The "SAHAND": Iran Sanctions Case1

Singapore High Court judgment underlines the importance for all those involved in international trade of conducting sufficient due diligence to ensure compliance with the latest international sanctions.

In a case involving the arrest of three vessels owned by subsidiary companies of the Islamic Republic of Iran Shipping Lines (IRISL), the Singapore High Court has clarified the approach of the Singapore courts to the implementation of recent UN sanctions against Iran.

The vessels were arrested in Singapore waters in connection with an accelerated debt of over US$180 million owed under various English law financing arrangements. The defendant owners applied for the discharge of an order permitting the sale of the vessels on the basis that sums sufficient to cover the debt owed had been received by the claimant's bank. The primary issues raised concerned whether the vessels came within the ambit of various UN sanctions against Iran (the Iran Resolutions) and the relationship between international law and Singapore domestic or municipal law. In this regard, the implementing legislation, the Monetary Authority of Singapore (MAS) (Sanctions and Freezing of Assets of Persons – Iran) Regulations 2007, prohibits financial institutions from receiving funds or financial assets from designated persons as consideration and from furnishing a guarantee to secure the release of arrested vessels, because such funds or assets would have to be frozen once received. Similarly, the proceeds from the sale of such vessels and any payments made into court to secure a vessel's release would have to be frozen.It was therefore the defendant owners' case that even if a debt was due, the sale of the vessels would not result in payment to the claimant.

Ultimately, the case turned on a question of fact and Quentin Loh J ordered the release of the vessels noting:

(i) Singapore's obligation to implement the Iran Resolutions had not previously been considered, however, as with the position in the UK, treaties are not self-executing and as a source of rights and obligations are irrelevant: "in order for a treaty to be implemented in Singapore law, its provisions must be enacted by the Legislature ...", which in this case is achieved through the MAS Regulations 2007;
(ii) although the Iran Resolutions apply to certain designated IRISL entities, they do not encompass IRISL itself or its subsidiaries in this case. Similarly, the Iran Resolutions do not subject all Iranian owned or contracted vessels to an assets freeze. In short, the Iran Resolutions are not intended to affect "legal economic activities", including legal shipping activities; and
(iii) even if the defendant owners were entities caught by the assets freeze, the Iran Resolutions do not require the impoundment or detention of vessels owned by designated IRISL entities.

In the circumstances, the applications were to be disposed of as ordinary admiralty matters and the judge's sole concern was whether the debt owed to the claimant had been paid or sufficient security provided. As the debt had been paid and the claimant's bank was authorised to distribute the funds, the sales orders could be discharged and the vessels released.

This judgment serves to underline the importance for all those involved in international trade of conducting sufficient due diligence so as to ensure that the latest sanctions are complied with. If this is not done, there is a real risk that even where a judgment is obtained, enforcement may be frustrated in practice where assets are frozen and/or payments through banking channels are prohibited by virtue of what was described by the court in the "SAHAND" as a de facto assets freeze, ie, the obligation of financial institutions to comply with the MAS Regulations. Sanctions are no longer just about preventing nuclear and military development but in most cases will extend to cover the import of oil and gas, insurance, various technologies and trading with certain designated individuals and entities. Therefore whether it is in the context of sanctions against the Ivory Coast, Sudan, Libya or as in this case, Iran, it is essential that comprehensive vetting procedures are carried out in advance.

Footnote

1. The "SAHAND" [2011] SGHC 27

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