Because payment under a letter of credit depends upon presentation by the seller-beneficiary of documents that comply strictly with the documents required by the letter of credit, the slightest discrepancy in the documents relieves the bank of its obligation to pay. Indeed, most presentations are discrepant. Yet buyers typically waive the discrepancies in the documents, thereby permitting the seller to be paid by the bank under the letter of credit. This article shows how the seller, by controlling the goods through use of a negotiable bill of lading, consigned to the bank, can protect itself from the potential opportunism of the buyer. Recently published scholarship has attempted to explain why buyers waive discrepancies since they have no obligation to do so and since seller's presentation of discrepant documents provides buyer an opportunity to avoid payment under the letter of credit. This article will add to the discussion by showing how the seller, by controlling the goods through the use of a negotiable bill of lading, consigned to the bank, can protect itself from the potential opportunism of the buyer. When the seller maintains control of the goods, the buyer has an incentive to waive the discrepancies in the documents, and therefore permit the bank to pay the seller under the letter of credit. This article first describes how letters of credit are thought to work. It will then show the reality of how the system works. It next focuses on explanations proposed in recent scholarship as to why buyers tend to waive discrepancies, even though they have no duty to do so. Finally, it explains the role of the bill of lading as a control mechanism.

The question of what constitutes ‘fraud in the transaction’ with respect to international letters of credit varies considerably among jurisdictions. In proving allegations of fraud, it is crucial for the practitioner to know the relevant jurisdiction’s case law, especially if wider defences such as inducement, unconscionable conduct or bad faith must be invoked. In this book, the author argues that, whereas ‘fraud in the documents’ is generally sufficient in cases involving commercial letters of credit, standby letters of credit demand a wider fraud exception. The central issue – how wide that fraud exception should be – is what this book explores in depth.This author compares and critically examines the application of the fraud exception in four major trade jurisdictions – the United States, England, Canada, and Australia. With an overall focus on how each jurisdiction’s fraud tests treat the autonomy of standby letters of credit, she builds her arguments on such relevant sources and concepts as the following: when it can be shown that the beneficiary has ‘no bona fide belief’ in the validity of its claim demand guarantees; international initiatives (ICC Rules and the UN Convention on Independent Guarantee and Standby Letters of Credit); the Sztejn Rule; parameters of the ‘fraud in the transaction’ defence ‘materiality’ standard; prerequisites for injunctive relief; arguing ‘fraud in the formation of the contract’; performance bond cases; applying the ‘breach of good faith’ defence; ‘negative stipulation’ in the underlying contract; and equitable versus statutory/broader notion of unconscionability. The presentation includes detailed summaries and analyses of leading cases in all four jurisdictions. Lawyers and corporate counsel responsible for arguing claims or defences in letter of credit transactions will welcome the way the author's research and insight define the range of options in each case they handle. Academics also will appreciate the systematic way the book frames a complex area of international trade law.