Societe Eram Shipping Company Limited (Respondents) and others v. Hong Kong and Shanghai Banking Corporation Limited (Appellants)
78. 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:
79. The principle was succinctly stated by Lord Russell of Killowen CJ in the Jameson case ( R v Jameson  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:
80. The near universal rule of international law is that sovereignty, both legislative and adjudicative, is territorial, that is to say it may be exercised only in relation to persons and things within the territory of the state concerned or in respect of its own nationals. But in terms of domestic law these limits are self-imposed. A sovereign legislature has power under its domestic law to disregard them and a court of "unlimited jurisdiction" (that is to say one which has power to decide the limits of its own jurisdiction) cannot be said to lack power to do so. Where the court observes the limits imposed by international law it may be a matter for debate whether it has no jurisdiction or has a jurisdiction which it refrains from exercising as a matter of principle. But it needs to be appreciated that, whether the court disclaims jurisdiction or merely declines to exercise it, it does so as a matter of principle and not of discretion.
81. 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.
82. 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.
83. 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.
84. 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.
85. 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:
An introductory Note to Order 49 described its object in the following terms:
86. 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.
87. 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.
88. Two things follow. 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.
89. 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
90. 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.
91. 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;
92. 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:  AC 118. Lord Watson said, at p 122:
At p 123, Lord Morris said that on the plain meaning of the order in that case
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.
93. In Galbraith v Grimshaw and Baxter  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:
Affirming the decision of the Court of Appeal Lord MacNaghten said (at  AC 508, 512) that the Scottish Court
94. 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.
95. In Joachimson v Swiss Bank Corporation  3 KB 110, 131 Atkin LJ repeated that service of the order nisi
96. The two stage process was explained by Lord Denning MR in characteristically simple language in Choice Investments Ltd v Jeromnimon  QB 149, at pp 154 - 155:
97. 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 and Colonial Syndicate  2 QB 428, at p 433:
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.
98. 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:
99. 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:
100. 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  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:
At p 31, Stirling LJ said:
101. In Richardson v Richardson  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
102. Martin v Nadel was distinguished in Swiss Bank Corporation v Boehmische Industrial Bank  1 KB 673 because the debt was payable in England. At pp 678-679, Bankes LJ explained that the distinction was critical:
At pp 680-681, Scrutton LJ referred to
103. 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".
104. 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)  QB 1028 and Interpool Ltd v Galani  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.
105. In Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd  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.
106. 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  2 KB 26 and Swiss Bank Corporation v Boehmische Industrial Bank  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."
107. 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