Kuvera Resources Pte Ltd v JPMorgan Chase Bank, NA

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ,Judith Prakash JCA,Steven Chong JCA
• Judgment Date: 28 September 2023
• Docket Number: Civil Appeal No 1 of 2023
• Court: Court of Appeal (Singapore)

Kuvera Resources Pte Ltd

and

JPMorgan Chase Bank, NA

[2023] SGCA 28

Sundaresh Menon CJ, Judith Prakash JCA and Steven Chong JCA

Civil Appeal No 1 of 2023

Court of Appeal

Banking — Letters of credit — Applicable principle — Appellant named as beneficiary to letters of credit — Respondent bank confirming letters of credit — Sanctions clause included in confirmations — Respondent bank invoking sanctions clause to decline payment upon appellant's complying presentation of documents — Whether sanctions clause incorporated as term of confirmation — Whether contracts in documentary credit transaction were independent and autonomous — Whether contracts in documentary credit transaction were unilateral contracts with sui generis exception of irrevocability — Whether sanctions clause fundamentally inconsistent with commercial purpose of documentary credit transaction

Banking — Letters of credit — Confirming bank — Appellant named as beneficiary to letters of credit — Respondent bank confirming letters of credit — Sanctions clause included in confirmations — Respondent bank invoking sanctions clause to decline payment upon appellant's complying presentation of documents — Whether sanctions clause incorporated as term of confirmations — Whether respondent bank entitled to invoke sanctions clause to decline payment upon appellant's complying presentation of documents — Whether sanctions clause fundamentally inconsistent with commercial purpose of documentary credit transaction — Uniform Customs and Practice for Documentary Credits (2007 Revision) (ICC Publication No 600)

Contract — Contractual terms — Appellant named as beneficiary to letters of credit — Respondent bank confirming letters of credit — Sanctions clause included in confirmations — Respondent bank invoking sanctions clause to decline payment upon appellant's complying presentation of documents — Whether sanctions clause incorporated as term of confirmations — Whether contracts in documentary credit transaction were independent and autonomous — Whether contracts in documentary credit transaction were unilateral contracts with sui generis exception of irrevocability — Whether respondent bank entitled to invoke sanctions clause to decline payment upon appellant's complying presentation of documents

Damages — Assessment — Appellant named as beneficiary to letters of credit — Respondent bank confirming letters of credit — Sanctions clause included in confirmations — Respondent bank invoking sanctions clause to decline payment upon appellant's complying presentation of documents — Appellant receiving partial repayment from buyer — Whether appellant entitled to claim for difference between sum due under letters of credit and partial repayment received — Whether appellant entitled to claim for travel and accommodation expenses incurred

Held, allowing the appeal in part:

(1) A documentary credit transaction comprised a number of discrete contracts with each being autonomous and separate from the others. When considering liability under one contract, it would generally be unhelpful to examine whether there was any other underlying dispute in the suite of contracts. Absent a finding of fraud, there would be no basis for enjoining the issuing bank (and by extension the confirming bank) from paying under the letter of credit or the confirmation respectively: at [27] and [30].

(2) It was therefore possible that a confirming bank's liability under a confirmation might be subject to conditions that were not reflected in a letter of credit provided that the conditions did not contradict the undertaking inherent in the confirmation, that being an independent contract relating to the rights and obligations between the issuing bank and the beneficiary: at [32] and [33].

(3) The LCs and Confirmations were best understood as unilateral contracts that bore the sui generis quality of irrevocability. What made a confirmation an irrevocable contract was the character of a credit, which, as defined in Art 2 of the UCP600, was irrevocable and an undertaking to honour a complying presentation. This characterisation of letters of credit and confirmations explained how JPMorgan's obligations under the Confirmations were brought into existence upon the fulfilment of a specific condition (ie, Kuvera's complying presentation): at [35] and [36].

(4) JPMorgan's risk-based decision – that it would rather be sued by Kuvera for failing to pay against a complying presentation than to be found by the US Office of Foreign Assets Control (“OFAC”) to have breached US sanctions – was not a contractually justified approach. The question of whether a vessel was “subject to any applicable restriction” should be determined on an objective basis without third-party input from entities such as OFAC. The inquiry was directed at the ownership of the Omnia which was quintessentially an issue capable of objective determination: at [42] and [43].

(5) JPMorgan was looking retrospectively to OFAC to justify its decision which, by its own admission, was based on inconclusive evidence as regards the beneficial ownership of the Omnia. If JPMorgan chose to rely on an internal list such as the Master List, it had to accept the risk that such reliance might not be sufficient to discharge its burden of proof: at [49] and [51].

(6) JPMorgan had relied on “red flags” surrounding the ownership of the Omnia which it had detected but which could not be resolved to its satisfaction via its internal due diligence checks. It had then decided not to pay Kuvera by assessing the risk of being sued by Kuvera weighed against the risk of being found guilty of breaching US sanctions law. This fell short of establishing that the Omnia was subject to an applicable restriction: at [52].

(7) The burden of proof that the beneficial ownership had remained unchanged squarely rested with JPMorgan: at [56].

(8) The existing case law on change of ownership in the context of establishing in rem jurisdiction was instructive as it ultimately addressed the same inquiry, ie, the evidential process by which a change of ownership of a vessel was established. The ownership of a vessel and any change thereof was an issue capable of proof: at [57] and [61].

(9) JPMorgan had not displaced the prima facie inference of ownership arising from the registered (non-Syrian) owner of the Omnia in 2019. From an evidential point of view, the “red flags” detected by JPMorgan only assumed legal significance if they carried probative weight. In light of the inconclusive evidence before the court, JPMorgan's decision based on its own risk-taking calculus to refuse payment to Kuvera was insufficient to establish that the Omnia was subject to “any applicable restriction” under the Sanctions Clause: at [62] and [68].

(10) With respect to damages, Kuvera was only able to maintain at best its amended claim for the sum of US$218,068.33 (the “Balance Sum”), which was the difference between the Principal Sum and the payment it had received from the Buyer under the MOU: at [79] and [80].

(11) With respect to the Balance Sum, Kuvera was not entitled to claim for the sum relating to credit due to the Buyer from the Seller, as Kuvera would be required to pay over this sum to the Buyer had it received the Principal Sum from JPMorgan: at [82] and [83].

(12) Kuvera's claim for the sum levied by JPMorgan for acting as the confirming bank was allowed. The evidence as to whether Kuvera would have to repay this sum to the Buyer had JPMorgan paid Kuvera was not entirely satisfactory: at [84] and [85].

(13) Kuvera's claim for a discount which it had given to the Buyer was allowed. There was no evidence to suggest that this discount had been given to account for specific expenses for which Kuvera was liable and Kuvera had negotiated the MOU from a position of vulnerability: at [86].

(14) Kuvera's claim for travel and accommodation expenses was allowed. But for JPMorgan's non-payment under the two Confirmations, there would have been no need to negotiate any settlement with the Buyer or the Issuing Bank: at [87].

[Observation: The question of whether sanctions clauses were incompatible with the nature of irrevocable documentary credit transactions remained an open and difficult one. It might be problematic for a bank to have it both ways by representing to a beneficiary that payment was conditioned only on a complying demand, but reserving the right to dishonour where it was unsure of its legal liabilities: at [69] and [71].

A balance should be struck between preserving the autonomy of individual contracts within a documentary credit transaction (such that it was open to parties to insert conditions in each autonomous contract) and upholding the commercial viability of a documentary credit transaction (whereby each autonomous contract was intended to correspond to and/or provide a safety net for the other contracts in the transaction). That being said, if the Sanctions Clause was construed as JPMorgan claimed that it should, it would likely be incompatible with the commercial purpose of the Confirmations due to the significant unpredictability such an interpretation would introduce into the Confirmations. Even on the court's construction of the Sanctions Clause as requiring an objective determination as to whether the Omnia was subject to any applicable restriction, Kuvera as the beneficiary would face uncertainty in that it would not know at the time it accepted the Confirmations whether the Sanctions Clause would apply to deny it payment: at [77] and [78].]

Case(s) referred to

Banco San Juan Internacional Inc v Petróleos de Venezuela SA [2020] EWHC 2937 (Comm) (refd)

Bank of Baroda v Vysya Bank Ltd [1994] 2 Lloyd's Rep 87 (refd)

Beam Technology (Mfg) Pte Ltd v Standard Chartered Bank [2003] 1 SLR(R) 597; [2003] 1 SLR 597 (folld)

Bolbina, The [1993] 3 SLR(R) 894; [1994] 1 SLR 554 (refd)

Brody, White and Co Inc v Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR(R) 146...