The fraud exception to the absolute obligation to pay against conforming documents was restricted by the House of Lords, in United City Merchants v. Royal Bank of Canada (The American Accord),2 to fraud on the part of the beneficiary of the credit. The decision has been criticized on the ground that it unwarrantably affords to the beneficiary a status equivalent to that of a holder in due course of a bill of exchange, entitling him to payment in cases of third party fraud against presentation of fraudulently drawn documents.3 However, the circumstances of the Andoll case perhaps suggest that this privilege granted to the beneficiary is not without justification.

The case concerned one link in a string contract. The merchandise (a cargo of oil) originated with North Korean suppliers, who sold it to the appellants. They resold to the respondents, who in turn resold to a company named Wanda Trading, payment under each of these resale contracts being by documentary credit. The respondents knew of the origin of the cargo, which was despatched directly to the respondents by the North Korean suppliers. The appellants were obliged to pay the Koreans.

These facts militated strongly against any fraud on the part of the appellant beneficiaries. Moreover, they also lend support to the decision of the House of Lords in The American Accord, at least in the context of string contracts. Far from having any direct contact with the contract goods, intermediate string buyers and sellers are generally concerned at most with relaying documents prepared by others. A string buyer who undertakes payment by documentary credit does so in the knowledge that his seller will tender to the bank precisely those documents he receives