It is a well-known fact that international trade contracts bear inherently more risk than the trade contracts entered by the parties from the same country. This is due to the differences in business methods and practices used, trade cultures of the parties involved, laws and regulations in the respective jurisdictions. Under these circumstances, it is very important for the seller to have the assurance of that he receives the payment for the goods dispatched and for the buyer to receive the goods what has been ordered. One effective way of having such an assurance is to rely on a letter of credit as an international payment method. But for exporters in particular, this payment method has presented difficulties in meeting the compliance requirements necessary for the payment to be triggered. The UCP 600 published by the International Chamber of Commerce provide the rules that govern letters of credit transactions. At the introduction of the UCP 600, it was aimed to remove wording that could lead to inconsistent application and interpretation, as against the language and style used in the previous version, namely the UCP 500. Highlighting the experiences under UCP 500, the ultimate focus of the revision of the UCP was to minimise the level of litigations that had arisen under the rules provided in the UCP. In several surveys, it has been reported that, nearly 50% of the first presentation for payment under letters of credit are rejected by the banks. This situation implies the fact that the provisions which cover letters of credit transactions are not either clear enough or well understood by the parties involved. Similarly, the decisions made by Courts around the world on issues related to letters of credit have taken different approaches when applying and interpreting the rules. This can clearly be seen by a myriad of controversial judicial standards which have been applied to similar mistakes in documents presented to the bank for payment. This thesis is an investigation into those issues to find out the optimal standards that could be applied to solve the said problems. In doing so, this thesis will strive to ascertain what remedial measures could be taken to address the issues related to examination of documents, the rejection of payment and fraud exception. Key words: International Trade, International Trade Law, Law of Letters of Credit, Uniform Customs and Practice for Documentary Credit 600, Examination of Documents and communicating the decision.

The documentary letters of credit transaction is the most common method of payment for goods in international trade. Its use has been considered so important that it is referred to as the �lifeblood� of international commerce. The purpose of this thesis is, through analysing the present regime of documentary credit established under the The Uniform Customs and Practice for Documentary Credits, 1993 Revision (�UCP�), to identify the rights and duties of all parties in such transactions and the reasons for the frequent occurrence of fraudulent activities associated with the documents required under the credits. It identifies that the present system fails to either encourage or implement substantial realisation of �reasonable care� or �good faith� on the part of the banks, or realisation of the requirement of �good faith� from beneficiaries. As a result, the independence principle has been left without substance, with resulting huge opportunities for fraudsters to cheat on the documents and obtain payment without the need to actually perform their duties to banks and buyers. Such issues have become more acute against the background of an underlying shift in the allocation of risk between the respective parties to letters of credit. There has been a depreciation in the value of the primary document of title and security held by the issue, the bill of lading, with the advent of container shipping. As the letter of credit system is wholly dependent on the integrity of the documents, it is being undermined by these developments. This has represented a shift in the traditional scheme of risk allocation from the seller to the bank. In practice, banks have taken countermeasures by insisting that applicants provide other types of collateral, and by subjecting applicants to rigorous credit checks. Thus, applicants ultimately have had to bear the brunt of costs associated with this reallocation of risk. It will be demonstrated that the UCP does not incorporate adequate or clear enough duties to be exercised on the part of issuers toward applicants, and severely restricts the applicant�s right to sue if the issuer has wrongfully honoured. Ultimately, a balance must be struck between the desirability of protecting the applicant from the beneficiary�s fraud against the benefits gained by maintaining the letter of credit as a commercial instrument and business device. Obviously, there is public interest in protecting both of these commercial values. This thesis advocates that a mechanism in addition to the fraud exception must be introduced to safeguard the system against the ramifications of these changes � increased fraud. The thesis is structured into five chapters. Chapter 1 sets out to demonstrate the circumstances under which the respective risks are borne by each participant in the letter of credit transaction, and how developments in trade practice have caused the burden of certain of these risks among the parties to a letter of credit transaction to shift. Chapter 2, after briefly visiting the historical origins of the letter of credit and the birth of the UCP, explores the implications of the dominance of banking interests over the drafting and interpretation of the UCP, how the UCP has in practice excluded the intrusion of other sources of law and the general reluctance of courts to intervene by applying non-letter of credit principles, the implication of the UCP�s assumption of the law in practice, the resulting marginalisation of local laws, and the inequality in bargaining power between banks and applicants that precludes a choice of law other than the UCP. Chapter 3 explores the independence principle and question of documentary compliance, why the system is ridden with non-compliant documents and the lack of incentive and meaningful duty for the banks to check for �red flags� that may indicate fraud on the documents or in the transaction. It will be emphasised that documentary validity, rather than mere documentary compliance, should be the focus under the letter of credit. Chapter 4 examines the fraud exception to the independence principle, the typical high thresholds of proof that applicants had to overcome to estopp payment, and explores recent trends towards the gradual lowering of such thresholds. Finally, Chapter 5 considers practical measures and proposals for reform that would help to redress the imbalance in the allocation of risk identified in the thesis.

The documentary letters of credit transaction is the most common method of payment for goods in international trade. Its use has been considered so important that it is referred to as the �lifeblood� of international commerce. The purpose of this thesis is, through analysing the present regime of documentary credit established under the The Uniform Customs and Practice for Documentary Credits, 1993 Revision (�UCP�), to identify the rights and duties of all parties in such transactions and the reasons for the frequent occurrence of fraudulent activities associated with the documents required under the credits. It identifies that the present system fails to either encourage or implement substantial realisation of �reasonable care� or �good faith� on the part of the banks, or realisation of the requirement of �good faith� from beneficiaries. As a result, the independence principle has been left without substance, with resulting huge opportunities for fraudsters to cheat on the documents and obtain payment without the need to actually perform their duties to banks and buyers. Such issues have become more acute against the background of an underlying shift in the allocation of risk between the respective parties to letters of credit. There has been a depreciation in the value of the primary document of title and security held by the issue, the bill of lading, with the advent of container shipping. As the letter of credit system is wholly dependent on the integrity of the documents, it is being undermined by these developments. This has represented a shift in the traditional scheme of risk allocation from the seller to the bank. In practice, banks have taken countermeasures by insisting that applicants provide other types of collateral, and by subjecting applicants to rigorous credit checks. Thus, applicants ultimately have had to bear the brunt of costs associated with this reallocation of risk. It will be demonstrated that the UCP does not incorporate adequate or clear enough duties to be exercised on the part of issuers toward applicants, and severely restricts the applicant�s right to sue if the issuer has wrongfully honoured. Ultimately, a balance must be struck between the desirability of protecting the applicant from the beneficiary�s fraud against the benefits gained by maintaining the letter of credit as a commercial instrument and business device. Obviously, there is public interest in protecting both of these commercial values. This thesis advocates that a mechanism in addition to the fraud exception must be introduced to safeguard the system against the ramifications of these changes � increased fraud. The thesis is structured into five chapters. Chapter 1 sets out to demonstrate the circumstances under which the respective risks are borne by each participant in the letter of credit transaction, and how developments in trade practice have caused the burden of certain of these risks among the parties to a letter of credit transaction to shift. Chapter 2, after briefly visiting the historical origins of the letter of credit and the birth of the UCP, explores the implications of the dominance of banking interests over the drafting and interpretation of the UCP, how the UCP has in practice excluded the intrusion of other sources of law and the general reluctance of courts to intervene by applying non-letter of credit principles, the implication of the UCP�s assumption of the law in practice, the resulting marginalisation of local laws, and the inequality in bargaining power between banks and applicants that precludes a choice of law other than the UCP. Chapter 3 explores the independence principle and question of documentary compliance, why the system is ridden with non-compliant documents and the lack of incentive and meaningful duty for the banks to check for �red flags� that may indicate fraud on the documents or in the transaction. It will be emphasised that documentary validity, rather than mere documentary compliance, should be the focus under the letter of credit. Chapter 4 examines the fraud exception to the independence principle, the typical high thresholds of proof that applicants had to overcome to estopp payment, and explores recent trends towards the gradual lowering of such thresholds. Finally, Chapter 5 considers practical measures and proposals for reform that would help to redress the imbalance in the allocation of risk identified in the thesis.

Magister Legum - LLM