The IM Skaugen Group (IMSK) has ongoing disputes with MAN Diesel & Turbo SE, the German Diesel Propulsion manufacturing company that is an integral part of the German VW Group. These disputes are regarding our agreement to purchase 12 marine diesel propulsion systems (engines and propellers).
IM Skaugen believes that the MAN company has fraudulently misrepresented the fuel consumption on many, or all of, the 12 marine diesel propulsion systems sold to our Company. We believe that the engines consume more fuel than was promised, agreed/warranted and subsequently documented by MAN in the official and required Factory Acceptance Tests (FATS). MAN has admitted to manipulating the FATs when it comes to 3 of our 12 marine diesel engines and this was done to conceal the excess fuel consumption. This in itself constitutes fraud.

We have secured documents showing that these fraudulent manipulations have been performed by MAN on a regular basis for more than 10 years at their company – and for many of their clients. MAN has since then stated that these fraudulent activities were discontinued by spring 2011, and MAN accepted a fine in Augsburg local court (dated March 28th 2013) for its unethical activities such as manipulations of FAT tests on its diesel engines.  However, MAN refuses to compensate our Company for any of our losses despite the admitted fraud, and MAN also refuses to repay our Company for prepayment made for engines not delivered and that we cannot take delivery of due to their fraud. MAN refuses to disclose to Skaugen any material information regarding the fraud linked to our engines, and MAN also refuses to do so in all ongoing litigation and arbitration proceedings with Skaugen.  Save for the latest arbitration, MAN have successfully managed to avoid fraud being the topic of the matters to be litigated. The costs of the litigation and arbitration proceedings so far have been significant, but we still have had to pursue the claims by litigation/arbitration, and we have now received the decisions (awards) from all three arbitrations commenced.

The latest arbitration, which is part of a larger complex of cases between the parties in connection with the mentioned issues, concerned whether or not Skaugen was entitled to terminate the contract for the purchase and sale of two sets of marine diesel engines of the type 6L 48/60B (with related propellers), which MAN had produced and tested in 2008-2009. During the case, MAN refused, i.a., to produce any kind of (valid) evidence concerning the actual fuel consumption of these engines, and witnesses from MAN’s side could either “not remember anything” or refused to answer questions about it. Based, among other things, on technical evidence obtained by Skaugen and other information and documentation obtained despite MAN’s significant opposition, the arbitral tribunal considered it proven that the engines the two engines did have a substantially higher fuel consumption than stated in the official FATs and a substantial higher consumption than the maximum lever warranted by MAN. In addition, the tribunal held that MAN had fundamentally violated its obligation to loyally disclose to Skaugen all information about the engines in dispute, which Skaugen had a legitimate interest in receiving.

On this basis, the tribunal concluded that Skaugen was entitled to terminate the contract, which Skaugen had done already in 2012, and compelled MAN to refund Skaugen its down-payment for the engines in the amount of around EUR 5.3 million as well as reimburse Skaugen for its legal costs and other costs of around EUR 1.4 million in total, which, i.a., had been necessitated by MANs refusal to provide facts in the case.

 

The latest and most significant arbitral award dealt more directly with their fraudulent activities and for this reason awarded us a recovery from MAN of approx. USD 8 mill of prepaid funds incl interest and recovery of our cost of the arbitration itself. At the time of writing, we also have pending litigation ongoing in Norway to enable Norwegian courts hear our claim for tort for the fraud committed regarding our purchase of marine propulsion systems from MAN and to recover not only our additional/excessive fuel costs on vessels currently in operation, but also other related costs and losses incurred as a result of their fraud.  By year-end 2016, we had USD 8.3 mill on our balance sheet as prepayment made for diesel propulsion systems from MAN (not yet delivered), and we await recovery of all the prepaid funds that we seek from MAN.

 

Oslo, 18.05.2017

If you have any questions, please contact:
Bente Flø, Chief Financial Officer, on telephone +47 23 12 03 00 /+47 91 64 56 08 or by e-mail: bente.flo@skaugen.com.

I.M. Skaugen SE is a Norway based Marine Transportation Service Company, with a focus on Innovative Maritime Solutions. Our core business activity is to provide logistics solutions for seaborne regional distribution of liquefied gases such as LNG, petrochemical gases, ethane as well as LPG.

The Skaugen Group currently operates a fleet of 15 advanced gas carriers. In this fleet, we have 6 innovative and unique vessels with the capacity to transport LNG in addition to petrochemical gases and LPG. We have pioneered the Small-Scale LNG distribution business with this unique development project. We recruit, train and employ our own team of seafarers.

IMS employs approximately 500 team members globally and with nearly 30 nationalities represented. We manage and operate our global activities and service our clients from our offices in Singapore and Oslo.