On The Judicial Injunction Against Fraud On Letter Of Credit

This paper is to analyze the occurrence, development and nature of fraud on the Letter of Credit (L/C) and define the judicial injunction of L/C and its operation in international business.The letter of credit (L/C), a mature payment tool in international commerce, by which banker's credit takes the place of commercial credit in a transaction, has played a key role in the promotion of international business. UCP (Uniform Customs and Practice for Documentary Credits, 1993 Revision, I.C.C. Publication No. 500) recognized the two basic features of L/C-its independence and pure documentary transaction, which allows the beneficiary to secure the payment without having to submit to the scrutiny of whether the applicant has fulfilled the contractual duties. As an abstract principle of independence or autonomy, the system has its flaw in the operation and L/C has been evilly used by dishonest businesspersons in recent years and disputes caused by their fraud are also on the rise. Such cases also occur to the Chinese enterprises and banks involving the foreign trade with the increase of the international transaction volume. Of various means of fraud by L/C, the invoice and white documentary ones take up the majority. To compensate for the loss as the result of the flaw in the operation of L/C, an exception to the independence principle-the judicial injunction against fraud has been developed to secure payment. The injunction is a kind of forceful demand by courts to prohibit the bank from making its payments, whose issue should be based on the existence of virtual fraud on the beneficiary. It is part of remedy measure of fraud of L/C and protection of the legal benefits of the good-intended third side. The consequence of the judicial injunction is to prevent the bank from making its payment.