Judgments - Societe Eram Shipping Company Limited (Respondents) and others v. Hong Kong and Shanghai Banking Corporation Limited (Appellants)

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    21. 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 and Technical Co-operative Corporation [1994] CLC 348.

Extraterritorial jurisdiction

    22. 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 and 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):

    "In principle and on authority it seems to me that the court should not, save in exceptional circumstances, impose such a requirement upon a foreigner, and, in particular, upon a foreign bank. The principle is that a state should refrain from demanding obedience to its sovereign authority by foreigners in respect of their conduct outside the jurisdiction."

The judge went on (page 494) to explain the rationale of the principle:

    "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."

    23. 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".

Nicholls LJ was similarly concerned (page 44) at the "extraterritorial vice" of unqualified orders. He pointed out (page 46):

    "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 and Translink Pacific Shipping Ltd [1995] 1 Lloyd's Rep 673.


    24. 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.

    25. 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").

    26. 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.

    27. 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.

    28. 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.

    29. 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.

    30. 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.


My Lords,

    31. 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.


My Lords,

    32. 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.

    33. 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."

    34. 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."

    35. 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).

    36. 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.

    37. 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 overdetermined 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."

    38. 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."

    39. 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."

    40. 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."

    41. 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.

    42. 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.

    43. 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.

    44. 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."

    45. 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:

    "It is one thing to give effect to plain and unambiguous language in a statute. It is quite another to insist that general words must invariably be given their fullest meaning and applied to every object which falls within their literal scope, regardless of the probable intentions of Parliament."

    46. 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.

    47.     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."

    48. 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."

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