An evaluation of the fraud exception in the principle of autonomy of the documentary credit : should there be other accepted exceptions? : a comparative view

Abstract

Letters of credit have been playing a leading role in the financing of international trade and commerce for centuries and it would not be an exaggeration to state that it would be impossible today to trade internationally without the use of such instruments. The thesis will introduce the reader to the consideration of the types of credits and the legal structure of the relationships that may be created under the letter of credit transaction. An evaluation of the principle of autonomy in letters of credit will follow in order to assess if somehow it might have created undesirable results. This is because one could be under the impression that the autonomy principle might protect fraudsters due to its diverse application. Common law courts have reached a solution which protects traders from fraud under the fraud exception. The fraud exception has been adopted by several jurisdictions as the Uniform Commercial Practice rules have remained silent on this issue. Due to this, the desired results were not always reached as individual national courts tackled the fraud exception in a divergent manner. The thesis will initially focus on the United States Uniform Commercial Code and their approach to the fraud exception in documentary credits. The research will also look into English law and other common law jurisdictions, compare their approaches to the fraud exception and understand the level of interference to the autonomy of the credit they adopted. An evaluation of the fraud exception under selected civil law jurisdictions will follow in order to understand the civil law approach to the exception of autonomy in letters of credit. While a number of jurisdictions have adhered to the traditional strict English approach to the fraud rule, other common law jurisdictions have opted to implement a wider approach to the fraud exception. The research will analyse these accepted extended exceptions to the fraud exception which comprise of, the nullity exception, the illegality exception, the recklessness exception and unconscionability exception. The thesis will finally appraise all of the above mentioned exceptions to the principle of autonomy in order to evaluate the strengths and weaknesses vis-a-vis the documentary credits, and assess whether such extended exceptions have contributed or undermined the autonomy principle of letters of credit in international commerce.