Description

Demand guarantees/letters of credit are treated as autonomous contracts whose operation will not be interfered with by courts on grounds immaterial to the instrument itself. The idea in the documentary credit/demand guarantee transaction is that if the documents presented are in line with the terms of the instrument the bank has to pay, and if the documents do not correspond to the requirements, it must not pay. However, over the years a few exceptions to the autonomy principle of these instruments have come to be acknowledged. In certain circumstances, the autonomy of these instruments may be ignored and regard may be had to the terms and conditions of the underlying contract. The main exceptions concern fraud and illegality in the underlying contract. In this work consideration has been given to these possible grounds on which payment under these instruments have been attacked in the English, American and South African courts. The prospect of success depends on the law applicable to the instrument and the approach a specific court takes. This work will interest lawyers, bankers and scholars specialising in these instruments.