Singapore's Court of Appeal has ruled in favour of Kuvera Resources against JP Morgan Chase Bank after the bank 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.

Kuvera appealed against the dismissal of its claim of US$2.42 million in 2022, when Singapore's High Court ruled in favour of JP Morgan (DC World News, 9 December 2022).

The case of Kuvera Resources versus JP Morgan in the high court was the first time a Singapore court was asked to consider the issue of validity and enforceability of a sanctions clause.

Evidence of ownership missing

The high court ruled that the defendant bank was entitled to rely on the sanctions clause to refuse payment under an L/C relating to sale of coal shipped on the Omnia, a Syrian-owned vessel that fell within the scope of US sanctions on Syria.

The court of appeal judge Steven Chong agreed with the high court's view on the validity of the sanctions clause, but said JPMorgan should have produced evidence to prove that the vessel was owned by a sanctioned entity.

Red flags

Chong said JPMorgan had only relied on several "red flags" surrounding the ownership of the Omnia rather than objectively determining whether the vessel was definitely subject to sanctions.

In light of the "inconclusive" evidence before the court, it did not think that JPMorgan's decision based on its own risk-taking calculus to refuse payment to Kuvera was sufficient to establish that the Omnia was subject to "any applicable restriction" under the sanctions clause.

As such, JPMorgan was not entitled to invoke the Sanctions Clause to deny payment to Kuvera upon a complying presentation of documents. It is on this basis that the appeal court allowed the appeal.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.