Highlights from Singapore LC Law Summit

When Bankers and Lawyers Dialogue, Everyone Wins

Since the first UCP, the writing of practice rules has been an exercise in maximum exculpation. Bankers are not trained to explain with precision what they do. Lawyers do not have the operational experience to understand the nuances of LC practice without listening to bankers and asking questions. Consequently, there exists the need for specialists from the two professions together for meaningful dialogue and discussion.

It is with this in mind that the Americas LC Law Summit returns to New York City for the 18^th consecutive year on Friday, 27 October. It will be hosted by Mayer Brown LLP.

This past summer, the Singapore LC Law Summit returned to Southeast Asia after a seven-year hiatus. Held on 20 July, the event was hosted by Rajah & Tann Singapore LLP. Some highlights of the Singapore LC Law Summit included: 

Local LC Cases from an International Perspective

In Grains, a Singapore court pronounced the nominated bank as an agent of the issuing bank and that the nominated bank has a duty to give documents to the issuer if it chooses not to negotiate. Some LC legal specialists believe that the court looked at the role of a nominated bank in a vacuum. The decision has prompted one local bank to make an adjustment to its form and at least two other banks are thinking of changing their forms.

The doctrine of unconscionability has gained traction in certain jurisdictions. Courts in Australia, Malaysia, and Singapore have accepted unconscionability defenses in circumstances where parties are unable to meet the high standard of proving fraud by the beneficiary. The test should be that where beneficiary conduct was such a radical departure, then there can be LC fraud. Unconscionability broaden this standard with the result that independent guarantees and performance bonds have been harmed. The CKR Contract Services case in Singapore is one example of pushback against unconscionability.    

Drafting and Practice Issues

When drafting auto-extension clauses, a number of considerations must be taken into account. Among them: avoidance of the word “renew” and the manner in which a non-extension notice is given. ISP98 Form 2 (Model Standby Providing for Extension) proposes text for use and contains end notes to explain why.

The National Union (USA) case provides an important lesson concerning the potentially awkward moments that can arise when a bank is trying to issue a replacement standby LC. Banks will want to carefully consider whether they are willing to do so. For instance, a bank will not want to issue a second standby LC before the first is surrendered.