THE FR AUD EXCEPTION IN DOCUMENTARY CREDITS

Abstract

The Autonomy Principle in documentary credits sometimes creates unwanted results like the system protecting fraudsters. As the UCP does not include any exception to this principle, common law courts have found a solution to this problem under the Fraud Exception Rule. So, this research considers that, due to the lack of certain scopes, the Rule is far from settled in cases related to the issue of fraud. Accordingly, national courts have applied this Rule in a very divergent manner so the Rule is not consistently implemented in each case. Hence, the underlying purpose of this research is first to argue the inconsistency in cases of the Fraud Exception Rule. Second, the research suggests solutions to this inconsistency with specific reference to the ICC which seems the most appropriate body to legislate the Fraud Exception Rule in the next revision of the UCP

Keywords

• documentary credits,UCP 600,fraud exception,common law countries,autonomy principle,ICC,strict compliance principle,letters of credit.

References

1. Aharoni D and Johnson A, ‘Fraud and Dis- counted Deferred Payment Documentary Cred- its: The Banco Santander Case’ (2000) 15(1)
2. Journal of International Banking Law 22 Allen and Overy, ‘Banking and Insolvency Law’ (1999) 14(7) Journal of International Banking and Finance Law 317
3. Baggs C, ‘Case Comment: Letters of Credit- Knowledge of Fraud’ (1993) 8(11) Journal of
4. International Banking Law N216 Buckley RP and Gao X, ‘The Development of the Fraud Rule in the Letter of Credit Law: The Journey So Far and the Road Ahead’ (2002) 23
5. University of Pennsylvania Journal of Interna- tional Economic Law 66 Buckley RP, ‘The 1993 Revision of the Uniform
6. Customs and Practice for Documentary Credits’ (1995) 28 Geo Wash J Int’l L and Eco. 256
7. Chatterjee C and Lefcovitch A, ‘The Principle of Autonomy of Letters of Credit is Sacrosanct in Nature’ (2003) 5(1) Journal of International Banking Regulation 72
8. Connerty A, ‘Fraud and Documentary Credits: The Approach of the English Courts’ accessed on 21 June 2011

9. Connerty A, ‘DOCDEX: The ICC’s Rules for Documentary Credit Dispute Resolution Expertise’ (1998) 13(11) Journal of Interna- tional Banking and Finance Law 523
10. Demir-Araz Y, ‘International Trade, Maritime Fraud and Documentary Credits’ (2002) 8(4)
11. International Trade Law & Regulation 128 Dolan JF, ‘Commentary on Legislative Devel- opments in Letter of Credit Law: An Interim Report’ (1993) 8 Banking and Finance Law Review 53
12. Dolan JF, ‘Documentary Credit Fundamentals Comparative Aspects’ 3 Banking and Financial Law Review 121 Fletcher I, Mistelis L and Cremona M (eds), Foundations and Perspectives of International Trade Law, London: Sweet & Maxwell 2001
13. “Fraud in the Transaction’: Enjoining Letters of Credit during the Iranian Revolution’ (1980)
14. (5) Harvard Law Review 992 Guest AG (Ed), Benjamin’s Sale of Goods, Lon- don: Sweet & Maxwell, 6th ed Harfield H, ‘Enjoining Letter of Credit Trans- actions’ (1978) 95 Banking Law Journal 596
15. Johnson C, ‘Case Comment Letter of Credit: Fraud Exception/Rule of Documentary Com- pliance’ (1987) 2(2) Journal of International Banking Law N52-53
16. Kayembe GL, ‘The Fraud Exception in Bank Guarantee’ (LLM Thesis The University of Cape Town 2008)
17. Kuo-Ellen SL, ‘A Banker’s Guide to the Pre- vention of Fraud and Money Laundering in Documentary Credit Transaction’ (2002) 5(3)
18. Journal of Money Laundering Control 189 Lee RJ, ‘Strict Compliance and the Fraud Excep- tion: Balancing the Interests of Mercantile Trad- ers in the Modern Law of Documentary Credits’ (2008) 5 Macquarie Journal of Business Law
19. Leacock SJ, ‘Fraud in the International Transac- tion: Enjoining Payment of Letters of Credit in International Transactions’ (1984) 17 Vanderbilt
20. Journal of Transnational Law 885 Lu L, ‘Fraud Rule in Documentary Credits’ (2009) 2 Plymouth Law Review 157
21. Mann RJ, ‘The Role of Letters of Credit in Payment Transactions’ (2000) 98 Michigan Law Review 400
22. Mautner M, ‘Letter-of-Credit Fraud: Total Fail- ure of Consideration, Substantial Performance and the Negotiable Instrument Analogy’ (1986)
23. Law and Policy In International Business 579 Midland Bank, Letters of Credit Management and Control (1985)
24. Morris R, ‘Editorial: The Need For an Interna- tional Court of Commerce’ (1994) 9(6) Journal of Banking Law 219
25. Murray DE, ‘Letters of Credit and Forged and Altered Documents: some Deterrent Sugges- tions’ (1993) 98 Commercial Law Journal 504
26. Official Comment to Article 5 of the Uniform Commercial Code ‘Opinions of the ICC Banking Commission 1981’ ICC Publication No. 399
27. ‘Opinions of the ICC Banking Commission 1996’ ICC Publication No. 565
28. Proctor C and Nathanson N, ‘Enron, Letters of Credit and The Autonomy Principle’ (2004)
29. (6) Journal of International Banking and Finance Law 204 Report of the Task Force on the Study of U.C.C. Article 5, An Examination of UCC Article 5 (Letters of Credit) (1990) 45 Business Lawyer
30. Ryder FR, ‘Challenges to the Use of Documen- tary Credit in International Trade Transactions’ (1981) 16(4) Columbia Journal of World Busi- ness 36
31. Schmitthoff CM, Export Trade, (1983) Journal of Business Law 319
32. Schmitthoff CM, ‘The Export Trade and Prac- tice of International Trade: Chapter 11 Letters of Credit’ (3rd Edn, Stevens London 1975)
33. Smith GWL, ‘Irrevocable Letters of Credit and Third Party Fraud: The American Accord’ (1983) 24 Virginia Journal of International Law 55
34. Xiang G and Buckley RP, ‘A Comparative Analy- sis of the Standard of Fraud Required Under the Fraud Rule in Letter of Credit Law’ (2003) 13
35. Duke Journal of Comparative & International Law 29 Ventris F M, Banker’s Documentary Credits: Chapter 13 Fraud (3rd edn, Lloyd’s of London Press LTD 1990)
36. Wiley RA, ‘How to Use Letters of Credit in Financing the Sale of Goods’ (1965) 20 Busi- ness Lawyer 495
37. Zhang Y, ‘Approaches to Resolving the Inter- national Documentary Letters of Credit Fraud Issue’ (PhD Thesis, University of Eastern Fin- land 2011)