Letters of credit play a significant role in financing maritime trade. It assures the beneficiary-seller of payment upon presentation of the required document(s), which typically include invoices and bills of lading (or letters of indemnity presented in lieu of bills of lading). If the documents are compliant, the bank must pay. The autonomy principle prevents the bank from relying upon disputes concerning the underlying contract as a ground to refuse payment.

However, if the beneficiary knowingly presents documents containing material but false representation of fact(s) to the bank, the bank would be entitled to refuse payment on grounds of fraud. Unlike this well-established fraud exception to the autonomy principle, a negligence exception has not been similarly accepted.

The recent decision of the Singapore High Court in Bank of China Ltd, Singapore Branch v BP Singapore Pte Ltd [2021] SGHC 120 has opened the door to the possibility of a negligence exception arising under Singaporean law. This door was left unlocked following the Singapore Court of Appeal’s decision in Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency [2007] SGCA 37, [2007] 4 SLR(R) 100, where the Singaporean law of negligence departed from English law by using a single test to determine whether a duty of care arises. Spandeck’s progeny have, among other things, suggested that the absence of a voluntary assumption of responsibility is not fatal under Singaporean law for a pure economic loss claim, even though this is a key requirement under English law to establish Hedley Byrne liability for negligent misstatements.

This project will examine whether a negligence exception should arise, with a particular focus on Singaporean law and the Bank of China case, which also drew a distinction between refusal of payment and recovery of payment.

Presentations

• “Should there be a Negligence Exception to the Autonomy Principle for Letters of Credit?”, CML Lunch Seminar, NUS Law, 12 January 2022
• “Problems in Determining the Proper Law of the Contract in the Context of Letters of Credit”, CML Lunch Seminar, NUS Law, 22 September 2022

Working Paper

• “Should There Be a Negligence Exception to the Autonomy Principle for Letters of Credit?”, (2023) CML Working Paper Series, CML-WPS-2302

Journal Article

• “Should There Be a Negligence Exception to the Autonomy Principle for Letters of Credit?“, [2024] LMCLQ 275-303 – Subscription required.

This project has concluded.