Is The Opening Of An L/C Pursuant To A Sale Contract Prohibited By International Sanctions Regulations?

Soeximex SAS v. Agrocorp International Pte Limited [2011] EWHC 2743 (Comm)

This dispute involved a consideration of US and EU Burmese Sanctions Regulations and whether they prevented the buyers of Burmese rice from opening a letter of credit pursuant to the payment provision in the sale contract. Although disputes in respect of the Burmese Sanctions Regulations do not crop up frequently, the discussion in this case surrounding the scope and interpretation of those Regulations will be relevant to traders affected by the more prevalent international trade sanctions against Iran, in respect of which the US, EU and UK have all enacted sanctions impacting on payment under affected international trade contracts, including by letter of credit.

The background facts

The disputed contract was for the sale and purchase of Burmese rice, origin Myanmar, by Singaporean sellers to French buyers. The rice was destined for delivery in Conakry, Benin, and payment under the contract was by irrevocable letter of credit ("L/C"), with the following express requirement:

"L/c to allow TT reimbursement from New York bank with account number details; third party documents and to be freely negotiable in Singapore for 30 days from ..."

The buyers failed to open the L/C by the required date and the sellers treated this as a repudiatory breach of contract and claimed damages. The buyers argued that they were relieved from performance because US and EU Burmese Sanctions Regulations made it illegal for them to open the L/C.

The GAFTA Board of Appeal held that both the US and EU Regulations relied on by the buyers applied to the sale contract but that the buyers had not established on the balance of probabilities that opening the L/C would violate the applicable US and EU Regulations so that the contract would be void for illegality.

The buyers appealed to the Commercial Court under Section 68 of the Arbitration Act 1996 (serious irregularity) on the grounds that the Board had not considered all relevant issues relating to the applicability of the sanctions and that consequently there was a material risk of injustice to the buyers.

The Regulations

The US Burmese Sanctions Regulations

In summary, the relevant provision of the US Regulations prohibits the "exportation or reexportation of financial services to Burma, directly or indirectly, from the United States or by a US person, wherever located", unless authorized by a license or permit from the Office of Foreign Assets...