“UNCONSCIONABILITY” AS AN EXCEPTION TO THE AUTONOMY PRINCIPLE: HOW WELL IS IT ENTRENCHED IN SINGAPOREAN JURISPRUDENCE?
This paper examines the development and application of the “unconscionability” exception to the principle of autonomy of abstract payment undertakings in the jurisdiction of Singapore. It establishes that the development of this exception in Singapore has been due to the failure of the Singapore courts to mark clearly the parameters of the “fraud in the transaction” defence in earlier cases, which arguably justified the application of the “fraud as no bona fide belief” defence. However, this was later reinterpreted as establishing an overly broad “unconscionability” exception in relation to granting an injunction, due to the fact that the courts examined the underlying contract in order to reach their decision. Nonetheless, although the “unconscionability” exception could be said to be quite well entrenched in Singaporean jurisprudence now, as it has been expressly recognised as a separate defence in relation to granting an injunction under performance bonds in Singapore case law, in the majority of these cases similar conclusions could have been reached by applying the wider “fraud as no bona fide belief” exception. Thus, what is termed “unconscionability” in Singapore is not very different from the wider “fraud in the transaction” exception.
As a general rule, it has been accepted in international trade that undertakings in commercial letters of credit and performance bonds are autonomous, independent of the underlying transaction in respect of which they are issued, and should be honoured without question when a call is made in accordance with the terms of the instrument. However, questions have arisen in respect of each instrument: first, whether payment can be refused on grounds of either “fraud in the documents” (ie, that the documents submitted are forged or fraudulent) or “fraud in the transaction” (ie, that the underlying transaction has been tainted with fraud), or “fraud as no bona fide belief” (ie, that the demand is made without bona fide belief that payment should be made) or “unconscionability”; secondly, exactly what the differences are between these potential defences; and, thirdly, to what extent these defences do or should apply similarly to both types of instrument.
This paper examines the Singapore position as regards the application of the fraud exception and the principle of “unconscionability” to both commercial letters of credit and
Unconscionability exception to autonomy principle