Lawyers at Singaporean law firm Shook Lin & Bok have published a summary and commentary on the recent decision in the case of Winson Oil Trading versus Oversea-Chinese Banking Corporation (OCBC) and Standard Chartered Bank (Singapore).

The Singapore High Court allowed the banks' defences to non-payment on letters of credit (L/Cs) on grounds of fraud. The claim against Standard Chartered was for around US$30.4 million.

This is the first decision following the collapse of trading houses Hin Leong and Zenrock Commodities in which a bank has successfully relied on the fraud exception to resist payment under an L/C.

Court decision

Winson made false representations in its letters of indemnity, including representations as to the existence and validity of the bills of lading, and the cargoes having been shipped onboard the respective vessels, according to the court.

It found that the fraud exception was satisfied in this case as Winson had made the false representations fraudulently and without belief in their truth.

Significant decision

The decision is significant because it is the first of its kind in relation to the fraudulent trading practices allegedly perpetrated by Hin Leong and Zenrock.

Following the collapse of these companies, the Singapore courts have had several opportunities to consider the use of the fraud exception principle.

Prior to this case, the courts had generally ruled in favour of the traders who were beneficiaries under the L/Cs, and had found that the fraud exception was not established even where parties were involved in pre-structured back-to-back transactions in which they never receive the original shipping documents.

The analysis and commentary by Shook Lin & Bok lawyers Sarjit Singh Gill , Probin Dass , Daryl Cheng and Suresh Viswanath, Singapore High Court Upholds The Fraud Exception To Deny Beneficiary's Claims Under Letters Of Credit can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.