Fraud Exception Of The Letter Of Credit

The letter of credit is likened to " life-blood " of international trade byBritish lord chancellor Kerr as the means of payment of international trade.The principle of independence (or independence ) of the letter of credit is thefundamental principle, that is, the letter of credit is independent of the basiccontract of both parties, so long as the beneficiary ships the goods accordingto the regulation of the letter of credit, submitting documents, the issuingbank must pay the bill . But this kind of mechanism has created conditionsthat the beneficiary is engaged in swindling, so many countries havedeveloped the important system—fraud exception of the letter of credit. Butthe regulations in many counties are different. International Chamber ofCommerce has not been thinking himself is the legislature, so there is noconcept of fraud or fraud exception in UCP500.Because there is no corporateregulation for fraud or fraud exception, every country applies its own rule injudicial practice. But while admitting and carrying out fraud exception, everycountry is trying hard not to destroy the independence of the letter of credit.As a big trading nation, because legal system , foreign trade system are notsound enough, and lacking foreign trade talent and practice talent , ourcountry often is injured by fraud. Still there is a great deal of problem injudicial practice in our country. This text plans to analyze and compare different definitions of fraud, andthen my suggestion about defining fraud and fraud exception is given. Byanalyzing the long-term judicial practice of such countries as Great Britainand America, etc, we can affirm further the necessity of fraud exception. Theestablishment of fraud exception is not the destruction to the independence ofthe letter of credit, but the merger to the independence principle, to thecompletion of the mechanism of the letter of credit, for giving play to theimportant function of the letter of credit in international trade better. But it isnot every fraud can make an exception, it is just the conditional exception.Analyzing a large number of cases of letter of credit in our country, we cansum up the types of fraud. Then we will discuss how to face and avoid fraudfor an issuing bank and an applicant. For the interests and the reputation ofthe issuing bank, I will give my opinions on when and how to stoppingpayment for the court and the issuing bank. Commenting on the existingproblem in judicial practice of our country, I have my opinion about how tobetter the relevant legal system of our country.