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Vol 21 No 9 Sept/Oct 2016

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The Fraud Rule in the Law of Letters of Credit

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ISBN13: 9789041198983
ISBN: 9041198989
Published: January 2003
Publisher: Kluwer Law International
Country of Publication: The Netherlands
Format: Hardback
Price: £107.00

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Although the letter of credit is essentially an international instrument with an age-old pedigree, a troubling number of serious disputes still founder on national provisions with respect to the fraud rule (or fraud exception). The rule is embodied in several major international agreements, but its adjudication takes place under national statutes in which - in the opinion of Judge Xiang Gao of the Supreme People's Court of the People's Republic of China (PRC) - a significant degree of further refinement and harmonization is called for.

Dr. Gao finds the best provisions and practices in respect of the fraud rule in the United States, the United Kingdom, Canada, and Australia, and applies these standards to the reformulation of the fraud rule in the PRC. In the process he surveys the entire field of the fraud rule in the law of letters of credit in its substantive aspects, thus going deeper than mere banking law analyses and revealing, for the benefit of jurists everywhere, the fundamental legal issues that must underlie all sound judicial reasoning in the area. In more practical terms, this approach also allows judges to meet their essential responsibility - that of giving an answer when a case is put before them - with the widest and best possible degree of discernment.

Among the many factors contributing to the law and practice pertaining to letters of credit, Dr. Gao finds the following elements, among others, particularly relevant to his subject:-

  • the ICC Rules;
  • the UNCITRAL Convention;
  • Article 5 of the UCC;
  • Sztejn versus J. Henry Schroder Banking Corp;
  • US-Iranian cases; and the United City Merchants case.
Drawing on all of these elements - as well as on the drafting process of the Supreme People's Court that led to a new fraud rule provision in 2001 - Dr. Gao gives us a wide-ranging judicial analysis of this subject.

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Other Jurisdictions
1. The Letter of Credit and its Legal Framework.
The Nature of Letters of Credit.
The Legal Framework of Letters of Credit.
2. The Fraud Rule: An Overview. Meaning and Rationale.
Historical Development.
The Fraud Rule in the United States.
The Fraud Rule in Other Jurisdictions.
The Fraud Rule in ICC Rules.
The Fraud Rule under the UNCITRAL Convention.
3. The Standard of Fraud.
The Position in the US.
The Position in the UK.
The Position in Canada.
The Position in Australia.
The Position under the UNCITRAL Convention.
4. The Locus of Fraud.
The Controversy.
Case Studies.
The Solution.
5. Identity of the Fraudulent Party.
Statutory Provisions.
Applicant Fraud.
Third Party Fraud: The Case of United City Merchants.
6. Presenters Immune from the Fraud Rule.
Preliminary Observations.
Likely Presenters.
7. The Fraud Rule in the People's Republic of China.
The Legal System of the PRC.
The Fraud Rule in the PRC.