The Supreme Court’s ruling in Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Republic of Iraq (“Taurus v SOMO”) has made a major contribution towards assisting the enforcement of arbitral awards in the oil and gas sector, and other sectors, against certain entities that might otherwise be out of reach from enforcement. In doing so, the Supreme Court has rewritten a rule concerning the law of the place of a debt, which had stood unchallenged for over 35 years. It also clarified the interpretation of the terms of the letters of credit prescribed by the State Oil Marketing Company's (“SOMO”) standard form of sale contract.


The appeal to the Supreme Court arose out of an attempt by the appellant, Taurus Petroleum Ltd (“Taurus”), to enforce an arbitration award against SOMO.

Taurus’ underlying claims arose from a series of contracts between Taurus and SOMO for the sale of crude oil and liquefied petroleum gas (“LPG”). Following disputes between Taurus and SOMO, an arbitral tribunal rendered an award in favour of Taurus for approximately US$8.7m in February 2013. SOMO declined to honour the award.

However, Taurus learned that a subsidiary of Shell purchased crude oil from SOMO; the price for which was to be paid under letters of credit (“LCs”) issued by the London branch of Crédit Agricole. Taurus sought (without notice) to enforce the award as a judgment pursuant to section 66(1) of the Arbitration Act 1996 by way of third party debt orders under the relevant provisions of the English Civil Procedure Rules (namely, CPR 72). In other words, to have Crédit Agricole pay sums owned by it to SOMO to Taurus, in satisfaction of sums owed by SOMO to Taurus. Alternatively, Taurus sought receivership orders on amounts owed to SOMO under the LCs. The High Court made orders on these terms and funds were paid into court.

Litigation ensued and while SOMO did not contest the application under section 66(1) of the Arbitration Act 1996, it challenged both the third party debt orders and the receivership orders “principally on the grounds of want of jurisdiction and state immunity but also on the true construction of the letters of credit.”

SOMO’s arguments centred on the fact that each of the LCs provided for payment to be made in New York to the Iraq Oil Proceeds Account at the Federal Reserve Bank of New York. Each LC also contained a separate promise on the part of Crédit Agricole in favour of the Central Bank of Iraq (“CBI”) to make payment in that way. SOMO contended that the debts created by the LCs were, therefore, situated in New York and that the High Court had no jurisdiction to make a third party debt order. SOMO also argued that the debts were the property of the Republic of Iraq (through CBI) and were, therefore, immune from execution.

The High Court decided that the third party debt orders and/or execution orders could not be upheld as the debt was owed jointly to SOMO and CBI and, therefore, were outside of the scope of CPR 72. Similarly, a receivership order would entail Crédit Agricole having to pay twice (once to Taurus and once to CBI) and, therefore, could not be upheld. However, the High Court did consider that the debt was situated in England and that sovereign immunity did not attach to SOMO. Taurus appealed.

The Court of Appeal reached the same conclusion as the High Court but on different bases. The primary reason for the Court of Appeal’s decision was that the High Court was wrong in deciding that English law was the lex situs (i.e. the law of the place of the debt). Instead, the Court of Appeal was bound by the decision of the Court of Appeal in Power Curber International Ltd v National Bank of Kuwait SAK (“Power Curber”) that the law of the place of the debt under letters of credit follows the place where payment is to be made against documents. Accordingly, the Court of Appeal held that the lex situs of the debt under the LCs was New York and the English courts had no jurisdiction to make the third party debt orders. Taurus appealed to the Supreme Court.

Supreme Court

The law governing debts under the LCs

The Supreme Court unanimously decided that the lex situs of a debt is the place of residence of the debtor. Therefore, since the LCs were issued by Crédit Agricole’s London branch, the situs was England. The Supreme Court concluded that the decision in Power Curber in relation to letters of credit “was wrong in principle and should not be followed”. Accordingly, the Supreme Court’s decision re-writes a rule of more than 35 years that a debt under a letter of credit is situated in the place where documents are presented for payment.

State Immunity

SOMO did not pursue its argument on state immunity in the Supreme Court. Perhaps unsurprisingly since the High Court and the Court of Appeal dismissed this point on the basis that SOMO could not benefit from state immunity unlike CBI.

Who owns the debts?

The issue of “who owns the debt” split the decision of the Supreme Court by a narrow majority.

The main argument arose as to the interpretation of the terms of the LCs and, in particular, the conditions by which Crédit Agricole was required to pay the amounts under the LCs to CBI's account. While the LCs largely followed a standard format, two additional conditions were incorporated into the LCs on the following terms:

“[A] Provided all terms and conditions of this letter of credit are complied with, proceeds of this letter of credit will be irrevocably paid in to your account with Federal Reserve Bank New York, with reference to ‘Iraq Oil Proceeds Account’.

These instructions will be followed irrespective of any conflicting instructions contained in the seller’s commercial invoice or any transmitted letter.

[B] We hereby engage with the beneficiary and Central Bank of Iraq 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.”

Critically, the effect of these provisions was, arguably, that the amounts under the LCs were (or became) a debt from Crédit Agricole to CBI rather than to SOMO. If this was the case, a third party debt order would fail, since a prerequisite to such an order under CPR 72 is that there is a “debt due or accruing due to the judgment debtor from the third party.” If the debt was due to anyone other than SOMO, the pre-requisite to a third party debt order would not be satisfied.

Ultimately, the Supreme Court decided that Crédit Agricole owed a debt to SOMO and a collateral obligation to pay the debt to CBI’s nominated account. Therefore, the Supreme Court decided that the third party debt order could be enforced and that Taurus’ appeal should be allowed. The Supreme Court also decided that the collateral obligation to CBI would be extinguished since the primary debt obligation would be satisfied by way of the third party debt order.

While the interpretation of the LCs went to their exact terms, an important factor was the incorporation of, and definitions provided by, the Uniform Customs and Practice 600 (“UCP 600”). The Supreme Court expressly relied on the definition of “beneficiary” in Article 2 of the UCP 600 and the confirmation that the beneficiary is SOMO. Ultimately, this led to a decision that the LCs were issued in favour of SOMO and that the primary debt obligation was to SOMO.


The lex situs, or law of the place where the property is situated, of a debt is important because English courts only have jurisdiction to deal with property (such as a debt) where the lex situs of the debt is in England and Wales, or where the law applicable in the location of the debt would recognise a third party debt order as discharging the liability of the third party to the judgment debtor. As such, if a debt is domiciled in England, it has a potentially significant impact for banks that might owe a debt (by letter of credit or the existence of a bank account) to an award debtor. In effect, this allows the party successful in arbitration to seek a third party debt order to pay sums owed by a London bank (or other England and Wales domiciled party) to an award debtor.

In reaching its decision, the Supreme Court simply considered that the decision in Power Curber was too unreasoned to bring about certainty and clarified, beyond all doubt, that the situs of a debt follows the residence of the debtor.

It is also noteworthy that Lord Neuberger considered that Moore-Bick LJ (in the Court of Appeal judgment) was correct that state immunity would apply to CBI but not to SOMO. It is perhaps for this reason that SOMO decided not to pursue an argument of state immunity. This clarification will be welcomed by those dealing with SOMO.

Finally, the deployment of a third party debt order by Taurus to monetise an arbitral award against an entity domiciled in the Republic of Iraq (not a member to the New York Convention 1958) is yet another example demonstrating the alternative routes to enforcement of awards in London. The Supreme Court confirmed that “London is one of the two major financial centres of the world and enormous numbers of letters of credit are issued by international banks from their London branches.” Other arbitral award creditors may consider their options to follow in Taurus’ footsteps and seek to enforce their awards against counterparties who could otherwise “hide” from such enforcement.