Not many cases make it to the English Supreme Court; most applications are rejected because they do not raise ‘an arguable point of law of general public importance’. However, on 23 December 2015, the Supreme Court confirmed permission to appeal against the decision of the Court of Appeal inTaurus Petroleum Limited (Taurus) v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq (SOMO)11.

The case raises important issues for those wishing to enforce against state owned traders that seek to hide behind a cloak of sovereign immunity to evade enforcement.

Taurus was awarded approximately US$9 million in an arbitral award which applied Iraqi law with Baghdad as the arbitral seat, while sitting in London. Taurus converted the final award into a English judgment pursuant to section 66(1) of the Arbitration Act 1966. Taurus then used an unusual mechanism to arrest a debt payable to SOMO: a third party debt order. Unlike a freezing order, a third party debt order may be used to arrest a sum payable to a debtor, rather than relying on locating the debtor’s assets or bank accounts.

A without notice Commercial Court hearing was granted and it was ordered that the sums arrested (some US$9.4 million) be paid into the Commercial Court.

SOMO applied to set aside the third party debt order, on the grounds that it enjoys sovereign immunity and that its property is immune from execution.

The debt in question was owed under letters of credit payable to SOMO, with Credit Agricole promising to pay certain sums into the Central Bank of Iraq’s account with the Federal Reserve of New York. The court held that the debt was owed jointly to the Central Bank of Iraq and to SOMO, so that the proceeds could not be arrested.

Importantly for enforcement against state owned traders, the court held that SOMO did not enjoy sovereign immunity and that London was the location of the debt, as the residence of the debtor bank.

Both Taurus and SOMO cross-appealed and both appeals were dismissed, with the Court of Appeal holding that the location of the debt was outside the jurisdiction so the receivership order could not be made. The Court of Appeal agreed that SOMO did not benefit from sovereign immunity but was split on the question of whether the owner of the debt under the letter of credit was SOMO alone, or SOMO and the Central Bank of Iraq.

The Supreme Court will now have to determine whether the debts constituted by Credit Agricole’s promise to pay were owed to SOMO alone or to SOMO and the Central Bank of Iraq.

It will also address the interesting issue of whether the debts created by the letter of credit were sited in London, following the longstanding principle that a debt is sited in the place where the debtor resides, or New York, following the potentially newer principle2 that the location of a debt created by a letter of credit is the place of payment. Leading commentators have pointed out that the disadvantage of the latter decision is that the debt could not be recovered where it was situated, since the paying bank was not located there. The question of the location of the debt created by a letter of credit is a matter of general importance.

This appeal will be one to watch for traders looking to enforce against state owned companies reluctant to pay long outstanding debts. It could establish a precedent that would make it easier to recover debts by arresting a letter of credit payable to the debtor.