Singapore | The Fraud Exception - Red flags that traders and banks should look out for

Under what is known as the “Fraud Exception”, issuers of letters of credit are not obliged to make payment under the same if, for the purpose of drawing on the credit, the beneficiary fraudulently presents to the issuer documents that contain material representations of fact that are untrue.
 
In the recent decision of Winson Oil Trading Pte Ltd v Oversea-Chinese Banking Corporation Limited and another appeal [2024] SGCA 31, the Singapore Court of Appeal held that the Fraud Exception applies even if the beneficiary has no actual knowledge that its representations are untrue, but is subjectively reckless (in the sense of being indifferent to a risk which the beneficiary is actually conscious of) as to the truth of its representations.
 
In this update, Directors Benedict Teo and Yap En Li, and Senior Associate Lucas Lim discuss some of the red flags that the Court of Appeal identified, which it held the beneficiary should have followed up on, as well as the takeaways for banks and traders arising from the Court’s decision.

Read more here.