Final third party debt order - foreign debt

Socit Eram Shipping Company Ltd v Compagnie Internationale de Navigation and ors [2003] 3 WLR 21, HL

In this case, the point of principle for the House of Lords was whether and if so in what circumstances an English court can make a final third party debt order (formerly known as a garnishee order absolute) to attach a foreign debt.

When the proceedings were begun, order 49 of the Rules of the Supreme Court governed them.

However, by the time the case reached the House of Lords, part 72 of the Civil Procedure Rules 1998 had replaced order 49.

Nothing turned on the replacement of order 49.

The two procedures are essentially very similar and the main impact of part 72 on the appeal was the introduction of new terminology.

Socit Eram Shipping Company Ltd ('the judgment creditor') obtained judgment against Socit Oceanlink Ltd and Mr Yoon Sei Wha ('the judgment debtors') in the Brest Commercial Court.

The judgment debtors, who are resident in Hong Kong, did not satisfy the judgment and the judgment creditor registered the judgment for enforcement in the Queen's Bench Division of the High Court.

The Hong Kong and Shanghai Banking Corporation ('the third party' and garnishee in the earlier decisions) is a company incorporated in Hong Kong with branches throughout the world, including England.

The judgment debtors held an account at a Hong Kong branch of the third party.

The account was in credit.

The law of Hong Kong governed the debt due from the third party to the judgment debtors on the Hong Kong account.

The judgment creditor could have applied for a third party debt order in Hong Kong against the third party in respect of the debt owed by the third party to the judgment debtors.

The judgment creditor did not take this approach and instead applied for what was then a garnishee order nisi and is now known as an interim third party debt order.

The garnishee order nisi was made attaching to the benefit of the judgment creditor, all debts owed by the third party to the judgment debtors.

The application for a garnishee order absolute was made before Mr Justice Tomlinson.

The evidence at first instance was that under the law and procedure of Hong Kong, a garnishee order made in England did not have the effect of extinguishing the garnishee's debt to the judgment debtors in Hong Kong.

Nor would the Hong Kong court give effect to a garnishee order absolute by reciprocal enforcement.

Mr Justice Tomlinson refused to make a garnishee order absolute and set aside the nisi order.

His reasons for doing so were that there was a double jeopardy risk of the third party having to pay both the judgment debtors, in relation to the debt owed to them in Hong Kong and the judgment creditor, in relation to the garnishee order in England.

The judgment creditor appealed to the Court of Appeal.

The judgment creditor's appeal was allowed.

In so doing, the Court of Appeal held that it was not an effective precondition for the court having jurisdiction that the making of the order should discharge the liability of a garnishee to a judgment debtor.

The test to be applied was held to be wider, namely, whether there was, as a practical matter, a real risk that a foreign court may, despite payment by a garnishee pursuant to a garnishee order absolute, nevertheless enforce the attached debt against a garnishee on behalf of a judgment debtor.

The Court of Appeal reviewed the evidence and discounted the risk that the third party would have to pay twice.

The court also placed reliance on the existence of a restitutionary remedy available to the third party.

Therefore, the court allowed the appeal and made a garnishee order absolute.

The third party appealed to the House of Lords on the basis that there was no jurisdiction for the court to make a final third party debt order and alternatively, if the court did have jurisdiction, the court should have exercised its discretion against making the order.

The Law Lords held that there was no jurisdiction to make the third party debt order in circumstances where it is clear or appears that the making of the order will not discharge the debt of the third party to the judgment debtor according to the foreign law governing the debt.

However, it was open for the court to make a final third party debt order in circumstances where the foreign law governing the debt would recognise the English order as discharging pro tanto the liability of the third party to the judgment debtor.

In an increasingly global economy, the desire to resort to a final third party debt order in relation to an overseas debt is likely to be a frequent occurrence.

This case gives clear and straightforward guidance to judgment creditors as to when English enforcement under a final third party debt order can be utilised in respect of a foreign debt owed by a third party to a judgment debtor where the third party has a presence within the jurisdiction.

The outcome of the case also emphasises the difficulty in obtaining such an order.

The difficulty of obtaining a final third party debt order in relation to an overseas debt was reinforced when the decision in this case was immediately applied in the House of Lords case of Kuwait Oil Tanker Co v Qabazard and others [2003] 3 WLR 14.

In that case, a judgment creditor tried to attach a debt alleged to be owed by a third party bank to the judgment debtor on a Swiss bank account.

The Law Lords held that on the application of the Lugano Convention, to which the UK and Switzerland are both signatories, the Swiss courts had exclusive jurisdiction and in these circumstances a final third party debt order would be regarded as an infringement of Swiss sovereignty.

From the perspective of the application of the Eram case, it was held that the Swiss debts, if any, were foreign debts which would not be discharged by compliance with the English order so that even if the Swiss courts did not have exclusive jurisdiction, the final third party debt order ought not to have been made.

Judgment creditors seeking a third party debt order should clearly consider whether such an order is best applied for in England or in the jurisdiction of the law governing the foreign debt.

By Simon Sugar, barrister, 36 Bedford Row, London