The recent collapse of major oil traders in Singapore has resulted in a slew of litigation proceedings commenced by banks seeking to recover monies paid to beneficiaries under letters of credit. In Credit Agricole Corporate & Investment Bank, Singapore Branch v PPT Energy Trading Co Ltd [2022] SGHC(I) 1, the Singapore International Commercial Court upheld the independence principle in respect of letters of credit, applying a strict formulation of the fraud exception, i.e. that a bank is only entitled to refuse payment out under letters of credit where the beneficiary acts dishonestly, as opposed to recklessly, in the presentation of documents for payment.
The bank in this case had refused payment out under a letter of credit on the basis of fraud in the underlying round-tripping transactions. However, the Court found against the bank, finding that the beneficiary had not acted dishonestly, and was not required to make further queries regarding the transactions. This Update provides a summary of the decision and its implication on banks dealing with letters of credit and instances of suspected fraud.
For more information, click here to read the full Legal Update.
