Taurus Petroleum Ltd v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq
| Jurisdiction | England & Wales |
| Judge | Lord Clarke,Lord Sumption,Lord Hodge,Lord Mance,Lord Neuberger |
| Judgment Date | 25 October 2017 |
| Neutral Citation | [2017] UKSC 64 |
| Court | Supreme Court |
[2017] UKSC 64
Lord Neuberger
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
Appellant
Gordon Pollock QC
Guy Blackwood QC
(Instructed by Holman Fenwick & Willan LLP)
Respondent
Graham Dunning QC
Dan Sarooshi
Siddharth Dhar
(Instructed by Vinson & Elkins LLP)
Heard on 21 and 22 March 2017
(with whom Lord Sumption and Lord Hodge agree)
The underlying claim in this appeal arises out of a series of contracts between the appellant, Taurus Petroleum Ltd ("Taurus"), a Swiss domiciled oil trading company, and the respondent, State Oil Marketing Company of Iraq ("SOMO"), for the sale of crude oil and LPG. Disputes arose between the parties which were referred to UNCITRAL arbitration in accordance with the contracts. Although the seat of the arbitration was Baghdad, by agreement all hearings took place in London before Mr Ian Hunter QC as sole arbitrator. It was nevertheless agreed that the seat remained in Baghdad. In due course a partial final award was made on 23 October 2012 and a final award was made on 13 February 2013, whereby SOMO was ordered to pay Taurus US$8,716,477. SOMO declined to honour the award and has paid nothing towards it, save that the debt has been reduced by set off of orders for costs made in favour of SOMO at first instance and in the Court of Appeal in these proceedings.
SOMO made an application to set aside the partial final award before the Iraqi courts on the basis that it was "not fair and failed to recognise justice". The application was dismissed by a judgment of the Iraqi court dated 27 December 2012 on the ground that the application was premature because the partial final award did not deal with all the issues between the parties and because neither SOMO nor Taurus had asked the Iraqi court to ratify the award. Since then, neither SOMO nor Taurus has taken steps to have either award ratified in Iraq and SOMO has made no further challenge to either award in the Iraqi courts.
Taurus is now seeking to enforce the award in England. The issue in these proceedings is whether Taurus is entitled to enforce the award or judgment by means of a combination of third party debt orders and/or receivership orders to recover moneys owed to Taurus. Under CPR 72 it is the pre-requisite to the making of a third party debt order that there should be a "debt due or accruing due to the judgment debtor from the third party."
I can take the underlying facts from the judgment of Moore-Bick LJ in the Court of Appeal: [2015] EWCA Civ 835; [2016] 2 All ER Comm 1037. Taurus learned 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 SA ("Crédit Agricole"). Taurus applied to the High Court without notice for leave to enforce the award as a judgment under section 66(1) of the Arbitration Act 1966, 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, 13 and 22 March 2013 the High Court made orders in those terms and on 22 March 2013 Crédit Agricole paid the sum of US$9,404,764.08 into court. SOMO has not challenged the order under section 66(1) or the court's jurisdiction to make it. SOMO did however challenge the other orders. It originally did so principally on the grounds of want of jurisdiction and state immunity but also on the true construction of the letters of credit.
In summary, each of the letters of credit provided for payment to be made in New York to the Iraq Oil Proceeds Account at the Federal Reserve Bank of New York and 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.
On 18 November 2013 Field J ( [2014] 1 All ER (Comm) 942) 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 CBI as the Central Bank, were in any event immune from execution under sections 13(2) and 14(4) of the State Immunity Act 1978. He therefore set aside the interim third party debt orders and the receivership orders. He also granted permission to appeal and ordered a stay of execution. Both parties appealed to the Court of Appeal, comprising Moore-Bick, Sullivan and Briggs LJJ. They dismissed the appeals and the cross-appeal on 28 July 2015, albeit (as explained below) in some respects for different reasons. The Court of Appeal made the same orders as the judge but refused permission to appeal. Permission to appeal to this Court was subsequently granted by Lord Neuberger, Lord Toulson and Lord Hodge.
As Moore-Bick LJ, who gave the leading judgment, explained, as was 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 was to be used for development within Iraq; the balance (5%) was 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 April 2011.
It is convenient to consider first the construction of the letters of credit, an issue which divided the Court of Appeal. It was submitted by Mr Pollock QC on behalf of Taurus 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 these letters of credit. Moore-Bick LJ said (in para 5) that in his view that approach was broadly correct. Although a bank must carefully assess the creditworthiness of its own customer before agreeing to open a letter of credit at its 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 its 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. Moore-Bick LJ added that one should therefore be very cautious before construing letters of credit by reference to extraneous circumstances of the kind he described and there was no evidence before the court 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 he had referred. Moore-Bick LJ further added that in those circumstances he was not persuaded that they provide any assistance in construing the letters of credit, the terms of which were prescribed by the standard form of sale contract used by SOMO. I agree.
Each of the letters of credit was issued by Crédit Agricole in London and was sent in the form of a telex (as Moore-Bick LJ put it) 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. Our reference GBRM300017
We hereby establish our irrevocable documentary letter of credit Number GBRM3000017
By order of: … [Shell]
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 2013 of the following documents at the counters of the Central Bank of Iraq, Baghdad for negotiation.
SOMO's duly signed original commercial invoice …
…
This letter of credit is not assignable and not transferable.
…
All banking charges within Iraq are for beneficiary's account whereas all charges outside Iraq are for applicant's account.
…
[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...
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