Société Eram Shipping Company Limited (Respondents) and others v. Hong Kong and Shanghai Banking Corp Ltd (Appellants)

A third party debt order is a proprietary process of execution against a debt belonging to the judgment debtor. The interim order attaches or freezes that debt. The final order requires payment to the judgment creditor and must discharge the third party’s liability to the judgment debtor to the same extent.

An English court cannot make a final order against a foreign debt where its order would not be recognised under the law governing that debt as effecting the necessary discharge. Personal jurisdiction over the third party does not confer subject-matter jurisdiction over a foreign asset. The restraint is a matter of principle founded on the nature of the remedy, territorial sovereignty and international comity. A possible restitutionary claim against the judgment debtor is not an adequate substitute for discharge.

The judgment creditor obtained a judgment for demurrage in the Brest Commercial Court and registered it in the Queen’s Bench Division under the Civil Jurisdiction and Judgments Act 1982. It then sought to attach money owed to the judgment debtors under a Hong Kong bank account. The account debt was payable in Hong Kong, governed by Hong Kong law and owed by a bank which also carried on business in England.

Tomlinson J refused to make the garnishee order final and set aside the interim order because the English order would not discharge the Hong Kong debt and the bank could be required to pay twice: [2001] CLC 685. The Court of Appeal reversed that decision, reasoning that the bank could obtain restitution or set off in Hong Kong: [2001] EWCA Civ 1317; [2001] 1 All ER (Comm) 721.

The central question was whether the English court could make a final third party debt order in respect of a foreign debt which the governing foreign law would not treat as discharged.

1. Appeal allowed unanimously. Lord Bingham delivered the leading speech. Lord Nicholls agreed with Lord Bingham and Lord Hoffmann; Lord Hobhouse expressed full agreement with both; and Lord Millett reached the same conclusion. The Court of Appeal’s order was set aside and Tomlinson J’s order refusing a final order and setting aside the interim order was restored.

2. Per Lord Bingham, Lord Hoffmann and Lord Millett, a third party debt order is a proprietary process of execution against the judgment debtor’s chose in action. The interim order binds, attaches, freezes or charges the debt. The final order realises that asset by requiring the third party to pay the judgment creditor, while discharging the third party’s debt to the judgment debtor pro tanto. That discharge is an essential and legislatively required feature of the process under Part 72 of the Civil Procedure Rules 1998.

3. Per Lord Bingham and Lord Hoffmann, an English court cannot make a final order where the governing law of a foreign debt would not recognise the order as discharging the debt. The decision in Martin v Nadel [1906] 2 KB 26 governed the case. Lord Bingham accepted that an order might exceptionally attach a foreign chose in action if the law of its situs recognised the English order as effecting discharge. The judgment creditor must establish that recognition.

4. Per Lord Hoffmann and Lord Millett, the restriction is mandatory as a matter of principle, whether described as an absence of subject-matter jurisdiction or a principled refusal to exercise jurisdiction. Execution is an exercise of sovereign authority. Personal jurisdiction over a bank cannot justify attachment of a debt situated abroad or interference with assets subject to another state’s authority. The contrary observations in SCF Finance Co Ltd v Masri (No 3) and Interpool Ltd v Galani were misleading and concerned questions which had not arisen for decision.

5. Per Lord Bingham and Lord Hoffmann, a possible restitutionary claim or contractual set-off was not an alternative to discharge. Without discharge, the order would compel an innocent third party to satisfy another person’s judgment debt from its own resources. That would cease to be execution against the judgment debtor’s property.

6. Lord Hobhouse added that, absent special agreement, a bank’s debt to its customer is repayable at the branch where the account is maintained and is situated in that country. The bank had never undertaken to repay this Hong Kong account in England. Even if jurisdiction had existed, Lord Bingham considered that principle, comity, the danger of double payment and the availability of enforcement proceedings in Hong Kong required refusal of the order.

• House of Lords: In Société Eram Shipping Company Limited and others v Hong Kong and Shanghai Banking Corporation Limited [2003] UKHL 30 , the House unanimously allowed the bank’s appeal, set aside the Court of Appeal’s order and restored Tomlinson J’s order.
• Court of Appeal: Schiemann, Mance and Keene LJJ reversed Tomlinson J and made the garnishee order final, relying on a putative restitutionary remedy in Hong Kong: [2001] EWCA Civ 1317 ; [2001] 1 All ER (Comm) 721.
• High Court, Commercial Court: Tomlinson J refused to make the garnishee order final and set aside the interim order because the bank faced double liability and the order would regulate foreign parties and assets outside the territorial jurisdiction: [2001] CLC 685.