Abstract payment undertakings : to what extent are they truly abstract?
This work examines to what extent documentary credits and demand guarantees are, and should, be treated as autonomous or abstract from the underlying contract that leads to their issuance. This question is of vital importance to the commercial parties that utilise these instruments. The answer to it determines many of their duties, liabilities, the risks they undertake and the remedies available to them. While documentary credits and demand guarantees share some characteristics, both instruments serve different commercial functions. As such, the legal principles governing each instrument should be tailored to fit its functions. This point and the relevant legal and commercial issues relating to it will be examined thoroughly in Chapters 1 and 2. Chapters 3 and 4 will critically analyse the different approaches developed by the English courts when dealing with the autonomy of these instruments. It will be demonstrated that the rules they have developed in this area of law are inconsistent, in some instances contradictory, commercially unsound and do not reflect the traders' perceptions of the instruments. This unsatisfactory outcome has resulted from the English courts' (i) failure to distinguish between documentary credits and demand guarantees; (ii) insistence on applying to these instruments particular doctrines which developed outside their context; and (iii) failure to develop any clear framework by which they can abide when dealing with the issue of autonomy. Chapter 5 examines the autonomy principle in demand guarantees and documentary credits where third parties are involved. Finally, Chapter 6 examinees to what extent a documentary credit and a demand guarantee may be affected by illegality in the underlying transaction. In addition, it will analyse whether banks issuing such instruments are entitled to exercise a right of set-off by against the beneficiary of these instruments.