Fraud Exception Study

Since L/C was created in 19th century , it have developed quickly and widely used in international trade. L/C not only keeps the international trade safe and stable, but also promotes its development , so it is called trade blood. According statistics of International Chamber of Commerce , the trades which were settled by L/C account for 70% of them. But L/C is not perfect . Because of its special system , on the one hand it facilitates foreign trade ,on the other hand, it provide a chance to fraud. L/C fraud is more and more serious, it become an international problem. L/C frauds not only make banks and manufactories great loss, and lead to wrecks to international trade, but also affect the safety of finance system. Facing to this problem , in order to remediate the defects of L/C regime , most nations in the world create the principle of L/C fraud exception.L/C fraud exception means under the condition of affirming the doctrine of L/C autonomy, if frauds happen, the issuing bank can refuse to pay or honor the draft, and the court can give an injunction to prohibit the issuing bank to do so. L/C fraud exception is related to autonomy and independence of L/C, but international customs and practice does not have uniform standards and rules of it, and it was put into nations law . In the nations' law system, there is no special rules to regulate it, in the most cases, it is adopted to related rules ,or leading cases, to some degree it is ambiguous. The substance of L/C fraud exception is that we balance the interests of the related parties through judical power . the principle of L/C fraud exception originated in USA in 1940s . Great Britain ,Germany, and Canada have all created this principle since then. Social policy ,good faith and the doctrine ex turpi causa non oritur are the legal basis.The adoption of L/C fraud exception needs three elements . Firstly, the principle adopt to beneficiary or beneficiary and applicant; secondly , there must be conduct of fraud . in order to keep the position of L/C in international trade , the fraud must be "material" or "serious"; Thirdly ,there must be an intention to conduct fraud . When fraud happens ,we must pay attention to immunization of fraud exception . To the third party in good faith ,or to beneficiary or issuing bank who is innocent of fraud, we should not adopt to fraud exception . There are two ways which can give relief to the injured , one is the issuing bank refuse topay ,the other is the court give an injunction. The court is so prudent to sign an injunction that it set up serious conditions on substance and procedure law .because the basis position of the judges is that they try their best to keep he doctrine of L/C autonomy, and are reluctant to intervene the L/C regime on the aid of things which have nothing to do with L/C.There are no special rules on L/C fraud exception in china. When there are L/C fraud cases , the Chinese courts adopt to the rules of Civil Law, Contract Law and Criminal Law, and some judical interpretations. Because of different attitudes towards international customs and practice , different understanding levels ,and district protection between judges in our nation ,it causes a lot of problems when the judges dealt with the cases . in order to promote our nations foreign trade and link to international practice , national laws that govern the L/C fraud should be enacted as soon as possible, and an assured good understanding of the international conventions pertinent to these issues is required among judges. All the things we do is to create a favorable legal environment for our nation's open to the world.