The Rule of Autonomy in the Letter of Credit Process; A Comparative Analysis of the Fraud-Exception Rule

Abstract

Trade within and among nations represents a significant essence of state and individual affairs in the international arena. The development of international trade, facilitated by globalization, yields for new measures for the purpose of coping with the developing trade related aspects and Letter of Credit can be regarded as one such instrument. Principle of autonomy can be identified as the underlying principle that inspires sellers and buyers to utilize the letter of credit process for their transactions to strengthen their confidence by incorporating banking institutions for certain functions. However, since the principal contract is treated as a contract that is distinct from the letter of credit arrangement it raises issues as per when payments can be dishonoured. Furthermore, it further raises a question as to whether payments should be made irrespective of the prevalent issues in performing the obligations that are depicted in the principal contract. Therefore, inspired by the qualitative approach, the research focused on the instances where the letter of credit process can be interfered by courts of law and thereby challenge the autonomy of the process by referring to primary and secondary data sources along with an analysis which inquires the conflicts that may arise due to intervention by courts in such affairs. The available sources that exemplify the exceptions for the principle of autonomy in the letter of credit processed notes a restrictive approach while attempting to protect the sanctity of the process by minimizing unnecessary intervention by courts. The reasons for such approach that is utilized by courts in checking and balancing the issues there exist between parties to the letter of credit process further suggests the conservative ideology that portrays the importance of preserving the reason for which the letter of credit process was introduced.