Interpreting and Applying the UNSC sanctions on Iran in the Admiralty Context: The Sahand [2011] SGHC 27

Written by

Seow Zhixiang is an officer in the Singapore Legal Service. The views here are his own.

 The High Court of Singapore has recently delivered its grounds of decision in a case which considers the impact of the United Nations Security Council (UNSC) sanctions on the Islamic Republic of Iran in an admiralty context. The Sahand [2011] SGHC 27 (available at Singapore Law Watch) involved three merchant vessels – the Sahand, the Tuchal and the Sabalan – which were owned by German companies and arrested in Singapore waters. The German companies were wholly-owned subsidiaries of the Islamic Republic of Iran Shipping Lines (IRISL), the state shipping line of Iran. Certain IRISL entities are subject to the asset freeze imposed by the UNSC on Iranian entities, and the Sahand case illustrates the difficulties that may arise in interpreting the broad language of the relevant resolutions for the purposes of applying them to specific cases, and in identifying links to expressly sanctioned entities. The case also  gives an idea of the disruptive effect that sanctions may have on commercial activities, both by a sanctioned entity and those dealing with it.  These points are not only relevant to the UNSC resolutions on Iran, but also to other similarly worded sanctions.

The three vessels were arrested by Crédit Agricole Corporate and Investment Bank, who together with others had advanced loans to the German companies for the construction of the vessels. The loans were guaranteed by IRISL, among others. The lenders included another French financial institution, Société Générale, and a Korean financial institution. The repayments were to be made to Société Générale. IRISL did forward  funds to Société Générale, but the European Union sanctions against Iran meant that Société Générale could not apply the funds received from IRISL towards the loans without the authorisation of the French Treasury.

There were broadly two issues before Justice Quentin Loh of the Singapore High Court. The first was an admiralty law issue: whether the creditors had been paid with the result that the vessels ought to be released. If not, the vessels would be sold and the proceeds applied towards the creditors’ claims.

The second issue, and the one of interest here, was one of international law: whether (and, if so, how) the asset freeze imposed by the UNSC on Iran applied to the vessels, which were held in Singapore waters. This issue was not raised by the parties. It was raised by Justice Loh out of concern that the vessels, which were being held in Singapore waters, might be subject to the asset freeze imposed by the UNSC.

The Court’s Holdings

The asset freeze imposed by the UNSC on Iranian entities is imposed through operative paragraph 12 of Resolution 1737(2006), where the UNSC:

12. Decide[d] that all States shall freeze the funds, other financial assets and economic resources which are on their territories at the date of adoption of this resolution or at any time thereafter, that are owned or controlled by the persons or entities designated in the Annex, as well as those of additional persons or entities designated by the Security Council or by the Committee as being engaged in, directly associated with or providing support for Iran’s proliferation sensitive nuclear activities or the development of nuclear weapon delivery systems, or by persons or entities acting on their behalf or at their direction, or by entities owned or controlled by them, including through illicit means, and that the measures in this paragraph shall cease to apply in respect of such persons or entities if, and at such time as, the Security Council or the Committee removes them from the Annex, and decide[d] further that all States shall ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of these persons and entities;

Subsequent resolutions added to the list of designated persons. In the Sahand, the relevant resolution was Resolution 1929(2010), which targeted Iranian commercial entities for the first time. In particular, three IRISL entities, listed in Annex III of Resolution 1929(2010), were designated:  Irano Hind Shipping Company, IRISL Benelux NV and South Shipping Line Iran. Significantly, IRISL itself was not designated. Similarly, the three IRISL entities were the only IRISL entities listed on the consolidated list of designated persons issued by the Sanctions Committee established under Resolution 1737(2006).

Justice Loh confessed that it was not clear to him why the assets freeze only targeted the three IRISL entities, and not IRISL itself. But it was clear to him that this was precisely the intended effect of Resolution 1929(2010). On the facts, the German companies who owned the arrested vessels were not the three designated IRISL entities. There was also no evidence that the German companies were owned, controlled by, or acting on the behalf of the three designated IRISL entities. In this regard, Justice Loh was careful to point out that, given that IRISL itself was not designated, the German companies’ undisputed links to IRISL were, by themselves, neither here nor there.

Justice Loh’s finding that the German companies were not designated entities (or owned, etc, by designated entities) for the purposes of the assets freeze was sufficient to dispose of the international law issue. But, for completeness, Justice Loh considered what would happen to the vessels had the German companies been caught under the assets freeze.

Justice Loh began by noting that the vessels would appear to fall within the literal meaning of “economic resources” for the purposes of operative paragraph 12 of Resolution 1737(2006). However, Justice Loh did not stop there, but went on to look at the relevant state practice, citing in this regard article 31(3)(b) of the Vienna Convention on the Law of Treaties. Justice Loh’s analysis of the implementation efforts of the European Union is particularly instructive. He considered article 16(1) and (2) of the Council Regulation (EU) No 961/2010 of 25 October 2010 on restrictive measures against Iran and repealing Regulation (EC) No 423/2007 [2010] OJ L 281/1:

Article 16

1. All funds and economic resources belonging to, owned, held or controlled by the persons, entities and bodies listed in Annex VII shall be frozen. Annex VII shall include the persons, entities and bodies designated by the United Nations Security Council or by the Sanctions Committee in accordance with paragraph 12 of UNSCR 1737 (2006), paragraph 7 of UNSCR 1803 (2008) or paragraph 11, 12 or 19 of UNSCR 1929 (2010).

2. All funds and economic resources belonging to, owned, held or controlled by the persons, entities and bodies listed in Annex VIII shall be frozen. Annex VIII shall include the natural and legal persons, entities and bodies, not covered by Annex VII, who, in accordance with Article 20(1)(b) of Council Decision 2010/413/CFSP, have been identified as:

(d) being a legal person, entity or body owned or controlled by the Islamic Republic of Iran Shipping Lines (IRISL).

It shall be prohibited, pursuant to the obligation to freeze the funds and economic resources of IRISL and of designated entities owned or controlled by IRISL, to load and unload cargoes on and from vessels owned or chartered by IRISL or by such entities in ports of Member States. That prohibition shall not prevent the execution of a contract concluded before the entry into force of this Regulation.

The obligation to freeze the funds and economic resources of IRISL and of designated entities owned or controlled by IRISL shall not require the impounding or detention of vessels owned by such entities or the cargoes carried by them insofar as such cargoes belong to third parties, nor does it require the detention of the crew contracted by them.

Justice Loh’s analysis of article 16 bears reproduction:

As can be seen, arts 16(1) and (2) of the EU Regulation impose identically-worded obligations to freeze all funds and economic resources owned or controlled by persons designated by the Security Council and the European Union respectively. In this regard, the three IRISL entities designated in Annex III of Resolution 1929 are listed in Annex VII pursuant to art 16(1); IRISL itself (including all its branches and subsidiaries), as well as 23 other IRISL entities are listed in Annex VIII pursuant to art 16(2).

 It will also be noticed that art 16(2)(d) goes on to provide, among other things, that the obligation to freeze the funds and economic resources of IRISL and of designated entities owned or controlled by IRISL shall not require the impounding or detention of vessels owned by such entities. At first sight, this appears to be a substantive exception which pertains only to IRISL entities designated by the European Union pursuant to art 16(2)(d) and which has nothing to do with art 16(1). If this is indeed the case, then, art 16(1), which imposes a freezing obligation identically worded with art 16(2), and which is not subject to any exception, must be understood as requiring the impoundment or detention of a vessel owned by an entity covered by it. It would further follow that an IRISL entity falling under art 16(1) could avoid having its vessel impounded or detained by the simple expedient of transferring the vessel to an IRISL entity falling under art 16(2). This would substantially undermine art 16(1), and in turn the freezing obligation imposed by the Iran Resolutions. It is extremely doubtful that the EU Regulation, which was evidently enacted in a robust spirit to implement the Iran Resolutions and to expand upon them, intended such a result…It is more likely that the proviso in art 16(2)(d) was not a substantive exception as such, but was inserted for the avoidance of doubt, to reflect the European Union’s understanding that the obligation to freeze the economic resources of IRISL entities, whether designated by the Security Council or the European Union, did not extend to the impoundment or detention of vessels owned by them.

Justice Loh also observed that there had been no known case of Iranian shipping being frozen at the time he wrote his judgment, some six months after Resolution 1929(2010) was passed. Justice Loh therefore concluded that, even if the German companies were caught by the assets freeze, the vessels arrested in Singapore waters would not need to be impounded or detained. That said, Justice Loh went on to point out that the usual admiralty remedies would be considerably impaired had the vessels been owned by sanctioned entities, because any funds paid to secure their release, and any proceeds from their sale, would have to be frozen. It might therefore be pointless to arrest a vessel owned by a sanctioned entity.

With regard to the admiralty law issue, the necessary authorizations from the French Treasury were either eventually obtained or conceded to be imminent. (IRISL was affected by the wider EU sanctions but not the UNSC sanctions.) Justice Loh therefore ordered the release of the vessels.


The careful approach taken by the Singapore High Court in the Sahand can be said to be typical of States who wish, quite understandably, to do no more and no less than what is strictly required of them in implementing sanctions imposed by the UNSC. In this regard, the often broad language of UNSC resolutions can be rather unhelpful. For example, it seems quite clear, as Justice Loh analysed, that the UNSC did not intend to target Iranian shipping under the assets freeze. But that would not have been apparent on the face of the relevant resolutions. It may be that, to ensure consistent implementation, considerable interpretive and explanatory work must be done by the Committee of the UNSC which is usually established to administer a particular set of sanctions.

The Sahand gives an idea of the difficulties which may be involved in ensuring that sanctions are properly targeted and not evaded by way of transferring assets to other entities. Legally, the usual reference to assets owned or controlled by designated persons “or by persons or entities acting on their behalf or at their direction, or by entities owned or controlled by them, including through illicit means”, is probably sufficient. But it may be factually difficult to prove the necessary links, especially in a court of law. In the case of IRISL, the difficulties are compounded by the fact that the sanctions only targeted some members of the IRISL group but not others. A possible solution would be for the Sanctions Committee to proactively designate entities related to those already designated by the Security Council. But that has not happened in practice.

The Sahand also gives an illustration of the disruptive effect of sanctions against commercial entities. The financial barriers erected by the EU’s sanctions caused the German companies and IRISL to default on the instalments on the vessels’ construction loans, which were then accelerated. This meant that the remaining debt of more than €155m became immediately payable. Also, while the arrested vessels were eventually released, they were put out of action for more than three months while the litigation unfolded. This must have been hugely disruptive to IRISL. More generally, the freezing of their assets would also make designated entities unattractive business partners, because counterparties would not be able to enforce judgments against the frozen assets.

It should also be noticed that the UNSC adopts broadly the same general formula when it imposes an assets freeze – compare, for example, the resolutions on Iran and the more recent resolution (1973(2011)) on Libya. Developments with regard to one set of sanctions may therefore be applicable to other sanctions as well, subject, of course, to any relevant differences in context (such as the state practice in relation to the Iran resolutions).

Print Friendly, PDF & Email


No tags available

Leave a Comment

Comments for this post are closed


Dapo Akande says

April 24, 2011

Dear Zhixiang,

Many thanks for commenting on this case. Did Justice Low comment at all on the status of Security Council Resolutions in Singaporean Law or is the case like the Al Jedda case in the House of Lords in England where the court doesn't give a proper explanation of why it is even taking the resolution into account?

Seow Zhixiang says

April 25, 2011

Dear Dapo,

Justice Loh raised the UNSC resolutions on his own motion, out of concern that the vessels might be caught by the assets freeze. Juridically, the UNSC resolutions were enacted as subsidiary legislation, and were therefore part of the municipal law of Singapore, a dualist jurisdiction. In fact, Justice Loh was careful to state that the UNSC resolutions were cognizable by the court only insofar as they were enacted in municpal law.

Hope this helps.

Leonard Spector says

February 7, 2012

There is certainly a more natural reading of the exception under section 16(2) of the EU Regulation than that adduced by Justice Loh, and one which, in fact, he alludes to, namely that the EU would not have excluded vessels from the reach of its own sanctions unless they were, in fact, captured by the phrasing in the underlying UN resolution. Otherwise, the exception would be unnecessary.

As for a rationale, within the EU sanctions were controversial and much negotiated. Quite possibly the EU sought to balance the effect of its own expansive regulation. That is, while the regulation extended to IRISL and all of its sub-entities, the EU chose to mitigate this impact by limiting the regulation to cargoes and other financial assets of the sanctioned entities, excluding vessels. This would avoid the necessity of impounding IRISL vessels in all EU ports, which would have been a controversial and potentially provocative step. The negotiating history of the section within the EU might shed light on this.

It might also be pointed out if only financial assets were at issue, the reference to "other...economic resources" within the the phrase "funds, other financial assets or economic resources" would be superfluous. Even a restrictive reading of that phrase would include real estate holdings, one assumes, in which case including vessels with in "economic resources" is easily managed.

Finally, it may also be stressed that the commentary by Justice Loh was dicta and of course, only applicable in Singapore.

Thus it would appear that the reach of the asset freeze under UNSCR 1929 remains to be fully litigated.

Leonard S. Spector
James Martin Center for Nonproliferation Studies
Monterey Institute of International Studies

Seow Zhixiang says

February 8, 2012

Dear Leonard,

What, then, do you think of the fact that there appears to be no case of a country detaining a ship of IRISL's substantial merchant fleet (either owned directly or through intermediaries) pursuant to UNSCR 1929? There have been any number of admiralty arrests because IRISL is facing difficulties in servicing debts secured by its ships, but, as far as I know, no detentions of ships as such. If as you say the ships are captured under UNSCR 1929, then it would appear that there have been very serious failures to comply with the resolution.