This article attempts to demonstrate the difference between commercial and standby letters of credit and explain the importance of the autonomy principle to their effectiveness. Fraud, the traditional exception to the autonomy of letters of credit, will be explained as it has been interpreted and applied in the courts of the United States, the United Kingdom and Canada.

The Victorian case of Olex Focas Pty Ltd v Skodaexport Co Ltd will then be critically examined to demonstrate the way in which the autonomy of standby letters of credit in Australia may be jeopardised and address whether the fraud exception to standby letters of credit has been extended in Australia to embrace statutory unconscionability. In outlining how Olex Focas was decided, under the unconscionability provision in the Trade Practices Act 1974 (Cth) (s 51AA), the traditional circumstances in which the equitable principle of unconscionability has developed will be discussed.