The House was asked as to the question of fraud which would entitle a banker to refuse to pay under a letter of credit notwithstanding the rule requiring payment when the documents were in order on their face.
Held: The whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods. That does not permit any dispute with the buyer as to the performance of the contract of sale being used as a ground for non-payment or reduction or deferment of payment.
To this general statement of principle as to the contractual obligations of the confirming bank to the seller, there is one established exception, that is, where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. Although there does not appear among the English authorities any case in which this exception has been applied, it is well established in the American cases of which the leading or ‘landmark’ case is Sztejn v J. Henry Schroder Banking Corporation (1941) 31 N.Y.S. 2d 631 . . The exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application of the maxim ex turpi causa non oritur actio or, if plain English is to be preferred, ‘fraud unravels all’. The courts will not allow their process to be used by a dishonest person to carry out a fraud.
Judges:
Lord Diplock
Citations:
[1983] AC 168
Jurisdiction:
England and Wales
Cited by:
Cited – Banco Santander Sa v Bayfern Ltd and Others ComC 29-Jun-1999
The court was asked whether the risk of fraud on the part of the beneficiary of a confirmed deferred payment letter of credit is to be borne by the issuing bank (and so possibly the applicant for the credit) or by the confirming bank where the . .
Lists of cited by and citing cases may be incomplete.
Banking
Updated: 04 May 2022; Ref: scu.244754
