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Application of the Principle of the Fraud Exception in Letter of Credit

Author: LiuQun
Tutor: YangLuZhao
School: Ocean University of China
Course: International Law
Keywords: Letter of Credit L/C Fraud Fraud Exception Application
CLC: D996.1;F740.4
Type: Master's thesis
Year: 2011
Downloads: 172
Quote: 2
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Abstract

Letter of Credit, which is regarded as" create of gift" for it’s ingeniously design, is one of the most important means of settlement and payment in international finance and trade. It plays a significant role in the development of international trade. The principle of independence is one of the basic principles in L/C transaction, which leads to wide use of L/C. However, some businessmen take advantage of the corollary to the Principle of Independence that the seller will always receive payment from the bank if he submits documents that strictly comply with the L/C, regardless of the sales agreement. In order to cope with this phenomenon, the Principle of Fraud Exception was established in the US and later accepted in many countries in the world. In China, the Direction Relating the Disputes in Letter of Credit, which was legislated by the Supreme People’s Court and enacted on January 1st 2006, is the primary legislation in this respect under the acceptance of the Principle of the Fraud Exception in Letter of Credit. But the Direction is not sufficient in regulating the fraud committed by the third party and so on.This article utilizes the basic principles of the jurisprudence, the research on the letter of credit fraud exceptional principle, which is divided into five chapters to carry on the elaboration. The first chapter proposes the concept of letter of credit frauds, the analysis of the fraud, and the theory, by analyzing the hen and title reason which the letter of credit fraud and elaborating "the principle of independences and abstract" is the important reason for inducing the fraud; the second chapter puts emphasis on the principle of abstract independence, the definition, the establishment and development of the principle of fraud exception, in order to establish the general principle and necessary procedure. The relations between the fraud exceptional principle and the principle of independences and abstract are proved and to maintain a moderate and balanced relation between the two is proposed as well.; the third chapter elaborates the establishment and the developing processes of the letter of credit fraud exceptional principle, by proposing the relations produced by it (i.e. public peace and order retention theory. Honest credit theory. Benefit balanced theory) and analyzing its value orientation; the fourth chapter elaborates the related question in applying the letter of credit fraud exceptional principle, realization ways as well as suitable elimination of it are given; the fifth chapter analyze the existing backward conditions of legislation and judicial practice in China, and courts’attitude to the judicial remedy for the principle of the fraud exception, further, the author puts forwards some suggestions, such as enhancing the quality of the judges and the judicature level of the court and so on, on how to make the legislation on the principle of fraud exception perfect, and how to apply the procedure of judicial remedy for the principle of fraud exception. Lastly, the author hopes that these suggestions could benefit to the judicial practice and the future legislation on the principle of fraud exception, in view of the existing questions when our country is applying it.This thesis makes a comprehensive study on the legal problem of the fraud in letter of credit, focusing on the reason of L/C fraud, full scale guarding measures on L/C fraud, the main judicial remedy method and fraud exception. In the end, the thesis describes the issues exist in relevant legislation and judicial remedy of Letter of Credit in China, gives recommendations on how to resolve the issues through the comments on the newly judicial explanation of the Supreme People’s Court over L/C

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