Letters of Credit and the Fraud Rule

The article is designed to outline the features of the documentary credit and its vital role in international sales of goods. After a brief analysis of the letter of credit process, the paper mainly examines the principle of autonomy of the documentary credit from the underlying contract between the seller and the buyer. References will be made to the standard for examination of transport documents for a “complying presentation” in accordance with the requirements of the credit and to the different approaches in the determination of the documentary compliance. Furthermore, this article seeks to analyse the specific issue of the “fraud rule”, as an exception to the principles of abstraction and autonomy of the letter of credit, in the light of the interpretation of the Courts and of the provisions of the UCP (Uniform Customs and Practice for Documentary Credits) about the documents compliance, tracing the development of the fraud inquiry in the Common and Civil Law countries. Finally, the paper will seek to suggest possible solutions to avoid fraud in documentary credit, in order to guarantee the interests of all parties involved in the letter of credit transaction.