Taurus Petroleum Ltd v State Oil Company of the Ministry of Oil, Republic of Iraq

A third-party debt order is proprietary and cannot be made against a debt situated outside England unless the law of the situs recognises the order as discharging the debt. For documentary credits, the binding authority placed the debts at the place where payment was to be made. A receivership order operates in personam, but the court must still respect territorial jurisdiction and comity. It must consider the subject’s connection with England, whether the order is exorbitant, and its effects on foreign parties. A direction to pay into a central-bank account does not itself create a proprietary interest in the debt before payment. A state trading company’s separate juridical personality is strongly respected, and commercial oil sales are not acts jure imperii.

Taurus obtained an arbitration award against SOMO arising from crude oil and LPG sale contracts. It sought enforcement as a judgment through third-party debt orders and a receivership order over sums payable by Crédit Agricole under letters of credit relating to Iraqi oil sales.

Field J set aside the orders, holding that the debts were situated in England but were joint debts, and were in any event immune under sections 12(2) and 14(4) of the State Immunity Act 1978: [2013] EWHC 3494 (Comm). The appeal concerned the construction of the letters of credit, the situs of the debts, the jurisdiction to grant third-party debt and receivership orders, and state immunity.

The Court of Appeal unanimously dismissed the appeal and upheld the setting aside of the third-party debt orders and receivership order.

1. Construction of the letters of credit. The majority, comprising Briggs LJ and Sullivan LJ, held that special conditions A and B made CBI the sole creditor of the payment obligation. SOMO retained only a non-proprietary contractual right to damages if CBI was not paid. Moore-Bick LJ disagreed, holding that SOMO was creditor of a debt owed to it and that the joint promise to SOMO and CBI was collateral. The majority construction was an independently sufficient alternative ground.
2. Situs and third-party debt orders. Following [2003] UKHL 30 and applying [1981] 1 W.L.R. 1233, the relevant debt under a letter of credit was situated where payment was to be made, namely New York. A third-party debt order is proprietary. Since there was no evidence that New York law would recognise an English order as discharging Crédit Agricole’s liability, the English courts had no jurisdiction to make the orders.
3. Honest dealing. There was no independent restriction limiting third-party debt orders to debts with which the judgment debtor could honestly deal. The relevant limit was proprietary. CBI’s contractual right to receive payment did not give it a proprietary interest in the debt before payment.
4. Receivership. Although a receivership order operates in personam and may concern foreign debts, the court must consider subject-matter jurisdiction, comity, the connection with England, exorbitance, and effects on foreign parties. The order would exceed those limits. The letters of credit were governed by English law under articles 4(1) and 4(2) of the Rome Convention, but that did not cure the territorial objection.
5. State immunity. Moore-Bick LJ’s conclusions were expressly alternative. SOMO’s separate juridical personality and commercial functions meant it was not an organ of Iraq, and the transactions were commercial rather than sovereign. Briggs and Sullivan LJJ additionally held that CBI owned the debt and that it was immune under section 14(4) of the State Immunity Act 1978.

1. Court of Appeal (Civil Division): Appeal dismissed. The third-party debt orders and receivership order were properly set aside.
2. High Court of Justice, Queen’s Bench Division, Commercial Court: Field J set aside the enforcement orders on jurisdiction, construction and state-immunity grounds: [2013] EWHC 3494 (Comm).