Confusion and difficulties surrounding the fraud rule in letters of credit: an English perspective

Abstract

It has been established law for a long time that, in limited circumstances, fraud could provide a valid ground to withhold payment in letters of credit transactions. This article examines the fraud rule which was created to prevent unscrupulous fraudsters from benefiting from the system.Whilst it is recognised that there is a need to preserve the integrity of the system and maintain the certainty of payment, the way in which English law restricts the fraud exception is excessive to the extent of defeating the objective of the exception. In this article, some suggestions are made for the relaxation of the fraud exception.