Kuvera Resources Pte Ltd v JPMorgan Chase Bank, N.A.

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 28 September 2023
• Neutral Citation: [2023] SGCA 28
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 1 of 2023
• Hearing Date: 01 August 2023
• Citation: [2023] SGCA 28
• Year: 2023
• Plaintiff Counsel: Mahmood Gaznavi s/o Bashir Muhammad and Rezza Gaznavi (Mahmood Gaznavi Chambers LLC)
• Defendant Counsel: Cavinder Bull SC, Chia Voon Jiet, Charlene Wong Su-Yi and Grace Lim Rui Si (Drew & Napier LLC)
• Subject Matter: Banking,Letters of credit,Confirming bank,Applicable principle,Contract,Contractual terms,Damages,Assessment
• Published date: 28 September 2023

Steven Chong JCA (delivering the judgment of the court): Introduction

Unlike armed conflict or military intervention, the coercive power of economic sanctions is derived not from what they do to entities and nations that do not comply with international laws and policies but what they do not, in the sense that they operate not through a formal declaration and imposition of war, but by way of “material exclusion from the world economy” (Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (Yale University Press, 2022) (“The Economic Weapon”) at pp 3 and 14). In withholding international trade and commerce from polities and nations, economic sanctions have become a powerful instrument of international diplomacy, and sanctions regimes have, over the course of the past few centuries, been imposed against states and non-state actors as a response to and a means of exerting political influence over their policies and behaviours and enforcing visions of international order. It is therefore unsurprising that economic sanctions have been described as “something more tremendous than war” in that “[i]t does not cost a life outside of the nation boycotted, but it brings a pressure upon that nation which … no modern nation could resist” (The Economic Weapon at pp 1–2; see also Natalino Ronzitti, “Sanctions as Instruments of Coercive Diplomacy: An International Law Perspective” in Coercive Diplomacy, Sanctions and International Law (Natalino Ronzitti ed) (Brill, 2016) ch 1 at pp 9–14).

However, while primarily a geopolitical instrument, economic sanctions have found their way into contractual dealings and have thereby assumed a legal dimension. We see this in the present case, where the respondent denied liability to pay the appellant, the beneficiary of two letters of credit, on the basis that the confirmations of the letters of credit bear a contractual clause (the “Sanctions Clause”) which extinguished the respondent’s liability as the underlying commercial transaction was allegedly caught by the sanctions laws of the United States of America (“US”).

The court’s task is to interpret such a clause as a term of the contracts which are embedded within the two letters of credit and, in this task, the geopolitical considerations that underpin the deployment of sanctions may not be relevant or helpful. In that regard, the principles governing contractual interpretation must take centre stage with geopolitical considerations receding to the backdrop.

It is common ground between the parties that the burden is on the respondent to prove that it is entitled to invoke the Sanctions Clause to deny payment to the appellant. The present appeal, CA/CA 1/2023 (“CA 1”), concerns how this burden is to be discharged. In the court below, there were two competing and divergent approaches to the treatment of the respondent’s burden of proof as to whether the vessel on which the goods were shipped was “subject to any applicable restriction”, such that the Sanctions Clause could be invoked. The High Court judge (the “Judge”) preferred the respondent’s approach and accepted that: (a) it would suffice to establish that the respondent would have been found by the US Office of Foreign Assets Control (“OFAC”) to be in breach of the sanctions if it had paid against a complying presentation; and (b) it was not necessary to prove that the vessel was in fact owned by an entity which was subject to the sanctions. It appears to this court that the respondent’s approach was not predicated on an objective yardstick but was likely to have been shaped by risk management considerations. As we will explain below, such an approach is not permissible as it is not in accordance with the terms of the Sanctions Clause. It was on this basis that we have arrived at a different conclusion from that of the Judge below.

The material facts The parties

The appellant, Kuvera Resources Pte Ltd (“Kuvera”), is a Singapore-incorporated company in the business of trading coal sourced from Indonesia. The respondent, JPMorgan Chase Bank, N.A. (“JPMorgan”), is a national banking association chartered under US laws, which has its head office in New York and a network of branches worldwide including a branch in Singapore.

Events leading up to the dispute

On 23 July 2019, a company in Indonesia, PT Borneo Guna Energi (the “Seller”), contracted to sell coal (to be delivered in two parcels) to a company in the United Arab Emirates (“UAE”), Oilboy DMCC (the “Buyer”). To facilitate this transaction, the following arrangements were made: Kuvera advanced funds to the Seller to enable it to purchase the coal for on-selling to the Buyer; the Buyer was to pay for each of the two parcels by irrevocable letters of credit (“LCs”) payable at sight in which Kuvera would be named as the beneficiary; both LCs were issued by a bank in Dubai, Bank Alfalah Limited (the “Issuing Bank”), and expressly made subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision (the “UCP600”); and the Issuing Bank appointed JPMorgan as the advising bank and the nominated bank for both LCs, and JPMorgan duly advised both LCs to Kuvera (the “Advices”) and confirmed (the “Confirmations”) the LCs and their amendments.

The first LC (“LC1”) was dated 8 August 2019 and was confirmed by JPMorgan on 13 September 2019. The second LC (“LC2”) was dated 23 September 2019 and was confirmed by JPMorgan on 27 September 2019. Subsequent amendments to LC1 and LC2 by the Issuing Bank were also confirmed by JPMorgan. All of JPMorgan’s Advices and Confirmations contained a Sanctions Clause which provided that:

[JPMorgan] must comply with all sanctions, embargo and other laws and regulations of the U.S. and of other applicable jurisdictions to the extent they do not conflict with such U.S. laws and regulations (“applicable restrictions”). Should documents be presented involving any country, entity, vessel or individual listed in or otherwise subject to any applicable restriction, we shall not be liable for any delay or failure to pay, process or return such documents or for any related disclosure of information.

On or about 28 November 2019, Kuvera made a presentation of documents through its presenting bank (the “Presenting Bank”) to JPMorgan under the LCs. The presentation was for a value of US$2,422,111.07 (the “Principal Sum”) and the parties do not dispute that this was a complying presentation within the meaning of the UCP600.

JPMorgan then sent the presented documents for its internal sanctions screening procedure. The process revealed that the vessel (the “Omnia”) on which the coal in the sale contract (the “Sale and Purchase Agreement”) had been shipped was included in a list internal to JPMorgan, known as the Master List. The Master List, which was not accessible to the public, contained the names of various entities and vessels that had been determined by JPMorgan to have a sanctions nexus and/or concern. We note that this was a separate list from another publicly accessible list published by OFAC on its website, known as the OFAC Specially Designated Nationals and Blocked Persons list (the “OFAC List”). The OFAC List contained a list of individuals and companies owned, controlled by or acting on behalf of targeted countries as well as individuals, groups and entities designated under non-country-specific programmes, whose assets are blocked and with whom US persons are generally prohibited from dealing. JPMorgan’s evidence was that apart from the individuals and companies named in the OFAC List, there were other entities that OFAC might not have specifically identified which had known businesses in the sanctioned countries. Depending on the results of its due diligence, JPMorgan would make a determination as to whether it was prohibited from dealing with that entity under US sanctions laws notwithstanding that the entity was not identified in the OFAC List, and if so, the entity would be added to the Master List.

On 3 December 2019, JPMorgan informed the Presenting Bank that it could not accommodate Kuvera’s presentation of the documents as the transaction did not comply with the applicable sanctions laws, rules and regulations and/or its internal policies designed to ensure compliance, and returned the documents to the Presenting Bank. JPMorgan also informed Kuvera that JPMorgan could not obtain internal approvals to pay Kuvera. LC1 expired on 15 December 2019 and LC2 expired on 16 December 2019.

Kuvera commenced HC/S 57/2020 (“Suit 57”) against JPMorgan on 17 January 2020, claiming that JPMorgan had acted unlawfully in not paying Kuvera the Principal Sum of US$2,422,111.07 or any part thereof after this sum under LC1 and LC2 became due and payable on 3 December 2019. It claimed for the Principal Sum and for damages in the sum of S$11,429.32 incurred for travel expenses as a result of JPMorgan’s non-payment under LC1 and LC2.

Thereafter, Kuvera made efforts to secure payment directly from the Buyer. Following negotiations between Kuvera, the Issuing Bank and the Buyer, and a resulting Memorandum of Understanding dated 23 January 2020 (the “MOU”), the Buyer paid Kuvera US$2,204.042.74 (or UAE Dirham (“AED”) 8,096,000) in exchange for Kuvera’s documents.

The decision below

The Judge in Suit 57 found that letters of credit and confirmations were separate and autonomous unilateral contracts with one sui generis exception, ie, that an issuing or confirming bank has a contractual obligation to the beneficiary not to revoke its offer (for which no consideration has to be provided or supplied) (Kuvera Resources Pte Ltd v JPMorgan Chase Bank, NA [2022] SGHC 213 (“GD”) at [34]–[49], [50]–[66]).

In light of this finding, the Judge then found that the Sanctions Clause had been duly incorporated as a contractual term of JPMorgan’s Confirmations (GD at [98]). Since a confirmed letter of credit transaction...