**Abstract**

According to many cases, it has been demonstrated that sellers with bad intentions have manipulated letters of credit system in many ways, including fraud. Thus, many legal jurisdictions have recognized the fraud exception rule. In order to apply such exception, some conditions must be met. Among these conditions, the bank's knowledge and a requirement of a clear evidence. Notably, the bank's knowledge is crucial, meaning that the establishment of the sole exception will depend upon the status of the bank's knowledge. Meaning that if the bank is aware of existing fraud, it is under a duty to refuse presentation. Otherwise, it should not. In turn, the establishment of clear evidence by the English courts is somewhat hard to achieve, consequently, such condition criticized often. Further, if the beneficiary himself commits the fraud, or has knowledge of the fraud, then the fraud exception rule will apply.1 This raises the question of whether the fraud exception should also bite where the fraud is committed by a third party but without the beneficiary's knowledge. From these facts, this chapter will try to analysis the status of the bank's knowledge and the hardship related to the clear evidence requirement in conjunction with the third-party fraud.

**Keywords:** letters of credit, fraud, legal basis, English law
