In Taurus Petroleum Ltd v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq [2017] UKSC 64 Shell bought two parcels of Iraqi oil in 2013 from the state Iraqi oil company SOMO. Its bank, Credit Agricole in London, issued letters of credit governed by English law naming SOMO as beneficiary, but containing a clause as follows (essentially to comply with the Iraqi sanctions regime):
“[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.”
Taurus subsequently got an arbitration award against SOMO of something like $9 million, which it wanted to enforce against the benefit of the letter of credit under a TPDO (garnishee in old-fashioned English). Three questions: (1) who was the creditor under the LCs, SOMO or the Central Bank? (2) where was the debt situated? (3) should a receiver be appointed?
On the situation of the debt, the whole court agreed, reversing the CA, that it was London, where the debtor, the London branch of Credit Agricole, was situated. It followed that the English court had jurisdiction to make a TPDO. There was no reason to treat a LC debt as any different from any other debt: Power Curber International Ltd v National Bank of Kuwait S.A.K. [1981] 1 W.L.R. 1233, regarding such debts as situated in the place of payment, was wrong.
All their Lordships felt that a receivership order was appropriate.
On the identity of the creditor, the decision was by a majority. The majority said, reversing the CA, that it was SOMO. They were named as beneficiaries. The agreement to pay the Oil Proceeds Account in New York made no difference in this respect: it was merely a collateral agreement. (Presumably Taurus had some arrangement with the Central Bank to collect from them: we are not told).
On balance, a good decision for creditors chasing funds through TPDOs. Its effect is essentially that any LC issued by a London bank, even a branch of a foreign institution, now seems fair game, even if payable in Mannhein, Manila or Madagascar. Forget Brexit: London is likely to remain the place to be.
One thought on “Good news for English judgment creditors — oh, and the beneficiary of a credit is who the credit says it is.”