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This article was originally published on December 19 2022 by Watson Farley & Williams LLP. TFG would like to thank Kimarie Cheang and Chengxi Tan for their contribution. 


In the recent case of Kuvera Resources Pte Ltd v JP Morgan Chase Bank NA [2022] SGHC 213, the High Court of Singapore (the “Court”) considered the validity of a sanctions clause for the first time. The case concerned an action by Kuvera Resources Pte Ltd (“Kuvera”) to recover from JP Morgan Chase Bank NA (“JP Morgan”) as confirming bank under a letter of credit a sum of $2.42 million as damages for its purported failure to honour the terms of the confirming letter of credit. It was decided by the Court that the sanctions clause was effectively incorporated in the confirming bank’s confirmation and therefore valid and enforceable, entitling JP Morgan to refuse payment notwithstanding Kuvera’s complying presentation.

Brief Facts

Kuvera had advanced funds to a seller to enable it to purchase 35,000 metric tons of coal and onsell it to its buyer. Under the arrangement, the buyer was required to and duly procured a bank in Dubai (the “issuing bank”) to issue two letters of credit (“LCs”) in favour of Kuvera. The issuing bank asked JP Morgan to act as the advising bank and as the nominated bank for both LCs. JP Morgan duly advised both LCs and subsequently added its confirmation to both LCs. JP Morgan’s confirmations contained a sanctions clause, providing that it will not be liable for any failure to pay against a complying presentation of documents if the documents involve a vessel subject to the sanctions laws and regulations of the USA (the “Sanctions Clause”). When Kuvera made a presentation of documents, JP Morgan accepted that it was a complying presentation. However, pursuant to its sanctions screening, it was revealed that the vessel that shipped the coal, the “Omnia”, was an exact match for a vessel known as “Lady Mona”, which it had earlier determined fell within the scope of US sanctions on Syria as it was likely to be beneficially owned by a Syrian entity. Accordingly, JP Morgan informed both Kuvera and the presenting bank that it was unable to pay against Kuvera’s presentation of the documents.

What Did The Parties Argue?

Kuvera argued that the Sanctions Clause: (a) was not a term of its contract with JP Morgan; alternatively (b) the Sanctions Clause was fundamentally inconsistent with the commercial purpose of a confirmed letter of credit; and therefore (c) ought not to allow JP Morgan to refuse to pay.

JP Morgan rejected each of these contentions.

court decision

What Did The Court Decide?

The Court dismissed Kuvera’s claim in its entirety, and JP Morgan was allowed to recover all costs.

(a) Whether the Sanctions Clause was a term of JP Morgan’s confirmations

Kuvera sought to argue that the Sanctions Clause did not form a term of the LC contract as a confirming bank is obliged to confirm a letter of credit in precisely the same terms as the issuing bank. The Court rejected this submission and clarified that a confirmed letter of credit transaction comprises multiple separate contracts. When an issuing bank advises a letter of credit to a beneficiary, it makes an offer of a unilateral contract to the beneficiary and when a confirming bank adds its confirmation to the letter of credit, it makes a separate offer of a separate unilateral contract to the beneficiary (refer to Diagram A). As these contracts are independent and autonomous, it is not necessary that the separate offer by the confirming bank, in this case JP Morgan, adopt the terms of the issuing bank’s offer in their entirety. The Court also held that JP Morgan had made it objectively and abundantly clear that the Sanctions Clause formed a term of its offer of a unilateral contract. Further, the Sanctions Clause did not need to be the subject of any consideration.

(b) Whether the Sanctions Clause is valid and enforceable

The Court here expressed the view that a term will be fundamentally inconsistent with the commercial purpose of a confirmation only if the effect of the term is directly contradictory to that purpose. Here, the Sanctions Clause did not contradict the fundamental commercial purpose of the confirmation – the confirmation continued to give Kuvera rights against JP Morgan which were in substance additional to Kuvera’s rights against the issuing bank. The Court held that the Sanctions Clause was not invalid or unenforceable just because it conferred on JP Morgan a level of discretion in deciding whether to pay against a complying presentation based on its internal sanctions policy.

(c) Whether the Sanctions Clause entitled JP Morgan to refuse to pay Kuvera against a complying presentation

The Court held that the Sanctions Clause did, on the facts of this case, operate to permit JP Morgan to refuse to pay Kuvera against a complying presentation. This was based on three reasons. First, the Court concluded that, contrary to what had been argued by Kuvera, JP Morgan’s Singapore branch is not a legal entity distinct from its US branches. Second, JP Morgan is subject to US sanctions laws and regulations in relation to its operations worldwide including through its Singapore branch. Third, the Court relied on the evidence given by JP Morgan’s expert witness on US sanctions law, which established that paying Kuvera would have exposed JP Morgan to a penalty for breaching US sanctions laws and regulations. This is because JP Morgan would be breaching the Syrian Sanctions Regulations as it would, by paying Kuvera, be supplying financial services benefiting Syria.

What Is The Significance Of This Decision?

This judgement is a timely clarification on the interpretation and treatment of sanctions clauses, which are relevant in the current geo-political climate. This judgement is useful to participants and stakeholders in the field of commodities and trade finance (who often utilise letters of credit as a payment mechanism) as it provides valuable guidance on the nature of letter of credit transactions as well as the rights and obligations under each component of these transactions. The judgement recognises that banks operating internationally have strict obligations to ensure compliance with applicable sanctions laws and regulations, and this may be achieved by incorporating appropriate terms in their confirmations. However, a word of caution is to be given here, as not all terms can be incorporated by way of a confirmation – only terms which are not fundamentally inconsistent with the commercial purpose of a confirmed letter of credit would meet the requisite threshold and be considered as valid and enforceable. Legal advice should therefore be sought as appropriate on drafting and/or incorporating such terms.

We also note here that the case is currently under appeal.