Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Iraq
Crude oil, letters of credit, state-owned companies, state immunity, third party debt orders
Taurus purchased oil from Iraq as part of the Oil for Food Programme. As part of these transactions, Taurus advanced a claim against the State Oil Marketing Co of Iraq (“SOMO”) and won an arbitration against it. SOMO refused to honour the award. Taurus then discovered that the Iraqi company was due to be paid on an unrelated contract via two letters of credit issued by the London branch of a French bank and payable to a New York bank in favour of the Central Bank of Iraq. The Swiss company obtained an interim third party debt order and an order for the appointment of a receiver in respect of those funds. SOMO challenged both orders, asserting that the Court had no jurisdiction to make them. According to SOMO, the letters of credit were payable in New York, were properly of the state of Iraq and were therefore immune from execution.
The Supreme Court ruled for Taurus. SOMO was, and remained, the beneficiary of the letters of credit and was therefore the sole owner of the debts which they created, and the sole entity to which the French bank had incurred the primary obligation to make payment. A promise to pay a debt to a named beneficiary via a nominated bank account in another’s name did not mean that the latter was substituted as beneficiary. The Iraqi bank had no proprietary interest in the French bank’s debt. Any promise made to the Iraqi bank or the Iraqi company as to how the debt would be paid was no bar to it being taken in execution by a judgment creditor. The manner of payment was a separate and ancillary obligation, which was owed to the Iraqi bank and the Iraqi company.
A full judgment is available at the following link: https://www.supremecourt.uk/cases/docs/uksc-2015-0199-judgment.pdf
Vitaliy Kozachenko was part of the solicitor team representing Taurus Petroleum Ltd in a dispute under a letter of credit against the State Oil Marketing Company of Iraq.
If you are a commodity trader involved in a trade finance dispute, get in touch with Vitaliy to see how we can assist (vk@vtlcapital.com) or reach out to one of our other specialists at info@vtlcapital.com.
