Fraud Unravels All; Do Fraudulent Documents Invalidate A Letter of Credit?

Abstract

Over the centuries, the banks and trade practitioners have developed practices and techniques for use in letters of credit in international trade finance. Those practices and were subsequently standardized by the Uniform Customs and Practice for Documentary Credit 600 (UCP 600). However, many aspects of Letters of Credit operation including fraud are not codified under the UCP. Diversified nature of National Laws in different countries can be source of confusion and problem when applying such rules. English law vigorously upholds the principle of autonomy in relation to letter of credit. Only exception to this is the ‘Fraud Rule’ which has been subject to various interpretations. This paper identifies applicable laws surrounding fraud exception while examining issues associated with it. Comparisons are made to applicable jurisdictions with particular emphasis on the provisions of the UCP 600. It is further aimed to identify flaws in existing legal regimes. Finally, a discussion is made to find possible avenues to redress any existing shortcomings with recommendations.