This was the claim made by Kuvera Resources Pte. Ltd. (the claimant) for executing the letters of credit in its favour by JPMorgan Chase Bank NA (the defendant). The claimant paid the Indonesian seller in advance to facilitate the sale and purchase of the coal agreement. The buyer of the coal was the Dubai-based company. It took the obligation to pay the seller for the coal through two irrevocable letters of credit (the LCs) issued by the bank in Dubai. The advising and nominated bank was the defendant. Both LCs were subject to the UCP600. The defendant advised the LCs to the claimant and confirmed them and their amendments. All the defendant’s advices and confirmations are subject to the Sanctions Clause. This clause stipulates that the defendant was subject to all the sanctions, embargos, and other laws and regulations of the U.S. If the documents submitted to the defendant were subject to the relevant restrictions, the defendant would not be liable for the failure to make the payment.

The claimant was not included in the U.S. Sanctions List. However, it was reflected as the company connected with the sanctioned entities or vessels in the internal defendant’s list of sanctioned companies (Master List). The claimant allegedly owned the vessel Omnia, which allegedly had some Syrian connection. Based on internal compliance and the Master List, the defendant refused to pay under the LCs.

The claimant commenced the proceedings for the Principal Sum payable under the LCs and other expenses connected with the defendant’s initial refusal to execute the LCs. The High Court found in favour of the defendant. The claimant submitted the appeal.

The Court of Appeal revised the judgment of the High Court and found in favour of the claimant. Chong JCA delivered the decision of the Court of Appeal.

The Court of Appeal, in principle, confirmed that the Sanctions Clause could be incorporated in advances and confirmations and should not have been separately offered and accepted, given the independent and unilateral nature of these documents. Another conclusion is that the Sanctions Clause is generally consistent with the purpose of letters of credit, but only to the extent that this clause is interpreted objectively, ie, the relevant restrictions should be objectively applicable to the situation that arises.

In support of the allegation that the Omnia was under Syrian beneficial ownership, the defendant submitted that the information on the beneficial ownership of the vessel is unavailable. Thus, there is concealment of the vessel ownership. Also, it relied upon publicly available sources, which stipulated that the relevant vessel with a different name had a Syrian nexus in 2015 and may have a connection with the shipmanagement and operating company incorporated in Syria. The Court of Appeal concluded that this evidence could be sufficient for the OFAC and is not bound by the standard of proving. However, they are insufficient for the Court to find that the vessel has the Syrian nexus on the balance of probabilities.

Interestingly, the Court of Appeal decided to apply the concept of beneficial ownership to the arrest of ships. The defendant argued that this case differs from the arrest in rem; therefore, the beneficial ownership should be proved for the Sanctions Clause purposes and not the arrest. Even though the differences between evidential inquiry regarding the arrest in rem and the Sanctions Clause are accepted, the Court confirmed the concept of beneficial ownership as a matter of proof for both situations. Therefore, the beneficial ownership in the discussed case should have been proved the same as for the arrest of the ship.

The Court of Appeal revised the judgment of the High Court. It was found that the defendant did not objectively prove that the claimant was subject to any applicable restrictions. The defendant balanced the risks between non-payment under the LCs and being found liable for violating the sanctions. Apparently, it decided that the consequences of violating the sanctions were worse. It was the defendant’s commercial decision for which it is responsible. Therefore, the Court of Appeal found in favour of the claimant.

The relevant case relates to the problem of overimplementing sanctions. This situation arises when commercial parties, to avoid any possible consequences of sanctions violations, apply sanctions to the parties in relation to which minimal sanctions risks exist, even though the governments have not yet applied them. The Court of Appeal’s position in this regard is that, by doing so, the party accepts the commercial risks associated with that and should fully bear the consequences of these actions. This general conclusion applies not only to the banks but also to other market participants. ■