29 Xiang Gao, 'The Identity Of The Fraudulent Party Under The Fraud Rule In The Law of Letters of Credit'  24 University ofNew South Wales Law Journal 119; See also Xiang Gao and Ross Buckley, 'A Comparative Analysis of the Standard of Fraud Required under the Fraud Rule in Letters of Credit Law'(2003) 13 Duke Journal of Comparative and International Law 293 ; E P Ellinger 'The Tender of Fraudulent Documents Under Documentary Letters of Credit'(1965) 7 Malaya Law Review 24. eLaw Journal: Murdoch University Electronic Journal of Law (2011) 18(2) 6
T Rodrigo UCP 500 TO 600: A Forward Movement Thus, strictly applying the principle of independence could produce harsh and unfair results by operating to unjustly enrich an unscrupulous beneficiary. To prevent such unfairness, the fraud rule has been developed. 0 The fraud rule in the law of letters of credit is a common law remedy. The leading English case on the fraud rule is United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord), 3 ' where Lord Diplock stated: To this general statement of principle [of independence], ... there is one exception: that is, where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. Although there does not appear among English authorities any case in which this exception has been applied, it is well established in the American cases of which the leading or "landmark" is Sztejn v J Henry Schroder Banking Corp (1941) 31 N.Y.S. 2d 631, NY SC. 32 The principle that can be derived from this statement is that 'fraud' in letters of credit refers to 'fraud in the documents' presented to the bank. In Lord Diplock's view, the fraud in the documents involves a fraudulent misrepresentation. As one commentator said, 'this statement may be regarded as a concise summary of the fraud rule in letters of credit under English law, so it has been cited in almost all English letter of credit fraud cases ever since.' 3 3 The UCP 500 did not recognize fraud on the part of the beneficiary as an exception to the autonomy of the letter of credit. Similarly, there are no provisions in the UCP 600 dealing with the "fraud exception". Roy Goode has explained the reasons behind this lacuna in the UCP: The ICC, though an international organization, is not a law-making body but an organizational representation of world business and finance. Its rules do not have the force of law but depend (as the rules themselves expressly provide) on the parties to contracts incorporating them as terms of their contracts... So they can not deal with such matters as the effect of fraud on a beneficiary's right to payment.34 30 Gao, above n 29. 31 United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord) [ 1983]1 AC 168 (Cite case name in full); See also Stephen Leacock, 'Fraud in the International Transaction: Enjoining Payment of Letters of Credit in International Transactions' (1984) 17 Vanderbilt Journal of Transnational Law 88.
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- Fall '17
- Jason Sit
- Management, Trade finance, Letter of credit, UCP, T Rodrigo UCP