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This article analyses whether English law should recognise a nullity exception to the autonomy principle in documentary credits. It assesses policies in favour of and against this exception and proposes and constructs the nullity exception based on the optimum balance between them. The article advocates the exception based on the objectively determinable criteria conducive to a precise legal analysis, certainty and speedy decision-making. The focus of the proposed test is on whether objectively a problem in a document renders it null and void or, in other words, destroys its essence or whole. The proposed exception is applicable where banks have clear knowledge of the nullity, imposing no duty on them to investigate facts/matters outside the documents.
Documentary credits1 are one of the most widely used payment mechanisms in international trade.2 Regulated globally by the International Chamber of Commerce (ICC) Uniform Customs and Practice for Documentary Credits (UCP),3 they are often referred to as the “lifeblood of international commerce”4 and equivalent to cash in hand.5 When a transaction, such as an international sale of goods,6 is financed by a credit, the seller/beneficiary must make a complying presentation to the bank7 to obtain payment.