Part I Legal and Practical Challenges to Traditional Trade Finance, 6 The Fraud Rule in the Law of Letters of Credit Revisited

The fraud rule in the law of letters of credit is still developing and has proven to be very controversial. The current international rules and national laws and decisions by most of the courts in many jurisdictions have taken the position that the fraud rule should be applied in a strict fashion or in cases of ‘material’ fraud. This chapter argues that a bifurcated approach should be adopted. That is, for fraud in the documents, a clear and simple fraud should be able to trigger the application of the rule; for fraud in the transaction, a high standard of fraud should be adopted.