Asia Update - April 2011

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...