Law firm BlackStone & Gold recently provided Singapore-based bunkering publication Manifold Times its analysis on the significant Singapore High Court decision on the subject of payments under letters of credit (LCs) in the BCP v China Aviation Oil case:

The collapse of traders like Hin Leong Trading Pte Ltd and Zenrock Commodities Trading Pte Ltd (“Zenrock”) left banks who made payments under letters of credit (“LCs”) out of pocket when their customers went under without reimbursing them. The banks in this predicament have, in a spate of recent cases, attempted to recoup payments made to LC beneficiaries (who they alleged received payments for shipments that did not occur). But the law’s recognition of LCs as the “lifeblood of commerce” has permitted very limited instances of refusal to pay on LCs or recovery of sums paid under them. 

A significant clarification for banks resisting LC payments came from the Singapore Court of Appeal last year (in Winson Oil Trading Pte Ltd v Oversea-Chinese Banking Corp Ltd and another suit [2024] SGCA 31, which we covered here). There, the Court of Appeal clarified that a bank would be able to decline payment in respect of a presentation which the beneficiary not only knew to be false, but also in respect of which it was reckless as to whether the statements it made to the bank were true or false. This is particularly acute in the oil trade where payment letters of indemnity provide representations as to the shipment of the goods and the title relating to it, which may turn out to be untrue. 

Another significant decision on the subject of LC payments from the Singapore courts last year was Banque de Commerce et de Placements SA, DIFC Branch & Anor v China Aviation Oil (Singapore) Corporation Ltd [2024] SGHC 145 (“BCP v CAO”). 

BCP v CAO case confirms the arduous task that a bank resisting an LC payment bears, and the importance of industry practice of the particular commodity in question in deciding whether a sale contract is a sham contract. In circumstances where a sale contract for cargo is performed in accordance with industry practice, is backed by evidence from persons who actually performed the trade, and forms parts of a string where the entire string is known, it would be difficult for a bank to show that the contract parties were not entitled to possession of the cargo or could not obtain title to it. 

Note: The full article by BlackStone & Gold can be read here.

Photo credit: Manifold Times
Published: 6 May, 2025