Société Eram Shipping Co Ltd v Hong Kong and Shanghai Banking Corporation Ltd

The House of Lords held that an English court must not make a final third party debt order (formerly a garnishee order absolute) in respect of a debt whose situs is a foreign jurisdiction where, as a matter of the law governing that debt, payment under an English order would not discharge the third party's liability to the judgment debtor. The court treated the requirement that payment operate as a discharge pro tanto as integral to the attachment procedure derived from the Common Law Procedure Act 1854 and embodied in RSC Order 49 and CPR Part 72. Because the relevant Hong Kong law did not recognise an English garnishee order as discharging the bank's debt, the English court could not properly make a final order: the Court of Appeal's contrary decision was set aside and the judge's refusal to make the order absolute restored.

The respondents were a Romanian shipping company which had obtained a Brest Commercial Court judgment against Hong Kong resident judgment debtors and registered that judgment in the English High Court. One of the judgment debtors had an account with the appellant bank in Hong Kong. The judgment creditor applied in England for an interim third party debt order attaching the bank's debt to the judgment debtors and later sought a final order.

The Commercial Court judge (Tomlinson J) refused to make the interim order final, concluding that making an absolute order would expose the bank to a real risk of having to pay the same debt twice and that the court should be reluctant to exercise jurisdiction affecting conduct or assets governed by foreign law. On appeal the Court of Appeal reversed, relying in part on the availability of restitutionary remedies in Hong Kong and the fact that the bank was within the English jurisdiction.

The House of Lords allowed the bank's appeal. The Lords analysed the historical and statutory basis of garnishee/third party debt proceedings going back to the Common Law Procedure Act 1854 and succeeding rules, and explained that the attachment procedure is a proprietary remedy which presupposes that payment under the English order will discharge the garnishee's liability to the debtor. Where the law governing the debt is that of a foreign situs and that law would not recognise the English order as discharging the debt, the English court must not make a final third party debt order. The court characterised this not merely as a discretionary refusal but as a limitation imposed by principles of territorial sovereignty, comity and private international law. The Lords therefore set aside the Court of Appeal's decision, restored the judge's order refusing to make the interim order absolute and awarded costs to the bank.

Nature of relief sought: final third party debt order (garnishee order absolute) to enforce a foreign-sited debt.

Issues framed: (i) whether the English court had power to make a final third party debt order in respect of a foreign-sited debt; (ii) if there was power, whether the court should exercise its discretion to make such an order; (iii) the effect of foreign law on the discharge of the third party's liability.

Reasoning: the attachment procedure is execution in rem against a chose in action and requires that payment under the order discharge the garnishee to avoid unjust double liability; where foreign law governing the debt would not recognise such discharge, the English court should not make the final order because to do so would affront comity and exceed the territorial limits of adjudicative authority. The availability of restitutionary remedies in the foreign forum did not cure the jurisdictional/principled objection.

Appeal allowed. The House of Lords held that the English court must not make a final third party debt order in respect of a debt the situs and governing law of which are foreign where payment under the English order would not, under that foreign law, discharge the third party's liability to the judgment debtor. The Court of Appeal's decision was set aside, the judge's order refusing to make the interim order absolute was restored, no absolute order was to be made, and costs were awarded to the bank.

First instance: application for interim third party debt order made in the High Court (Commercial Court) and Tomlinson J refused to make the interim order final (reported at [2001] CLC 685). Court of Appeal reversed the judge ([2001] 1 All ER (Comm) 721; [2001] EWCA Civ 1317). House of Lords allowed the bank's appeal and set aside the Court of Appeal's order ([2003] UKHL 30).