The high court in Singapore on Friday dismissed Winson Oil Trading's claim against OCBC and Standard Chartered for a total of US$60.9 million because the 'fraud exception' had been established.

The fraud exception provision allows a bank, which issues or confirms a letter of credit (L/C), to refuse payment or honour a presentation made by a beneficiary if there is evidence of fraud or other irregularities associated with the presented documents or the underlying transaction.

Case context

Winson said it had sold gasoil to collapsed oil trader Hin Leong Trading in transactions that the banks issued L/Cs for.

The cargo was shipped on two vessels, but Hin Leong sold at least some the same cargo to other parties for its own financing purposes.

No evidence was provided to show that Hin Leong bought back the cargo from the buyer before selling it to another buyer.

Sham sale

The banks relied on the fraud exception to resist Winson's claim for payment under the L/Cs, asserting that the oil trader had fraudulently made false statements in its presentations for payment under the L/Cs.

The banks successfully contended that the Winson - Hin Leong sale was a sham, and in any event that no cargoes had been shipped for that sale.

For this, amongst several reasons, the court decided that the fraud exception had been established.

The full judgment in the general division of the high court of the Republic of Singapore in the case of Winson Oil Trading Pte Ltd vs Oversea-Chinese Banking Corporation Limited and Standard Chartered Bank (Singapore) Limited can be downloaded from here.

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