Source: http://www.ipsofactoj.com/DecidedCases/international/2004/part02/int2004(02)-002.htm
Timestamp: 2017-09-23 09:32:55
Document Index: 629176141

Matched Legal Cases: ['art 2', 'EWCA ', 'art 72', 'art 72', 'art 72', 'art 72', 'art 72', 'art 72']

HSBC Ltd v Societe Eram Shipping Co Ltd [HL]
Ipsofactoj.com: International Cases [2004] Part 2 Case 2 [HL]
H.S.B.C. Ltd
(Hong Kong & Shanghai Banking Corp Ltd)
Société Eram Shipping Co Ltd
This appeal is against the making of what was formerly called a garnishee order absolute but is now called a final third party debt order. When they were begun the proceedings were governed by a procedure since replaced by a procedure very similar in substance but expressed in different language, and I shall so far as possible use the new terminology. The feature of the order which gives rise to controversy is that it was made in relation to a foreign debt. The House is called upon to consider the power of the English court to make an order in such a case and, if there is power, the manner in which it should be exercised.
The appellant is the Hong Kong and Shanghai Banking Corporation Ltd, a company incorporated in Hong Kong and carrying on a banking business there and elsewhere. It has a branch in London and is registered in England under section 691 of the Companies Act 1985. The appellant would formerly have been called "the garnishee" but is now to be called "the third party", by which term I shall describe it.
Société Eram Shipping Co Ltd is a Romanian shipping company. I shall refer to it as "the judgment creditor".
Société Oceanlink Ltd and Mr. Yoon Sei Wha are a company and an individual resident in Hong Kong. I shall refer to them as "the judgment debtors". A third company against which the judgment creditor also issued proceedings may be ignored for present purposes. The judgment debtors have played no part in these proceedings at any stage.
The judgment creditor claimed demurrage against the judgment debtors and obtained judgment against them in the Brest Commercial Court for some US $101,000 and 5000 French francs. The judgment debtors did not satisfy the judgment and the judgment creditor registered it in the Queen's Bench Division of the High Court under the provisions of the Civil Jurisdiction and Judgments Act 1982.
One or other of the judgment debtors holds an account in Hong Kong with the third party. The debt due from the third party to the judgment debtors on this account is situated in Hong Kong and is governed by the law of Hong Kong.
The judgment creditor could have obtained a third party debt (or garnishee) order in Hong Kong against the third party in respect of the debt due from the third party to the judgment debtors. Under the law and procedure of Hong Kong it was open to the judgment creditor to obtain such an order after applying to the Hong Kong court for registration and enforcement of the Brest judgment or after suing in Hong Kong on the judgment registered in the Queen's Bench Division. The judgment creditor did not adopt those procedures. Instead, it applied to the High Court in England for an interim third party debt order (then called a garnishee order nisi) in respect of the debt owed by the third party to the judgment debtors in Hong Kong. The application was made in the usual way without notice to the third party, and an order was made that all debts accruing to the judgment debtors from the third party be attached to answer the Brest judgment registered in the High Court; and also that the third party attend on an application by the judgment creditor that the third party pay to the judgment creditor the debt due from the third party to the judgment debtors or so much thereof as might be sufficient to satisfy the judgment and the costs of the third party debt order (or garnishee) proceedings.
A hearing took place before Tomlinson J sitting in the Commercial Court to decide whether the interim third party debt order should be made final (or the garnishee order nisi be made absolute). The undisputed evidence was that under the law and procedure of Hong Kong a third party debt (or garnishee) order made in England did not have the effect of extinguishing the third party's (or garnishee's) Hong Kong debt to a judgment debtor in Hong Kong. Nor would the Hong Kong court give effect to an English third party debt (or garnishee) order by reciprocal enforcement or action. Having reviewed the authorities, the judge declined to make a final third party debt order and he set aside the interim order. His essential reasons (elaborated in a very convincing judgment) were, first, that he considered the third party to be at risk of having to pay twice (once in London in compliance with the English order if made, and again in Hong Kong at the suit of the judgment debtors), and secondly out of reluctance to exercise jurisdiction over foreigners in relation to their conduct outside the territorial jurisdiction of the court: [2001] CLC 685. On appeal by the judgment creditor the Court of Appeal (Schiemann, Mance and Keene LJJ) reversed the judge's decision: [2001] 2 All ER (Comm) 721; [2001] EWCA Civ 1317. In a judgment of the court delivered by Mance LJ the risk that the third party might have to pay twice was discounted and reliance was placed on the existence of a restitutionary remedy available to the third party in Hong Kong.
The third party challenges the Court of Appeal judgment, contending that the English court had no jurisdiction to make an order in this case and that, if it did, it should have exercised its discretion against making an order. The judgment creditor rejects these contentions, submitting that the Court of Appeal reached the correct conclusions for the reasons which it gave.
As many a claimant has learned to his cost, it is one thing to recover a favourable judgment; it may prove quite another to enforce it against an unscrupulous defendant. But an unenforceable judgment is at best valueless, at worst a source of additional loss. This was a problem which our Victorian forebears addressed with characteristic energy and pragmatism. The Judgments Acts of 1838 and 1840 allowed choses in action to be taken in execution. Then, in the Common Law Procedure Act 1854, a new garnishee procedure was introduced. The essential features of this procedure were laid down in sections 61-63 and 65 of the Act:
It shall be lawful for a judge, upon the ex parte application of such judgment creditor, either before or after such oral examination, and upon affidavit by himself or his attorney stating that judgment has been recovered, and that it is still unsatisfied, and to what amount, and that any other person is indebted to the judgment debtor, and is within the jurisdiction, to order that all debts owing or accruing from such third person (hereinafter called the garnishee) to the judgment debtor shall be attached to answer the judgment debt; and by the same or any subsequent order it may be ordered that the garnishee shall appear before the judge or a master of the court, as such judge shall appoint, to show cause why he should not pay the judgment creditor the debt due from him to the judgment debtor, or so much thereof as may be sufficient to satisfy the judgment debt.
If the garnishee does not forthwith pay into court the amount due from him to the judgment debtor or an amount equal to the judgment debt, and does not dispute the debt due or claimed to be due from him to the judgment debtor, or if he does not appear upon summons, then the judge may order execution to issue, and it may be sued forth accordingly, without any previous writ or process, to levy the amount due from such garnishee towards satisfaction of the judgment debt.
The procedure so established was regulated by the Rules of Court scheduled to the Supreme Court of Judicature Act 1875 when that Act took effect, and by the Rules of the Supreme Court promulgated in 1883 when those replaced them. In each of these codes of rules Order 45 regulated garnishee proceedings. When the rules were revised in 1965 (Rules of the Supreme Court (Revision) 1965, SI 1965/1776, made under section 99 of the Supreme Court of Judicature (Consolidation) Act 1925), Order 45 was substantially reproduced as Order 49. It is apparent from the terms of rules 1(1) and (2), 3 and 8 of this Order that the nature of the 1854 procedure remained essentially unchanged:
Where a person (in this order referred to as 'the judgment creditor') has obtained a judgment or order for the payment by some other person (in this order referred to as 'the judgment debtor') of a sum of money amounting in value to at least £50, not being a judgment or order for the payment of money into court, and any other person within the jurisdiction (in this order referred to as 'the garnishee') is indebted to the judgment debtor, the court may, subject to the provisions of this order and of any enactment, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or order and the costs of the garnishee proceedings.
Unless the court otherwise directs, an order under rule 1 to show cause must be served -
Part 72 of the Civil Procedure Rules 1998 came into effect on 25 March 2002. Entitled "Third Party Debt Orders" this Part replaced Order 49. But although the terminology was changed, the nature of the procedure was not, as is clear from rules 72.1(1), 72.2(1) and (2), 72.4 and 72.9:
This Part contains rules which provide for a judgment creditor to obtain an order for the payment to him of money which a third party who is within the jurisdiction owes to the judgment debtor.
Upon the application of a judgment creditor, the court may make an order (a 'final third party debt order') requiring a third party to pay to the judgment creditor -
so much of that debt as is sufficient to satisfy the judgment debt and the judgment creditor's costs of the application.
The court will not make an order under paragraph 1 without first making an order (an 'interim third party debt order') as provided by rule 72.4(2).
An application for a third party debt order will initially be dealt with by a judge without a hearing.
The judge may make an interim third party debt order -
fixing a hearing to consider whether to make a final third party debt order; and
directing that until that hearing the third party must not make any payment which reduces the amount he owes the judgment debtor to less than the amount specified in the order.
An interim third party debt order will specify the amount of money which the third party must retain, which will be the total of -
the amount of money remaining due to the judgment creditor under the judgment or order; or
an amount for the judgment creditor's fixed costs of the application, as specified in the relevant practice direction.
the third party pays money to the judgment creditor in compliance with a third party debt order; or
the order is enforced against him,
Paragraph (2) applies even if the third party debt order, or the original judgment or order against the judgment debtor, is later set aside.
As the cited provisions made clear, the procedure has from the beginning made provision for a two-stage process, first an order nisi or interim order, then an order absolute or final order. The decided cases leave no room for doubt about the legal effect of each of these orders.
Section 62 of the 1854 Act describes the order nisi as binding the judgment debtor's chose in action in the hands of the garnishee. The effect of the order, as Chitty J put in Re General Horticultural Co, Ex p Whitehouse (1886) 32 Ch D 512, 515, is "to give the judgment creditor execution against the debts owing to his debtor". In Rogers v Whiteley [1892] AC 118 Lord Halsbury LC spoke (p 121) of the order attaching all debts, and Lord Watson (p 122) said:
The effect of an order attaching 'all debts' owing or accruing due by [the garnishee] to the judgment debtor is to make the garnishee custodier for the Court of the whole funds attached; and he cannot, except at his own peril, part with any of those funds without the sanction of the Court.
.... all debts due and owing by the above-named garnishee are attached to answer the judgment creditor's demand - that is, they are all captured for the purpose of afterwards answering that demand.
In Galbraith v Grimshaw & Baxter [1910] 1 KB 339, Farwell LJ pointed out that the order nisi
does not, it is true, operate as a transfer of the property in the debt, but it is an equitable charge on it, and the garnishee cannot pay the debt to any one but the garnishor without incurring the risk of having to pay it over again to the creditor.
Atkin LJ made the same point in Joachimson v Swiss Bank Corporation [1921] 3 KB 110, 131:
The service of the order nisi binds the debt in the hands of the garnishee - that is, it creates a charge in favour of the judgment creditor.
The point was again made by Lord Denning MR. in Choice Investments Ltd v Jeromnimon [1981] QB 149, 155:
[Service of the order nisi] prevents the bank from paying the money to its customer until the garnishee order is made absolute, or is discharged .... The money at the bank is then said to be 'attached' .... But the 'attachment' is not an order to pay. It only freezes the sum in the hands of the bank until the order is made absolute or is discharged. It is only when the order is made absolute that the bank is liable to pay.
The effect of the order absolute has been similarly explored in the authorities. It was pointed out in Re Combined Weighing & Advertising Machine Co (1889) 43 Ch D 99 that the order does not operate as a transfer of the garnishee's debt but attaches the debt and confers a right of execution only. Cotton LJ explained in Chatterton v Watney (1881) 17 Ch D 259, 262:
The effect of a garnishee order is to bind the debt attached and to prevent the creditor from receiving it; and when it is made absolute it gives the judgment creditor a right to recover payment from the garnishee, and by rule 8 it is provided that payment made by the garnishee under the proceeding shall be a valid discharge to him as against the judgment debtor. There is nothing in the terms of the General Order to affect any security for the debt, it only takes away the right of the judgment debtor to receive the money and gives the judgment creditor a right to receive it. It has not the effect of transferring the security, nor does it give the person who obtained the garnishee order any right to the security or any claim against the land comprised in it.
Lindley MR. defined the effect of the order absolute very succinctly in Pritchett v English & Colonial Syndicate [1899] 2 QB 428, 433:
.... the order is, in substance, not an order to pay a debt, but an order on the garnishees, the syndicate, to hand over something in their hands belonging to [the judgment debtor] to [the judgment creditor].
In a much-quoted passage of his judgment in Ellis v M'Henry (1871) LR 6 CP 228, 234, Bovill CJ sitting in the Court of Common Pleas said:
In the first place, there is no doubt that a debt or liability arising in any country may be discharged by the laws of that country, and that such a discharge, if it extinguishes the debt or liability, and does not merely interfere with the remedies or course of procedure to enforce it, will be an effectual answer to the claim, not only in the courts of that country, but in every other country. This is the law of England, and is a principle of private international law adopted in other countries. It was laid down by Lord King, in Burrows v Jemino (1726) 2 Stra 733; by Lord Mansfield, in Ballantine v Golding (1784) Cooke's Bankrupt Laws, 419; by Lord Ellenborough, in Potter v Brown (1804) 5 East, 124; by the Privy Council, in Odwin v Forbes (1817) Buck, 57; and in Quelin v Moisson (1828) 1 Knapp, 265, 266, n; and by the Court of Queen's Bench in the case of Gardiner v Houghton (1862) 2 B& S 743; and by the Court of Exchequer Chamber, in the elaborate judgment delivered by my Brother Willes, in Phillips v Eyre (1870) LR 6 QB 1, 28.
Secondly, as a general proposition, it is also true that the discharge of a debt or liability by the law of a country other than that in which the debt arises, does not relieve the debtor in any other country: Smith v Buchanan (1800) 1 East 6; Lewis v Owen (1821) 4 B & Ald 654; Phillips v Allan (1828) 8 B & C 477; Bartley v Hodges (1861) 1 B & S 375; 30 LJ (QB) 352.
It appears to me to be clear that a garnishee order is of the nature of an execution, and is governed by the lex fori; and by international law an execution which has been carried into effect in a foreign country under foreign law, and has taken away part of a man's property, is not recognised as binding. There can be no doubt that under the rules of international law the Dresdner Bank could not set up, in an action in Berlin, the execution levied in this country in respect to this debt. If we consider the converse case it is clear, to my mind, that we should take that view of a similar transaction occurring abroad.
On the facts of this case the debt of the bank to Nadel would be properly recoverable in Germany. That being so, it must be taken that the order of this Court would not protect the bank from being called on to pay the debt a second time.
The House was referred to no reported case in which the English court has made a final third party debt order or garnishee order absolute in relation to a foreign debt, although (with one exception) the refusal has been put on discretionary grounds; and discretion has been exercised against the making of an order even where the debt to be attached is situated in this country where it has appeared that the third party, despite the discharge of its debt to the judgment debtor as a matter of English law, may be at risk elsewhere of compulsion to pay a second time.
In Martin v Nadel [1906] 2 KB 26, to which reference has already been made, an absolute order was refused because the garnishee bank was at risk of having to pay twice and the making of an order in such circumstances was "inequitable" and "contrary to natural justice" (pages 30, 31). In Swiss Bank Corporation v Boehmische Industrial Bank [1923] 1 KB 673 the situation was different, because the debt was situated here in England. Bankes LJ pointed out this distinction and its importance (pages 678-679):
If the debt is situate, or in other words if it is properly recoverable, in this country, then it would be discharged by payment under an order of our Courts and the garnishee need have no fear of being required to pay it a second time; but if the debt is situate, that is properly recoverable, in a foreign country, then it is not discharged by payment in this country under an order of the Courts of this country, and the debtor may be called upon to pay it over again in the foreign country. There is no doubt as to the effect of payment made under a garnishee order here. It is clearly a discharge pro tanto of the debt .... There is a vital distinction between the facts of that case [Martin v Nadel] and the facts of the present case .... That was a debt situate in Berlin, being properly recoverable in Berlin. That was the debt sought to be garnished. Here the debt sought to be garnished was a debt situate in England being properly recoverable in England. In this case the debt can be properly discharged in England. In Martin v Nadel the debt could be properly discharged only in Berlin.
the Court will not make absolute a garnishee order where it will not operate to discharge the garnishee in whole or pro tanto from the debt; it will not expose him to the risk of having to pay the debt or part of it twice over.
The exception mentioned in paragraph 17 above is found in Richardson v Richardson [1927] P 228, in which a bank owed debts to a judgment debtor customer on accounts held both in London and in Africa. It was accepted that the former were subject to a garnishee order. The dispute concerned the latter. Hill J said (page 235):
The bank is no doubt indebted to the judgment debtor and the bank is within the jurisdiction. The Order deals with the case where 'any other person is indebted to the judgment debtor and is within the jurisdiction". But both in principle and upon authority, that means 'is indebted within the jurisdiction and is within the jurisdiction'. The debt must be properly recoverable within the jurisdiction. In principle, attachment of debts is a form of execution, and the general power of execution extends only to property within the jurisdiction of the Court which orders it. A debt is not [properly] within the jurisdiction if it cannot be recovered here.
of opinion that moneys held by the bank to the credit of the judgment debtor at the African branches cannot be made the subject of a garnishee order, for they are not a debt recoverable within the jurisdiction.
In SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028, the Court of Appeal (Slade and Ralph Gibson LJJ and Sir John Megaw) differed from the view taken by Hill J, while accepting (page 1044) that in a case where the garnishee was not indebted within the jurisdiction that might be relevant to the exercise of the court's discretion. Since, in that case, the debt in question was an English debt, the court's jurisdiction in relation to foreign debts did not fall for decision. Nor did it in Interpool Ltd v Galani [1988] QB 738, which concerned the examination of a judgment debtor under Order 48 of the Rules of the Supreme Court and not the making of a garnishee order under Order 49. As Balcombe LJ observed at the end of the judgment of the court (given on behalf of Lloyd LJ and himself), at page 743:
The use of Order 48, in English enforcement proceedings, in order to discover the existence of foreign assets, does not confer, or purport to confer, jurisdiction on the English court in relation to enforcement proceedings in any other country in which those assets may be situate.
Reference should be made to the decision of the House in Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295. That case concerned a garnishee order absolute made in respect of a debt situated in England, and the House was not called upon to consider the position where foreign debts were in issue. But a majority of the House agreed with the opinion of Lord Goff of Chieveley, who referred (page 350) to the court's "discretionary power to make a garnishee order absolute" and concluded that it would be "inequitable" (pages 353, 355) to do so (page 355)
where the payment by the garnishee under the order absolute will not necessarily discharge his liability under the attached debt, there being a real risk that he may be held liable in some foreign court to pay a second time.
Unsurprisingly, in the light of these authorities, the English court continued to exercise its discretion against the making of orders in relation to debts with a foreign situs: see, for example, Zoneheath Associates Ltd v China Tianjin International Economic & Technical Co-operative Corporation [1994] CLC 348.
In the course of argument before the House on this appeal, attention was drawn to a line of authority not directly related to garnishee or third party debt orders but bearing on the exercise by the English court of powers affecting the conduct of foreigners outside its jurisdiction. R v Grossman (1981) 73 Cr App R 302 concerned an application made against Barclays Bank in London to obtain inspection of an account held at a branch of the bank in the Isle of Man. The Civil Division of the Court of Appeal (Lord Denning MR., Shaw and Oliver LJJ) which determined the application was later held to have lacked jurisdiction to do so (Bonalumi v Secretary of State for the Home Department [1985] QB 675) but no doubt has been thrown on the opinions expressed at pages 308-309 of the judgment. The Manx branch was to be considered a different entity from the bank's head office in London and any order in respect of the production of the books should be made by the Manx court and not the English court. Otherwise there was a risk of jurisdictional conflict which must be avoided. R v Grossman was cited and relied on by Hoffmann J in Mackinnon v Donaldson, Lufkin & Jenrette Securities Corporation [1986] Ch 482, where a plaintiff in an English action had obtained an order against an American bank, served on its London office, requiring production of books and papers at its New York head office. Hoffmann J (page 493) pointed out the distinction between "personal jurisdiction, i.e. who can be brought before the court" and "subject matter jurisdiction, i.e., to what extent the court can claim to regulate the conduct of those persons". He held (page 493):
The need to exercise the court's jurisdiction with due regard to the sovereignty of others is particularly important in the case of banks. Banks are in a special position because their documents are concerned not only with their own business but with that of their customers. They will owe their customers a duty of confidence regulated by the law of the country where the account is kept. That duty is in some countries reinforced by criminal sanctions and sometimes by 'blocking statutes' which specifically forbid the bank to provide information for the purpose of foreign legal proceedings: compare section 2 of our Protection of Trading Interests Act 1980. If every country where a bank happened to carry on business asserted a right to require that bank to produce documents relating to accounts kept in any other such country, banks would be in the unhappy position of being forced to submit to whichever sovereign was able to apply the greatest pressure.
Similar reticence was approved by the Court of Appeal (Kerr, Neill and Nicholls LJJ) when considering world-wide Mareva injunctions in Babanaft International Co SA v Bassatne [1990] Ch 13. The court accepted that there was nothing to preclude English courts from granting Mareva type injunctions against defendants extending to assets outside the jurisdiction, but insisted (per Kerr LJ, page 32) that:
there can be no question of such orders operating directly upon the foreign assets by way of attachment, or upon third parties, such as banks, holding the assets. The effectiveness of such orders for these purposes can only derive from their recognition and enforcement by the local courts, as should be made clear in the terms of the orders to avoid any misunderstanding suggesting an unwarranted assumption of extraterritorial jurisdiction.
The enforcement of the judgment in other countries, by attachment or like process, in respect of assets which are situated there is not affected by the order. The order does not attach those assets. It does not create, or purport to create, a charge on those assets, nor does it give the plaintiff any proprietary interest in then. The English court is not attempting in any way to interfere with or control the enforcement process in respect of those assets.
As is well known, this judgment was reflected in what became the standard form of Mareva injunction order, until further protection was afforded to those holding overseas assets of persons subject to Mareva injunctions pursuant to the judgment of Clarke J in Baltic Shipping Co v Translink Shipping Ltd & Translink Pacific Shipping Ltd [1995] 1 Lloyd's Rep 673.
To resolve the issues arising between the judgment creditor and the third party in this appeal it is in my opinion necessary to return to very basic first principles. A garnishee or third party debt order is a proprietary remedy which operates by way of attachment against the property of the judgment debtor. The property of the judgment debtor so attached is the chose in action represented by the debt of the third party or garnishee to the judgment debtor. On the making of the interim or nisi order that chose in action is (as it has been variously put) bound, frozen, attached or charged in the hands of the third party or garnishee. Subject to any monetary limit which may be specified in the order, the third party is not entitled to deal with that chose in action by making payment to the judgment debtor or any other party at his request. When a final or absolute order is made the third party or garnishee is obliged (subject to any specified monetary limit) to make payment to the judgment creditor and not to the judgment debtor, but the debt of the third party to the judgment debtor is discharged pro tanto.
As appears from the provisions of primary and subordinate legislation cited in paragraphs 10 to 12 above, the discharge of the third party or garnishee on making payment to the judgment debtor under a final or absolute order has been an integral feature of this procedure from the beginning. In section 65 of the 1854 Act, in Order 45 rules 8 and 7 of the 1875 and 1883 Rules respectively, in Order 49 rule 8 of the 1965 Rules and in rule 72.9 of Part 72 of the Civil Procedure Rules 1998 the discharge of the third party or garnishee has been expressed as a necessary consequence of the making of the order ("shall").
It is not in my opinion open to the court to make an order in a case, such as the present, where it is clear or appears that the making of the order will not discharge the debt of the third party or garnishee to the judgment debtor according to the law which governs that debt. In practical terms it does not matter very much whether the House rules that the court has no jurisdiction to make an order in such a case or that the court has a discretion which should always be exercised against the making of an order in such a case. But the former seems to me the preferable analysis, since I would not accept that the court has power to make an order which, if made, would lack what has been legislatively stipulated to be a necessary consequence of such an order. I find myself in close agreement with the opinion of Hill J in Richardson v Richardson [1927] P 228, subject only to the qualification (of little or no practical importance) that an order may be made relating to a chose in action sited abroad if it appears that by the law applicable in that situs the English order would be recognised as discharging pro tanto the liability of the third party to the judgment debtor. If (contrary to my opinion) the English court had jurisdiction to make an order in a case such as the present, the objections to its exercising a discretion to do so would be very strong on grounds of principle, comity and convenience: it is contrary in principle to compel a bank to pay out money owed by a customer if its liability to its customer is not reduced to the same extent; it is inconsistent with the comity owed to the Hong Kong court to purport to interfere with assets subject to its local jurisdiction; and the judgment creditor has a straightforward and readily available means of enforcing its judgment against the assets of the judgment debtors in Hong Kong.
It is of course true, as the judgment creditor argued and as was accepted in SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028, 1044, that the legislation has from the beginning stipulated that the third party or garnishee should be within the jurisdiction but not that the debt to be attached should be within the jurisdiction. This seems to me a point of very little weight. The language used in 1854 has, until very recently, been reproduced with remarkably little change, and I think it rather unlikely that Parliament in 1854 was directing its mind to garnishees served within the jurisdiction but owing debts to the judgment debtor abroad. Since no order attaching a foreign chose in action has been made in any reported case, there can have been no pressing need for the Rules Committee to clarify any suggested ambiguity in the rules.
The Court of Appeal attached importance to the supposed availability to the third party of a restitutionary remedy in Hong Kong if the third party made (or was compelled to make) payment to the judgment creditor under an English order. This appears to me, with respect, to reflect some misunderstanding of the procedure. For, as already emphasised, the order takes effect against the property of the judgment debtor. Its effect is to enable the judgment creditor to take the property of the judgment debtor. The property of the third party is in no way involved, save by the diminution of its debt to the judgment debtor. Yet a disbursement of its own resources, compelled by law, is the ground relied on to support the third party's putative claim against the judgment debtors in Hong Kong. If, as in my opinion would be so, the effect of an order in this case would be to compel the third party to disburse its own funds, that would be a very clear indication that the order was one which should never have been made. The judge's reasoning on this point was, in my opinion, entirely sound.
The Court of Appeal also placed reliance on the third party's standard terms and conditions. It is unnecessary to set these out. They do not entitle the third party to make deductions from the judgment debtors' account which are not authorised by the law applicable to that account. They do not, in other words, override the rule that an English third party debt or garnishee order is not recognised in Hong Kong.
At first instance the judge treated the issue before him as one of discretion, as on existing authority he was bound to do, and gave compelling reasons why an absolute order should not be made. I would for my part accept those reasons did I not consider that he had no jurisdiction to make an absolute order. I would allow the third party's appeal with costs in the Court of Appeal and before the House, set aside the order of the Court of Appeal and restore the order of the judge insofar as it set aside the garnishee order nisi, ordered that there be no absolute order and awarded costs to the third party, summarily assessed, against the judgment creditor.
I have had the opportunity of reading in draft the speeches of my noble and learned friends Lord Bingham of Cornhill and Lord Hoffmann. For the reasons they give, with which I agree, I too would allow this appeal.
The question in this appeal is whether the court can make a third party debt order under Part 72 of the Civil Procedure Rules in respect of a foreign debt. By a foreign debt, I mean for present purposes a debt which is payable in a foreign country and governed by the foreign law. Different considerations may apply in cases in which one of these conditions is missing but I put them aside because the facts of the present case are both simple and typical. The judgment creditor is seeking to enforce a French judgment which has been registered in this country. It wishes to use the third party debt procedure to execute against money standing to the debtor's credit in an account with the Hong Kong and Shanghai Banking Corporation Ltd ("the bank") at its principal office in Hong Kong. The credit balance is a debt payable by the bank to the debtor in Hong Kong and governed by Hong Kong law.
Part 72 came into force on 25 March 2002, replacing RSC, Ord 49 (Garnishee Proceedings), under which provisions the judgment creditor's application was made on 3 April 2000. But there is no material difference between the two sets of rules. Rule 72.2(1) gives the court power to order a third party to pay to the judgment creditor "the amount of any debt due or accruing due to the judgment debtor from the third party". RSC, Ord 49, r 1(1) provided that if a person within the jurisdiction ("the garnishee") was "indebted to the judgment debtor", the court could order him to pay the debt to the judgment creditor. Rule 72.9(2) now provides that, if the third party pays money to the judgment creditor in compliance with the order, he shall to that extent "be discharged from his debt to the judgment debtor". Likewise, RSC, Ord 49, r 8 provided that any payment made by a garnishee in compliance with an order "shall be a valid discharge of his liability to the judgment creditor to the extent of the amount paid."
So despite its very recent enactment and modern language, the third party debt order is a process of execution which goes back far into English legal history. RSC Ord 49 is derived from the provisions of sections 61 to 70 of the Common Law Procedure Act 1854. These provisions were enacted on the recommendation of the Second Report of the Royal Commission on the Superior Courts of Common Law (1853), which included Jervis CJ, Martin B, Sir Alexander Cockburn and the future Bramwell B and Willes J. The Commissioners said, at p 38:
[W]e may suggest, that the remedies of creditors against the property of their debtors might be made more extensive by enabling a creditor after judgment to attach debts and monies of his debtor in the hands of third persons, and so obtain satisfaction of his judgment. We are not aware of any process, either in the superior courts of law or equity, in suits between subject and subject, by which this can directly be done, though the course of proceeding under writs of execution at the suit of the crown, and by way of foreign attachment in the mayor's court of London and some other cities, as well as in the courts of many foreign countries, shows that such a remedy would be practicable and useful.
The procedure called foreign attachment, to which the Commissioners referred and on which the procedure under the 1854 Act was modelled, had existed by immemorial custom in London and other cities. The custom had been certified by the Recorder of London in 1481 but went back much further; enthusiastic City historians traced it to the Roman occupation and even to the laws of Troy (see Mayor etc of London v Cox (1867) LR 2 HL 239, 256).
Foreign attachment of debts was primarily an interlocutory process to compel the defendant's appearance and provide security for judgment but, in the event of default by a defendant, it was also a process of execution. Besides being a model for the 1854 garnishee order, foreign attachment as an interlocutory process had further offspring in the shape of the Mareva injunction: see Lord Denning MR. in Rasu Maritima v Pertamina [1978] QB 644, 657-658. But the attachment of foreign debts raises similar issues of principle at whatever stage in the proceedings the debts are attached and the decisions on the scope of foreign attachment are therefore still relevant.
Exorbitant claims of jurisdiction by the Mayor of London's Court, allegedly founded upon the custom of foreign attachment, were challenged in Mayor etc of London v Cox (1867) LR 2 HL 239. The result of that case was over-determined because none of the three parties resided in the City and neither the judgment debt nor the garnishee's debt had accrued there. The House of Lords held that the court had no jurisdiction to grant a foreign attachment and issued a writ of prohibition. The principal ground of decision was that the Mayor's Court, being a local court, could not establish jurisdiction over a non-resident defendant merely by serving a garnishee notice upon another non-resident who was physically present in the City and was alleged to owe him a debt. But Willes J, who gave the opinion of the judges which was adopted by the House, also dealt (at p 268) with the position of the garnishee whose foreign debt to the judgment debtor the court was purporting to attach:
A foreign banker, of whom as banker it may be said 'pecunia est alter sanguis', passing through London, may be called upon, at the suit of some other foreigner, of whom he never heard, and the validity of whose claim he is not to be permitted to dispute, to pay in London in cash what he might at home have paid in paper; and if, to get rid of annoyance, or relying upon English justice, he pays, his customer may afterwards insist...in a foreign court that the debt or the party was not subject to the jurisdiction.
The second ground of decision was therefore (at pp 274-275) that a foreign attachment could not be made against a garnishee merely on account of his physical presence in the jurisdiction:
It appears, therefore, to be in accordance with authority and good sense to hold that a man who could not be sued in London by his own creditor cannot by the mere act of using the Queen's highway through the City ... become liable to be stayed there under the custom of the place by the alleged creditor of his creditor.
In Mayor etc of London v London Joint Stock Bank (1881) 6 App Cas 393 the scope of foreign attachment again came before the House of Lords. This time the question was whether a corporation could be a garnishee. The House decided that it could not because, according to the custom, the only means of compulsion which could be used to obtain payment of the debt from a garnishee was his physical detention. It followed that there was no way of making a corporation pay. This meant that if it did pay, it would not be able to defend a subsequent claim by his creditor on the ground that it had been compelled by law to pay. The House decided that this was fatal to the use of foreign attachment, because it was essential to the procedure that the payment by the garnishee should discharge its debt to the judgment debtor. "The garnishee", said Lord Blackburn, at p 415:
if he is to be obliged to pay the money, must be discharged from paying it to his creditor. Now the garnishee cannot, according to the authorities, or to reason, set himself free towards his creditor by making any voluntary payment: it must be a compulsory payment; a payment under compulsion of law or else he is not discharged.
Lord Watson likewise said, at p 421:
In considering the merits of that part of the case it is very necessary to keep in view that which has been already referred to by both my noble and learned friends, namely, that it is of the essence of this custom that execution may follow upon the order directed to the garnishee, in the event of his not obeying that order and failing to hand over the goods of the defendant, or to pay the money of the defendant to the plaintiff. That is necessary, because the courts of law have held that, unless he so deliver or pay under compulsion, he is not discharged. The custom would not be a reasonable one unless it went the length of affording protection to the garnishee when he obeys the order of the court.
This objection that a corporate debtor could not be compelled to satisfy a foreign attachment did not of course apply to post-judgment attachment under the statutory garnishee procedure, which by then was contained in Order XLV of the Rules of Court scheduled to the Supreme Court of Judicature Act 1875. The rules made express provision for ordinary execution against a garnishee who did not pay, whether he was a corporate or a natural person. And, as I have mentioned, they also provided expressly that a garnishee who paid under the order should be discharged from his debt. But the question is whether, in the case of a foreign debt, these provisions are sufficient to satisfy the principle that the garnishee can be made to pay only if he will be discharged from payment to his creditor.
This was the question considered by the Court of Appeal in the important case of Martin v Nadel [1906] 2 KB 26. The judgment debtor lived in Berlin, where he maintained an account with the Dresdner Bank. Judgment was entered against him in an action in London; he appealed unsuccessfully to the Court of Appeal and then to the House of Lords, which required him to give security for costs by depositing £200 in court and providing a bank recognisance for £500. The latter was provided by the bank's London branch against the security of the same amount deposited with the branch in Berlin. The appeal was dismissed and the costs paid out of the money in court and £300 paid by the London branch under the recognisance. This left the judgment debtor with just under £200 in his account in Berlin. The judgment creditor obtained a garnishee order against the bank attaching the balance in Berlin. But the bank appealed and the Court of Appeal set the order aside.
Counsel for the bank argued that the German courts might recognise the judgment against Mr. Nadel, because he had submitted to the jurisdiction, but not the garnishee order "which forms part of a code relating to execution". Counsel for the judgment creditor argued that the balance was not really a foreign debt because Nadel could have sued for it in England as money had and received to his use.
Vaughan Williams LJ said, at p 29:
It appears to me to be clear that a garnishee order is of the nature of an execution, and is governed by the lex fori; and by international law an execution which has been carried into effect in a foreign country under foreign law, and has taken away part of a man's property, is not recognized as binding. There can be no doubt that under the rules of international law the Dresdner Bank could not set up, in an action in Berlin, the execution levied in this country in respect to this debt.
It would, I think, have been open to the Court of Appeal to say that when RSC, Ord XLV, r 2 referred to "all debts" owing or accruing from a third party, they did not include foreign debts - at any rate, not foreign debts in the sense in which I have been using that expression. It is true that the language is entirely general, but, as Millett J said in In re International Tin Council [1987] Ch. 419, 450:
Against the background of private international law and the principles which garnishee proceedings had inherited from foreign attachment, there were good arguments for saying that foreign debts did not fall within the scope of the rule. But the Court of Appeal did not take this course. Instead, it said that the judgment creditor did not have a right to a garnishee order ex debito justitiae. It was a matter of discretion and the court should not make an order when it would be inequitable to do so. Both Vaughan Williams LJ and Stirling LJ said that it would be inequitable to make an order which left the bank still liable to an action in Berlin.
Martin v Nadel [1906] 2 KB 26 was distinguished by the Court of Appeal in Swiss Bank Corporation v Böhmische Industrial Bank [1923] 1 KB 673, in which the Swiss bank had obtained an English judgment against a bank in Prague. It executed upon the judgment by a garnishee order against the Prague bank's account with the London Merchant Bank in London. Again there was no problem about the jurisdiction of the English court to enter judgment: the Prague bank had submitted to the jurisdiction. But the London Merchant Bank appealed against the garnishee order on the ground that it could still be held liable for the same debt in Prague. Bankes LJ said that the debt owed by the London bank, being properly recoverable in England, was situated in England and therefore discharged by compliance with the garnishee order, not only as a matter of English law but under international law which it could be assumed would be applied in all other countries. In Martin v Nadel, on the other hand, the debt was situated in Germany and as a matter of international law would not be treated anywhere outside England as having been discharged by an English garnishee order. Scrutton LJ (at pp 680-681) again identified the matter as being one of discretion:
The court will not make absolute a garnishee order where it will not operate to discharge the garnishee in whole or pro tanto from the debt; it will not expose him to the risk of having to pay the debt or part of it twice over. That is well established as a principle of discretion on which the court acts.
In Richardson v Richardson [1927] P 228, however, Hill J gave the principle a harder edge. Mrs. Richardson had divorced her husband living in East Africa and obtained an order for costs. To enforce it, she applied for a garnishee order against his money in the Mombasa and Dar-es-Salaam branches of the National Bank of India, which had its head office in London. The judge said (at p 235) that "in principle and upon authority", the words "is indebted to the judgment debtor" in RSC, Ord XLV meant "is indebted within the jurisdiction":
In principle, attachment of debts is a form of execution, and the general power of execution extends only to property within the jurisdiction of the court which orders it. A debt is not property within the jurisdiction if it cannot be recovered here. As a matter of authority, the case of Martin v. Nadel, as explained by Swiss Bank Corporation v Boehmische Industrial Bank, and the decision and judgments in that case show that the Order does not apply unless the debt is properly recoverable within the jurisdiction.
The question of whether the matter was one of jurisdiction or discretion was considered by the Court of Appeal in SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028. Leggatt J gave judgment against Mr. Masri for over US$900,000. His wife had US$400,000 in an account with the London branch of the United Arab Bank. The judge held that she was estopped from denying that this money belonged beneficially to Mr. Masri. Leggatt J treated the money as a debt owed by the wife to the husband and made a garnishee order against it. The difficulty was that both of them lived in Jordan and so, it was said, the debt was a foreign debt, situate and recoverable in Jordan. But, said Ralph Gibson LJ, at p 1044:
[The issue estoppel] has established that, as between the two of them and as a matter of English law, the debt due from the Arab Bank, which is a debt arising in this country, is due to the first defendant and therefore available to be attached in satisfaction of the judgment debt due from him to the plaintiffs. Nothing...has given us the least reason to suppose that the second defendant could be at any risk of being ordered to pay the debt a second time to her husband.
As I read this passage, the court was treating the garnishee order as operating, not so much on a debt between wife and husband, but on the debt owed by the bank, which Mrs. Masri was estopped from claiming was owed to her rather than the judgment debtor. On this basis the debt was clearly not a foreign debt and there was no difficulty about the attachment. The court did however say that it thought Hill J was wrong in Richardson's case to say that there was no jurisdiction to attach foreign debts. It was, as the court had said in Martin v Nadel, a matter of discretion. This view was repeated by Balcombe LJ giving the judgment of the court in Interpool Ltd v Galani [1988] QB 738, 741.
In Deutsche Schachtbau-und Tiefbohrgesellscahft mbH v R'As al-Khaimah National Oil Co [1988] 2 Lloyd's Rep 293, 300 Hobhouse J said that one could confidently regard Martin v Nadel as establishing that
if in accordance with the conflict of law rules recognised by the English courts, the garnishee order absolute will not suffice to discharge the liability of the garnishee and the garnishee will continue to be exposed to a risk of being held liable for the debt by a foreign court of competent jurisdiction, a garnishee order will not be made.
What was more controversial was whether one should assume that foreign courts would act in accordance with recognised conflict of laws rules or whether one should also refuse to make a garnishee order if there appeared a risk that the garnishee, although discharged in accordance with English conflict rules, would be exposed to a second claim in a foreign court which did not give effect to them. On this point the House of Lords ([1990] 1 AC 295) were divided, Lord Templeman taking the former view and the other members of the House the latter. Lord Oliver of Aylmerton said, at p 343:
It has to be recognised that a debt is a species of property which may be recoverable by legal process from a debtor in more than one jurisdiction and it would be entirely inequitable that the garnishee should, by process in different jurisdictions properly conducted in accordance with the local law, be compelled to pay twice over in order that a judgment with which he has no connection whatever should be satisfied at his expense. If the reality is that this is likely to be the result, the fact that the particular foreign legal process is not one which commends itself to our jurisprudence is really immaterial.
In analysing the authorities, Lord Goff of Chieveley said that the question was always whether it would be inequitable to make the garnishee order absolute. It would generally be inequitable to do so if the garnishee would have to pay the debt twice over. In deciding whether this might happen, the normal assumption was that any foreign court, in accordance with general principles of private international law, would treat the debt as discharged if three conditions were satisfied:
the English court had international jurisdiction to enter judgment against the debtor;
the situs of the debt was England and
the effect of payment under the garnishee order in English law was to discharge the debt.
Lord Goff then considered whether this assumption should be made in every case: was compliance with the three criteria both necessary and sufficient? Lord Goff did not express a view as to whether compliance was necessary, although he noted the court in Martin v Nadel had not simply applied the three criteria as a matter of private international law but had considered whether in fact a payment under the garnishee order would be recognised by a court in Berlin as discharging the local debt. This suggests that if the evidence of foreign law had shown that, contrary the general principles of private international law, the foreign court would have treated the debt as discharged, it would have been acceptable to make the garnishee order absolute. But the real issue in the case was whether compliance was sufficient. Lord Goff said, at p 355, that it was not:
the principle which is here being applied is that a garnishee order absolute should not be made where it is inequitable to do so, and further that it is accepted in the authorities that it is inequitable so to do where the payment by the garnishee under the order absolute will not necessarily discharge his liability under the attached debt, there being a real risk that he may be held liable in some foreign court to pay a second time. To deprive the garnishee of the benefit of this equity merely because the court which may hold him liable a second time is not acting in accordance with accepted principles of international law would not be right, especially bearing in mind that the garnishee is a wholly innocent party who has been dragged into somebody else's dispute, and that the judgment creditor has the opportunity of seeking elsewhere for assets of the judgment debtor which he may seize in satisfaction of the judgment debt.
There is already a hint of this in Willes J's example of the foreign banker (cuius pecunia est alter sanguis) who was entitled to say civis Romanus (or wherever) sum and not be mulcted by foreign attachment in the City of London on account of an alleged debt owing at his foreign place of business. But sensitivity to foreign sovereignty appears most clearly in the rules which have been developed for that younger offspring of foreign attachment, the Mareva injunction or freezing order. Unlike the case of its elder sibling, there is no question of a freezing order putting a bank in the position of having to pay twice. Nevertheless, unless carefully limited, a freezing order applying to foreign banking debts can put the bank in the position of having to choose between being in contempt of an English court and having to dishonour its obligations under a law which does not regard the English order as a valid excuse.
So in Babanaft International Co SA v Bassatne [1990] Ch 13 the late Kerr LJ, who was a master of international commercial law, said, at p 35:
Unqualified Mareva injunctions covering assets abroad can never be justified, either before or after judgment, because they involve an exorbitant assertion of jurisdiction of an in rem nature over third parties outside the jurisdiction of our courts.
The result was that freezing orders have been tailored to make it clear, first, that they do not affect anyone outside the jurisdiction unless enforced by a court of the relevant country and, secondly, that they do not prevent third parties such as foreign banks, which have an English presence and are therefore subject to the jurisdiction, from complying with what they reasonably believe to be their obligations under the law of the situs or proper law of the debt or any order of a local court: see Baltic Shipping Co v Translink Shipping Ltd [1995] 1 Lloyd's Rep 673.
The conclusion I draw from this survey of principle and authority is that there are strong reasons of principle for not making a third party debt order in respect of a foreign debt. I agree with my noble and learned friend Lord Millett that the application of such principles is not at all the same as the exercise of a discretion. To that extent, the references to a discretion in cases like SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028 and Interpool Ltd v Galani [1988] QB 738 are misleading. On the other hand, a principle is not the same as a statutory rule restricting the jurisdiction. It may have to give way to some other overriding principle. But I find it hard to think what such a principle might be. Until this case there was no reported instance in which the normal principle had not been applied.
That brings me to the judgments in the present case. The bank produced uncontradicted evidence that by Hong Kong law the garnishee order would not discharge the debt owing by the bank to the judgment debtor in Hong Kong. Tomlinson J refused to make the order absolute on the ground that the bank would be at risk of having to pay its customer again in Hong Kong. But the Court of Appeal reversed his decision and granted the order.
In a judgment given by Mance LJ the Court of Appeal reasoned as follows:
The Hong Kong court would recognise the underlying judgment in the French court;
it would therefore recognise that the judgment debtor was indebted to the creditor;
if the bank paid pursuant to the garnishee order, it would have paid the judgment debtor's debt under compulsion of law;
a person who pays the debt of another under compulsion of law can claim reimbursement by a restitutionary action;
this applies equally when the compulsion is applied by a foreign law
Hong Kong law on this point can be assumed to be the same as English law
therefore if the bank were sued by the judgment debtor in Hong Kong it could set off its restitutionary claim and would not have to pay twice;
there was no infringement of Hong Kong sovereignty because the bank was being required to pay in England, not Hong Kong.
The argument does not lack novelty and ingenuity but I respectfully think it is flawed because it travesties the nature of a third party debt order. The essence of such an order is that it is execution in rem against the property of the judgment debtor, against a res or chose in action which belongs to him and which is within the jurisdiction of the court making the order. As the Royal Commissioners said in 1853, it is an attachment of "monies of [the] debtor in the hands of third persons". It is true that once the judgment debtor's chose in action has been captured or attached, the court will realise it or turn it to account by ordering the third party to pay the debt to the judgment creditor. But that is a process of realisation in the same way as the sale of a chattel belonging to the debtor which has been taken in execution. It is not a personal claim against the third party. The third party pays with his own money only in the same sense as a bank upon which a cheque has been drawn by a customer in credit pays with its own money. But the substance of the matter is that the judgment creditor is paid with the debtor's money, as the drawee of the cheque is paid with the customer's money.
The discharge of the third party's indebtedness effected by rule 72.9(2) (formerly RSC, Ord 49, r 8) is therefore an essential part of the execution. As Lord Blackburn said in Mayor etc of London v London Joint Stock Bank (1881) 6 App Cas 393, 415, the garnishee, "if he is to be obliged to pay the money, must be discharged from paying it to his creditor". It is this which ensures that the creditor is paid with the debtor's money and not the third party's.
It is not in my opinion an adequate substitute for this protection to argue that if the third party has to pay out of his own money, he will acquire a restitutionary claim in personam which he can set off against the debt. In the domestic context, such a claim is impossible. As Tomlinson J said in this case ([2001] CLC 685,692):
The fact that it is .... of the essence of the procedure that the garnishee thereby obtains a good discharge against his own creditor means that he has no need of a restitutionary claim against his creditor .... Indeed, it can readily be seen that it would in fact be wholly inimical to the structure of the garnishee jurisdiction if .... a garnishee were by payment to the judgment creditor to obtain the right to a restitutionary claim against the judgment debtor .... A claim in restitution could only be consistent with the garnishee remaining liable to the judgment debtor ....
Paradoxically, therefore, the restitutionary claim postulated by the Court of Appeal can exist only in a foreign law. In the present case, the Court of Appeal inferred its existence in the law of Hong Kong from the decision of Donaldson J in Liberian Insurance Agency Inc v Mosse [1977] 2 Lloyd's Rep 560, in which he began his judgment by saying that the facts were probably unique and that he certainly hoped they were. That is not a promising introduction if one is looking for universally applicable principles of law. The facts were that Liberian insurance brokers had been held liable in a Liberian court to pay a cargo claim alleged to be owing to the insured plaintiff by underwriters in London. The brokers were obliged to satisfy the claim in Liberia. Having done so, they sued the underwriters in London on the ground that they had paid their debt under compulsion of law. Donaldson J said that compulsion under a foreign law could found a restitutionary claim but dismissed the action on the ground that the underwriters would have had a good defence to a claim by the insured.
The claim against the brokers, whatever its merits, was an ordinary in personam contractual claim over which the Liberian court undoubtedly had jurisdiction. It is therefore not surprising that Donaldson J was prepared to recognise it as creating a legal obligation to pay. But there is no in personam claim against the bank in this case. The bank owes the judgment creditor nothing. The third party debt jurisdiction is, as I have said, execution in rem against the chose of action. If the English court has no jurisdiction over the debt, I do not understand why a foreign court should recognise the third party's obligation to pay as having been under compulsion of law. Under generally accepted conflict of law rules, it is simply an unlawful seizure. The notion that one can justify the attachment of a foreign debt by imputing to the foreign law recognition of an exorbitant order for the purpose of founding a claim of payment under compulsion of law is in my opinion quite unreal.
The Court of Appeal rejected the suggestion that it was infringing the sovereignty of Hong Kong by saying that it was not ordering the bank to do anything in Hong Kong. All it had to do was to pay money in London. On this ground it distinguished cases like R v Grossman (1981) 73 Cr App R 302 and Mackinnon v Donaldson, Lufkin & Jenrette Securities Corporation [1986] 1 Ch 482 in which courts had refused to order banks to produce information about accounts held in foreign jurisdictions. But this distinction depends upon treating the third party debt order simply as an order against the bank instead of what it really is, namely, a process of execution by the attachment of property of the judgment debtor. Once the true nature of the order is understood, it becomes plain that an order in respect of a foreign debt is an attempt to levy execution on an asset in the foreign jurisdiction, which infringes the principle of international law applied in the Grossman and Mackinnon cases.
I would therefore regard this as a straightforward case governed by Martin v Nadel [1906] 2 KB 26. In cases in which the debt is plainly foreign, I find it hard to imagine a case in which such an order could be made. I do not find the example of the Panamanian debt given by the Court of Appeal persuasive. It was said that if the third party owing money to the judgment debtor was a Panamanian company which had no assets other than an account in a bank in London, it would be justifiable to make the order and execute against the third party's assets in London. But that would still leave the Panamanian company exposed to proceedings by the judgment debtor in Panama to recover the same debt. I do not see why it would be equitable to put the Panamanian company, which has nothing to do with the basic dispute, into a position of insolvency in Panama so that the creditor's claim can be satisfied in London.
For these reasons I would allow the appeal and discharge the garnishee order.
In full agreement with the Opinions of my noble and learned friends Lord Bingham of Cornhill and Lord Hoffmann, I too would allow the appeal and make the order proposed. I am also in broad agreement with what my noble and learned friend Lord Millett is to say in his Opinion.
I will however add two observations relevant to this and similar cases. The first relates to the situs of a debt. In the present case there is no dispute that the situs of the relevant debt is Hong Kong and not England. (The same is true, mutatis mutandis, in the parallel case concerning UBS ag.) But it is still necessary to understand why this is so. Stirling LJ in Martin v Nadel [1906] 2 KB 26 at 31, like others before and since, found it most appropriate to refer to the work Dicey: Conflict of Laws. I will do the same, using the 13th edition (2000).
Rule 112 states that "choses in action generally are situate in the country where they are properly recoverable or can be enforced". The text amplifies this in relation to debts, saying, "a debt is [generally] situate in the country where the debtor resides .... It may not, however, be the only place: English courts may take jurisdiction against non-residents on the basis of temporary presence", or under the CPR or the Brussels or Lugano Conventions. Nevertheless, this possibility does not make the debt situate in England if the debtor is not resident here. But, generally speaking,
for the purpose of determining situs, a corporation is resident wherever it carries on business.
[pages 925-6]
Where .... the debtor has two or more places of residence and the creditor either expressly or impliedly stipulates for payment at one of them, then the debt will be there situate. This refinement is important in connection with bank accounts where (as in English law) under the applicable law of the contract between banker and customer the bank's obligation to repay is performable primarily at the branch where the account is kept, and accordingly in such a case all accounts kept at a particular branch are to be held there situate .... Where the debtor has more than one place of residence but there is no express or implied promise to pay at any one of them then the debt is situate at that place of residence where it would be paid in the ordinary course of business.
[pp.926-7]
The third party debtor, garnishee, is a corporation. It is incorporated in Hong Kong where it presumably has its head management. But it has places of business in England and is registered as an overseas company under Part XXIII of the Companies Act 1985. The English courts accordingly have jurisdiction. The company can be served within the jurisdiction and has one or more places of business here. If the company were an ordinary trading company and the debt it owed to the judgment debtor an ordinary commercial debt, say, payment for a service rendered or goods supplied, the judgment debtor could have sued the company and recovered the debt in England and could have argued that the company had sufficient residence here to make England the or a situs of the debt. But, with banks and the debts of banks to their customers, the debt is, absent some special agreement, repayable at the branch where the customer's account is kept and the situs of the debt is in that country. This has a double significance. It is part of and defines the substantive obligation of the bank to its customer and it identifies the situs of the debt for the purposes of Private International Law. The authorities cited, in particular Mayor of London v Cox (1867) LR 2 HL 239, Martin v Nadel [1906] 2 KB 26, Swiss Bank Corp v Boehmische Industrial Bank [1923] 1 KB 673 and Richardson v Richardson [1927] P 228, demonstrate this. The recognition of what is the substantive obligation of the bank is an essential part of the analysis.
In the present case (and in the UBS ag case), the third party debtor is a bank and the debt (or alleged debt) is one owing by the bank to its customer (the judgment debtor) at a branch in another country. This is an important fact because to make a garnishee or third party debt order requiring payment of the debt in this country (probably also translating it into sterling) is to impose on the bank an obligation which it has never assumed. It is not an obligation which the customer (the judgment debtor) could have asserted let alone enforced against the bank. This shows the fundamental objection to the reasoning and decision of the Court of Appeal. Nothing could be a better illustration of the disregard of this truth than the order actually made by the Court of Appeal which would convert the bank's relationship to its customer from that of banker and customer to that of claimant and respondent in restitution litigation. Nor is maintaining respect for the actual obligation of the bank an academic point. There may be a whole number of practical reasons why the bank's contract must be respected: local law, local regulation, currencies, tax, exchange control, insolvency rules, confidentiality and so on. One can also ask why is it that the judgment creditor is so reluctant to enforce his judgment in the country where the debt is payable which in the present case it is accepted that it could have easily done. But the most important point is that the order would purport to enforce a supposed right which did not exist and the judgment debtor did not possess. This is unprincipled and in the true sense exorbitant. Another way of stating the same point is that the application for the third party debt (garnishee) order lacked subject matter.
The other additional observation I would make is that the possible question of subject matter jurisdiction is always important. There are relatively few examples in English procedural law but the present case is one of them for the reasons my noble and learned friends have already given. Subject matter jurisdiction also has a major role under the Brussels and Lugano Conventions. A garnishee or third party debt order will result in an enforceable liability in personam of the third party to the judgment creditor which is amenable to execution (In re Combined Weighing & Advertising Machine Co 43 Ch D 99; Pritchett v English & Colonial Syndicate [1899] 2 QB 428), but it does not follow that only personal jurisdiction is relevant as is illustrated by Babanaft International Co SA v Bassatne [1990] Ch 13. This is the misunderstanding which has led to the erroneous dicta in SCF Finance Co Ltd v Masri (No.3) [1987] QB 1028 and Interpool Ltd v Galani [1988] QB 738 and the mistaken criticism of what Hill J said in Richardson v Richardson. It is unfortunate also that what Lord Goff said in Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295 should have been cited without having regard to what that case was about. The debt was a commercial debt with an admitted situs in England. It was properly recoverable in England and the order made by the English court would discharge the debt. The question which arose was the exceptional one whether there was a real and substantial risk that the garnishee, Shell, would nevertheless, in a foreign country, be compelled to pay the debt again. This did not raise a question of jurisdiction or lack of subject matter but more simply the, in that case, difficult question whether it was equitable in the discretion of the court to make the garnishee order. Lord Goff was not expressing a view about the question which the present appeal raises.
The question in this appeal is whether an English court can properly make a garnishee order absolute (now known as a final third party debt order) in respect of a foreign debt, in this case a sum standing to the credit of the judgment debtor in an overseas bank account and so situate abroad.
In formulating the question in this way I have deliberately avoided using the slippery word "jurisdiction", a word which is
used in a variety of senses and takes its colour from its context
But the word "jurisdiction" is also used in a different sense to connote the territorial reach of the legislative powers of Parliament and the adjudicative powers of the court. In these cases jurisdictional limits are self-imposed as a matter of principle and in order to conform to the norms of international law. In his book "Further Studies in International Law" (Clarendon Press 1990), at p 4, Dr Mann wrote:
The principle was succinctly stated by Lord Russell of Killowen CJ in the Jameson case (R v Jameson [1896] 2 QB 425, 430). In describing the canon of statutory construction that, if another construction be possible, general words in an Act of Parliament will not be construed as applying to foreigners in respect of acts done by them outside the dominions of the enacting power, he observed:
That is a rule based on international law by which one sovereign power is bound to respect the subjects and the rights of all other sovereign powers outside its own territory.
I make no excuse for labouring this point, because the issue in the present case has been seen as turning on the distinction between "jurisdiction" and "discretion", whereas in truth it turns on the distinction between the court's duty to disclaim or decline jurisdiction as a matter of principle and its power to do so as a matter of discretion.
In the present case the debt in question consists of a sum standing to the credit of the judgment debtor in an account at a bank in Hong Kong. Like many international banks, the bank has a branch in London and is accordingly within the jurisdiction of the English court. The Court of Appeal, reversing Tomlinson J, held that a third party debt order could properly be made against it. It observed that the requirement that the third party be within the jurisdiction of the court was the only express jurisdictional requirement in the Rules, and this was satisfied. There was no requirement that the debt itself be situate here. Prima facie, therefore, the court had jurisdiction to make the order.
The Court of Appeal reasoned that in making the order it was merely exercising in personam jurisdiction against a third party within the jurisdiction. It acknowledged that the order would not have the usual consequence of extinguishing the debt owing by the third party to the judgment debtor, since the evidence showed that the courts of Hong Kong would not recognise or give effect to the English order. But it followed that the order would not have extraterritorial effect. The English court would not be entrenching on the jurisdiction of the courts of Hong Kong, since it would not order the bank to do anything in Hong Kong. It would merely order the bank to pay a sum of money to the judgment creditor in England, and leave it to the bank to recoup itself out of the sum standing in its books to the credit of the judgment debtor. There would be no difficulty in its doing so, since it could rely on the law of restitution (which was the same in Hong Kong as in England) and the terms of its banking contract with the judgment debtor to allow the necessary set off. Clearly the English court ought not to make an order if there were any danger that the third party might be called upon to pay twice. But this was a matter of discretion, not jurisdiction.
My Lords, this reasoning is coherent and intelligible, and if it reflected the true nature of a third party order I would accept it. But an immediate question presents itself. What justification can there possibly be for ordering the third party to discharge the judgment debt out of its own money? The third party is a stranger to the transaction which gave rise to the judgment debt. Before the order was made it was under no obligation to the judgment creditor, with whom it may have transacted no business and of whom it may have had no knowledge. On the Court of Appeal's analysis the order of the English court creates the obligation which it then compels the third party to satisfy. The only justification which is put forward for this extraordinary process is that the third party is indebted in a like sum to the judgment debtor. But since, as the Court of Appeal accepts, that debt is not extinguished by the order, it is impossible to see how its existence can serve to justify the process.
The order in the present case was made under Order 49 of the Rules of the Supreme Court, the terms of which have been set out by my noble and learned friend Lord Bingham of Cornhill and which I need not repeat. As he has shown, it was in substantially the same terms as its predecessors and can be traced back to the Common Law Procedure Act 1854. The Editorial Introduction to Order 49 in the White Book explained the Order as follows:
If a judgment debtor is owed money by another, the judgment creditor can obtain an order that that other (referred to in O.49 as 'the garnishee') should discharge the debt by payment direct to the judgment creditor.
An introductory Note to Order 49 described its object in the following terms:
It should always be borne in mind that the object and intention of the process is to render 'debts' as a form of property available in execution. This marks both the nature of the process and its limitations.
These two passages indicate the true nature of a third party debt order. It is a process of execution which enables a judgment creditor to obtain satisfaction of his judgment debt out of money owed to the judgment debtor. The court does not order the third party to pay the judgment creditor out of its own money, but to discharge the debt which it owes to the judgment debtor by payment of that debt to the judgment creditor. The subject-matter of execution is a chose in action, which like land cannot be seized; but the procedure is modelled on the process of obtaining execution against land with such modifications as are necessary to reflect the difference in the nature of the asset. As in the case of land execution is effected in two stages. The first stage takes the form of an order nisi (or interim order) which creates a charge on the asset to be executed against and gives the judgment creditor priority over other claimants to the asset; and the second stage takes the form of an order absolute (or final order) which brings about the realisation of the asset and the payment of the proceeds to the judgment creditor.
That this is the nature of the process appeared plainly from the wording of sections 61 and 62 of the 1854 Act. Section 61 authorised the court to order that debts owing to the judgment debtor "be attached to answer the judgment debt"; and section 62 provided that service of the order nisi on the garnishee "shall bind such debts in his hands". The word "attached" still appeared in Order 49, rule 1(2), which provided that the order nisi should have the effect of "attaching" the debt to answer the judgment. The "attachment" of a chose in action is the equivalent of the seizure of a tangible asset. A third party debt order "attaches", that is to say appropriates, the debt owing to the judgment debtor to answer the judgment debt. This is the classic method of creating an equitable charge over a debt or fund. It creates a proprietary interest by way of security in the debt or fund and gives priority to the claim of the judgment creditor to have his debt paid out of the fund before all other claims against it including that of the judgment debtor himself. Order 49, rule 8 provided that any payment made by the garnishee in compliance with an order absolute should operate to discharge pro tanto its liability to the judgment debtor.
First, a third party debt order is not an in personam order against the third party; it has proprietary consequences and takes effect as an order in rem against the debt owed by the third party to the judgment debtor.
Secondly, the discharge of the debt is an integral part of the scheme of the order, which first creates and then realises a proprietary interest in the debt and makes the proceeds available to the judgment creditor.
The process has been so described in numerous authorities. In Chatterton v Watney (1881) 17 Ch D 259 Sir George Jessel MR. said, at p 260, that the effect of a garnishee order "is to declare the debt bound"; while Cotton LJ, rejecting the idea that the order operates to assign the debt to the judgment creditor, said, at p 262, that
The effect of a garnishee order is to bind the debt attached and to prevent the creditor from receiving it; and when it is made absolute it gives the judgment creditor a right to recover payment from the garnishee, and by rule 8 it is provided that payment made by the garnishee under the proceeding shall be a valid discharge to him as against the judgment debtor. There is nothing in the terms of the General Order to affect any security for the debt, it only takes away the right of the judgment debtor to receive the money and gives the judgment creditor a right to receive it.
In In re General Horticultural Co, Ex p Whitehouse (1886) 32 Ch D 512 Chitty J said, at p 515, that the effect of an order nisi "was to give the judgment creditor execution against the debts owing to his debtor" and held that the rule was settled that the order charged only "what the judgment debtor can himself honestly deal with". This was clearly seen as a rule of law and not a matter of discretion.
In Rogers v Whiteley (1889) 23 QBD 236 Lindley LJ considered the case where money in the bank account included money of which the judgment debtor was trustee. That money, Lindley LJ said, at p 238, could not be ordered to be paid to the judgment creditor who obtained the charging order;
he can only obtain payment out of the debtor's own money.
In the same case the House of Lords held that a garnishee order nisi which was unlimited in amount made against a bank attached the whole of the money in the account, and that the bank was entitled to dishonour cheques which the judgment debtor drew on the balance over and above the amount of the judgment debt: [1892] AC 118. Lord Watson said, at p 122:
The effect of an order attaching 'all debts' owing or accruing due by him to the judgment debtor is to make the garnishee custodier for the court of the whole funds attached; and he cannot, except at his own peril, part with any of those funds without the sanction of the court.
At p 123, Lord Morris said that on the plain meaning of the order in that case
all debts due and owing by the above-named garnishee are attached to answer the judgment creditor's demand - that is, they are all captured for the purpose of afterwards answering that demand.
Their Lordships observed that it would be open to the judge to frame the order so that the amount of the debts attached should be limited to an amount sufficient to answer the judgment, and that in that particular case he ought to have done so. That suggestion has been adopted in the modern form of order.
In Galbraith v Grimshaw & Baxter [1910] 1 KB 339 Farwell LJ, at p 343, stated in terms that a garnishee order nisi creates an equitable charge on the debt owed by the bank to the judgment debtor. In that case the judgment debtor had become bankrupt in Scotland after the making of an order nisi but before an order absolute. Farwell LJ said, at p 344:
It is said that the debt is now the property of the plaintiff as the trustee in the bankruptcy of the judgment debtors; but it is property which is subject to a charge, and there is nothing in the Scotch Act which entitles the trustee to receive that property until he has paid off that charge.
Affirming the decision of the Court of Appeal Lord MacNaghten said (at [1910] AC 508, 512) that the Scottish Court
.... must take the assets of the bankrupt such as they were at [the date of the bankruptcy] and with all the liabilities to which they were then subject. The debt attached by the order nisi was at the date of the sequestration earmarked for the purpose of answering a particular claim - a claim which in due course would have ripened into a right.
The position would have been different had it been an English bankruptcy by reason of section 45 of the Bankruptcy Act 1883 (now section 183 of the Insolvency Act 1986). This gives an executing judgment creditor priority in the bankruptcy of the judgment debtor provided that execution is complete before the commencement of the bankruptcy. It is to be observed that section 183, like its predecessors, provides that execution against a debt is completed when the debt is received, not when the judgment debt is satisfied. The two are, of course, supposed to take place at the same time; but if the third party is compelled to satisfy the judgment debt without obtaining a release of its own indebtedness to the bankrupt, it will be at risk of having its right of recoupment reduced to a right of proof in the bankruptcy.
In Joachimson v Swiss Bank Corporation [1921] 3 KB 110, 131 Atkin LJ repeated that service of the order nisi
binds the debt in the hands of the garnishee - that is, it creates a charge in favour of the judgment creditor.
The two stage process was explained by Lord Denning MR. in characteristically simple language in Choice Investments Ltd v Jeromnimon [1981] QB 149, at pp 154 - 155:
The word 'garnishee' is derived from the Norman French. It denotes one who is required to 'garnish,' that is, to furnish a creditor with the money to pay off a debt. A simple instance will suffice. A creditor is owed £100 by a debtor. The debtor does not pay. The creditor gets judgment against him for the £100. Still the debtor does not pay. The creditor then discovers that the debtor is a customer of a bank and has £150 at his bank. The creditor can get a 'garnishee' order against the bank by which the bank is required to pay into court or direct to the creditor - out of its customer's £150 - the £100 which he owes to the creditor.
There are two steps in the process. The first is a garnishee order nisi. Nisi is Norman-French (sic). It mean 'unless.' It is an order upon the bank to pay the £100 to the judgment creditor or into court within a stated time, unless there is some sufficient reason why the bank should not do so. Such reason may exist if the bank disputes its indebtedness to the customer for some reason or other .... On making the payment, the bank gets a good discharge from its indebtedness to its own customer - just as if he himself directed the bank to pay it. If it is a deposit on seven-days' notice, the order nisi operates as the notice.
These passages are inconsistent with the notion that the order merely operates in personam against the person of the judgment creditor and has no effect upon the debt itself; many of the cases would have been decided differently if this were the case. A third party debt order requires the third party to pay the debt it owes to the judgment debtor to the judgment creditor instead - which has no adverse consequences to it - not merely to pay a sum equal to the debt out of its own pocket, which could be seriously prejudicial to its interests. This is what justifies the order, as Lindley LJ explained in Pritchett v English & Colonial Syndicate [1899] 2 QB 428, at p 433:
It is quite true that before that order was made there was no debt owing by [the third party] to [the judgment creditor]: the debt was owing by [the judgment debtor]; and the order is, in substance, not an order to pay a debt, but an order on the [third party] to hand over something in their hands belonging to [the judgment debtor] to [the judgment creditor].
The discharge of the debt owed by the third party to the judgment debtor is not, therefore, merely a fortunate consequence of the order but a necessary and integral part of it. It is what justifies the making of the order and makes it a process of execution against the assets of the judgment debtor.
If the debt is situate and payable overseas, however, it is beyond the territorial reach of our courts. The books contain many statements to this effect. In Ellis v M'Henry (1871) LR 6 CP 228 Bovill CJ said, at p 234:
In the first place, there is no doubt that a debt or liability arising in any country may be discharged by the laws of that country, and that such a discharge, if it extinguishes the debt or liability, and does not merely interfere with the remedies or course of procedure to enforce it, will be an effectual answer to the claim, not only in the courts of that country, but in every other country. This is the law of England, and is a principle of private international law adopted in other countries ....
Secondly, as a general proposition, it is also true that the discharge of a debt or liability by the law of a country other than that in which the debt arises, does not relieve the debtor in any other country ....
Time and again in the early nineteenth century the English courts held that a debt payable in England was not discharged by a foreign bankruptcy. In Smith v Buchanan (1800) 1 East 3, 5 Kenyon CJ expostulated:
It might as well be contended that if the State of Maryland had enacted that no debts due from its own subjects to the subjects of England should be paid, the plaintiff would have been bound by it. This is the case of a contract lawfully made by a subject in this country, which he resorts to a Court of Justice to enforce; and the only answer given is that a law has been made in a foreign country to discharge these defendants from their debts on condition of their having relinquished all their property to their creditors. But how is that an answer to a subject of this country suing on a lawful contract made here? How can it be pretended that he is bound by a condition to which he has given no assent either express or implied?
Before the present case a garnishee order has been sought against a foreign debt in only two reported cases, and in neither case was the application successful. In Martin v Nadel [1906] 2 KB 26 the order was sought against the London branch of a German bank where the judgment debtor maintained an account. The application was refused. Vaughan Williams LJ said, at p 29:
There can be no doubt that under the rules of international law the Dresdner Bank could not set up, in an action in Berlin, the execution levied in this country in respect to this debt. If we consider the converse case it is clear, to my mind, that we should take that view of a similar transaction occurring abroad.
At p 31, Stirling LJ said:
Mr. Dicey, at p 318 of his treatise on the Conflict of Laws, points out the rule of law that debts or choses in action are generally to be looked upon as situate in the country where they are properly recoverable or can be enforced. On the facts of this case the debt of the bank to Nadel would be properly recoverable in Germany. That being so, it must be taken that the order of this court would not protect the bank from being called on to pay the debt a second time.
In Richardson v Richardson [1927] P 228, where a garnishee order was sought against bank accounts in Kenya and Tanganyika. Hill J refused to make the order, holding that he had no jurisdiction to make it. The debts, he said
cannot be made the subject of a garnishee order, for they are not a debt recoverable within the jurisdiction.
Martin v Nadel was distinguished in Swiss Bank Corporation v Boehmische Industrial Bank [1923] 1 KB 673 because the debt was payable in England. At pp 678-679, Bankes LJ explained that the distinction was critical:
The decision of that question depends upon where the debt sought to be attached is situate. If the debt is situate, or in other words if it is properly recoverable, in this country, then it would be discharged by payment under an order of our Courts and the garnishee need have no fear of being required to pay it a second time; but if the debt is situate, that is properly recoverable, in a foreign country, then it is not discharged by payment in this country under an order of the Courts of this country, and the debtor may be called upon to pay it over again in the foreign country. There is no doubt as to the effect of payment made under a garnishee order here. It is clearly a discharge pro tanto of the debt .... That was a debt situate in Berlin, being properly recoverable in Berlin. That was the debt sought to be garnished. Here the debt sought to be garnished was a debt situate in England being properly recoverable in England. In this case the debt can be properly discharged in England. In Martin v Nadel the debt could be properly discharged only in Berlin.
At pp 680-681, Scrutton LJ referred to
the decision in Martin v Nadel, that the court will not make absolute a garnishee order where it will not operate to discharge the garnishee in whole or pro tanto from the debt; it will not expose him to the risk of having to pay the debt or part of it twice over. That is well established as a principle of discretion on which the court acts.
By this time the law was regarded as settled. Whatever the theoretical extent of the court's jurisdiction, in practice it would not make a third party order where the debt was situate abroad, because (in the words of Scutton LJ) "it" (that is to say the order) "will not operate to discharge the garnishee in whole or pro tanto from the debt".
Unfortunately what had become the settled practice of the court for more than 50 years has been put in doubt in more recent cases: SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028 and Interpool Ltd v Galani [1988] QB 738. In neither case did the question arise for decision. The former concerned a debt which was (or was treated as being) situate in England, while the latter concerned the examination of the judgment debtor under RSC, Order 48 and not the making of a garnishee order under Order 49. In each case the Court of Appeal held that there was no requirement that the debt owing to the judgment debtor must be properly recoverable within the jurisdiction. The court would not make an order where the debt was recoverable abroad if this would expose the third party to the risk of having to pay the debt or part of it twice over, but this was a matter of discretion not jurisdiction. To resist an order the third party would have to show that the risk was a real and substantial one. Insofar as Richardson v Richardson was authority to the contrary it was to be taken as no longer good law.
In Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295, which also concerned a debt situate in England, Lord Goff of Chieveley referred in passing, at p 350, to the court's "discretionary power" to make a garnishee order absolute" and said, at p 355, that it would be "inequitable" to make such an order where there was "a real risk that [the third party] may be held liable in some foreign court to pay a second time." There is no doubt, of course, that the court's power to make an order in the case of an English debt is discretionary. The present question is different. It is whether its power to refuse an order in the case of a foreign debt is discretionary. Lord Goff was not concerned with such a question. More significantly, Lord Goff enumerated the conditions on which he would expect a foreign court to give effect to an order of the English court. One of them was that the debt was situate in England.
My Lords, I think that the more recent cases are based on a misreading of the judgments of the Court of Appeal in Martin v Nadel [1906] 2 KB 26 and Swiss Bank Corporation v Boehmische Industrial Bank [1923] 1 KB 673. It is true that in the former case Vaughan Williams LJ, at p 30, refused the order on the ground that it would be "inequitable" to order the third party to pay the money to the execution creditor when the payment "would leave [it] still liable to an action to recover the same debt brought in a competent court" abroad; while Stirling LJ, at p 31, held that it would be "inequitable and contrary to natural justice" to make an order which "would not protect the [third party] from being called on to pay the debt a second time". In the latter case Scrutton LJ, at p 681, put the matter as a "principle of discretion on which the court acts" in one passage, but he said elsewhere, at p 683, that Martin v Nadel was a case where "the debt was not an English debt and was not one on which the English courts could exercise jurisdiction."
But it is not just a matter of language. The reasoning in those cases does not support the gloss which has been put upon them. The judgments were directed to the territorial reach of the court's jurisdiction, and were founded on the rule of international law that a debt can be discharged only by the law of the place where it is recoverable. There was no attempt to evaluate the risk that the third party might be compelled to pay twice. It was enough that the English court could not itself protect the third party and discharge the debt by the force of its own order. In Martin v Nadel Vaughan Williams LJ placed reliance on the statement of Channell B giving the judgment of the Exchequer Chamber in Wood v Dunn (1866) LR 2 QB 73, 80 that
the law will never compel a person to pay a sum of money a second time which he had paid once under the sanction of a court having competent jurisdiction.
This is an important qualification. Just as the English court would not regard a foreign court as being a court of competent jurisdiction to discharge a debt recoverable here, so a foreign court would not regard our court as competent to discharge a debt recoverable there; and that was sufficient in itself to preclude the making of the order in respect of a foreign debt. Although in places this was described as a matter of discretion and in other places as a matter of principle, I think that the rationale was based on principle.
However that may be, I have no doubt that the issue should be regarded as one of principle. Our courts ought not to exercise an exorbitant jurisdiction contrary to generally accepted norms of international law and expect a foreign court to sort out the consequences. I do not share the Court of Appeal's confidence that the bank would have a restitutionary remedy under the law of Hong Kong. The cases indicate that it would not have such a remedy under English law in the converse case; compulsion of law connotes compliance with the order of a court of competent jurisdiction. It cannot safely be assumed that a foreign court would regard compliance with an order of a court whose jurisdiction it did not recognise as a sufficient basis for a restitutionary claim. Nor do I understand how a bank can properly debit a customer's account if it is not authorised to do so by the law which governs the account.
But it goes further than this. A restitutionary claim normally yields a personal remedy not a proprietary one. If the third party debt order does not have extraterritorial effect in the place where the account is kept, then the account itself is not affected by the order. Such an order cannot give priority in the judgment debtor's bankruptcy or over other execution creditors in the foreign jurisdiction. Indeed, having regard to the terms of section 183 of the Insolvency Act 1986, I do not see how it would prevail even against an English bankruptcy. The order must, as the Court of Appeal appreciated, operate in personam and compel the third party to make payment out of its own money with only such rights of recourse against the judgment debtor as the foreign court or the English law of bankruptcy may allow.
But this would not be to execute the judgment against the assets of the judgment debtor. It would not be a process of execution at all. As I have explained, the discharge of the debt owed by the third party to the judgment debtor is not merely a normal consequence of the order but the critical feature which makes the process one of execution. If the court cannot discharge the debt by force of its own order, it cannot make the order. If the debt is situate abroad, the court should not seek to evaluate the risk of the third party being compelled to pay twice. The only relevant question is whether the foreign court would regard the debt as automatically discharged by the order of the English court. Since this would be most unusual, it would be for the judgment creditor to establish.
I wish to add one thing more. RSC, Order 49 has now been replaced by Part 72 of the Civil Procedure Rules, which is cast in more modern language. It is common ground that, as the editorial introduction states, the basic purpose of the rule remains unchanged. Unfortunately all reference to attachment has been dropped, and there is no longer any indication that the order has proprietary consequences. The words which formerly created an equitable charge at the interim stage have been replaced by a power to grant an injunction, which is normally a personal remedy. The straightforward language of Part 72 is deceptive. Its true nature cannot easily be understood without a knowledge of its history and antecedents. I do not, with respect, regard this as an altogether satisfactory state of affairs.
For these reasons, and for the further reasons contained in the speeches of my noble and learned friends Lord Bingham of Cornhill and Lord Hoffmann, I would allow the appeal, set aside the order of the Court of Appeal, and dismiss the application for a garnishee order.
Re General Horticultural Co, Ex p Whitehouse (1886) 32 Ch D 512; Rogers v Whiteley [1892] AC 118; Galbraith v Grimshaw & Baxter [1910] 1 KB 339; Joachimson v Swiss Bank Corporation [1921] 3 KB 110; Choice Investments Ltd v Jeromnimon [1981] QB 149; Re Combined Weighing & Advertising Machine Co (1889) 43 Ch D 99; Chatterton v Watney (1881) 17 Ch D 259; Pritchett v English and Colonial Syndicate [1899] 2 QB 428; Ellis v M'Henry (1871) LR 6 CP 228; Burrows v Jemino (1726) 2 Stra 733; Ballantine v Golding (1784) Cooke's Bankrupt Laws, 419; Potter v Brown (1804) 5 East, 124; Odwin v Forbes (1817) Buck, 57; Quelin v Moisson (1828) 1 Knapp, 265; Gardiner v Houghton (1862) 2 B& S 743; Phillips v Eyre (1870) LR 6 QB 1; Smith v Buchanan (1800) 1 East 6; Lewis v Owen (1821) 4 B & Ald 654; Phillips v Allan (1828) 8 B & C 477; Bartley v Hodges (1861) 1 B & S 375; 30 LJ (QB) 352; Martin v Nadel [1906] 2 KB 26; Swiss Bank Corporation v Boehmische Industrial Bank [1923] 1 KB 673; Richardson v Richardson [1927] P 228; SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028; Interpool Ltd v Galani [1988] QB 738; Richardson v Richardson [1927] P 228; Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295; Zoneheath Associates Ltd v China Tianjin International Economic & Technical Co-operative Corporation [1994] CLC 348; R v Grossman (1981) 73 Cr App R 302; Bonalumi v Secretary of State for the Home Department [1985] QB 675; Mackinnon v Donaldson, Lufkin & Jenrette Securities Corporation [1986] Ch 482; Babanaft International Co SA v Bassatne [1990] Ch 13; Baltic Shipping Co v Translink Shipping Ltd & Translink Pacific Shipping Ltd [1995] 1 Lloyd's Rep 673; Richardson v Richardson [1927] P 228; Mayor etc of London v Cox (1867) LR 2 HL 239; Rasu Maritima v Pertamina [1978] QB 644; Mayor etc of London v London Joint Stock Bank (1881) 6 App Cas 393; In re International Tin Council [1987] Ch. 419; Deutsche Schachtbau-und Tiefbohrgesellscahft mbH v R'As al-Khaimah National Oil Co [1988] 2 Lloyd's Rep 293; Liberian Insurance Agency Inc v Mosse [1977] 2 Lloyd's Rep 560; In re Combined Weighing & Advertising Machine Co 43 Ch D 99; Pritchett v English & Colonial Syndicate [1899] 2 QB 428; Anisminic Ltd v Foreign Compensation Commission [1968] 2 QB 862; R v Jameson [1896] 2 QB 425; Chatterton v Watney (1881) 17 Ch D 259; In re General Horticultural Co, Ex p Whitehouse (1886) 32 Ch D 512; Rogers v Whiteley (1889) 23 QBD 236; Galbraith v Grimshaw & Baxter [1910] 1 KB 339; Choice Investments Ltd v Jeromnimon [1981] QB 149; Wood v Dunn (1866) LR 2 QB 73
Common Law Procedure Act 1854: s.61, s.62, s.63, s.65
Rules of the Supreme Court (Revision) 1965, SI 1965/1776: Order 49
Civil Procedure Rules 1998: rule 72.9
Second Report of the Royal Commission on the Superior Courts of Common Law (1853)
Dicey: Conflict of Laws, 13th edition (2000)
Mann, Further Studies in International Law (Clarendon Press 1990)