Location, Location, Location – Situs Of The Debt Owed Under Letters Of Credit – Taurus Petroleum Limited V. State Oil Marketing Company Of The Ministry Of Oil, Republic Of Iraq [2017] UKSC 64

This judgment of the Supreme Court was given in the context of proceedings to enforce an arbitration award. It is interesting in its consideration of:

the law relating to the situs of a debt owed under letters of credit (LoCs); the proper construction of two LoCs which, while unusual, were concluded on standard terms; and the appropriateness of making a third party debt order where it might affect the rights of another party. Factual background

In February 2013, the appellant before the Supreme Court, Taurus Petroleum Limited (Taurus), obtained a final award in arbitration proceedings against the respondent, State Oil Marketing Company of Iraq (SOMO). SOMO did not pay the US$8,716,477 that it was ordered to pay pursuant to the award. Taurus then learned that a company in the Shell group was to purchase two parcels of crude oil from SOMO, the purchase price for which was to be paid under LoCs issued by Crédit Agricole. The relevant sums were to be paid into an account of the Central Bank of Iraq (CBI) at the Federal Reserve Bank in New York, designated the Oil Proceeds Receipts account.

The LoCs were subject to the Uniform Customs and Practice for Documentary Credits (2007 Revision) International Chamber of Commerce Publication No. 600 (UCP). They were addressed to CBI, but stated that they were "in favour of" SOMO. They also contained two special provisions designated [A] and [B] by the Court of Appeal and Supreme Court. Those provisions read as follows:

"[A] Provided all terms and conditions of this [LoC] are complied with, proceeds of this [LoC] will be irrevocably paid in to your account with the Federal Reserve Bank New York, with reference to 'Iraq Oil Proceeds Account'.

[B] We hereby engage with the beneficiary and [CBI] that documents drawn under and in compliance with the terms of this credit will be duly honoured upon presentation as specified to credit CBI A/c with Federal Reserve Bank New York."

Taurus applied for: (i) leave to enforce the arbitration award as a judgment; (ii) an interim third party debt order (TPDO) over the proceeds of sale to be paid pursuant to the LoCs; and (iii) the appointment of a receiver in relation to those funds. Crédit Agricole duly paid the sums into court. The interim TPDO and receivership order obtained by Taurus were set aside following a hearing, and the matter proceeded to the Court of Appeal, and then the Supreme Court.

Issues

There were four broad issues before the Supreme Court:

what was the situs of the debts due pursuant to the LoCs? what was the proper construction of the LoCs? did the position of CBI mean that no TPDO should be granted in any event? how much connection with...