the Sales Contract, and refuse to pay Futura. In the light of Orin’s failure to pay, Futura’s termination of the Sales Contract on 29 September 2020 was therefore NOT wrongful, see Paragraph [148]. Futura had performed its contractual duty of providing Fuel Oil of agreed and acceptable quality in accordance with the Sales Contract, see Paragraph [150]. The failure to complete delivery of the Fuel Oil from the ‘Eser K’ to the ‘Nordic Sirius’ could not be attributed to Futura, see Paragraph [151]. Nomination of the ‘Nordic Sirius’ was entirely Orin’s contractual obligation under FOB terms, see Paragraph [153]. Orin’s allegation that Futura had in fact sabotaged the STS transfer was fanciful and completely without any evidential basis. Mr Justice Ong Chee Kwan added that it is against Futura’s interests as a seller of the Fuel Oil to frustrate the Sales Contract when it had every intention to complete the transaction, see Paragraph [154].

What Documents were provided to Orin?

The Material Safety Data Sheet (MSDS) provided by the Master of the ‘Eser K’ clearly showed that the Fuel Oil was from PdVSA, Venezuela. Also provided was the Certificate of Origin upon being requested by the Master of the ‘Nordic Sirius’. This was to ensure that there was commencement of the STS operation, see Paragraph [157] and [158]. Hence, there is no evidence from Orin, that Futura did in fact interfere with the transfer of the Fuel Oil during STS, see Paragraph [159].

Was the Sales Contract Indivisible?

There was no dispute that Orin failed to take delivery of the Fuel Oil from the ‘Eser K’. The First Lot was received and was eventually delivered to end buyers in China, see Paragraph [160].  The Sales Contract was for delivery of Fuel Oil under an entire indivisible contract. Orin was obliged to take the entire delivery of Fuel Oil from the ‘Eser K’. Failure to do this was a breach of contract by Orin as a buyer of the Fuel Oil, see Paragraph [161]. Futura was entitled to treat Orin’s failure to take delivery as a repudiatory breach and was therefore entitled to terminate the Sales Contract, see Paragraph [163].

Did the Fuel Oil Meet Contractual Specification?

YES. Mr Justice Ong Chee Kwan held that Orin’s claim that the Fuel Oil did not meet contracted specifications is wholly without merits. When the Sales Contract was terminated, Orin never raised this an issue. His Lordship pointed out that prior to the STS operations commencing, Orin had appointed its own surveyor to take samples of the Fuel Oil for testing. If there were problems with the specifications of the Fuel Oil, Orin would have not commenced the STS operation, see Paragraph [164].

Was Orin’s Legal Position Inconsistent?

Mr Justice Ong Chee Kwan held that Orin was blowing hot and cold. Orin had first argued that the Fuel Oil was sanctioned property. It also contended that it would be subjected to secondary sanctions for dealing with such alleged blocked / sanctioned property. However, Orin refused to re-deliver the Fuel Oil back to Futura. Instead, it entered into an agreement with the Owner of the ‘Nordic Sirius’ to take possession of the Fuel Oil to be sole onwards to its Chinese customers, see Paragraph [165].

Thank you for reading IMSML Website Article 37/2025

Stay tuned for the next IMSML Website Article 38/2025: Cosco Shipping Heavy Industry (Dalian) Co Ltd & Anor v Osta Fleet Sdn Bhd [2024] MLJU 2250 - Who is the Rightful Owner of the Offshore Drilling Unit the ‘Dalian Developer’?

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

Tuesday,  16 September 2025

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my