Fraud in the documents and the underlying contract in letters of credit under Jordanian and English law: a new prerequisite?
| DOI | https://doi.org/10.1108/JFC-08-2020-0164 |
| Published date | 16 November 2020 |
| Date | 16 November 2020 |
| Pages | 672-685 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Kamal Jamal Alawamleh,Shadi Helo Abu Helo |
Fraud in the documents and the
underlying contract in letters of
credit under Jordanian and
English law: a new prerequisite?
Kamal Jamal Alawamleh and Shadi Helo Abu Helo
Faculty of Law, University of Petra, Amman, Jordan
Abstract
Purpose –This study aims to examinethe application of the fraud exception to the autonomy principle that
governs the work of letters of creditin both Jordanian and English law. While it has been reiterated thatthe
application of such exception before the English courts is difficult, this study highlights and critically
analyzes some of the reasons that lie behind such a difficulty. Moreover, this study compares the English
approach with the Jordanianapproach to this specific area of law to find out what each can benefit from the
approach of the other. The extent to which both approaches have been successful in applying such an
exceptionwill be examined thoroughly in this paper.
Design/methodology/approach –To examine how effective is the approachesfollowed by the English
and Jordanian Courts in applying the fraud exception in this context,this work makes use of the secondary
data availablein this regard as the main method to complete such an examination.By critically analyzing and
comparingthe various data contained in these sources, thiswork identifies the problems associated with such
approaches.
Findings –This work suggests that while the autonomy principle in letters of credit has what shall
maintain its role as an important principle, the fraud exception application shall be facilitated. It further
submits thatthe English Courts attitude to this specific area of law is somehow ambiguousand intertwined as
it does not distinguish between two differentstages that are existent in this context, namely, the submission
of the documents stage “the prerequisite”that in case of submitting genuine, truthful and complying
documents would activate the autonomy principle and the following stage which starts after activatingthe
autonomyprinciple and which to it a fraud exception canbe applied.
Originality/value –This work proposes that a beneficiary of a letter of credit shall satisfy a prerequisite
before it can be said that he is protected under the autonomy principle.Such a prerequisite dictates that he shall
submit genuine, truthful and complying documents to activate the autonomy principle and once the beneficiary
submits such documents it can be said that the autonomy principle, which fraud is an exception to it, has been
activated. Furthermore, this work proposes that EnglishCourts shall adopt an approach similar to the Jordanian
approach in relation to the application of the fraud exception, whereas the latter requires proving neither the
beneficiary’sfraudulent intent nor his knowledge of it but rather applies a more realistic test concerned merely
with the goods’quality and quantity.
Keywords Banks, Jordanian law, English law, Autonomy principle, Fraud exception,
Letters of credit, New prerequisite
Paper type Research paper
1. Introduction
Letters of credit play a vital role in the international commercial context as they significantly
enable different buyers from obtaining the patronage that they need to carry out their various
businesses (Bridge, 2017a). A letter of credit includes an undertaking issued by the bank in
JFC
28,3
672
Journalof Financial Crime
Vol.28 No. 3, 2021
pp. 672-685
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-08-2020-0164
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
To continue reading
Request your trial