|
HOUSE OF LORDS |
SESSION 2002-03
[2003] UKHL 30
on appeal from: [2001] EWCA Civ 1317 |
OPINIONS
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Société Eram Shipping Company Limited (Respondents) and others
v.
Hong Kong and Shanghai Banking Corporation Limited (Appellants)
ON
THURSDAY 12 JUNE 2003
The Appellate Committee comprised:
Lord Bingham of Cornhill
Lord Nicholls of Birkenhead
Lord Hoffmann
Lord Hobhouse of Woodborough
Lord Millett
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Société Eram Shipping Company Limited (Respondents) and others v. Hong Kong and Shanghai Banking Corporation Limited (Appellants)
[2003] UKHL 30
LORD BINGHAM OF CORNHILL
My Lords,
1. 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.
2. The appellant is the Hong Kong and Shanghai Banking Corporation Limited, 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.
3. Société Eram Shipping Company Limited is a Romanian shipping company. I shall refer to it as "the judgment creditor".
4. Société Oceanlink Limited 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
The attachment of debts
10. 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:
"61. 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.
62 Service of an order that debts due or accruing to the judgment debtor shall be attached, or notice thereof to the garnishee, in such manner as the judge shall direct, shall bind such debts in his hands.
63 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.
65 Payment made by or execution levied upon the garnishee under any such proceeding as aforesaid shall be a valid discharge to him as against the judgment debtor to the amount paid or levied, although such proceeding may be set aside or the judgment reversed."
11. 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:
"Attachment of debt due to judgment debtor
1(1) 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.
(2) An order under this rule shall in the first instance be an order to show cause, specifying the time and place for further consideration of the matter, and in the meantime attaching such debt as is mentioned in paragraph (1) or so much thereof as may be specified in the order, to answer the judgment or order mentioned in that paragraph and the costs of the garnishee proceedings.
Service and effect of order to show cause
3(1) Unless the court otherwise directs, an order under rule 1 to show cause must be served -
(a) on the garnishee personally, at least 15 days before the time appointed thereby for the further consideration of the matter; and
(b) on the judgment debtor, at least 7 days after the order has been served on the garnishee and at least 7 days before the time appointed by the order for the further consideration of the matter.
(2) Such an order shall bind in the hands of the garnishee as from the service of the order on him any debt specified in the order or so much thereof as may be so specified.
8. Any payment made by a garnishee in compliance with an order absolute under this order, and any execution levied against him in pursuance of such an order, shall be a valid discharge of his liability to the judgment debtor to the extent of the amount paid or levied notwithstanding that the garnishee proceedings are subsequently set aside or the judgment or order from which they arose reversed."
12. 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:
"Scope of this Part and interpretation
72.1(1) 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.
72.2(1) 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 -
(a) the amount of any debt due or accruing due to the judgment debtor from the third party; or
(b) so much of that debt as is sufficient to satisfy the judgment debt and the judgment creditor's costs of the application.
(2) 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).
Interim third party debt order
72.4(1) An application for a third party debt order will initially be dealt with by a judge without a hearing.
(2) The judge may make an interim third party debt order -
(a) fixing a hearing to consider whether to make a final third party debt order; and
(b) 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.
(3) An interim third party debt order will specify the amount of money which the third party must retain, which will be the total of -
(a) the amount of money remaining due to the judgment creditor under the judgment or order; or
(b) an amount for the judgment creditor's fixed costs of the application, as specified in the relevant practice direction.
(4) An interim third party debt order becomes binding on a third party when it is served on him.
(5) The date of the hearing to consider the application shall be not less than 28 days after the interim third party debt order is made.
72.9(1) A final third party debt order shall be enforceable as an order to pay money.
(a) the third party pays money to the judgment creditor in compliance with a third party debt order; or
(b) the order is enforced against him,
the third party shall, to the extent of the amount paid by him or realised by enforcement against him, be discharged from his debt to the judgment debtor.
(3) Paragraph (2) applies even if the third party debt order, or the original judgment or order against the judgment debtor, is later set aside."
13. 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.
14. 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 Company, 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."
As Lord Morris put it (page 123),
". . . 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 and 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."
15. The effect of the order absolute has been similarly explored in the authorities. It was pointed out in Re Combined Weighing and Advertising Machine Company (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 and 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]".
16. 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."
This statement remains good law. In Martin v Nadel [1906] 2 KB 26, where a garnishee order was sought in England against the London branch of a German bank to attach a balance owed to the judgment debtor by the Berlin branch of the bank, Vaughan Williams LJ said, at page 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 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."
Stirling LJ was of the same mind, at page 31:
"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."
It is evident that the Hong Kong law and procedure (recorded in paragraph 8 above) which deny recognition to a third party debt or garnishee order made in England in relation to a debt sited in Hong Kong is not an unusual or idiosyncratic rule but one which reflects general international practice.
17. 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.
18. 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."
Scrutton LJ (pages 680-681) said 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."
Scrutton LJ considered this (page 681) to be "well established as a principle of discretion on which the Court acts".
19. 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."
Hill J was accordingly (page 236)
"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."
He went on to hold that, if he was wrong in that conclusion, he would exercise his discretion against the making of an order (page 236).
20. 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."
But, referring to the absence of any requirement in Order 49 rule 1(1) that the garnished debt as well as the garnishee must be properly within the jurisdiction, the court made reference to SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028 and described the decision in Richardson v Richardson [1927] P 228 as "no longer good law": page 741.
|
