Creditor’s Ability to Recover in the UK From Debt Owed Under Letters of Credit
Your client has a judgment or arbitral award and becomes aware of an unrelated contract where the judgment debtor is to be paid through letters of credit issued by a bank branch in the UK. Can you use that as a source of recovery? In the recent case of Taurus Petroleum Ltd v. State Oil Marketing Company of the Ministry of Oil, Iraq, (2017) UKSC 64, the court said "yes".
There, the letters of credit were issued by the London branch of a French bank. The court noted that Article 3 of the Uniform Customs and Practice for Documentary Credits (2007 Revisions) provided that "branches of a bank in different countries are considered to be different banks." As such, the London branch was considered a separate bank and therefore, the situs of the debt under the letters of credit was England because the situs of debt due under letters of credit is the place of payment.
The court then found that the letters of credit named the judgment debtor as the beneficiary and the sole owner of the debt. It was therefore the only entity to which the bank incurred the primary obligation to make payment. The court permitted the interception of the proceeds of the letters of credit at the level of the issuing bank.
Therefore, a judgment creditor may pursue collection directly from an issuing bank on a letter of credit where the place of payment is in the UK. Such a situation is not common, but judgment creditors need to be aware of another avenue of collection.