How to handle a letter of credit which contains a Joker Clause?
"A credit should not require presentation of documents that are to be issued, signed or countersigned by the applicant" says International Standard Banking Practice (ISBP 745) in its preliminary conditions section. Sometimes applicants attempt to include such clauses in letters of credit. On this page we will examine letters of credit that request a document to be issued, signed or countersigned by the applicants.
Structure of the letter of credit ?
A letter of credit is issued by issuing banks with the request of and instructions given by the applicants. Letter of credit is issuing banks irrevocable and conditional payment undertaking. Which means that beneficiary of the credit will be getting paid by the issuing bank under a letter of credit against presentation of required documents and provided that all terms and conditions of the credit are complied with.
Under normal circumstances a beneficiary should be able to collect all of the stipulated documents without the help of the applicant. This is how a reasonable and decent l/c works. But sometimes applicants include some clauses in the credits and manipulating letters of credit in a way that they require a document which can not be presented without the help of the applicant. In letter of credit terminology we called these clauses "Joker Clauses".*
Some examples of "Joker clauses" which makes presentations dependent on applicants participation:
Example 1 : Certificate of acceptance signed by the authorized stuff of applicant
Example 2 : Certificate of acceptance issued by the applicant
Example 3 : Certificate of acceptance issued by the applicant' agent
Example 4 : Original beneficiary's invoice duly endorsed on reverse by two authorized official's of the applicant.
Example 5 : Certificate of acceptance countersigned by authorized applicant’s agent.
Example 6 : Payments can be effected only after goods have been cleared from import customs.
Example 7 : Inspection certificate showing that goods have been inspected and delivered in good manner by an inspection company to be named by applicant after shipment.
What should an exporter do after finding one these clauses on its credit?
"Joker Clauses" disrupt the structure of the letter of credit. ICC discourage issung banks to include any Joker Clauses in to the credit. Despite all these efforts from time to time we can see joker clauses in letters of credit texts. Let us try to create a road map for these situations for the beneficiaries.
Step 1 : Read the credit very well. If you can not determine any joker clause have been added to the credit or not apply for a professional assistance. You can get some help from your bank. If this would not work for you please try to find lc experts who can check the credits on behalf of you. Letter of credit is one of the most complex field in all of the international trade operations. If credit does not mean much to you, do not make it a big deal and simply apply for an assistance.
Step 2 : If you find a Joker clause in the credit, reach to your customer. Explain your customer that the Joker clause is unacceptable for you. Demand an amendment.
Step 3 : The amendment should be advised to you within 3-10 days after your customer is giving necessary amendment request to the issuing bank. Amendment will be advised to you through the same advising bank which have been advised the original credit.
Step 4 : Once you received the amendment from the advising bank, you need to re-check it in order to make sure that there is no Joker Clause exist in the credit any more.
If the letter of credit contains conditions that the beneficiary (exporter) cannot fulfill without cooperation from the applicant (importer) or a party contracted by the applicant, then this is known as a conditional letter of credit or a “Joker Clause”. Beneficiaries should delete these kind of clauses from the credits. Otherwise they will be facing non payment. Please follow steps explained above if you detect any joker clause in your l/c transactions.