Letters of Credit | Supreme Court overturns longstanding Court of Appeal authority on jurisdiction over debt under letters of credit

In the recent case of Taurus Petroleum v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq, involving third party debt orders (TPDO), the court held that the debt under a letter of credit (LoC) is located at the place where the debtor (i.e. bank) is resident. The decision will have significant effects on enforcement considerations against parties who regularly trade using LoCs (as is frequently the case in international trade).

The unanimous decision overturns the previous position as set out by the Court of Appeal in Power Curber v National Bank of Kuwait, that debt arising under a LoC is situated at the place where payment is to be made against documents.

The case concerned the enforcement by Taurus of an $8.7 million arbitration award against State Oil Marketing Company and the application, by Taurus, for a TPDO in relation to sums due to State Oil Marketing Company under an unrelated LoC. The court held that the place of the debt under the LoC was England, where the issuing bank was located, not New York, where payment was due to take place. The court therefore had jurisdiction to award the TPDO sought.

This decision has the effect of bringing assets into the jurisdiction for enforcement purposes based on the location of the banks financing international trade, even though the assets being traded and contracting parties are located out of the jurisdiction.