Comparative Study of Unconscionability Exception to the Principle of Autonomy in Law of Letter of Credits
Comparative Study of Unconscionability Exception to the Principle of Autonomy in Law of Letter of Credits

Summary/Abstract: This paper touches upon the legal nature and scope of unconscionability as an exception toautonomy principle of documentary letters of credit (LC) and bank guarantees. Complicated process ofinternational trade is known as the main reason behind development of new exceptions to globallyappreciated principle of autonomy in process of LC transaction. Apart from fraud which has beenrecognized in international business society and various jurisdictions, other exceptions includingunconscionability, nullity, illegality and recklessness have received different treatments in differentnational laws. Unconscionability is applied to situations where beneficiary’s demand to draw under theLC is not fraudulent but affected with bad faith in a way that court prevents bank from honouring thecredit. While UCP leaves the problem of fraud and other exceptions to autonomy principle to be solvedby national laws, among common law countries, unconscionability defence has been recognized inAustralia and Singapore but others do not show welcoming attitude towards it. Current paper tries tofind reasons behind different attitudes of common law jurisdictions to unconscionability defence inletter of credit process by answering following questions: What is the nature of unconscionability? Howdifferent common law jurisdictions have received it as an exception to principle of autonomy indocumentary letters of credit and bank guarantees? And last but not the least, what are arguments infavour and against its universal recognition as a defence for payment under letter of credit and bankguarantee system?

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