Neutral Citation Number: [2015] EWCA Civ 835
Case No: A3/2013/3613
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Field
[2013] EWHC 3494 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Tuesday 28th July 2015
Before :

LORD JUSTICE MOORE-BICK
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE SULLIVAN
and
LORD JUSTICE BRIGGS
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Between :

	TAURUS PETROLEUM LIMITED 	Claimant/
Appellant	
	- and -		
	STATE OIL COMPANY OF THE MINISTRY OF OIL, REPUBLIC OF IRAQ	Defendant/Respondent	
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 (Transcript of the Handed Down Judgment of
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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 : 11th-14th May 2015
Judgment
Lord Justice Moore-Bick : 
1.	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 13th 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.
2.	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 11th and 13th March 2013 the High Court made orders in those terms and on 22nd 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.
3.	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
4.	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 29th April 2011. 
5.	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
6.	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.” 
7.	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 instructions the credit has been opened, the person in favour of whom it has been opened, the expiry date, the place at which documents are to be presented and a detailed description of the documents that are required. 
8.	Mr. Pollock submitted that SOMO is the sole beneficiary of each of the letters of credit and in conventional terms I think that is correct. The opening section states that the credit is opened in favour of SOMO and to regard SOMO as the beneficiary of the undertaking is consistent with the way the term “beneficiary” is used in the special conditions in contradistinction to CBI. However, it leaves open the question of the meaning and effect of the special conditions, of which the following are of particular importance:
“[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 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.
[B] 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.” (My notation.)
9.	Mr. Pollock emphasised that issue of a documentary credit ordinarily gives rise to a bundle of separate bilateral obligations reflecting the relationships between the different parties involved in the transaction. None of them, however, constitutes a joint obligation. On that basis he submitted that the two conditions just mentioned contain nothing more than a collateral promise by Crédit Agricole in favour of SOMO and CBI which is separate from the primary obligation to make payment under the letter of credit. That obligation is owed to SOMO alone as the beneficiary. It followed, in his submission, that CBI had no interest of a proprietary nature in the debt due under the letter of credit; it was simply the beneficiary of a separate promise on the part of Crédit Agricole that the debt to SOMO would be discharged by making a payment into the designated account in New York.
10.	Mr. Dunning did not challenge Mr. Pollock’s analysis of the rights and obligations which arise under an ordinary letter of credit, but he submitted that the special conditions included in this particular letter of credit prevented SOMO from being anything more than a nominal beneficiary. It was unable to vary any of the terms governing the method of payment, which made it impossible for it to receive any of the funds due under them itself. In truth, SOMO was not really the beneficiary of Crédit Agricole’s obligation; there was in substance one obligation to make payment, which was owed to CBI alone. No one other than CBI could take the benefit of it and enforce it.
11.	I agree that in the ordinary way a documentary credit gives rise to a bundle of separate bilateral obligations of the kind described by Mr. Pollock, none of which are joint in nature. That is so, however, because in almost all cases each of the parties to the transaction is a person or company acting on behalf of itself alone. I can see no reason in principle why a letter of credit should not be issued in favour of joint beneficiaries, as might be the case, for example, if goods or property were being sold by joint owners. However, none of this is of much help in interpreting the special conditions in these particular letters of credit. The first difficulty is to identify who is the beneficiary of the promise contained in condition [A]. The telex from Crédit Agricole was sent to CBI, not to SOMO, but since it contained a request to notify SOMO of the terms of the bank’s undertaking, it must be taken to have been addressed principally to SOMO rather than CBI. In my view, therefore paragraph [A] is to be read as directed to SOMO and as containing an undertaking to pay the sum due under the letter of credit to the Iraq Oil Proceeds Account at the Federal Reserve Bank in New York. Whether that made the CBI an agent for collection in the usual sense does not matter for present purposes.
12.	The reference to “the beneficiary” in condition [B], on the other hand, must be to SOMO and accordingly I think it is clear that that paragraph does contain a joint promise in favour of SOMO and CBI that the proceeds of the letter of credit will be paid into CBI’s account in New York. I accept that letters of credit, like other commercial contracts, must be construed as a whole in accordance with established principles, but I do not think that, when dealing with such a well-recognised and familiar form of financial instrument, it is right to ignore the established structure within which the parties must be taken to have been working. For the reasons I have given I accept that SOMO is the beneficiary of these letters of credit in the conventional sense and is therefore, in the absence of a clear statement to the contrary, the party to whom Crédit Agricole incurred the primary obligation to make payment. The fact that it was required to discharge that obligation by making payment to the account of CBI does not detract from that position. Nor does the fact that it also entered into a separate, independent, obligation to CBI to pay the funds due under the letters of credit to its account in New York. I therefore think that Mr. Pollock was right to submit that each of these letters of credit gives rise to two separate obligations: an obligation to pay the proceeds into the account of the CBI in New York which is owed to SOMO alone and sounds in debt, and a separate collateral obligation to pay the proceeds into that account which is owed to SOMO and the CBI jointly and sounds in damages. 
13.	Mr. Pollock submitted that, even if CBI was the beneficiary of the bank’s promises to pay under these letters of credit, they were not promises which it could enforce, because they were not supported by consideration. Mr. Dunning put forward several different answers to that point, some more persuasive than others, but in view of the conclusion to which I have come on the question of construction, the issue is of no relevance and I do not think that anything is to be gained by dealing with it. I would only say that I should be loath to hold, particularly in a commercial context, that a promise which both parties intended should be relied on was unenforceable for want of consideration.
The situs of the debts
14.	In Société Eram Shipping Co. Ltd v Cie. Internationale de Navigation [2003] UKHL 30, [2004] 1 A.C. 260 the House of Lords held that a third party debt order is a proprietary remedy, which, when complied with, operates to discharge the debt and release the debtor from his obligation. Since it involves dealing with property, the courts of this country do not have jurisdiction to make such an order in respect of debts situated outside the jurisdiction, unless by the law applicable in that place an English order would be recognised as discharging the liability of the third party to the judgment debtor: see, in particular, Lord Bingham of Cornhill at paragraph 26. It is therefore necessary to identify the situs of the debts which Crédit Agricole owes to SOMO.
15.	The judge held that the debts were situated in England, because in order to enable payment to be made Crédit Agricole had to give instructions in London to a correspondent bank in New York to effect payment. However, I am, with respect, unable to accept that analysis and neither counsel invited us to adopt it. Basing himself on the decision of this court in Power Curber International Ltd v National Bank of Kuwait S.A.K. [1981] 1 W.L.R. 1233, Mr. Dunning submitted that the debts were situated in New York, where payment under the letters of credit was to be made. Mr. Pollock submitted that the general rule that a chose in action is situated in the place where it can be enforced by an action against the obligor applies as much to the obligation of the issuing bank under a letter of credit as to any other chose in action and that the debt was situated in England, where the relevant branch of Crédit Agricole is located. 
16.	 In Power Curber the defendant bank, which was incorporated in Kuwait with a registered office in London, issued a letter of credit addressed to the Bank of America in Florida advising the establishment of an irrevocable credit in favour of the plaintiff sellers payable through the North Carolina National Bank in Charlotte, North Carolina, as to 25% on presentation of shipping documents and the balance one year after the date of shipment. After the goods had been shipped and the initial instalment paid, but before the date for the payment of the balance had come, a Kuwaiti court made an order of provisional attachment over the amount outstanding under the letter of credit. The plaintiff brought proceedings against the bank in this country claiming the balance due to it. The plaintiff made an application for summary judgment, in response to which the bank put forward two grounds of defence: (i) that the proper law of the transaction was the law of Kuwait and that it would be unlawful under Kuwaiti law to make payment as long as the provisional attachment remained in force; and (ii) that the debt was situated in Kuwait and was therefore subject to the provisional attachment.
17.	Parker J. gave summary judgment in favour of the plaintiff and his decision was upheld by this court (Lord Denning M.R., Griffiths L.J. and Waterhouse J.). Despite the importance and potential difficulty of the issues, all three members of the court dealt with them quite shortly, but their reasons did not completely coincide. For present purposes we are concerned only with their decision on the situs of the debt. Lord Denning said at page 1240F:
“Nor can I agree that the lex situs of the debt was Kuwait. It was in North Carolina. A debt under a letter of credit is different from ordinary debts. They may be situate where the debtor is resident. But a debt under a letter of credit is situate in the place it is in fact payable against documents.”
18.	Griffiths L.J. said at page 1242G:
“Secondly, it was submitted that payment was unlawful according to the lex situs of the debt which it is said is Kuwait. But this is a debt that is owed in American dollars in North Carolina; I do not regard the fact that the bank that owes the debt has a residence in Kuwait as any reason for regarding Kuwait as the lex situs of the debt. The lex situs of the debt is North Carolina, and this ground for giving leave to defend cannot be supported.”
19.	Waterhouse J. was more cautious. He said at page 1244B-D:
“A debt is generally to be looked upon as situate in the country where it is properly recoverable or can be enforced . . . In the absence of any previous binding authority, I have not been persuaded that this debt due under an unconfirmed letter of credit can be regarded as situate in North Carolina merely because there was provision for payment at a branch of a bank used by the sellers in Charlotte: . . . ”
20.	Mr. Dunning submitted that, despite the brevity of reasoning, there is a clear majority in favour of the proposition that a debt arising under a letter of credit it situated at the place where payment is to be made and that since it was necessary for the plaintiff to succeed on that point in order to have the appeal dismissed, it is properly to be regarded as part of the ratio of the decision and therefore binding on us. 
21.	I can see that the conclusion to which the majority came in that case has an instinctive attraction, but, since all three members of the court started from the proposition that in general a debt is situated at the place where the debtor resides, it is not easy to see why that principle should not apply in the case of letters of credit. It is based on the common sense proposition that a debt, like any other chose in action, can be recovered only in a place where an action can be brought against the debtor and the generally recognised rules of territorial jurisdiction mean that the one place in which that can without question be done is the place where the debtor resides. It is a curious feature of Power Curber that the plaintiff submitted to the dismissal of its claim against the bank in North Carolina precisely because of doubts about the amenability of the bank to the jurisdiction of the local courts. Neither Lord Denning nor Griffiths L.J. sought to explain how a chose in action can be situated in a place where an action to enforce it cannot be brought against the debtor and it seems that there may have been some confusion between the place where the debt was payable and the place where the obligation could be enforced.
22.	Not surprisingly, perhaps, in the light of these considerations Mr. Pollock submitted that Power Curber is not binding authority for the proposition that a debt arising under a letter of credit is situated at the place where it is payable.  He argued that no single principle can be derived from the majority judgments because it is impossible to identify a principle (as opposed to an outcome) on which they agreed. He accepted that, despite the absence of any explanatory reasoning, it is possible to identify the ratio of Lord Denning’s judgment as being that debts arising under letters of credit are situated in the place of payment. No ratio, he submitted, can be derived from the judgment of Griffiths L.J., however, because he merely stated the outcome without seeking to state any principle.
23.	In Dicey, Morris and Collins on The Conflict of Laws (15th ed) the general rule is stated in terms that choses in action generally are situated in the country where they are properly recoverable or can be enforced (rule 129(1)) and in paragraph 22-029 it is said that a stipulation that payment should be made in a country where the debtor has no residence does not affect the general rule, citing Re Helbert Wagg & Co. Ltd [1956] Ch. 323. However, in paragraph 22‑033 dealing with letters of credit the learned editors, having referred to Power Curber, suggest that it provides an exception to the general rule and was laid down for reasons of policy. They conclude by observing that since there was doubt about the recoverability of the debt in North Carolina, it could be argued that it was wrong to regard the debt as situated there.
24.	Attractive though Mr. Pollock’s argument is, I am unable to accept it. It may be that in due course the Supreme Court will have the opportunity of considering whether the conclusion reached by the majority in Power Curber was correct and, if so, of explaining why the situs of a debt arising under a letter of credit is different from that of other debts and choses in action. However, in my view a fair reading of the judgment of Griffiths L.J. leads to the conclusion that he agreed with Lord Denning’s reasons for his decision. Their judgments may have been drafted separately, but were clearly circulated in advance, as can be seen from the comments of Waterhouse J., and I think it unlikely that Griffiths L.J. would have expressed himself as he did if he had disagreed with Lord Denning’s analysis. Accordingly, I think we are bound to hold that the debts due from Crédit Agricole to SOMO are situated in New York. There is no evidence to suggest that under New York law compliance with an English third party debt order would be recognised as effective to discharge the debtor’s liability to the original creditor. It therefore follows, applying Société Eram that the courts of this country have no jurisdiction to make such an order in respect of the debts arising under the letters of credit with which we are concerned. In my view, therefore, the third party debt orders must be discharged.
Honest dealing
25.	This makes it unnecessary to deal with Mr. Dunning’s submission that the existence of the undertaking by Crédit Agricole to CBI to pay the proceeds of the letters of credit into the designated account in New York was itself enough to prevent the court from making third party debt orders in relation to them. The argument was based on certain comments to be found in In re General Horticultural Company, Ex parte Whitehouse (1886) 32 Ch. D. 512. In that case Wills, to whom a sum had been allowed in a winding up for work done for the liquidator, charged the amount due to him as security for the payment of three debts, the total amount of which exceeded the sum due to him from the company. Notice of the first charge was duly given to the liquidator. Some time later Whitehouse obtained a judgment against Wills, which he sought to enforce by garnishee order nisi against the sum due from the company. Later, the second and third of Wills’ creditors gave notice to the liquidator of their charges. It was accepted that the interest of the first chargee could not be overridden by the garnishee order, but a question arose whether Whitehouse was entitled to execute on the remainder of the debt, notwithstanding the second and third chargees. Chitty J. held that he could not because a garnishee order “charges only what the judgment debtor can himself honestly deal with”. He pointed out that the assignment by way of charge between Wills and the second and third creditors was binding as between them and that the equitable doctrine of notice was concerned only to determine priority between competing incumbrancers. To allow the garnishee order to override the charges would enable the judgment debtor to obtain not the property of the judgment debtor, but that of someone else.
26.	Field J. held that the principle to be derived from In re General Horticultural Co was that there can be no attachment of a debt which is not in the free disposition of the judgment creditor. Since SOMO had no interest in or rights over CBI’s account with the Federal Reserve Bank, New York he concluded that the debts which Taurus sought to attach were never within SOMO’s free disposition and could therefore not be the subject of third party debt order. 
27.	Mr. Pollock submitted that In re General Horticultural Company does not establish any independent principle of honest dealing; it merely reaffirms that a judgment creditor cannot by means of a third party debt order levy execution on property that does not belong to the judgment debtor. In that context it may be said that the judgment debtor cannot honestly deal with a debt which he has assigned to a third party and that the judgment creditor cannot execute on such a debt, but that is because it is no longer the property of the judgment debtor. Further support for that view can be found in Rogers v Whitely (1889) 23 Q.B.D. 236, to which our attention was also drawn. 
28.	In my view Mr. Pollock’s submission is correct. The cases do not support the proposition that there is an independent principle limiting the scope of third party debt orders to debts with which the judgment debtor can honestly deal, otherwise than by reference to the existence of proprietary interests. Although in the present case SOMO had no control over funds once they reached the account of CBI, CBI itself had no proprietary interest of a recognised kind in the debts arising under the letters of credit until they had been paid. In my view the judge was wrong to hold that the terms of the letters of credit and SOMO’s inability to control funds in CBI’s account were sufficient to prevent the attachment of the debts by third party debt order.
Receivership orders
29.	Unlike a third party debt order, which operates in rem, a receivership order operates in personam. In principle, therefore, the same obstacles to making a third party debt order in respect of a debt situated abroad do not stand in the way of making a receivership order in respect of foreign debts or other assets. However, since such an order involves an exercise of the court’s powers in relation to property situated outside its own territorial jurisdiction, it calls for a degree of caution.
30.	In Masri v Consolidated Contractors International (UK) Ltd (No. 2) [2008] EWCA Civ 303, [2009] Q.B. 450 the claimants obtained judgment in this country for a sum of money which represented their share of an oil concession in Yemen. The defendants failed to pay the judgment debt and the claimants applied for and obtained from the High Court by way of equitable execution a receivership order over the revenues due to the defendants under the concession. On appeal this court upheld the order for the reasons given in the judgment of Lawrence Collins L.J. with which Lord Neuberger of Abbotsbury and Ward L.J. agreed. In a passage headed ‘Subject matter jurisdiction’ Lawrence Collins L.J. considered the factors which have to be taken into account when deciding whether the English courts can properly make orders against persons over whom they can exercise territorial jurisdiction in respect of their activities abroad. In paragraph 35 of his judgment he said:
“35.	Consequently the mere fact that an order is in personam and is directed towards someone who is subject to the personal jurisdiction of the English court does not exclude the possibility that the making of the order would be contrary to international law or comity, and outside the subject matter jurisdiction of the English court.”
31.	Having referred to the decision of the House of Lords in the Société Eram case, he expressed his conclusions as follows in paragraphs 50-51:
50.	In my judgment, there is no rule that the court cannot ever make a receivership order by way of equitable execution in relation to foreign debts and that the judge did not exceed the permissible limits of international jurisdiction in making such an order in the circumstances of this case.
51.	In summary my reasons are that (a) the order has no proprietary effect and  acts in personam against the judgment debtor; (b) any adverse effects which the order might have on foreign parties with knowledge of the order are removed by the Babanaft provisos; (c) since the nineteenth century the English courts have recognised the legitimacy of the appointment by the court of receivers in relation to foreign property; (d) the fact that those appointments in the reported cases have been receivers appointed by the court on the application of debenture holders, or receivers appointed prior to judgment, does not affect that conclusion in relation to receivers appointed by way of equitable execution; (e) nothing in Société Eram affects the conclusion.”
32.	However, he added this caveat:  
59.	As I have said, the fact that [the court] acts in personam against someone who is subject to the jurisdiction of the court is not determinative. In deciding whether an order exceeds the permissible territorial limits it is important to consider (a) the connection of the person who is the subject of the order with the English jurisdiction; (b) whether what they are ordered to do is exorbitant in terms of jurisdiction; and (c) whether the order has impermissible effects on foreign parties.
33.	In the present case the person against whom the receivership order was made, and who is therefore the subject of the order, was SOMO. It has no presence within the jurisdiction and no connection with this country, other than as a person against whom judgment has been entered as the result of a process to which it was not a party. It has not sought to have that judgment set aside; it has merely challenged the third party debt orders and the receivership order on the grounds that the court had no jurisdiction to make them. Its connection with this jurisdiction is tenuous, unless it can be said to be the owner of a debt which it situated in this country and for the reasons I have given I do not think that is the case. 
34.	Then there is the question of the exercise of an exorbitant jurisdiction. This is not a simple case of a foreign debtor obliged to pay the creditor in his own country. If it were, it would be difficult to resist the conclusion that an order requiring him to pay the money to an English receiver involved an attempt by the English court to control the conduct of a person outside its jurisdiction in relation to property abroad. Such an order would in my view be impermissible for the reasons explained by Kerr L.J. in Babanaft International Co. S.A. v Bassatne [1990] Ch. 13 and Lawrence Collins L.J. in Masri, unless it were qualified by what is now known as the Babanaft proviso. In the present case, however, the debtor, Crédit Agricole, resides in London, but the orders require it to deal in a prescribed manner with debts situated in New York. Crédit Agricole is subject to the jurisdiction of the English courts and so an order which operates in personam can be made against it, but the court cannot shut its eyes to the possible consequences of doing so. As Lawrence Collins L.J. pointed out in Masri at paragraph 55:
“Payment of an English debt to the receiver is, under English law, a good discharge of a third party debtor’s obligations to the judgment debtor, as the receiver can give a good receipt: Kerr and Hunter, Receivers and Administrators, 18th ed (2005) , para 6-12. Whether payment to the receiver of a foreign debt discharges the debt depends on the applicable law of the contract: cf Ellis v M‘Henry (1871) L.R. 6 C.P. 228, 234.”
35.	Although the parties did not consider the proper law of the letters of credit to be relevant to any of the issues we have to decide, for this purpose (but as far as I can see for no other) it is necessary to identify the proper law of the contracts, because, unless it is English law, a receivership order could well place Crédit Agricole in the invidious position of being required to pay the receiver to avoid being in contempt of court without obtaining a good discharge of its debts.  The letters of credit contain no express choice of proper law and in those circumstances, by virtue of article 4(1) of the Rome Convention (“Rome I”), they are governed by the law of the country with which they are most closely connected. That is presumed to be the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence (article 4(2)). The judge held that the characteristic performance was the making of payment by Crédit Agricole by taking steps in London to credit CBI’s account at First Reserve Bank in New York and that the contracts were therefore governed by English law. Although I do not, with respect, agree that the performance which is characteristic of the contract is taking steps to effect payment rather than actually making payment, the result is the same, since Crédit Agricole was resident in London when it entered into the contracts with SOMO. To make a receivership order in this case, therefore, would not appear to infringe the rights of Crédit Agricole.  
36.	Finally, there is the question of the effect of the receivership order on other parties, in this case principally CBI, which is not resident in this country and is not a party to the proceedings but is the beneficiary of a promise by Crédit Agricole to pay the sums due under the letters of credit into its account in New York. A receivership order would effectively prevent it from obtaining the benefit of that obligation.
37.	Mr. Pollock submitted that the court need be concerned with none of these questions at this stage in the proceedings. Since a receivership order operates in personam, there could be no objection, he submitted, to making such an order against Crédit Agricole now, leaving any issues relating to its implementation for determination at a later date. Attractively though the argument was put, I do not think that we can take that course. It is clear from the decision in Masri that in cases where foreign parties or foreign property are involved the court is obliged to consider the proper limits of its jurisdiction and should refrain from making an order that would exceed them. For the reasons I have given I do not think that this is a case in which the court can properly make a receivership order in respect of the debts due under the letters of credit. It follows that in my view the receivership order should be set aside.
38.	For these reasons I would dismiss the appeal. That makes it unnecessary for me to deal with the interesting questions relating to state immunity, but in case the matter goes farther I propose to state my conclusions on them as briefly as I can.
State Immunity
39.	Prof. Sarooshi submitted that even if the debts in question belonged to SOMO rather than CBI, they were immune from execution because SOMO is an organ of the state and therefore its property is immune from execution under section 13(2)(b) of the State Immunity Act 1978 (“the Act”), or because they represent property acquired through the exercise of sovereign authority and are immune under section 14(2).
(a) The status of SOMO
40.	Prof. Sarooshi submitted that SOMO is nothing more than an emanation of the state of Iraq and that its property, being that of the state, is immune from execution. Alternatively, he submitted that in disposing of the natural assets of the state SOMO was acting in a sovereign capacity jure imperii.
41.	The materials in evidence before us enable one to see how over a period of little more than 20 years SOMO emerged from the Ministry of Oil and became a company with separate legal personality. Law No. 101 of 1976 laid out the structure of the Ministry of Oil and identified certain parties associated with the ministry, one of which was the Iraq National Oil Company (“INOC”). A number of institutions were established as associated with INOC, including the State Institution for Oil and Oil Products Marketing and Transport. In May 1987 a new authority called the Marketing Authority was set up for the purposes of assuming the responsibilities that had previously been entrusted to the State Institution for Oil Marketing. The Marketing Authority was to enjoy financial and administrative independence and had transferred to it the rights and obligations of the State Institution for Oil Marketing as well as its employees.
42.	In June 1998 SOMO was formally incorporated as a state company. Its objects were “to participate in supporting the national economy in the field of oil sector through the marketing of crude oil, natural gas inside and outside the country and marketing the oil products outside the country.” Among the many activities it was established to carry on were entering into contracts with international purchasers for the sale of crude oil and natural gas and chartering tankers for transporting crude oil and gas. It was given a wide range of powers typical of a commercial organisation to enable it to carry out its objects. Consistently with that, it entered into contracts with foreign buyers of crude oil on the terms of a standard form of sale contract, in which it described itself as the seller of the goods and the counterparty as the buyer. It is not surprising, therefore, that it was common ground that SOMO enjoys independent legal personality.
43.	On the face of it, SOMO appears to have been incorporated specifically for the purpose of acting as a separate commercial entity standing between the state and purchasers of oil and gas and it would therefore be surprising if it were in reality no more than an emanation of the state. In La Générale des Carrières et des Mines S.a.r.L. v Hemisphere Associates LLC (Jersey) [2012] UKPC 27, [2012] 2 Lloyd’s Rep. 443 (“Gécamines”) the Privy Council considered the circumstances which would indicate that a state trading company was merely an organ of the state itself and not an independent body. Lord Mance, giving the judgment of the Board, said in paragraph 29:
29.	Separate juridical status is not however conclusive. An entity’s constitution, control and functions remain relevant: paragraph 25 above. But constitutional and factual control and the exercise of sovereign functions do not without more convert a separate entity into an organ of the State. Especially where a separate juridical entity is formed by the State for what are on the face of it commercial or industrial purposes, with its own management and budget, the strong presumption is that its separate corporate status should be respected, and that it and the State forming it should not have to bear each other’s liabilities. It will in the Board’s view take quite extreme circumstances to displace this presumption. The presumption will be displaced if in fact the entity has, despite its juridical personality, no effective separate existence. But for the two to be assimilated generally, an examination of the relevant constitutional arrangements, as applied in practice, as well as of the State’s control exercised over the entity and of the entity’s activities and functions would have to justify the conclusion that the affairs of the entity and the State were so closely intertwined and confused that the entity could not properly be regarded for any significant purpose as distinct from the State and vice versa. . . . ” 
44.	Prof. Sarooshi sought to draw some support from the fact that in Gécamines the Privy Council approved the decisions of the Commercial Court in Kensington International Ltd v Republic of the Congo [2003] EWHC 2331 (Comm) (Tomlinson J.) and [2005] EWHC 2684 (Comm), [2006] 2 B.C.L.C. 296 (Cooke J.) and Walker International Holdings Ltd v République Populaire du Congo [2005] EWHC 2813 (Comm). Both cases concerned Société Nationale des Pétroles du Congo (“SNPC”), a state-owned corporation established by Congo-Brazzaville to undertake, under the control of the relevant ministry, all aspects of the exploitation of the country’s oil reserves. In each case the court held that SNPC was an organ of the state, but in my view that does not carry the matter any farther. As Lord Mance pointed out, the facts were extreme and the court’s findings amounted to a conclusion that SNPC had no separate or distinct existence at all. Approval of the test applied in those cases does not mean that the same conclusion can be drawn in the case of SOMO. 
45.	The evidence in this case shows that SOMO is governed by its board of directors, which is responsible for the conduct of its affairs. There is nothing to suggest that the conduct of its day to day operations is dictated by the Ministry of Oil, and although there is evidence that its programmes for the sale of crude oil and gas must be submitted to the Ministry of Oil for approval, they appear to be drawn up by its own technical and commercial staff, on whose knowledge and experience the ministry to a large extent relies. SOMO does not retain the revenue from its sales, but it does receive operating funds from the ministry, which it deploys as it thinks fit, and maintains its own accounts. The question whether at any stage in the process of production, sale and delivery SOMO acquires title to any of the oil and gas exported from Iraq was not explored in any detail, but in my view is of little importance. The standard terms of sale suggest that title passes from the state to the buyer through SOMO, probably on passing the permanent flange connection of the exporting vessel, but that is of little consequence for deciding whether SOMO is an organisation independent of the state. In my view, the evidence before the court leads inevitably to the conclusion that it is.
(b) An exercise of sovereign authority?
46.	Prof. Sarooshi submitted that in Iraq oil in the ground belongs to the state and that only the state can sell it and collect the proceeds of sale. The defining characteristic of the transactions between SOMO and Crédit Agricole is that the letters of credit were ancillary to and issued for the purpose of supporting the sale of crude oil to third parties. Exploitation of Iraq’s oil reserves is an exercise of sovereign authority in which SOMO is engaged. In support of that submission he relied on a passage from the speech of Lord Goff in Kuwait Airways Corpn v Iraq Airways Co. [1995] 1 W.L.R. 1147 at pages 1160A-C. In that passage Lord Goff was concerned with the distinction between acts done in the exercise of sovereign authority (acta jure imperii) and commercial transactions (acta gestionis). He described it in the following terms:
“ . . . the ultimate test of what constitutes an act jure imperii is whether the act in question is of its own character a governmental act, as opposed to an act which any private citizen can perform. It follows that, in the case of acts done by a separate entity, it is not enough that the entity should have acted on the directions of the state, because such an act need not possess the character of a governmental act. To attract immunity under section 14(2), therefore, what is done by the separate entity must be something which possesses that character.”
47.	The acts which their Lordships were concerned with in that case were the seizure and removal by the Iraqi authorities of aircraft owned by Kuwait Airways. Although it was argued that those who prepared the planes for flight and flew them to Iraq were carrying out ordinary commercial functions associated with an airline operator, their Lordships were satisfied that in reality they were implementing the seizure of the aircraft by the Iraqi state. Their acts were therefore to be regarded having been carried out in the exercise of sovereign authority. In the present case the position is very different. Selling crude oil and entering into ancillary transactions of the kind represented by the letters of credit are ordinary commercial activities, even if the oil itself is produced by companies acting on the state’s behalf and is owned by the state at all times before it is delivered to a buyer. The state could sell the oil itself, but in this case that function has been entrusted to SOMO. Either way, it is a commercial act, not one carried out in the exercise of sovereign authority.
48.	For these reasons I do not think that SOMO is entitled to immunity in respect of its property under section 13(2)(b) or 14(2) of the Act.
(c) The property of CBI
49.	Section 14(4) of the Act provides that property of a state’s central bank shall not be regarded as in use, or intended for use, for commercial purposes. It is therefore immune from execution: see section 14(4) of the Act. Mr. Pollock accepted that if the debts with which we are concerned are to be regarded as the property of CBI, they are immune from execution both by way of third party debt order and by way of the appointment of a receiver. Thus, the only outstanding point of any relevance is whether the debts were or became the property of CBI. For the reasons given earlier, I do not think that they were or did. The independent promise by Crédit Agricole to CBI that it would pay the amount due under the letter of credit into the designated account in New York may have created an obligation which would support a claim for damages, but it did not create a proprietary interest under English law in the debt which Taurus seeks to seize in execution. Nor is there anything to indicate that it created a proprietary interest under the law of New York.
50.	Mr. Dunning submitted that “property” in sections 13 and 14 is to be given a very wide meaning, relying on certain dicta of Aikens J. in AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm), [2006] 1 W.L.R. 1420. In that case the claimants obtained an arbitration award in their favour which they sought to enforce as a judgment against cash and securities held in this country by financial institutions on behalf of the defendant’s central bank, the National Bank of Kazakhstan (“NBK”). In paragraph 47 of his judgment Aikens J. referred to the passage in the speech of Lord Diplock in Alcom Ltd v Republic of Colombia [1984] A.C. 580 in which he held that “property” was broad enough to include, as being the property of a banker’s customer, a debt owed to him by the banker. He concluded from that that “property” should be given a broad scope and “embraced any right or interest, legal, equitable, or contractual in assets that might be held by a state”. 
51.	With respect to Aikens J., I do not think that Lord Diplock’s observation supports quite such a broad formulation. In AIG the sovereign wealth fund of Kazakhstan was transferred to NBK under an agreement which provided for its management on behalf of the state. The agreement gave NBK the right to possess, use and dispose of the assets of the fund: paragraph 16. It appears that under the law of Kazakhstan NBK did not as a result become the owner of the assets, which remained the property of the state: paragraph 17. NBK entered into a global custody agreement with ABN AMRO Mellon Global Security Services BV (“AAMGS”) under which it agreed to provide custodian services. Under that agreement AAMGS became banker to NBK in relation to cash assets; securities were to be held in the name of a nominee of AAMGS, but recorded in AAMGS’s books as belonging to NBK: paragraph 18. One question which arose for decision was whether Kazakhstan rather than NBK was the owner of the assets held by AAMGS and whether NBK had “property” in those assets for the purposes of section 14(4) of the State Immunity Act: see paragraph 29(2). Aikens J. held that it did. 
52.	I do not think there is any real parallel between AIG and the present case. In that case the assets had been transferred to NBK, which was effectively holding them as trustee for Kazakhstan. NBK’s right to call for the assets and to give instructions in respect of them was a consequence both of its position as manager of them on behalf of the state and of its relationship with AAMGS, which held them to its order. The question was whether NBK had a sufficient interest in the securities for them to be treated as its “property” for the purposes of section 14(4), despite that fact that beneficial ownership remained in Kazakhstan itself. It was not a case in which NBK simply had a bare contractual right to have the securities dealt with in accordance with its instructions. In the present case CBI has a contractual right to require Crédit Agricole to discharge its obligation to SOMO by making payment to the designated account in New York, but that is not enough to give it a proprietary interest in the debt in the conventional sense, nor, in my view, is it sufficient to justify regarding the debt as the property of CBI for the purposes of section 14 of the Act.
Conclusion
53.	For these reasons I would dismiss the appeal.
Lord Justice Sullivan :
54.	I agree that this appeal should be dismissed.  I would dismiss the appeal for the additional reason given by Briggs LJ: the effect of special conditions A and B in this letter of credit is to make CBI, not SOMO, the sole creditor.  Since the debt was the property of CBI and not SOMO it was also immune from execution under section 14(4) of the Act.  If I had concluded that SOMO was the sole creditor I would have dismissed the appeal for the reasons given by Moore-Bick LJ.
Lord Justice Briggs :
55.	I agree that this appeal should be dismissed.  In particular I agree with the conclusion of Lord Justice Moore-Bick that the relevant debt is situated in New York, so that the courts of this country have no jurisdiction to make a third party debt order (“TPDO”) in relation to it.  That is because this court is bound by the decision in the Power Curber case, whatever misgivings may arise in relation to the departure from the ordinary rule about the situs of debts  which this court laid down in relation to debts created by letters of credit.  That conclusion is fatal to the appeal in relation to the TPDO, regardless of the outcome of the difficult issues about the construction of this rather unusual form of letter of credit.
56.	I also agree that the court should not have made a receivership order in relation to the debt because to do so would exceed the proper limits of its jurisdiction, as explained in the Babanaft and Masri cases, for at least the reasons given by my Lord.  Furthermore I agree with my Lord’s conclusion that SOMO is not entitled to immunity in respect of its property under ss. 13 or 14 of the State Immunity Act 1978, for the reasons which he gives.
57.	Although it makes no difference to the outcome, I have the misfortune of having reached a different conclusion to my Lord on the construction of the letter of credit.  In my respectful view its unusual terms make CBI not SOMO the only creditor in respect of the money promised to be paid, and therefore solely entitled to property in the debt thereby created, and that it conferred on SOMO (rather than CBI) only a non-proprietary right to seek damages for breach of contract.  That would of course have been fatal to the imposition of a TPDO in relation to the debt, regardless of the rule as to situs in Power Curber.  The knock-on consequence of that view is that I would also have concluded that, since the debt was the property of CBI and not SOMO, it was therefore immune from execution under s. 14(4) of the Act including by way of equitable execution.
58.	I differ from my Lord on a question of construction of a letter of credit with the greatest of diffidence.  His experience of such instruments exceeds mine by orders of magnitude.  Since it makes no difference to the outcome, and since my Lord has already set out the competing arguments, I can explain my reasoning quite shortly.  I acknowledge at the outset that it goes a little further than the ‘joint debt’ analysis of the Judge.
59.	The guts of the letter of credit, in terms of the express obligation to pay money undertaken by Credit Agricole, are to be found in what my Lord has labelled special conditions A and B.  They provide unmistakeably for payment to be made to the credit of CBI rather than SOMO.  In particular, the expression ‘your account’ in condition A must, read in context, mean CBI’s account.  Most unusually SOMO (despite being the beneficiary) is effectively prohibited from calling for payment into its own or any other account.
60.	Standing back, where a contractor X promises Y and Z that he will pay a specified sum of money to Z and not Y, then, without more, he makes Z his creditor, and confers only a right upon Y to claim damages from X for any loss which his failure to pay Z causes Y.  I say ‘without more’ advisedly because there may be material both inside and (to the extent admissible) outside the four corners of the contract which show for example that the real creditor is Y and that Z is merely his agent.  In the present case the requirement to construe letters of credit independently of the transactions giving rise to them effectively excludes recourse to outside assistance.
61.	The only potentially contrary indication within this letter of credit is the labelling of SOMO as beneficiary.  Mr Pollock QC submitted, and my Lord agrees, that this makes all the difference.  In passing I note for completeness that he conceded that conditions A and B were to be applied regardless whether CBI actually confirmed the credit which, in the event, it did not.  It is also I think uncontentious that in construing a letter of credit an obligation may appropriately be described as contractual regardless of whether a common law analysis of offer, acceptance and consideration can be shown to be strictly satisfied in relation to it.  The fact that the promise may be said to be made to SOMO and CBI jointly is not in my view decisive of the question which of them is the creditor.
62.	I have struggled, but without success, to persuade myself that describing SOMO as beneficiary does make all the difference.  Of course the beneficiary under a standard form letter of credit is the creditor, and entitled to the debt which it creates.  But that almost instinctive association between beneficiary and creditor simply arises from the standard (possibly almost universal) form, under which the beneficiary is indeed the person entitled to sue in debt (rather than damages) for payment.  Here by contrast, the supposed beneficiary receives no promise that it will be paid anything, and expressly contracts out of any right to direct payment to itself or to its order: see condition A.
63.	That is not to say that the use of ‘beneficiary’ to describe SOMO would be a misnomer, even if it is not the creditor. It is not therefore necessary to read into the letter of credit an implied right of SOMO to be able to sue for payment in debt as the creditor, merely because it is labelled the beneficiary. SOMO is the seller of the oil, and the letter of credit is the instrument by which the buyer’s  obligation to pay the price is to be discharged.  The special circumstances forming the relevant  background to this letter of credit (which my Lord has described) fully explain why SOMO should have wished to make CBI the creditor rather than itself, but I agree that they are to be treated as inadmissible on the question of construction.  Nonetheless, putting them entirely on one side, there may be many reasons why a seller which is offered a letter of credit by way of payment may wish to require the issuing bank to recognise someone else as the creditor under the letter of credit.  The seller may have assigned the underlying contract debt, or made an arrangement with its working capital lender under which the lender rather than the seller is to be entitled to direct payment.  In such circumstances I do not see why the seller should not be entitled to insist on the insertion of special conditions which have that effect, while reserving a contractual right to damages if the specified creditor is not paid.
64.	In my opinion therefore, the effect of special conditions A and B, read in the context of the whole of this letter of credit is, by a promise made jointly to SOMO and CBI, to make CBI the sole creditor, and to give SOMO only a non-proprietary right to damages for any failure by Credit Agricole to pay CBI.  That is an additional reason why I would dismiss this appeal.