ABSTRACT
Fraud unravels all. This maxim is rooted in common law and equitable tradition. In the letter of credit case of United City Merchants v Royal Bank of Canada, Lord Diplock stated:
23 Eg, see Barnes and Byrne, ibid at 12, 21. The receiver may attempt to disaffirm the letter of credit obligation whilst retaining the collateral security of the applicant. The typical position is that where an applicant is insolvent, a payment made to the Issuing Bank within the preference period cannot be clawed back as a preference, eg, Baja Boats Inc v Northern Life Insurance Co 203 BR 71 (1996) and Martin v Westfall Township 197 BR 31 (1996). Moreover, security and collateral held by the bank for the express purpose of the letter of credit is not claimable by the estate. See In re Ben Franklin Retail Store Inc 195 BR 455 (1996). See also Neidle, JL and Bishop, W, ‘Commercial letters of credit: effect of suspension of Issuing Bank’ (1932) 32 Columbia Law Review 1.
