Part I Legal and Practical Challenges to Traditional Trade Finance, 8 Injunctions to Restrain Payment on Independent Guarantees: ‘Unconscionability’ to Bolster the Fraud Exception

This chapter explores the grant of injunctions to restrain calls on independent guarantees based on the unconscionability exception to the autonomy principle. Using Singapore law as the primary basis for discussion, it explains the rationale and operation of the unconscionability exception and its relationship with the traditional fraud exception. This approach is compared with the UK approach, and brief reference is also made to the position in Australia and the USA. The chapter argues that the unconscionability exception is a justifiable policy response to address the potentially oppressive nature of performance bonds. If used sparingly and confined within narrow limits, this approach will promote integrity in the call on performance bonds without affecting the commercial usefulness of these instruments. The chapter also examines the situation where the underlying contract is affected by frustration or force majeure—a question which has become of greater prominence after the COVID-19 pandemic—and discusses whether the grant of an injunction to restrain payment on a performance bond in these circumstances can be supported based on the fraud or unconscionability exception or some other principle.