The "illegality exception" reconsidered

This paper is to reconsider and raise doubts over the seemingly prevailing view that illegality in the underlying contract for international trade should be accepted as an exception to the autonomy principle of documentary letters of credit. It argues that there are logical flaws in the “illegality exception” arguments. Contrary to the seemingly prevailing view, this paper suggests that where classic commercial documentary letters of credit for international trade are involved, the “illegality exception” would much less likely than expected to be accepted, especially in most common law jurisdictions. It also submits that the public policy concerns over (the facilitation of) illegal transactions in international trade could be better addressed by specific statutory provisions rather than by an ill-founded and loosely formulated “illegality exception”