The UK's Supreme Court has allowed an appeal that has changed English law on the location of debts in the context of letters of credit (L/Cs).

The change in legislation is a result of the final court of appeal finding in favour of petroleum company Taurus Petroleum Limited in its dispute with the State Oil Marketing Company of Iraq (SOMO).

Case outline

Taurus had attempted to enforce an arbitration award against SOMO by the means of a combination of third party debt and receivership orders.

The third party debt orders concerned two L/Cs that had been issued by Crédit Agricole's London branch, and ordered that the L/C proceeds should be directed to Taurus Petroleum rather than SOMO.

Location of debt

The L/Cs provided that payment would be made to an account held by the Central Bank of Iraq (CBI) in New York.

Until this matter, case law stipulated that debts arising under an L/C are situated wherever they were due to be paid, so in this case the debt was located in New York and SOMO argued that an English court therefore had no jurisdiction to make third party debt orders.

Case law overruled

The Supreme Court however decided to overrule the case law on the location of debts

It decided that the London branch of Crédit Agricole, as the issuer of the L/Cs, was to be treated as an English bank so that is where the debts were located and where they were recoverable by the order of an English court.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.