#5227 - Societe Eram Shipping Co V. Internationale Navigation - Conflict of Laws BCL

Societe Eram Shipping Co. v. Internationale Navigation

Facts

The appellant is the Hong Kong and Shanghai Banking Corpn 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".

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 5,000 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.

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. 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.

Holding

Lord Bingham

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.

Nature of a garnishee order

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. 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.

Danger of garnishee being forced to pay twice

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.

Conclusion

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 in so far 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.

Lord Hoffmann

My Lords, 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 Corpn 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.

Discharge or Jurisdiction?

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.

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: (1) the English court had international jurisdiction to enter judgment against the debtor; (2) the situs of the debt was England and (3) 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 [1906] 2 KB 26 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 held:

“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”

Exercise of Jurisdiction over foreign property

The execution of a judgment is an exercise of sovereign authority. It is a seizure by the state of an asset of the judgment debtor to satisfy the creditor's claim. And it is a general principle of international law that one sovereign state should not trespass upon the authority of another, by attempting to seize assets situated within the jurisdiction of the foreign state or compelling its citizens to do acts within its boundaries.

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...