Research On L/C Fraud Exception Principle And Its Application

The letter of credit(L/C),a key payment tool in international trade, by which the bank's credit take the place of commercial credit in a transaction, has played a key role in the promotion of international business. In spite of this, it also faces some significant challenges from fraud with its inborn defect--the principle of abstract and independent and L/C has been evilly used by some dishonest businesspersons in recent years, which influences the development of the international trade seriously. In order to keep the benefits of the applicant and issuing bank and maintain the impartialand reasonable order of the International trade, the principle on fraud exception of the letter of credit comes to develop.The principle of fraud exception, basing on the principle of independence and abstract,means the bank has the right to dishonour and the court can issue injunction to prohibit the bank from accepting or paying letter of credit if materialfraud exists in the transaction. Since it was established by the US Szteijn case for the first time,the principle of fraud exception has been observed by judicial practice in most states in the world. But different courts from different states have different criterion of judgement such as the conception of the fraud, the evidence of adducing,the range of exemption, and the exercise of the right of injunction with different injudicial tradition.Our country's legislation in this aspect is more backward, mostly adopting domestic laws and international practices. So it's a crucial task for us to strengthen the research on fraud exception.The article is divided in four parts:The first part brings forward the concept and cause of the fraud of the letter of credit--the principle of the independence and abstract of the Letter of credit. In spite of this, we can't deny it thoroughly, after all,it is the base of the letter of credit,in fact,fraud exception is the best choice without question. And then the part gives an account of the origin and development of fraud exception,illustrated its theoretical foundation in detail.The second part discusses the meanings and establishment of the principle of fraud exception ,then analysis the jurical cause of the princeple from three angles.The third part discusses the application to fraud exception .The applicant can seek for relief from both the bank and the court,the opening bank can refuse to pay and the court can issueinjunction. In order to avoid the abuse of fraud exception, there must be strict restrictions on the application to the fraud exception.The last part reviews some legislative and judicial activity about the fraud exception in our country, analyses the existing problems facing the legislation and the judicial practices in China and put forwards some interrelated suggestions.