In February 2013, Taurus Petroleum Limited (Taurus) obtained a final award in arbitration proceedings against State Oil Marketing Company of Iraq (SOMO). SOMO did not pay the sum 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 Letters of Credit (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 unusual special provisions relating to payment that were crucial to this case.
Taurus applied for, inter alia, an interim third party debt order (TPDO) over the proceeds of sale to be paid pursuant to the LoCs, and 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.
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 the jurisdiction was needed in order for the court to make a receivership order?
The English court therefore generally lacks jurisdiction to make a TPDO in respect of debts situated outside the jurisdiction. In terms of determining where the debt was situated, there were two competing propositions. One was the general position, which is that a debt is situated where the debtor is resident, because that is the jurisdiction where the debt is recoverable. As the LoCs were issued by the London branch of Crédit Agricole, the provisions of the UCP meant that the London branch should be treated as a separate bank to the French arm of the bank, and the situs of the debt would be England. The other was based on settled law in a Court of Appeal decision, Power Curber International Ltd v. National Bank of Kuwait SAK,6 in which there was held to be an exception in the case of LoCs to the general position summarised above, on the basis that LoCs were "different from ordinary debts".
The Supreme Court agreed unanimously that Power Curber was wrong in principle, and that the ordinary means of identifying the situs of a debt should apply to LoCs too, Lord Neuberger adding that "such unreasoned distinctions do the common law, and in particular, commercial law, no favours". On that basis, the debt due in this case was situated in England.
Having found that it would be possible in principle to make a TPDO in relation to the sums payable pursuant to the LoCs, the Supreme Court had to decide whether to do so in practice. In this regard, there was a specific issue of construction of the special provisions contained in the LoC, on which the Supreme Court was split. We do not consider that issue in detail here, save to note that the majority held that, while the debt under the LoCs was due to SOMO, there was a collateral obligation to SOMO and CBI jointly, to pay the relevant amounts into CBI's account. SOMO argued that, because it had no interest in or rights over the account of CBI into which the LOCs provided that the debt should be paid, no TPDO was available to it. This argument was based on In re General Horticultural Co, Ex p Whitehouse,7 in which the court held that an order of that kind could only charge "what the judgment debtor can himself honestly deal with".
Lord Clarke (with whom the majority agreed) held that this did not create an independent principle in relation to honest dealing – looking at the circumstances of the case, it only reaffirmed that a TPDO could not be made in relation to property not belonging to the judgment debtor.
On the point of most general relevance in this case, the situs of debts due pursuant to LoCs, the Supreme Court was unanimous – it is the debtor's place of residence, not the place where the sums due under the LoC are payable. Lord Neuberger noted that 35 years of mistaken practice in this regard provided some argument for continuing with it, but not enough.