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Critically analyse the decision in the House of Lords’ decision in the American Accord

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  1. Abstract.
  2. Introduction.
  3. Problems with the doctrine of strict compliance.
  4. The facts.
  5. Court of appeal hearing.
  6. Conclusion.

The globalisation of trade brings with it greater risks than internal trade, with the differences in business practices, application of local law, combined with external political factors .

The four main risks applicable when dealing with global trade are foreign law and the ambiguity of what law is applicable to the contract, economic risks, political stability, and payment and enforceability of performance risks . For example, the fundamental issue in any sale transaction is the performance and solvency of a contract party as regards payment. The solvency of the importer is vital to cover the manufacturer's risk and it is arguable that any form of contractual arbitration will not adequately compensate a payment claim .

Key words : American Accord, documentary credits, letters of credit, independence, strict compliance, fraud, fraud exception, international trade, beneficiary knowledge.

[...] As per Lord Denning in the American Accord case. See supra, note 3. Introduced in 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. See also [17]See Xiang Gao, Fraud rule in the law of letters of credit: a comparative study,? 2002, Kluwer Law International Urquhart Lindsay v Eastern Bank [1922] 1 KB 318 and Hamzeh Malass v British Imex [1957] Lloyds Re 549 [1958] Q.B [1978] 1 Lloyd's Rep 166. Supra, note 16. [...]

[...] Despite the diverse approaches, the QBD decision in the American Accord and the reasoning in the higher courts later on, demonstrate the universal principle that fraud must be known to the bank before payment[25]. There also seems to be an indication that the beneficiary who presents the document must also be aware of the fraud, which seems to go against the whole purpose of fraud to prevent benefit from inequitable conduct[26]. Mocatta made further references to Lord Denning's wide approach and went further to assert that there: ?Seems to be nothing in the authorities to prevent a confirming bank from raising the issue of fraud as a defendant after having refused to pay on the presentation of the documents.? Mocatta did not however go as far as extending the exception to cases where there was merely a material inaccuracy in the documents. [...]

[...] However, in light of the fact that the Court confirmed that it would sever parts of the contract due to the obligations under the Bretton Woods agreement, which effectively establishes a limited area of international comity, the language of the various judgments that there is only one exception to the independence is confusing[38]. Clearly it would be preferable to expressly accept new exceptions to the rule, with clearly defined legal principles setting out the application and boundaries of each exception. [...]

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