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In Kuvera Resources Pte Ltd. v. JPMorgan Chase Bank, N.A., the Singapore Court of Appeal on 28 September 2023 reversed the trial court’s judgment granted in favour of JPMorgan. DCW JPMorgan added its confirmations to (Summary of trial decision at Nov./Dec. 2022 two UCP600 letters of credit issued by Dubai-based Bank Alfalah Ltd. to support a resale of coal cargoes between an Indonesian seller and UAE buyer. Kuvera Resources was beneficiary under the credits as it had advanced funds to the Indonesian on-seller. Included in its advices and subsequent confirmations was JPMorgan’s Standard Sanctions Clause. (See boxed text).
Sanctions Clause used by Confirming Bank:
[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.
After documents were presented, JPMorgan submitted them for “internal sanctions screening”; its review discovered the coal was carried on a vessel (the Omnia) “likely to be” beneficially owned by a Syrian entity, and thus subject to U.S. sanctions regulations applicable to JPMorgan (the LCs were payable in USD). JPMorgan subsequently informed the presenting bank that it “could not accommodate” the transaction. JPMorgan also informed the beneficiary that it could “not obtain internal approvals to pay” and later returned the documents. Although the underlying parties negotiated a memorandum of understanding whereby Kuvera was paid in exchange for the documents, Kuvera sued JPMorgan for wrongful dishonour (couched as breach of contract).
The trial court granted judgment for JPMorgan, rejecting all of Kuvera’s claims. The pivotal ruling regarded the trial court’s acceptance of evidence forwarded by JPMorgan “on a balance of probabilities, that the Omnia was in fact owned by a Syrian entity at the material time, such that proceeding with the transactions” would have violated U.S. Sanctions. It was understood that JPMorgan preferred exposure to a wrongful dishonour suit rather than possibly running afoul of U.S. sanctions.
On appeal, however, the Court rejected this analysis. In the appellate court’s view, that “approach was not predicated on an objective yardstick but was likely to have been shaped by risk management considerations.” Instead, the appellate court ruled that JPMorgan, as confirming bank, could only have properly declined to honour otherwise complying documents (citing its Sanctions Clause) if it could show, on “an objective basis”, that facilitating the transactions would violate “applicable restrictions.” A mere risk-based decision would not suffice. While JPMorgan had determined the vessel was beneficially owned by a sanctioned entity as early as 2015 (when the vessel was known as the Lady Mona), JPMorgan was unable (despite due diligence) to determine as a matter of fact whether that remained true when documents were presented in 2019.
The appellate court decision will be summarized in the next DCW.