ABSTRACT
This article examines the independence principle of demand guarantees and improper practices that exist in their use by the beneficiaries. It analyses international law and practice relating to demand guarantees and the treatment of abusive demands in various jurisdictions and under international conventions. This analysis provides a doctrinal foundation for a new exception to independence principle of demand guarantees based on equitable unconscionability. In an Australian context, the application of section 51AA of the Trade Practices Act to demand guarantees is also discussed. It is suggested that the new exception to the independence principle should be based on the improper exercise of rights, which is consistent with the international practice. The proposed unconscionability exception is evaluated having regard to the commercial and legal functions of these instruments. It is concluded that the proposed unconscionability exception does not erode the autonomy of demand guarantees if proper procedural framework is put in place.
