Taurus Petroleum Ltd (Claimant/Appellant) v State Oil Company of the Ministry of Oil, Republic of Iraq
|England & Wales
|Lord Justice Moore-Bick,Lord Justice Sullivan,Lord Justice Briggs
|28 July 2015
| EWCA Civ 835
|28 July 2015
|Court of Appeal (Civil Division)
|Case No: A3/2013/3613
 EWCA Civ 835
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr. Justice Field
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
Vice-President of the Court of Appeal, Civil Division
Lord Justice Sullivan
Lord Justice Briggs
Case No: A3/2013/3613
Mr. Gordon Pollock Q.C. and Mr. Guy Blackwood Q.C. (instructed by Holman Fenwick Willan LLP) for the appellant
Mr. Graham Dunning Q.C., Mr. Dan Sarooshi and Mr. Siddharth Dhar (instructed by Vinson & Elkins RLLP) for the respondent
Hearing dates: 11 th-14 th May 2015
This appeal arises out of an attempt by the appellant, Taurus Petroleum Ltd ("Taurus"), to enforce an arbitration award against the respondent, State Oil Marketing Company of Iraq ("SOMO"), by means of a combination of third party debt and receivership orders. The underlying claim arises out of a series of contracts between Taurus and SOMO for the sale of crude oil and LPG. Disputes arose between the parties which were referred to arbitration in accordance with the contracts and in due course an award dated 13 th February 2013 was made in favour of Taurus in the sum of US$8,716,477. SOMO declined to honour the award and accordingly Taurus sought leave to enforce it as a judgment.
At some point Taurus became aware that a company in the Shell group (in the event Shell International Eastern Trading Co.) had purchased two parcels of crude oil from SOMO, the price of which was to be paid under letters of credit issued by the London branch of the French bank Crédit Agricole S.A. It therefore applied to the High Court without notice for leave to enforce the award as a judgment, for an interim third party debt order and for the appointment of a receiver in respect of the funds receivable by SOMO under the letters of credit. On 11 th and 13 th March 2013 the High Court made orders in those terms and on 22 nd March 2013 Crédit Agricole was ordered to pay the sum of US$9,404,764.08 into court. SOMO subsequently applied to set aside those orders on the grounds of want of jurisdiction and state immunity.
It will be necessary in due course to consider in detail the terms of the letters of credit, but for the moment it is sufficient to mention that each of them provided for payment to be made to the 'Iraq Oil Proceeds Account' at the Federal Reserve Bank of New York in New York and that each 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 letters of credit were therefore situated in New York and that the High Court had no jurisdiction to make third party debt orders in respect of them. SOMO also argued that the debts were the property of the Republic of Iraq and were therefore immune from execution. Field J. held that the debts were situated in London rather than New York and that SOMO was a separate entity from the state of Iraq and did not contract as its agent. As a result, if the debts under the letters of credit had been owed to SOMO alone, they would not have been immune from execution. However, each letter of credit contained a single joint promise in favour of SOMO and CBI and thus a joint debt in respect of which the court could not make a third party debt order. He also held that the debts, being the property of Iraq's central bank, were in any event immune from execution under sections 12(2) and 14(4) of the State Immunity Act 1978. He therefore set aside the third party debt orders and the receivership order.
The international background
Mr. Dunning Q.C. laid some emphasis on the international background to trading in Iraqi oil, which he submitted was an important matter for the court to take into account when construing the letters of credit in this case. As is well known, in 2003 the United Nations Security Council passed a Resolution imposing sanctions on Iraq under which the proceeds of sales of oil by Iraq were to be paid into an account held by CBI at the Federal Reserve Bank in New York designated the 'Oil Proceeds Receipts Account'. The bulk (95%) of receipts were to be used for development within Iraq; the balance (5%) were to be used to provide reparations to Kuwait. By 2011 the formal requirements of the sanctions regime had been relaxed in relation to the use of funds for the benefit of Iraq, but the government of Iraq decided to continue the existing arrangements under which it used the Oil Proceeds Receipts Account to receive the proceeds of export sales of oil and gas from which 95% would be transferred to a separate account in the name of CBI and 5% would continue to be paid into the UN compensation fund for Kuwait. The decision was confirmed by a Note Verbale dated 29 th April 2011.
Mr. Pollock Q,C. submitted that letters of credit are intended to be self-contained, in the sense that they stand apart from the commercial transactions which they are intended to support and must therefore be construed in accordance with their terms without taking into account the wider background. For that reason, he argued, the arrangements made by Iraq for receiving and disposing of its oil revenues were of no relevance to the construction of the letters of credit with which we were concerned. In my view that is broadly correct. Although a bank must carefully assess the creditworthiness of its own customer before agreeing to open a letter of credit at his request, the actual process of doing so is essentially mechanical. The terms of the credit are likely to be determined largely, if not entirely, by the seller and will be communicated by the buyer to his bank. The bank in its turn will then issue the credit in the terms required, undertaking a liability to the beneficiary against which it will seek an indemnity from its customer. I think one should be very cautious, therefore, before construing letters of credit by reference to extraneous circumstances of the kind I have described and there was no evidence before us of the extent to which those engaged in financing the trade in Iraqi oil were or were not generally aware of the arrangements to which I have referred. In those circumstances I am not persuaded that they provide any assistance in construing the two letters of credit with which we are concerned, the terms of which were prescribed by the standard form of sale contract used by SOMO.
The letters of credit
Each of the letters of credit was issued by Crédit Agricole in London and was sent in the form of a telex typical of this kind of business. It was addressed to CBI and provided, so far as material, as follows:
"Please advise our following irrevocable documentary credit to Oil Marketing Company (SOMO) after adding your confirmation:
We hereby establish our irrevocable documentary letter of credit Number ####.
By order of: …
In favour of: Oil Marketing Company ('SOMO').
For a maximum amount of USD …
Expiry: 20 April 2013 at the counters of Central Bank of Iraq, Baghdad.
This letter of credit is available by deferred payment at thirty (30) days from bill of lading date … against presentation not later than 20 April of the following documents at the counters of the Central Bank of Iraq, Baghdad for negotiation.
This letter of credit is not assignable or transferable.
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.
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 C.B.I. A/c with Federal Reserve Bank New York.
This credit is subject to the Uniform Customs and Practice for Documentary Credits (2007 Revision) International Chamber of Commerce Publication No. 600.
Special Instructions to Central Bank of Iraq:
Upon receipt of your authenticated telex/SWIFT confirming that you have taken up documents in strict conformity with credit terms and conditions and couriered them to us, we undertake to effect payment at maturity as per your instructions, provided that such telex/SWIFT is received at least 1 New York/London banking day prior to due date. Otherwise, payment will be made1 New York/London banking day later.
If our cover does not reach you in time to reimburse you for your payment under the credit on due date, we hereby undertake to compensate you for any loss of interest incurred by you due to this delay."
Mr. Pollock submitted that, although these letters of credit included some clauses that are not routinely to be found in documents of this kind, their basic structure follows the pattern which has been established over many years for documentary credits incorporating the Uniform Customs and Practice ("UCP"). The opening section contains the instructions to the advising bank, in this case CBI, to notify a named party, in this case SOMO, after adding its own confirmation, that a documentary credit has been established in terms which are then set out in the body of the letter. There follow the basic terms of the issuing bank's undertaking, identifying the person on whose...
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