Analysis On The Legal Issues Of The Fraud Rule In The Common Law Countries

The fraud rule is an integral part of the law governing letters of credit and was developed to fill a gap in that law - to prevent unscrupulous beneficiaries from abusing the letter of credit system and defrauding the applicant and the issuer. Through comparative and analytical approach, based on the legal practice and statute law of the common law countries, this thesis makes a comprehensive and profound study of the legal issues on the fraud rule. This thesis consists of seven chapters.Chapter I introduces the concept and legal basis of the fraud rule.Chapter II focus on several famous cases during the development of the fraud rule, especially the Maurice O'Meara Co. v. National Park Bank and the Sztejn case. Chapter III make an analysis on the stipulations of the UCC on the fraud rule and the two settings the fraud rule should be applied to, say the court injunction and the issuer's voluntary refusal to honoring a draft or a demand of payment. The specific legal issues on the court injunction are also discussed.Chapter IV attempts to address the criterion for the fraud involved when applying the fraud rule and the exceptions for the application of the fraud rule. Chapter V provides the different evidence standards in the U.S., the United Kingdom and Canada when applying the fraud rules. Chapter VI presents the relevant provisions concerning the fraud rules in the UCP, URCG, URDG, ISP98 and UNCITRAL Convention. Chapter VII introduces the legislative and practical issues on the fraud rule in China. The fraud rule is an extraordinary rule in the law of letters of credit because it is in direct conflict with the fundamental principle of the law of letters of credit - the principle of autonomy. Accordingly, the fraud rule should be applied cautiously and confined strictly to its purpose. Any broadening of the rule may destroy the independence, and undermine the commercial utility, of the letter of credit.From the early cases considered to Revised U.C.C. Article 5 and the UNCITRAL Convention, the development of the fraud rule has come a long way. Now it has not only been recognized by virtually all jurisdictions but also has been codified in the UNCITRAL Convention at the international level. Today Sztejn and its codification in the U.C.C. are regarded as two milestones in the history of the development of the fraud rule. One day the promulgation of the fraud rule in the UNCITRAL Convention may well be considered as another leap forward along that path, formally lifting the fraud rule from the national to the international level.At present, however, the fraud rule is still a developing area and the most important source of jurisprudence with respect to the rule is to be found in Article 5 of the U.C.C. and the cases decided thereunder.The most regrettable fact in the course of development of the fraud rule is that the rule is not included in the Uniform Customs and Practice for Documentary Credits - the influential rules for letters of credit that are incorporated by reference into virtually all credits issued worldwide. Courts in most jurisdictions outside the United States are inexperienced with letters of credit, and the litigation of fraud under letters of credit is rare outside the United States. Accordingly, there has been no opportunity elsewhere to develop a sophisticated and coherent body of case law on the issue. The proper body to determine the extent of the fraud exception to the doctrine ofautonomy is the body with the expertise to do so, the publisher of the UCP, the International Chamber of Commerce.As the UCP is, in form, merely a set of contractual terms, whatever provisions it might include regarding fraud would be subordinate to local law on the issue. However, there is no reason to expect that courts would not give to UCP provisions on fraud the same weight they have given to its other provisions. After all the UCP prescribes the doctrine of autonomy, so why should it not also prescribe the exception and limits to the doctrine?To bui...