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Guy Blackwood QC, of Quadrant Chambers, examines the Supreme Court’s judgment in Taurus Petroleum Ltd v State Oil Marketing Company (SOMO) and what the principles are for enforcing international arbitral awards by intercepting funds payable under letters of credit.
Taurus Petroleum Ltd v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq  UKSC 64,  All ER (D) 132 (Oct)
The Supreme Court has allowed an appeal by petroleum company Taurus Petroleum Ltd against SOMO. The appellant had attempted to enforce an arbitration award against SOMO by means of a combination of third party debt and receivership orders. SOMO contended that the debts created by letters of credit were situated in New York and the High Court therefore had no jurisdiction to make third party debt orders (TPDOs) in respect of them, and that the debts were immune from execution as they were the property of the Republic of Iraq.
Enforcing an arbitral award—Supreme Court rules on third party debt and receivership orders, LNB News 25/10/2017 78
The appellant had entered contracts with the respondent for the sale of crude oil and liquid petroleum gas. After disputes arose, the appellant obtained an international arbitration award against the respondent.
The respondent failed to honour the award, and so the appellant applied without notice to the High Court for leave to enforce the award as a judgment of the court and for interim third-party debt orders and the appointment of a receiver by way of equitable execution to bring in funds receivable under the unconfirmed letters of credit issued by the London branch of Crédit Agricole at the request of a customer which had bought crude oil from the respondent.
Although the letters of credit named the respondent as beneficiary, they also contained an obligation owed to both the respondent and to the Central Bank of Iraq to make payment into a specified account in New York.
The High Court granted the without-notice applications.
The respondent challenged the orders on the grounds of want of jurisdiction and state immunity.
The Commercial Court found that the debt owed under the letters of credit was situated in London, the domicile of the issuing bank, and not New York, the place of payment. It further found that the respondent was not entitled to sovereign immunity, as a supposed emanation of the State of Iraq or because it was exercising sovereign authority. However, the court went on to find that the debt due under the letters of credit was owed jointly to both the respondent and to the Central Bank of Iraq, but that debts which were jointly owed could not be attached and even if they could be, the interest of the Central Bank in the debt attracted sovereign immunity under sections 13and 14 of the State Immunity Act 1978.
The principal issues were:
The Supreme Court has dispensed with the unreasoned distinction for the situs of debts under letters of credit created by the decision of the Court of Appeal in Power Curber.
The court also interpreted the constraints on the exercise of the court’s discretion when considering whether to issue a receivership order in a flexible manner, so as to reflect the commercial reality.
Lord Sumption clarified that the essential point about a third-party debt order was that it modified purely personal obligations.
The Supreme Court has re-emphasised the clear policy to ensure the efficient recognition and enforcement of arbitral awards and agreed that it would be inconsistent to allow an international arbitration award to be turned into an English judgment for the purpose of enforcing the award and then to limit the means available for enforcement on the grounds of an allegedly insufficient connection with the jurisdiction.
The courts of England and Wales are the appropriate forum to intercept funds due under unconfirmed letters of credit issued by the London branch of a bank, irrespective of the place of payment.
The existence of a fourth party interest in the credit, in this case the collateral obligation owed to the Central Bank of Iraq, is not necessarily a bar to execution.
Guy Blackwood QC appeared for the appellant in this case with Gordon Pollock QC, of Essex Court Chambers. They were instructed by Jeremy Davies and Sarah Hunt, of Holman Fenwick Willan, Geneva.
Interviewed by Robert Matthews.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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