The Fraud Exception in Letters of Credit

摘要

The autonomy principle has been regarded as one of the most prominent principles in the operation of letters of credit (LC)(Also known as documentary credits. There are mainly two types of LC which are commercial LC and standby LC. For the differences between those see Xiang Gao, The Fraud Rule in the Law of Letters of Credit: A Comparative Study, vol. 2 (Kluwer Law International 2002) 6-7.) (Although my title includes only 'letters of credit', reference will be made to fraud cases including guarantees. As stated in Ali Malek and David Quest, Jack: Documentary Credits (4th edn, Tottel 2009)247: for the context of the fraud rule 'cases relating to performance bonds or guarantees have been treated by the English courts as involving the same principles as documentary credits.') which basically asserts that the payment obligation of the issuing bank is independent from the underlying contract of sale entered into between the buyer and the seller (As UCP 600 Article 4 (a) indicates that it is independent from any other contract on which it may be based such as the application agreement between the applicant and the issuer of the credit.). So if there is any breach of duties committed by the beneficiary seller, normally this does not give the bank a right to refuse to honour the credit to the beneficiary under LC as long as the beneficiary seller tenders, on their face, strictly complying documents to the bank. This principle is included in both the Uniform Customs and Practices for Documentary Letters of Credit (UCP) 600 Articles 4, 5 and Revised Uniform Commercial Code (UCC)Article 5, 103(d). The autonomy principle is also emphasized in many common law cases, an example of which can be seen in the expression of Lord Diplock stated in the remarkable case of United City Merchants (Investments) Ltd v. Royal Bank of Canada (The American Accord) ([1983] 1 AC 168 (HL).): The whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods. (The American Accord [1983] 1 AC 183 (HL).) It can also be inferred from this statement that the basic rationale behind this principle is to give assurance of payment to the seller. The most significant exception to the autonomy principle in the law governing LC is the fraud exception (the fraud rule), which basically says that although there are complying documents required by the credit presented to the bank, the credit may not be justifiably honoured because of the existence of fraud. Nonetheless, both the understanding and application of this exception is not uniform and change as per jurisdiction; which is the reason why this exception has been regarded as 'the most controversial and confused area' ('Fraud in the Transaction': Enjoining Letters of Credit during the Iranian Revolution (1980) 93 Harvard Law Review 992, 995.) in LC law. The other exception accepted in English Law is called the illegality exception: Mahonia Ltd v JP Morgan Chase Bank and West LB (No 1) [2003] EWHC 1927 (Com Ct), [2003] 2 Lloyd's Rep 911; Nelson Enonchong, "The Autonomy Principle of Letters of Credit: An Illegality Exception?" [2006] LMCLQ 404. In Singapore, however, nullity and unconscionability exceptions are recognized as well. For nullity exception: Standard Chartered Bank v Beam Technology (MFG) Pte Ltd [2003] 1 SLR 597. For unconscionability exception: GHL Pte v Unitrack Construction Ltd[2003] 1 SLR 667. In this work, my purpose is to analyse the standard of the fraud rule in English Law by making comparison to the law in the US and Singapore and to show what kind of standard should be adopted to have a balanced and functioning system in the law governing LC. (The reason why this article focused on those three jurisdictions is, besides the concept's popularity in those jurisdictions, the non-uniformity as to the understanding and interpretation of the