However, a recent spate of cases in Singapore suggests otherwise. These cases mainly arose out of the collapse of oil trading giant Hin Leong Trading Pte. Ltd. Several disputes were commenced before the Singapore court between counterparties of Hin Leong and various banks, with the former seeking payments under letters of credit issued by the latter.3
These cases therefore serve as a useful reminder that a letter of credit does not guarantee payment, as there may be circumstances where a bank can legitimately refuse to make payment or can be restrained from making payment through injunctive relief obtained from the courts. In this alert, we summarise the position under English, Singapore, U.S. and Chinese law.
The English law position
The autonomy principle
It is a fundamental principle of English law that a documentary credit is autonomous and separate from the underlying sale or other commercial contract.4 According to the autonomy principle, the bank is required to pay the seller in accordance with the terms of the documentary credit and upon presentation of conforming documents. The bank is not concerned about the terms of the underlying sale or commercial contract or any issues regarding performance of such contract. As such, the English courts will not interfere with a bank’s obligation to make payment on the grounds of matters that do not concern the credit. For example, a dispute over the quality of the goods between the seller and the buyer under the sale contract will not affect the bank’s obligation to make payment to the seller under the letter of credit.
The rationale for the autonomy principle often given by the English courts is that the irrevocable nature of a bank’s obligation to make payment under such a credit is the “life-blood of international commerce”.5 The autonomy of the letter of credit is upheld on the basis that such commitments from banks should be honoured free from interference by the courts; otherwise “trust in international commerce could be irreparably damaged”.6 Thus the certainty provided by such credit is considered to be of the highest importance to commerce. However, this is of little comfort to a buyer who, for example, has not received the goods it contracted for and, unable to restrain its bank from making payment under the letter of credit, is instead required to recover its losses from a seller who may have become insolvent or may be located in a jurisdiction where there are difficulties in enforcement.
The exceptions
The English courts have repeatedly emphasised that “it is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks”.7
Fraud
One exception to the autonomy principle under English law is where fraud has been committed in relation to the documents presented by the seller to the bank or in obtaining the issuance or the setting up of the credit (known as the ‘fraud exception’). This has included situations where signatures on documents have been forged,8 where the beneficiary under a performance bond presented a certificate stating that written notice of default had been served when it was common ground that such notice had not been served9 or, in the case of a standby letter of credit, where the seller had no honest belief in the validity of its demand.10 However, an allegation of fraud does not constitute sufficient grounds in support of an application seeking an injunction. The English courts will only restrain payment under a credit if the fraud and the bank’s knowledge of the fraud are “very clearly established”.11 This requires the applicant to establish that it was seriously arguable that, on the material available, the only realistic inference was that the party claiming under the credit was guilty of fraud.12 The high burden of proof required means that the English courts have found that the fraud exception applies only in a limited number of cases.
Invalid calls or nullity
In addition to the fraud exception, it should be remembered that every claim under a letter of credit or a call on a performance bond must comply with the relevant terms of that credit or bond. The English courts will therefore intervene to restrain what has been referred to as an ‘invalid call’ or in cases where the call would be a nullity. Examples cited by the court13 are where a condition precedent to a call has not yet been fulfilled; where the bond is a ‘see to it’ bond necessitating prior proof of loss by the beneficiary or poor performance by the third party which has not yet been established; or where the demand, or the supporting documents show that the demand, does not conform to the requirements imposed by the bond for a valid demand.
Breach of faith
In the context of performance bonds or guarantees, the English courts have recognised that a breach of faith by the beneficiary in threatening a call might be a ground for restraining the beneficiary from calling on a bond or receiving payment out.14 Such a breach of faith must be significant and clearly established. In Elian and Another v. Matsas and Others,15 which is often cited as the first case in which the breach of faith exception was applied, Lord Justice Danckwerts said that the court should interfere to prevent what might be an “irretrievable injustice”. In that case, the charterers agreed to provide a bank guarantee in favour of the shipowners if the shipowners agreed to release goods that were the subject of a shipowner’s lien for demurrage. As soon as the bank guarantee was provided, the shipowners released the lien for demurrage, but then immediately exercised another lien on the goods for a further delay and refused to release the goods. When the shipowners subsequently sought to claim under the bank guarantee, the charterers applied for an injunction to restrain the shipowners from doing so. The Court of Appeal upheld the injunction granted by the judge at first instance. Further examples of breaches of faith given by the courts include a failure by the beneficiary to provide an essential element of the underlying contract on which the bond depended; a misuse by the beneficiary of the guarantee by failing to act in accordance with the purpose for which it was given; a total failure of consideration in the underlying contract; a threatened call by the beneficiary for an unconscionable ulterior motive; or a lack of an honest or bona fide belief by the beneficiary that the circumstances, such as poor performance against which a performance bond has been provided, actually exist. However, on the facts of that last case there was no requisite significant or clearly established factual basis for arguing that the beneficiary had acted in bad faith and recent case law has again emphasised the autonomy principle and the very limited nature of the circumstances in which payments will be restrained. As such, whilst the breach of faith exception may be a more abstract concept than the fraud exception, it is likely to be equally difficult to prove in practice.
Illegality
The question of illegality is one that the English courts have grappled with most recently (albeit not in the context of letters of credit or similar payment instruments) in Mirza v. Patel.16 Whether the court should decline to enforce a letter of credit, or any other credit or contract by reason of illegality should now be decided using a factors-based approach, including whether the policy underlying the rule or regulation that has been infringed would be advanced or frustrated by the application of the doctrine. Regard is to be had to other public policy considerations and to the seriousness of the illegality concerned. It is clear from Mirza v. Patel that the mere fact that a contract had been concluded to carry out an illegal activity will no longer be sufficient in and of itself to refuse any and all claims arising in that connection, including a claim for payment out under a credit.
The balance of convenience
Even if the applicant proves one of the limited exceptions, this may not be sufficient for the English courts to grant an injunction restraining payment, as the courts will also consider (as with all interim injunction applications) whether the balance of convenience favours granting the injunction. In short, this involves weighing up whether more harm would be done by granting or refusing the injunction. In cases where the point has been considered, the English courts have invariably found that the balance of convenience favours not granting the injunction. The basis for this decision appears to be the autonomy principle: if the injunction is granted, a bank’s obligations under a credit may no longer be perceived as irrevocable, and the bank’s market reputation may suffer if it fails to honour its obligations under a letter of credit. By contrast, if the injunction is not granted, the buyer will be still able to claim damages for its losses under the contract, even if the chances of making a recovery where the seller has been party to a fraud may be slim.
The Singapore law position
The autonomy principle
The autonomy principle is also recognised under Singapore law and has been applied locally in the Singapore Court of Appeal case of Brody, White & Co Inc v. Chemet Handel Trading (S) Pte Ltd, where the court held at [19]:17
“The main principle … is the principle of autonomy of irrevocable credits … An irrevocable credit constitutes an independent contract between the issuing banker and the beneficiary, which is not affected by any irregularities in the underlying contract in pursuance of which the credit is issued. This rule is crucial to the smooth functioning of the world of international trade and trade-financing.” [emphasis added]
The exceptions
Under Singapore law, the court will not restrain a bank from making payment under a letter of credit unless an exception of fraud is successfully invoked. Where performance bonds are concerned, unconscionability would also be a separate and independent ground for restraining payment.18 This represents an expansion of the categories of exceptions that can be relied upon to restrain a call on performance bonds under Singapore law.
The treatment of a standby letter of credit would depend on the construction of the terms of credit. In fact the Singapore court has held that a standby letter of credit is more akin to performance bonds and thus, the unconscionability exception would likewise apply to a standby letter of credit.19
Fraud
With regard to the fraud exception, the Singapore courts do not make a distinction in its operation in the context either of letters of credit or demand guarantees.20
The kind of fraud which affects the enforceability of credit documents relates to the presentation of fraudulent documents to the bank.21 Typically, this involves a situation where the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the bank documents that contain material representations of fact that, to the beneficiary’s knowledge, are untrue. Fraud as perpetrated by the seller on the beneficiary (buyer) in respect of the underlying contract of sale between them would not affect the contract of documentary credit between the seller and the bank.22
As is the case with the English courts, the Singapore courts also take the view that it is not sufficient that the applicant for an injunction merely alleges fraud. Rather, it has to be shown that the party perpetrating the fraud not only presented materials which were in fact untrue, but that such person did so in the knowledge that the documents contained material representations which were untrue.23
Nullity
The nullity exception applies such that a bank is not obliged to make payment where it is established that a material document required under the credit is forged and null and void. This exception has been applied in a letter of credit situation by the Singapore courts.24 The exception is based on the view that implicit in the requirement of a conforming document is the assumption that the document provided to the bank is true and genuine.25
Illegality
The Singapore court in Orchroid Trading Ltd & Anor v. Chua Siok Lui & Anor [2018] SGCA 5 recently clarified the position in Singapore on the law of illegality in contracts. In doing so, the Singapore courts have moved away from the approach taken by the English Supreme Court in Patel v. Mirza.
In determining whether a contract is unenforceable by reason of illegality, the Singapore court will apply a two-stage approach (rather than the factors-based approach in Patel v. Mirza).26 The first stage requires the court to ascertain whether the contract is prohibited under statute of common law.27 If the contract is so prohibited, there can be no recovery pursuant to the illegal contract.28 At the second stage, the court will determine, notwithstanding that there can be no recovery pursuant to the illegal contract, whether there might nevertheless be restitutionary recovery of benefits conferred thereunder.29
Unconscionability
This unconscionability exception arose as a result of the Singapore court’s view that, unlike a letter of credit, a performance bond is not the lifeblood of commerce and thus, a less stringent standard (as compared to the standard applicable vis-à-vis letters of credit) can justifiably be adopted for determining whether a call on a performance bond should be restrained.30 The unconscionability exception was also developed as the Singapore court recognised that, if fraud is the only ground to obtain injunctive relief against calls on performance bonds, it may result in the application of a standard of proof which virtually assures the beneficiary immediate payment even when it may be unfair to do so.31
In Singapore, a beneficiary can be restrained from making a call on a performance bond on the ground of their unconscionable conduct. The concept of unconscionability involves unfairness, as distinct from dishonesty or fraud, or conduct of a kind so reprehensible or lacking in good faith that a court of conscience would either restrain the party, or refuse to assist the party.32 The kinds of situations which would constitute unconscionability would depend on the facts of each case.33 An example of unconscionability is where the call on the performance bond was made for a sum which is in excess of any amount that could possibly be owed to, or any loss that would be likely to be incurred by, the beneficiary.34
When making an application for injunctive relief on the ground of unconscionability, the applicant will have to show a “strong prima facie case” of unconscionability.35
However, parties can, if they so wish, agree to contractually exclude the reliance on the unconscionability exception to prevent the beneficiary’s call on the performance bond.36 The operation of such a term will be subject to the ordinary legal constraints on exclusion clauses.37
The balance of convenience
The difficulty in obtaining an injunction to restrain payment by a bank pursuant to a letter of credit or performance bond is made even more so by the fact that the Singapore courts have held that the ‘balance of convenience’ test is generally inapplicable in cases involving irrevocable credits.38
This results in the application of a higher degree of strictness, as the applicant in an injunction proceeding will have to establish a clear case of fraud or unconscionability in interlocutory proceedings,39 failing which, the Singapore courts will not grant an injunction to restrain payment or calls on bonds.
The U.S. law position
Independence principle
In the United States, a central tenet to letters of credit usage is the concept that the obligation of an issuing bank to honour a drawing request under a letter of credit is independent of the transaction that the letter supports. Generally, a letter of credit is payable upon the beneficiary’s presentation to the issuer of documents that appear on their face to be in order. An issuer has no responsibility to investigate the goods, services, or performances to which such documents relate, regardless of any notice or information to the contrary.40
Fraud
While UCP 600 has refrained from expressly addressing the issue of fraud, Article 5-109 of the UCC recognises an exception to the independence principle, providing that a court may prevent an issuer from honouring a payment demand when a required document presented under the letter of credit is forged or fraudulent or where there is material fraud committed by the beneficiary on the issuer or applicant. The exception to the general ‘no injunction’ rule by courts “concerns fraud so serious as to make it obviously pointless and unjust to permit the beneficiary to obtain the money. Where. . . the beneficiary’s demand for payment has 'absolutely no basis in fact’ … a court may enjoin payment.”41
A more recent illustrative case concerns a bank that, limited solely to the documents presented to it, appropriately dishonoured a draw request. In Societe Anonyme Marocain De L’Industrie Du Raffinage v. Bank of Am. N.A., Societe Anonyme Marocain De L’Industrie Du Raffinage (SAMIR) sought to prevent defendant Bank of America N.A. (Bank) from making any further payment on a standby letter of credit that was issued to provide support for a partial payment due on a shipment of crude oil that SAMIR purchased from Intervenor Petraco Oil Company LLP (Petraco).42 After Petraco delivered an entire shipment of oil to SAMIR, SAMIR was unable to pay the invoices submitted by Petraco on their due date, including fulfilling the payment obligation supported by the letter of credit. On the due date for such invoice, SAMIR authorised its co-applicant for the secured letter of credit (SLC) to pay Petraco the full amount due under the invoice and the Bank wired the amount from the co-applicant’s account to Petraco’s account. Notwithstanding the fact that Petraco accepted the payment on the secured invoice, Petraco made multiple presentations for draws under the SLC and later contended that the initial payment did not reduce the SLC obligation because the payment, when made, was not the result of a Petraco presentation. The court found, applying Pennsylvania law and denying the application of English law, that it had appropriately dishonoured the final presentation because, despite claims that the Bank made the payment outside the SLC to Petraco (from the co-applicant’s account), according to the SLC, any payment by the Bank reduced the amount available for further draw downs. The court also denied the assertion that Petraco was contractually permitted to allocate the initial payment funds to the unsecured instalment of oil as this would violate the independence doctrine and “would undermine the very purpose of a standby letter of credit”. Furthermore, the court found that Petraco’s attempt to draw down on the SLC in three presentations based upon separate invoices seeking payment for the very same oil raised a serious showing of fraud.
Merely because the issuer has a right to dishonour and to defend such dishonour by showing forgery or material fraud does not mean the issuer has a duty to the applicant to dishonour a drawing request under a letter of credit. Article 5-109 (a)(2) of the UCC makes it clear that the issuer may still honour a draw in the face of the applicant’s claim of fraud. Because issuers may be liable for wrongful dishonour if they are unable to prove forgery or material fraud, most issuers will likely choose to honour, despite the applicant’s claims of fraud or forgery, unless the applicant procures an injunction.
The Chinese law positio
As a statute-based legal system,43 China does not have a specific statute governing letters of credit or similar instruments such as independent guarantees. The Chinese legal/judicial position on letters of credit and independent guarantees in the context of international trade or commerce is based on the relevant judicial interpretations44 issued by the Supreme People’s Court (SPC).
In line with international customs reflected in UCP 600, in the case of letters of credit, and the Uniform Rules for Demand Guarantees (URDG), in the case of independent guarantees, the autonomy or independence principle is well recognised under SPC judicial interpretations and by Chinese judicial practices. The issuer’s payment obligation is independent of the underlying contract between the instrument applicant and the beneficiary. If the call made (including the documentation presented) by the beneficiary conforms to the terms of the instrument, the issuer must make payment pursuant to the terms of the instrument unless the fraud exception applies.
Upon application by the issuing bank or the instrument applicant (e.g., the seller under a sale contract), the Chinese court may issue an injunctive order restraining the payment to the beneficiary if the applicant can establish, among others,45 that a letter of credit fraud or independent guarantee fraud has occurred, and that the applicant would suffer irreparable damages if payment were to be made, provided that an adequate bond or security is provided by the applicant.
The SPC sets out, in the relevant judicial interpretations, a non-exhaustive list of categories of fraud, which in practice could result in an expansive interpretation of fraud by some courts. For instance, Article 8 of the SPC Letters of Credit Interpretation provides that a letter of credit fraud occurs if: (1) the beneficiary has forged documents or presented documents with false contents; (2) the beneficiary has failed to deliver goods or has delivered goods of no value;46 (3) the beneficiary has conspired with the applicant or a third party to present fraudulent documents without any genuine underlying transaction; or (4) there are other circumstances that constitute letter of credit fraud.
As the definition and standard of proof under the relevant SPC judicial interpretations in respect of letters of credit and similar instruments are loosely provided, courts or judges of different localities in China may have quite different standards in determining whether a fraud exception exists (hence a payment refraining order may be granted) in a given set of circumstances. As a result, in practice, it is not uncommon for Chinese applicants to successfully obtain an injunctive order restraining payment to a foreign beneficiary.
Concluding remarks
There are very limited circumstances under which a bank or other financial institution will refuse payment or can be restrained from making payment under a letter of credit or other similar payment instrument. The four jurisdictions we have focused on in this alert (England, Singapore, the United States and China) recognise similar principles when considering these very limited circumstances. Many other legal systems and jurisdictions apply similar principles.
Having said that and despite the similarity in the applicable principles, parties who deal regularly with these instruments, and particularly beneficiaries, should be mindful that these principles may not be applied uniformly by the courts in different jurisdictions. Furthermore, in many jurisdictions, judges will want to uphold the validity of payment instruments and protect the sanctity of payment; they will only order an injunction in exceptional circumstances and only if they are satisfied that there is a legitimate reason applying the principles examined above.
The following tips are suggested as good practice for users of letters of credit and similar payment instruments:
- From the applicant’s point of view:
- While a letter of credit or similar payment instrument generally provides a more secure and certain means of payment and is considered by a beneficiary as an attractive payment method, if you are an applicant, you must be aware that in many jurisdictions it will be extremely difficult to restrain a bank from making payment to the beneficiary under such payment means.
- Assess therefore whether you are willing to make payment by letter of credit, and what your options are for recovering amounts paid to a beneficiary if payment by the bank cannot be restrained.
- If you consider that there has been a fraud in connection with a documentary presentation by your seller, ensure that you have clear evidence of the fraud and, before applying to the courts to restrain payment, do all you can to bring the fraud to the bank’s attention (being mindful of how persuasive the evidence will need to be in order to convince the bank that it ought not to be paying).
- Timing is important. In particular, in light of the bank’s limited time under UCP 600 to check the compliance of the documents presented under the credit before payment, if you are seeking to restrain payment it is important that the bank is put on notice of the specific grounds under which payment should be refused, be that a documentary presentation which does not comply with the terms of the credit or if you believe there has been fraud. In cases of fraud, applicants should provide as much clear and specific evidence as possible to the bank in order to demonstrate the bank’s knowledge of the fraud. This will form part of the evidence to be presented to the court in support of an application for injunctive relief.
- If you are able to engage with the issuing bank, it is possible that it will agree to give you sufficient notice that it intends to pay to enable you to make a court application seeking to restrain the bank. After all, the bank will usually be much more comfortable declining payment following a court order refraining it from paying than if it has had to make the evaluation itself.
- From the beneficiary’s point of view:
- Carefully review any documents issued by third parties (for example, by your own seller) which you will present to the bank to obtain payment under the letter of credit. In some jurisdictions, payment to a seller under a letter of credit can be restrained where fraudulent documents are presented and the seller was reckless as to whether they were fraudulent, even where it is not your seller that has committed the fraud.
- In relation to China specifically, given the seeming potential for variation in approach between banks and courts in different regions, it may be advisable for a foreign beneficiary to require in its sale contract that the letter of credit be issued by banks or branches of Chinese banks – or that it be confirmed by a bank – located in jurisdictions such as England or Singapore, where it is more difficult to restrain payment.
- From the bank’s point of view:
- When the applicant asks a bank not to pay out as a result of fraud (or one of the other grounds permitted under the relevant law), it finds itself in a difficult position. On the one hand, the bank could damage its reputation if it does not pay out. On the other hand, if the bank does pay out, it may find itself facing a battle to receive payment from the applicant, who will argue that the bank was on notice of the fraud (or other ground(s)) and should not have done so.
In most cases, a bank should seek to satisfy itself with as much certainty as possible that no fraud (or other alleged ground) has been committed before paying out. This may involve instructing external lawyers to assess the available evidence.
- As noted above, each party’s rights and obligations, although similar, may differ depending on the specific jurisdiction. Many letters of credit and similar payment instruments do not include an express choice of law clause, and UCP 600 does not specify the governing law. Consider including an express choice of law clause to avoid debate and/or confusion as to the applicable governing law.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
Client Alert 2020-439
- The question of whether a bond or guarantee is an ‘on demand’ or performance bond or guarantee, which may be called without proof of loss, or, alternatively, a ‘see to it’ guarantee, which requires proof of loss as a precondition, is often a difficult question and outside of the scope of this alert. This alert only deals with performance or on demand bonds, which do not require proof of loss.
- The correct construction of any letter of credit, standby letter of credit or guarantee is important. It is not uncommon for parties to mistake a corporate guarantee for an on demand guarantee only to find that the poorly worded guarantee does not have the latter’s attractive attributes (i.e., as an independent, irrevocable and documentary credit).
- These cases are yet to be heard by the Singapore courts.
- The autonomy principle of the documentary credits is also reflected in Article 4 of the Uniform Customs and Practice for Documentary Credits 2007 Revision (UCP 600): “Credits v. Contracts a. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationship with the issuing bank or the beneficiary.”
- RD Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1978] QB 146.
- RD Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1978] QB 146.
- RD Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1978] QB 146.
- Tuken Timber Ltd v. Barclays Bank PLC [1987] 1 Lloyd’s Rep 171.
- Kvaerner John Brown Ltd v. Midland Bank Plc [1998] CLC 466.
- National Infrastructure Development Co Ltd v. Banco Santander SA [2017] EWCA Civ 27 (NIDCO v. Santander).
- Edward Owen Engineering Limited v. Barclays Bank International Ltd. [1978] QB 159.
- United Trading Corpn SA v. Allied Arab Bank [1985] 2 Lloyd’s Rep. 554 n.
- TTI Team Telecom International Limited, Axarte Limited v. Hutchinson 3G UK Limited [2003] EWHC 762 (TCC) at 46.
- TTI Team Telecom International Limited, Axarte Limited v. Hutchinson 3G UK Limited [2003] EWHC 762 (TCC) at 46.
- [1966] 2 Lloyd’s Rep. 495.
- [2016] UKSC 42.
- [1992] 3 SLR(R) 146.
- JBE Properties Pte Ltd v. Gammon Pte Ltd [2010] SGCA 46 at [9] and [10].
- Kumagai-Zenecon Construction Pte Ltd (in liquidation) and another v. Arab Bank plc (Low Hua Kin, third party) [1997] SGHC 31.
- Arab Banking Corp (B.S.C.) v. Boustead Singapore Ltd [2016] SGCA 26.
- Brody, White & Co Inc v. Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR(R) 146.
- Brody, White & Co Inc v. Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR(R) 146 at 152–153.
- Brody, White & Co Inc v. Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR(R) 146.
- Beam Technology (Mfg) Pte Ltd v. Standard Chartered Bank [2002] SGCA 53.
- Beam Technology (Mfg) Pte Ltd v. Standard Chartered Bank [2002] SGCA 53.
- Orchroid Trading Ltd & Anor v. Chua Siok Lui & Anor [2018] SGCA 5.
- Orchroid Trading Ltd & Anor v. Chua Siok Lui & Anor [2018] SGCA 5.
- Orchroid Trading Ltd & Anor v. Chua Siok Lui & Anor [2018] SGCA 5.
- Orchroid Trading Ltd & Anor v. Chua Siok Lui & Anor [2018] SGCA 5.
- JBE Properties Pte Ltd v. Gammon Pte Ltd [2010] SGCA 46 at [8] per Chan Sek Keong CJ.
- JBE Properties Pte Ltd v. Gammon Pte Ltd [2010] SGCA 46 at [11] per Chan Sek Keong CJ.
- Raymond Construction Pte Ltd v. Low Yang Tong & Anor [1996] SGHC 136; see also Royal Design Studio v. Chang Development [1990] 2 SLR(R) 520; Kvaerner Singapore Ltd v. UDL Shipbuilding (Singapore) Ltd [1993] 2 SLR(R) 341.
- Dauphin Offshore Engineering & Trading Pte Ltd v. The Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR(R) 117.
- Raymond Construction Pte Ltd v. Low Yang Tong & Anor [1996] SGHC 136
- BS Mount Sophia Pte Ltd v. Join-Aim Pte Ltd [2012] SGCA 28.
- CKR Contract Services Pte Ltd v. Asplenium Land Pte Ltd and another [2015] 3 SLR 1041.
- CKR Contract Services Pte Ltd v. Asplenium Land Pte Ltd and another [2015] 3 SLR 1041 at [22].
- Brody, White and Co Inc v. Chemet Handel Trading (S) Pte Ltd [1992] 3 SLR(R) 146.
- Bocotra Construction Pte Ltd and others v. Attorney-General [1995] SGCA 50.
- Uniform Commercial Code (UCC) § 5-108; UCP 600 Article 14.
- Ground Air Transfer, Inc. v. Westates Airlines, Inc., 899 F.2d 1269, 1272-73 (1st Cir. 1990) (holding the fraud exception did not apply because the beneficiary’s claims to payment were, at the very least, colourful).
- 2016 NY Slip Op 50127(U), 50 Misc. 3d 1217(A), 31 N.Y.S.3d 924 (Sup. Ct.).
- Under the Chinese legal system, written law and statutes enacted by legislative authorities are the primary source of law, although judicial interpretations issued by the SPC, the highest court in China, have binding effect and shall be applied by courts at all levels in China. However, prior individual cases decided by a higher court do not bind lower courts.
- The primary judicial interpretations relating to letters of credit and independent guarantees are: (i) The Provisions of the Supreme People’s Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit (issued by the SPC on 14 November 2005 and effective on 1 January 2006, the SPC Letters of Credit Interpretations); and (ii) The Provisions of the Supreme People’s Court on Several Issues concerning the Trial of Cases of Disputes over Independent Guarantees (issued by the SPC on 8 November 2016 and effective on 1 December 2016).
- And no ‘exception to the fraud exception’ exists. The ‘exceptions to the fraud exception’ includes cases where the issuing bank or party designated or authorised by the issuing bank has, in bona fide, already made the payment according to the instructions of the issuing bank; where the issuing bank or party designated or authorised by the issuing bank has, in bona fide, already accepted the instrument (e.g., bill of exchange) under the letter of credit; where the confirming bank has, in bona fide, performed the obligation to make the payment; or where the negotiating bank has, in bona fide, negotiated the payment.
- The SPC’s view is that to constitute a fraud the goods delivered under the sale contract need to be proven as worthless, rather than that the goods have some quality issue. Whether goods delivered in a specific circumstance are worthless (hence constituting a letter of credit fraud) or just substandard is ultimately an issue to be determined by the competent court in its discretion, although the SPC emphasises a strict interpretation.
