Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy & Anor

A third party debt order may attach only a debt presently payable or payable in the future under an existing obligation. Money is not an attachable debt where its repayment depends on an unfulfilled condition precedent or the third party’s further consent.

Contractual documents must be construed according to their express terms. A supplemental agreement which provides that a payment will continue to be held under an existing agency agreement, and permits repayment only on terms acceptable to the paying agent, prevents an immediate and unconditional debt from arising. A later voluntary repayment does not establish that such a debt was due or accruing due when the order was sought.

MIC held an English judgment against Naftogaz. To enforce it, MIC obtained three interim third party debt orders against The Bank of New York Mellon, the principal paying agent for Naftogaz’s loan notes.

The first coupon payment had been made to BNYM for payment to noteholders. After the orders disrupted that payment, Naftogaz made a second coupon payment, from which the noteholders were paid. A supplemental agreement provided that BNYM would continue to hold the first payment on the basis on which it was originally paid, subject to the agency agreement.

Blair J discharged the orders. MIC appealed only the discharge of the third order, contending that the first payment had become repayable on demand once the second payment had been used. The central issue was whether BNYM then owed Naftogaz a debt due or accruing due for the purposes of Part 72.

1. Appeal dismissed. Davis LJ, with whom Sales and Arden LJJ agreed, held that Blair J had correctly concluded that no debt due or accruing due from BNYM to Naftogaz existed when the third interim third party debt order was made.

2. A debt capable of attachment must be presently payable or payable in the future under an existing obligation. An unfulfilled condition precedent prevents a debt from being due or accruing due. That principle governed the jurisdictional question under Part 72.

3. The first coupon payment was made under clause 6.1 of the Agency Agreement. Clause 6.4 required BNYM to apply it in accordance with the payment provisions and did not oblige BNYM to repay it except in a stipulated circumstance which did not arise.

4. The Supplemental Agreement did not alter that position. Its express terms provided that the first payment would continue to be held on the same basis as originally paid and subject to the Agency Agreement, including clause 6.4. Its requirement for a further written agreement on terms acceptable to BNYM had substantive effect. It meant that Naftogaz had no entitlement to repayment on demand.

5. Accordingly, the use of the second payment to pay the noteholders did not cause the first payment to become an immediately repayable bank debt. BNYM’s later willingness to transfer part of the money was immaterial because it was not acting under an immediate and unconditional obligation.

6. The court therefore did not decide the alternative challenge to Blair J’s discretionary refusal of a final order. Davis LJ added that MIC and its solicitors had not behaved improperly in applying for the first order, although without-notice applications for interim third party debt orders should ordinarily present a clear case and identify anticipated points of contention.

• Court of Appeal (Civil Division): Dismissed MIC’s appeal and upheld the discharge of the third interim third party debt order.

• High Court, Queen’s Bench Division, Commercial Court: Blair J discharged the three interim third party debt orders: [2014] EWHC 391 (Comm).