Reed Smith Client Alerts

Key takeaways

  • The Singapore Court of Appeal (CoA) has clarified the scope of the "Fraud Exception" to the autonomy principle for payments under letters of credit (LCs). This principle typically obliges banks to honour LCs as long as the presented documents comply with the credit's terms, regardless of any disputes under the underlying sale contract. However, the Fraud Exception allows banks to refuse payment if fraudulent documents are presented.
  • In Winson Oil Trading Pte Ltd v Oversea-Chinese Banking Corp Ltd & another [2024] SGCA 31, the CoA tackled a significant query: Can a bank refuse to honour an LC if a beneficiary recklessly makes false representations in the documents submitted?
  • The CoA answered this question in the affirmative (upholding the Singapore High Court’s decision below). This diverges from earlier suggestions by the Singapore International Commercial Court (SICC) in Crédit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Co Ltd and another suit [2022] 4 SLR 1 (CACIB v PPT), which we discussed previously.
  • The decision is the latest in a series of important decisions by the CoA relating to documentary credits and the ambit of the Fraud Exception (see our other previous alerts from 13 November 2023 and 19 December 2023).

Background

The case involved Winson Oil Trading Pte Ltd (Winson) bringing claims under two LCs which were in turn the payment mechanism for a sale of goods by Winson to Hin Leong Trading (Pte) Ltd (Hin Leong) (the Winson-Hin Leong Sale).

The two LCs were procured by Hin Leong and issued by Oversea-Chinese Banking Corporation Ltd (OCBC) and Standard Chartered Bank (Singapore) Ltd (SCB) with Winson being the beneficiary under each LC.

Winson’s dealings with Hin Leong formed the last leg of a string of sale contracts whereby:

  1. Hin Leong contracted to sell gasoil to another trader in two shipments, who in turn contracted to sell the same quantities of gasoil to Winson.
  2. Winson then contracted to sell the same quantities of gasoil to Hin Leong (i.e., the Winson-Hin Leong Sale).

As it later became apparent, Hin Leong had already sold the gasoil cargoes to another entity, Unipec, before it entered into the sale contract forming the first leg of the string mentioned above.

The OCBC and SCB rejected the presentation by Winson of documents (including letters of indemnity) under the two LCs, alleging fraud by Winson. In particular, the banks alleged that Winson made fraudulent representations in the letters of indemnity about (a) the existence and validity of original bills of lading (BLs); and (b) Winson having good title to the gasoil cargoes which it passed to Hin Leong at the time of delivery.

Winson sued the banks under the two LCs which had been opened by Hin Leong under the Winson-Hin Leong Sale.