THE Court of Appeal, the upper division of the Supreme Court of Singapore, on Thursday (Sep 28) ruled in favour of Kuvera Resources against JPMorgan in a trade sanctions lawsuit.

It is the first lawsuit where a Singapore court needed to examine the validity and enforceability of a sanctions clause in a contract.

The Singapore-based coal trader brought up the appeal against the dismissal of its claim of US$2.42 million in 2022, when the High Court vindicated JPMorgan for refusing to pay Kuvera under two letters of credit (LCs), for which JPMorgan was the confirming bank.

The Singapore branch of the US banking giant denied the payment because it believed that the vessel transporting the coal, which Kuvera Resources sold to a buyer in Dubai, was likely Syrian-owned.

The transaction, if happening, could thus be a breach of the US’ sanctions regulations on Syria by the bank.

The sprawling sanctions regime by the US government includes a broad ban on providing financial services to a Syrian entity. Facilitating a third-party transaction that directly or indirectly involves a Syrian entity is also prohibited.

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In the LC confirmations that the bank sent to Kuvera Resources, it added a sanctions clause saying to hold no liability for any failure to pay under the LCs, if doing so would put itself at odds with US sanctions laws.

The High Court judge considered the sanctions clause in the LC confirmations as a valid and enforceable contractual term, and the Singapore branch of a US-regulated bank could still face a penalty for breaching the sanctions regulations.

While the Court of Appeal judge Steven Chong did not diverge from the High Court’s approach on the validity of the sanctions clause, he pointed out that JPMorgan should have provided sufficient evidence to prove that the vessel was in fact owned by an entity subject to the sanctions.

Chong added that whether the vessel was caught under the sanctions clause should be determined on an objective basis without third-party input, whereas the bank appeared to gather “red flags” in its due diligence that pointed towards Syrian ownership of the vessel.

He said those “red flags” did not constitute sufficient circumstantial evidence to discharge JPMorgan’s burden of proving that the vessel was in fact owned by a Syrian entity at the time.

The bank was thus not entitled to invoke the sanctions clause to deny payment to Kuvera Resources.

As a result, the court partially allowed the appeal against the High Court’s decision in 2022.

Since Kuvera Resources had received US$2.2 million from the buyer after the previous ruling, and upon considering the various discounts and fees that are no longer applicable in the amended claim, the Court of Appeal awarded Kuvera Resources damages of US$98,786.87 of confirmation charges and remaining balance, as well as travel expenses at S$11,429.32.