By a series of contracts whereby the defendant, an Iraqi state oil company, agreed to sell crude oil and petroleum gas to the claimant, a Swiss domiciled company. Disputes arose and were referred to arbitration. The arbitrator made an award in favour of the claimant but the defendant declined to pay the award. The claimant became aware that the defendant had sold two parcels of crude oil to another party, the price of which was to be paid under letters of credit issued by the London branch of a French bank. The letters of credit provided for payment to be made into an account at a New York bank and included a separate promise in favour of the Central Bank of Iraq to make the payment in that way. The claimant applied to the High Court without notice for leave to enforce the arbitration 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 the defendant under the letters of credit. The High Court made orders in those terms and the French bank was ordered to pay the sum into court. The defendant applied to set aside the orders on the grounds, inter alia, that the High Court had no jurisdiction to make third party debt orders since the debts created by the letters of credit were situated in New York. Field J held that the debts were situated in London rather than New York but he discharged the third party debt orders and the receivership order on the grounds that since each letter of credit contained a single joint promise in favour of the defendant and the Central Bank of Iraq it was a joint debt in respect of which the court could not make a third party order. The Court of Appeal dismissed the claimant’s appeal.
On the claimant’s appeal —
Held, appeal allowed (Lord Mance DPSC and Lord Neuberger of Abbotsbury dissenting). (1) On a true construction it was clear that the defendant was and remained the beneficiary of the letters of credit and thus the sole owner of the debts created by the letters of credit and the sole entity to which the French bank had incurred the primary obligation to make payment. The Central Bank of Iraq had no proprietary interest in the debt and any promise made to the defendant or to the Central Bank of Iraq as to how the debt in favour of the defendant was to be paid was no bar to the debt being taken in execution at the instance of the claimant as a judgment creditor of the defendant.
(2) All property, whether tangible or intangible, had a situs for legal purposes. Athird party debt order was a proprietary remedy which operated to discharge the debt, and since it involved dealing with property, the English courts did not have jurisdiction to make such an order in respect of debts situated outside the jurisdiction unless an English order would be recognised under the law applicable in that place. In English law the situs of a debt was the debtor’s residence, the place where the debt was recoverable, and since the letters of credit had been issued in the French bank’s London branch, London was the sole residence of the debtor under the letter of credit. Accordingly, the situs of the letter of credit was England.
(3) Since international trade, and particularly the international oil trade, was conducted predominantly by letters of credit, and London was one of the two major financial centres where letters of credit were issued by the London branches of international banks, it was entirely foreseeable by the defendant that a majority of the letters of credit against which it sold oil would be issued out of London and would be subject to English law. The defendant’s trade therefore involved a long term connection with the jurisdiction. In those circumstances it was entirely predictable that if the defendant failed to honour the arbitration award it would find itself sued in an English court for the purposes of enforcing the award in accordance with international norms. The English court had jurisdiction over the defendant for the purpose of enforcing an arbitration award as a judgment of the High Court. The court had done that and the defendant had not challenged its jurisdiction or judgment. It would be inconsistent to allow an international arbitration award to be turned into an English judgment for the purpose of enforcing the award and then to limit the means available for enforcement on the grounds of an allegedly insufficient connection with the jurisdiction.
(4) The Central Bank of Iraq had no interest of any type in the letter of credit debts and its account was merely the conduit via which moneys paid from the French bank at the instance of another buyer would be passed onwards into the Iraqi government budget. If the promise as to the route of payment to the defendant had been breached due to interception by judicial execution, the Central Bank of Iraq would have suffered no loss and could make no complaint. The French bank’s obligation to pay in accordance with its promised method was necessarily subject to the implicit qualification that the funds had not been intercepted by judicial intervention, and, in the absence of any objection by the French bank and any evidence adduced to the effect that it would be prejudiced, the receivership order would be restored.
Gordon Pollock QC and Guy Blackwood QC (instructed by Holman Fenwick Willan llp) for the claimant.
Graham Dunning QC, Dan Sarooshi and Siddharth Dhar (instructed by Vinson & Elkins llp) for the defendant.