Supreme Court & Court of Appeal decisions in Taurus Petroleum Limited v. State Oil Marketing Company of the Ministry of Oil, Republic of Iraq

Supreme Court: Taurus Petroleum Limited v. State Oil Marketing Company of the Ministry of Oil, Republic of Iraq [2017] UKSC 64

Court of Appeal: Taurus Petroleum v. State Oil Marketing Company of the Ministry of Oil, Republic of Iraq [2016] 1 Lloyd’s Rep 42

The Supreme Court handed down its Judgment in Taurus v. State Oil Marketing Company of the Ministry of Oil, Republic of Iraq (“SOMO”) on 25 October 2017, but in order to understand a number of the issues decided in the case this blog post also considers briefly the earlier Court of Appeal decision in the same case.

Taurus v. SOMO in the Court of Appeal:

The Court of Appeal dismissed an appeal brought by Taurus against the Order by Mr Justice Field who had in the High Court discharged a number of interim third party debt orders (“ITPDOs”) and receivership orders. The ITPDOs and receivership orders had earlier been granted in response to efforts by Taurus to enforce an arbitration award against SOMO.

The ITPDOs and the receivership orders related to the payments to be made by the London branch of the bank Crédit Agricole pursuant to two Letters of Credit (“the Letters”) that contained special and unusual conditions. The Letters named SOMO as beneficiary, but stipulated in terms that payment was to be made to the Central Bank of Iraq (“CBI”), in particular to the CBI’s “Iraq Oil Proceeds Account” held at the Federal Reserve Bank of New York in New York.

The Court of Appeal held that the relevant debt under the Letters was situated outside the jurisdiction in New York, this being the place of payment under the Letters, and this meant the court had no jurisdiction to make third party debt orders in relation to this debt and that the ITPDOs must be discharged. The court should also not have made a receivership order against SOMO in relation to this debt situated in New York since to do so exceeds the proper limits of the court’s jurisdiction, there not being other sufficient connecting factors between SOMO and the jurisdiction.

Moreover, a majority of the Court of Appeal (Sullivan and Briggs LLJ) held that the unusual terms of the Letters made the CBI not SOMO the only creditor in respect of the money promised to be paid, and, accordingly, that the CBI was solely entitled to property in the debt created by the Letters. This position was held to have two consequences. First, since the debt was CBI property it was immune from execution pursuant to s. 14(4) (Central Bank immunity) of the State Immunity Act 1978 (SIA), and this required the setting aside of the ITPDOs and receivership orders. Second, since SOMO was not a creditor pursuant to the Letters – SOMO only possessing a non-proprietary right to damages for any failure by Crédit Agricole to pay the CBI – there was no debt owed to SOMO in relation to which ITPDOs could be ordered and as such they should be set aside for this further reason.

The Court of Appeal held that SOMO did not enjoy State immunity from execution under s. 13(2)(b) of the SIA since it was not part of the State of Iraq pursuant to s. 14(1) of the SIA and nor did SOMO acquire the property in question through the exercise of sovereign authority pursuant to s. 14(2) of the SIA.

 Taurus v. SOMO in the Supreme Court:

 The Supreme Court granted the appeal by Taurus and restored the ITPDOs and receivership orders which had earlier been discharged by Order of the Court of Appeal. There were a number of issues canvassed in the Judgment which included the following.

The Supreme Court – by a majority of 3:2 (Lords Clarke, Sumption and Hodge) – overruled the construction given to the Letters of Credit by two Lord Justices in the Court of Appeal and Mr Justice Field in the High Court when it held that the creditor under the Letters was not the CBI but was solely SOMO. However, Lords Mance and Neuberger dissented when they held that the debts were owed to the CBI alone, which in their view was fatal to the appeal.

By the same 3:2 majority, the Supreme Court held that the ancillary contractual right of the CBI to have payment made in a certain way was no bar to the granting of third party debt orders and that these should be restored. Lords Mance and Neuberger in their dissent on this point found that the CBI’s interest was a bar to execution.

Lord Mance addressed the issue of Central Bank immunity and held that on the assumption that only a collateral obligation was owed to the CBI, he “would not exclude the possibility that, on this analysis, the making of a third party debt order against Crédit Agricole might constitute indirect impleading with the right to the proceeds which the State of Iraq would otherwise have enjoyed.” (para 118)

By unanimous decision, the Supreme Court overruled the decision of the Court of Appeal in the Power Curber case which had stood for 35 years when it ruled that the situs of the debt owed under unconfirmed letters of credit is where the issuing bank resides (in casu, London).

 

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