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

A debt under a letter of credit is ordinarily situated where the issuing bank resides and the debt is recoverable. There is no special rule locating it at the place for presentation of documents or payment.

A third party debt order may attach a debt beneficially owned by the judgment debtor. A personal undertaking governing the manner of payment does not prevent attachment. The position differs where the debtor has transferred a legal or equitable proprietary interest in the debt.

Where incorporated international banking rules identify the seller as the sole beneficiary, an irrevocable direction to pay through another institution’s account does not, without more, transfer ownership of the debt to that institution.

Taurus obtained an UNCITRAL arbitration award requiring SOMO to pay US$8,716,477. The arbitration was seated in Baghdad, although its hearings took place in London. SOMO did not satisfy the award.

Taurus obtained permission to enforce the award as an English judgment under section 66(1) of the Arbitration Act 1996. It also obtained interim third party debt orders and a receivership order over sums payable under letters of credit issued by Crédit Agricole’s London branch. The credits named SOMO as beneficiary but required payment through an account of the Central Bank of Iraq in New York.

Field J discharged the enforcement orders. The Court of Appeal dismissed the parties’ appeals: [2015] EWCA Civ 835. The central issues were ownership and situs of the letter-of-credit debts, whether the payment undertaking to the Central Bank barred attachment, and whether a receivership order was appropriate.

1. By a majority, the appeal was allowed. Lord Clarke, Lord Sumption and Lord Hodge held that the letters of credit created debts owed solely to SOMO. The third party debt orders and receivership orders were restored. Lord Neuberger and Lord Mance dissented on the third party debt orders, although Lord Neuberger agreed that a receivership order was appropriate.

2. The credits had to be construed as a whole and consistently, so far as possible, with the incorporated Uniform Customs and Practice for Documentary Credits 600. Those rules identified the party in whose favour a credit was issued as its beneficiary. The documents repeatedly identified SOMO as the beneficiary and prohibited assignment or transfer. The conditions requiring payment into the Central Bank’s New York account therefore regulated the manner in which SOMO’s debt was to be discharged. They did not transfer ownership of the debt to the Central Bank.

3. The situs of a debt is generally the debtor’s residence, where the debt is recoverable. For letter-of-credit purposes, branches of a bank in different countries are treated as separate banks. Crédit Agricole’s London branch was therefore the debtor and the debts were situated in England. The contrary special rule in Power Curber International Ltd v National Bank of Kuwait SAK was wrong and was not followed.

4. A third party debt order requires a subsisting debt owed to the judgment debtor. It cannot attach a debt in which the judgment debtor has transferred a legal or equitable proprietary interest. A merely personal obligation concerning disposal or payment of the debt is different. The order overrides the debtor’s personal obligation by requiring payment to the judgment creditor. Discharge under the order also exhausted the ancillary undertaking concerning the mode of payment, so Crédit Agricole would not remain liable to the Central Bank.

5. The English situs of the debt and SOMO’s sustained use of London-issued credits supplied a sufficient jurisdictional connection for equitable execution. Enforcement of international arbitration awards also supported restoration of the receivership order. No evidence showed prejudice to Crédit Agricole or an impermissible effect on a foreign party.

6. Lord Mance and Lord Neuberger considered that the irrevocable tripartite undertaking made the Central Bank the creditor. Alternatively, they considered that its prior contractual rights prevented a third party debt order. In their view, a judgment creditor could obtain no better right than the judgment debtor and compliance might not discharge Crédit Agricole’s liability to the Central Bank.

1. United Kingdom Supreme Court: By a majority, allowed Taurus’s appeal and restored the third party debt orders and receivership orders: [2017] UKSC 64 .

2. Court of Appeal: Dismissed the appeal and cross-appeal, although its members differed on the construction of the letters of credit: [2015] EWCA Civ 835 ; [2016] 2 All ER Comm 1037.

3. High Court: Field J discharged the interim third party debt orders and receivership orders. He held that the payment obligation was joint and that the Central Bank’s property was immune from execution under the State Immunity Act 1978: [2014] 1 All ER (Comm) 942.