Sanctions Clauses and the Independence Principle of Letters of Credit under UCP 600: A Comparative Study of English and Singapore Case Law

Abstract

Letters of credit (L/Cs), a key payment instrument in international trade, rest on the independence and documentary principles under UCP 600. Expanding
international sanctions have led banks to include sanctions clauses in L/Cs and confirmations, raising the question of how such clauses and sanctions-based refusals of payment affect the independence principle and Article 14(h).

Through documentary legal analysis, this article analyses International Chamber of Commerce (ICC) guidance and compares Celestial Aviation (England) with Kuvera Resources (Singapore). The outcomes differ because of the basis on which each bank resisted payment and each court decided. In Celestial Aviation, the bank relied on a UK statutory prohibition, which the courts construed broadly in light of its purpose; the suspension of the payment obligation, however, was assumed by agreement rather than decided. In Kuvera, although the confirming bank was a branch of a US bank, the case was argued and decided solely through the sanctions clause in the confirmation, which the Court of Appeal construed strictly against an objective standard, leaving the validity of the clause open. 

Under Thai law, where the beneficiary is a designated person under the Counter-Terrorism and Proliferation of Weapon of Mass Destruction Financing Act B.E. 2559 (2016), that Act’s specific mechanisms must be considered before the obligation is treated as void under Section 150 of the Civil and Commercial Code. A temporary prohibition means that the bank is not in default under Section 205, whereas Section 219 applies only where performance becomes genuinely impossible. A bank-drafted clause may be interpreted in favour of the beneficiary under the last paragraph of Section 4 of the Unfair Contract Terms Act B.E. 2540 (1997). The article proposes that the Bank of Thailand, in coordination with the Anti-Money Laundering Office, issue minimum risk-management standards for sanctions clauses.