Unconscionability as an Exception to the Independence Principle: A Study of Singaporean Caselaw

Abstract:     
This papers studies the development, existing status, and suggests a course of development for the independence principle in Singapore. The independence principle is one of the defining characteristics of letter of credit law and ensures that the letter of credit remains true to its origin as a cash replacement. Inroads on the independence principle have been made in most jurisdictions to varying extent through the exception of fraud from the principle such that fraud in the underlying contract may work to vitiate the efficacy of a call on the letter of credit. The independence principle is in tension with the fraud principle in most jurisdictions with the scope of the exception often being misapplied or constantly changing. In Singapore and other jurisdictions the independence principle has further been eroded with the introduction of a second exception, unconscionability, which operates to vitiate the efficacy of a call on the letter of credit in various nebulously defined scenarios. This paper tracks how this exception arose and discusses doctrinal methods to maintain the vitality of the independence principle without overturning significant caselaw.

Number of Pages in PDF File: 47

Keywords: letters of credit, Singapore, independence principle, fraud, unconscionability

working papers series