Legal Research On The Principle Of "Fraud Exception" Of Letter Of Credit

"It is the very product arising, out of credit crisis in the Capitalism Society to make a payment with Letter of Credit." Letter of credit (hereinafter called "L/C") has been one of the most important tools to make payment in the modern international trade because of the three following advantages in L/C transaction: the credit of banks, always prestiged transnational banks, has supersede the credit of the buyer; the whole system of L/C transaction has based on the Uniform Customs and Practice for Documentary Credits, which ensure that the seller could collect the payment for goods timely and safely, and the buyer could receive the documents of the transportation and the voucher of goods. To a certain degree, the contradiction of trust between the buyer and the seller has been solved smoothly; L/C has offered the convenience of financial circulation for both the seller and the buyer.In a whole, the specialties and advantages of L/C attribute to theprinciple of abstract independence of L/C. Retrospect to the establishment of L/C system, the factors of feasibility and operability for L/C have been more considered to safeguard international trade of good faith. On the contrary, the factor of possibility of potential fraud by using L/C has been ignored, for L/C system itself has unconquerable defect, thus L/C system is devoid of the precautionary measures. Recent years, the phenomenon of overflow fraudusing L/C undermine the basic principle of L/C-"the abstractindependence principle". To overcome the shortcoming, the principle of "fraud exception" has been established. Under the principle of "fraud exception", the buyer has been conferred the right to apply to the jurisdictional court for the injunction to prevent the issuing bank from accepting or making a payment, to exclude the principle of "the abstract independence principle". Though it is the operative measure, the principle of "fraud exception" has also been confronted with being abused, which is very common in many countries' judicial practice. China has introduced the principle of "fraud exception", but the phenomenon of misusing or abusing the principle has many negative effects on the courts, banks and import industry.It is the necessarily trend to settle the dispute in the international trade according to international covenants and practices after the entry of WTO. There are many serious misleading in how to apply the principle of "fraud exception", whereas, it is necessary to make a legal research on the principle of "fraud exception" in light of former researches. The article consists of two parts. In the first part, the author put emphasis on the principle of abstract independence, the definition, the establishment and development of the principle of fraud exception, the analysis of the fraud, the theory, the prerequisite and the procedure of apply the principle of "fraud exception" in order to establish the general principle and necessary procedure. In the second part, the author analysis the existing backward conditions oflegislation and judicial practice in China, and courts' attitude to the judicial remedy for the principle of " fraud exception", further, the author puts forward some suggestions on how to make the legislation on the principle of "fraud exception" perfect, and how to apply the procedure of judicial remedy for the principle of "fraud exception". Lastly, the author hopes that these suggestions could benefit to the judicial practice and the future legislation on the principle of "fraud exception."...