On Applicability Of Letter Of Credit Fraud Exception Principle In China

The letter of credit（L/C）is one of payment modes for internationaltrade, which is widely used in international trade, hailed as “thelifeline of the international business”. L/C mechanism has inherentvulnerability which leads to L/C fraud, resulting in significant threatto the safety of today’s international trade. With increasing connectionin international economic exchanges, how to protect the security oftransactions and prevent fraud have become a serious problem urgently needto be resolved in the international community. This paper studies theapplicability of the letter of credit fraud exception principle. To startfrom the background and the theoretical framework of L/C fraud, this papertries to comment on the judicial interpretation promulgated in china,“the provisions on several issues concerning the trial of the L/Cdisputes”, through a comparative study of the fraud exception to thelegislation and judicial practice between China and foreign countries.On this basis combined with the defect of the judicial interpretation andthe problems encountered in the trial practice, specific proposals areput forward from the perspective of the legislative and judicial. The article is divided into three chapters:Chapter1, summarizes L/C fraud and the principle of L/C fraudexception, and first reviews the causes of L/C fraud. L/C fraud is theproduct of the abstract principle of the L/C independence. By analyzingthe international provision of the L/C fraud, the characteristics of L/Cfraud and the definition of the fraud, the L/C fraud is defined. And thenintroduces the principle of the L/C fraud exception. A landmark case isquoted and its historical significance is discussed. Finally this chapterelaborates the principle of the fraud exception of the foreign countries,and compares the legislation of this principle and the judicial statusin major common law countries with that of in civil law countries.The second chapter focuses on the application of the fraud exceptionand its problems existed in China. First, this chapter briefly introducesthe relevant provisions of L/C fraud in China before the judicialinterpretation is promulgated. Second, through the analysis of typicalcases, it is confirmed that these files can not meet the needs of the trialpractice, so that the supreme people’s court issued a judicialinterpretation on the trial practice of the L/C fraud in2005, that is,“the Provisions on Several Issues Concerning the Trial of the L/CDisputes”. After introducing the provisions, the chapter analyzes itsprogressive significance and defect. Although the provisions includes theidentification of the fraud and the legal proceedings, there are stillmany problems in the trial practice which can not be solved by theprovisions. In the final section of this chapter, the problems on theapplication of the L/C fraud exception in the trial practice aresummarized.Chapter3is related to the legal advice of the anti-L/C fraud. Basedon the success of the fraud exception to the legislation of the commonlaw countries and the legal status of our countries to the L/C fraud, this chapter puts forward some corresponding proposals from the legislativeand judicial aspect.