Taurus v SOMO

Letters of credit are often described as the “lifeblood of international commerce” and the English courts have traditionally been cautious about interfering with the payment obligations which arise under them.1 Nevertheless, in Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Iraq (“SOMO”)2 the Supreme Court, by a majority of 3:2, has approved an order which does interfere with the relationship between an issuing bank and a correspondent bank under two letters of credit in a dispute to which neither bank was a party. Further, there was no consensus within the Supreme Court itself as to the nature of that relationship. In part, the difficulty faced by the Supreme Court and the courts below can be attributed to the actual wording of the letters of credit, but perhaps a bigger problem was that there was little attempt by the two parties to the proceedings to focus on the detail of that relationship under international rules incorporated by contract in the letters of credit (ie, UCP6003), since both parties relied primarily on other issues to support their respective cases.4 One is left with a decision which is both confusing from a legal perspective and potentially damaging to London’s position as a major centre for