Bills of exchange are not covered by the arbitration clauses in the underlying commercial contract

The Singapore Court of Appeal has confirmed that disputes on promissory notes and other negotiable instruments do not fall within the scope of the arbitration agreement in the underlying commercial contract.  If the parties want the arbitration agreement to apply to disputes in the negotiable instrument they need to incorporate the arbitration agreement into the negotiable instrument itself.

As discussed in my recent webinar on commodity disputes (which you can watch here on elexica.com), given this it is dangerous to assume that the arbitration agreement in the underlying commercial contract applies to the LC or other negotiable instruments used to effect payment.  The obligations under such instruments are autonomous and independent from those arising out of the underlying contract.  Some PRC parties have disguised disputes under the underlying contract as disputes under the LC in order to avoid neutral arbitration and have the dispute heard in the PRC courts.  Although not common practice, parties may want to consider including governing law and arbitration clauses in LCs and other negotiable instruments.

The Court of Appeal judgment in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza [2016] SGCA 53 became available today. For my article on last year's High Court decision, which was upheld by the Court of Appeal, see here.