EXCEPTIONS TO THE PRINCIPLE OF INDEPENDENCE IN DOCUMENTARY LETTERS OF CREDITS

Abstract

International trade has been always a controversial topic. A person can approach it from any given perspective. However, almost no one can deny its impact on daily life of us. Therefore, all human capacities are employed to help development of it at global level. The regulatory question is one of the most debated issues in international trade among all others which have always been a hot topic for legal practitioners, businessmen, governments as well as academicians. The roots for such controversial issue can be sought in existence of different legal systems, different regulations, different terminology, different customs, different technologies and different methods of payment all in absence of global authority. However, while discussing regulatory issues in international trade, we should not forget about the dark side of business in which perpetrators with bad faith are ready to use the most advanced technologies in order to defraud others in the course of international transactions. _x000D_ The documentary letter of credit is one of the most popular methods of payment in international transactions. The key to their success is reducing risk for exporter by replacing importer’s financial undertakings with a guarantee of payment from a bank. Within the framework of a complicated process, bank will guarantee to honour the seller’s presentation of complying documents with terms of credit on behalf of the creditworthy buyer who will compensate the bank based on other contract. By applying two principles of autonomy and strict compliance, documentary credit mitigates the existing commercial risk of trade between buyer and seller who are in different countries and have no information about financial capacity of each other’s businesses. Within the frame work of the principle of autonomy, credit is separated from underlying contract of sales and bank will pay beneficiary who presents complying documents even in case of dispute over the underlying contract. In this way seller will have the assurance for payment before departing from goods and his interests are safeguarded. On the other hand, based on the principle of strict compliance, beneficiary will be compensated only after presentation of fully complying documents and any error on the face of documents might result in rejection of payment by bank. Review of the history of payment under documentary credit operation in international trade shows that banks focus only on documents and disregard any possible disputer in underlying contract might increase the risk of fraudulent presentation by beneficiary. In many countries, increasing number of fraud cases resulted in introduction and adaptation of fraud exception to an absolute principle of autonomy of documentary credits. At the same time, we should not forget the Unified Customs and Practices for documentary letters of credits as the most accepted set of rules at global level has completely left the issue of fraud and fraudulent behaviour of beneficiary open for national laws. This will create another problem which is relevant to the standard of proof and remedies under different legal systems and conflict of laws. _x000D_ Current doctoral thesis tries to offer an answer to the question of fraud exception to the principle of independence of documentary credits under English law. Reason for choosing the legal system is its popularity as the governing law in many fields of international trade as well is its common law nature and the absence of statute for governing the fraud rule in documentary credits. It is worth adding that English law has the case law approach to the problems of fraud in documentary credits which creates lots of problem on the way of judges to safeguard the justice. _x000D_ As it has been mentioned already, current research paper desires to have a critical approach to practice of Common Law courts in field of fraud in documentary credits. For this purpose, it will review closely historical and modern developments of fraud rule base on the case law approach of English and American courts to the subject matter. Research will also examine approaches of other common law jurisdictions if necessary. _x000D_ Research consists of two main parts. Review article and publications. The review article has six chapters. Chapter one is the introduction to the historical background of documentary letters of credit and their operation. While chapter two explores legal nature and sources of law for letters of credit chapter three will analyse the key principles of documentary letters of credits. Chapter four, will have a focus on fraud rule by analysing American and British approach to it as the first adopted exception to independent principle of documentary letters of credit. Chapter five will scrutinize other exceptions including illegality, nullity, beneficiary’s bad faith and abusive demand for payment. At the end chapter six will provide a conclusion on the subject matter of study and materials covered._x000D_ The second part includes twelve published papers in international peer reviewed journals providing comprehensive and in depth legal analysis form autonomy principle and its exceptions within the framework of Common Law system.

Date of Award	15 Jun 2018
Original language	English
Supervisor	Carlos Gorriz Lopez (Director)