Four uncertainties around the fraud exception in documentary letters of credit under English law

The principle of independence underpins the financial attractiveness and utility of documentary credits, since it makes the assurance of payment by banks concrete. Fraud is however a well-known exception upon which the principle of independence can be set aside. It is argued in this article that English law suffers from four uncertainties as to the fraud exception and it is evaluated how such uncertainties can be remedied. It is mainly advocated that English courts should consider the issue of allocating the risk of fraud, as commercially expected by parties, as a factor in fashioning rules and equitable concerns for the fraud exception. Regrettably, the commercial reality of the distinction between complex (chain of banks) and simple documentary credits, as a core factor in determining liability, is overlooked by English courts. In contrary, there is a tendency by courts to overdramatise the role of contractual analysis. Finally, it is argued that the decision of the Privy Council in Alternative Power cannot be an authority to accept any kind of fraud that is not related to the presented documents (non-documentary fraud) as an exception to the principle of independence