The autonomy principle, also knowns as in the independent principle, is fundamental to the documentary credits and autonomous guarantees alike, since it serves the purpose thereof, namely, providing the payment undertaking to the beneficiary and reaso ...
The autonomy principle, also knowns as in the independent principle, is fundamental to the documentary credits and autonomous guarantees alike, since it serves the purpose thereof, namely, providing the payment undertaking to the beneficiary and reasonable ground for bank to involve these transactions. Due to such significance importance, only fraud in documents and underlying contract has been recognised as the sole exception, referred as fraud exception, to that principle. Illegality in the underlying contract, however, may be argued as to be another exception. It was suggested in English case law, Mahonia Ltd. v. JP Morgan Chase Bank [2003] 2 Lloyd's Rep. 911., albeit obiter dicta. With respect to Korea, this exception, as far as it is aware, has not been academically dealt. Therefore, this article analysed the core of illegality exception and its appropriateness, by studying judicial opinions of various jurisdiction thereto. It is suggested that illegal exception should be recognised as general exception to the autonomy principle, considering its reasonableness, but under limited situations.