Singapore court upholds J P Morgan’s refusal to pay L/Cs on grounds of sanctions violations

Singapore’s High Court has ruled in favour of J P Morgan Chase Bank after it was sued for refusing to pay a coal trader under two letters of credit (L/Cs) because its sanctions screening revealed that doing so would have violated US sanctions.

The case of Kuvera Resources versus J P Morgan is the first time a Singapore court has been asked to consider the issue of validity and enforceability of a sanctions clause.

Case outline

J P Morgan’s standard post-presentation sanctions screening of the sale contract revealed that the coal was shipped on a vessel that was likely to be beneficially owned by a Syrian entity proscribed under US sanctions on Syria.

The bank, which was both the advising and confirming bank for the L/Cs, informed Kuvera that because the transaction did not comply with US sanctions laws it was unable to proceed with the presentation of documents.

The Singapore coal trader then commenced proceedings for breach of contract and filed a claim for up to US$2.42 million in damages from J P Morgan.

Court decision

In dismissing the coal trader’s action, the court held that a sanctions clause was incorporated as a contractual term of J P Morgan’s L/C confirmations, even though the clause did not appear in the L/Cs issued by the Dubai-based issuing bank engaged by the buyer to issue the L/Cs in favour of Kuvera.

The court further held that the valid and enforceable sanctions clause entitled J P Morgan to refuse to pay Kuvera against a complying presentation because the bank is not a legal entity distinct from its US branches and is therefore subject to US sanctions laws and regulations.

Paying Kuvera would have exposed J P Morgan to a penalty for breaching US sanctions laws and regulations.

A detailed commentary on the case of Kuvera Resources Pte Ltd v J P Morgan Chase Bank by lawyers Drew and Napier who acted for the bank in the case can be found here.

 



Categories: Trade Based Financial crimes News

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