Immunity From The Fraud Exception Rule

As a main settlement in international trade,letter of credit(L/C)works in a way that bank credit is used to guarantee the payment instead of commercial credit,which is favored by traders.Among all the legal issues of L/C,the issue of fraud comes out.It's an international practice that fraud be an exception to the principle of independence of L/C and at the same time the application of this fraud rule be restricted.In China,Provisions of the Supreme People's Court on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit(Provisions)concerns disputes over L/C.Chinese courts have done a good job in determining fraud,but there are still problems in determining the immunity from the fraud rule.Article 10 itself causes confusion,which leads to obscure standards in court decisions.So it is necessary to return to the beginning purpose of the rule,that is to protect third party with good faith.This paper studies the jurisprudence basis for good faith third party's immunity under L/C fraud,and discusses the conditions of gaining immunity and the specific circumstances of immunity.Besides preamble and conclusion,there are four chapters:Chapter One is to understand the establishment and development of the fraud exception rule and the immunity rule.From the principle of independence to the fraud exception rule and to the immunity rule,this development reflects the exploration of the L/C mechanism and consideration of all parties' interests.A glimpse of different countries' practices,the United States shows a positive attitude towards the fraud exception rule while Britain is more conservative.And China is selectively learning from these two.All countries attach importance to the good faith third party.Chapter Two probes into the rationality of third party's immunity from the fraud rule.It turns out that the long protection of good faith third party in civil field,the purpose to let the L/C rules be consistent with bill rules,and other considerations all justify the good faith third party's immunity.Chapter Three studies the conditions to gain immunity for third parties.For the body,it must be a third party in the transaction,such as an intermediary bank or a bill holder.For subjective attitude,it must be in good faith.For objective behavior,it must have given value.This chapter also points out some problems arising in determining those conditions and then suggestions are made to properly determine them.Based on Chapter Three,Chapter Four lists and analyzes the specific circumstances where a good faith third party gains immunity: where a negotiating bank has actually negotiated in good faith,where a confirming bank has performed its confirming obligation in good faith,where a nominated bank by the issuing bank has made payment or actual negotiation according to instructions in good faith,where the accepted bill is with a holder in good faith,where the second beneficiary has submitted matching documents.That China learned more from Anglo-American legal system in establishing credit rules while learned more from civil law system in establishing bill rules,that Provisions came out earlier than UCP600,that Chinese traders developed some Chinese-characterized practices when participating in the business,are all causes of the existing problems.To solve them,we need to fully grasp the mechanism of L/C,and understand the roles played by the good faith third parties,and work hard to unify our rules with the international rules such as UCP600.