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Third party debt order discharged for lack of jurisdiction over debt situated in India

This judgment of Deputy Judge Peter MacDonald Eggers QC contains a detailed analysis of the law in relation to third party debt orders and in particular, the requirement that the debt in question be situated within the jurisdiction.

Pursuant to a third party debt order, the third party is required to pay the debt it owes to the judgment debtor, to the judgment creditor instead. The third party’s debt to the judgment debtor is discharged, and the judgment debt is reduced by the amount paid by the third party. The English court may only make a third party debt order where both the third party, and the debt, are situated in the jurisdiction (unless the law of the place of the debt would recognise payment pursuant to the English court order as discharging the debt). Such orders can only be made in respect of debts which are “due or accruing due” at the date when the order is first made.

In these proceedings the claimant (“Hardy”) sought to enforce an arbitration award it had obtained against the Government of India, against a debt owed to the GOI by a third party, (“IIFC”). It obtained an interim third party debt order against IIFC on the usual (ex parte) basis, and this was the hearing of IIFC’s application to set that order aside. The application succeeded on both of the grounds which were heard at this hearing.

The first of the two grounds was that the English court had no jurisdiction to make a third party debt order in respect of the debt owed by IIFC to the GOI because that debt was enforceable – and therefore situated – in India. In Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260 the House of Lords had made it clear that for a third party debt order to be made it was not sufficient for the third party to be within the jurisdiction; the debt was also required to be situated here. In Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Iraq [2017] 3 WLR 1170 the Supreme Court had applied this rule to debts owed under letters of credit. Neither decision contained a detailed analysis of the question of where debts are situated for the purposes of third party debt orders.

Hardy argued that the debt was situated in England as that is where IIFC is domiciled/resident and where IIFC’s assets are held. It argued that since England is where the debt would be enforced against IIFC (in the sense of enforcing a judgment on the debt against IIFC’s assets), the debt was situated here.

IIFC argued that the debt was situated in India because the contract under which the debt arose contained an exclusive New Delhi jurisdiction clause and New Delhi was therefore the only place the GOI could sue IIFC for payment.

Deputy Judge Peter MacDonald Eggers QC held that the debt was situated in India because that was the only place it could be enforced against IIFC by the GOI. This was consistent with the purpose of identifying the situs of the debt in the context of third party debt orders, which was to safeguard the third party against the risk of the debt being enforced against it in two different jurisdictions. The English court therefore had no jurisdiction to make a third party debt order in respect of the debt.

He also held that even if the debt was situated in England, there was a real or substantial risk that if the order were made final, payment pursuant to that order would not be recognised by the Indian courts as discharging the debt, and there was therefore a real or substantial possibility that the GOI would seek to enforce the debt against IIFC in India. Even if the English court had jurisdiction to make the order therefore, he would have declined to make it as a matter of discretion (applying the principle set out by Lord Goff in Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v Ras Al-Khaimah National Oil Co [1990] 1 AC 295).

The Judge also held that there was no debt “due or accruing due” as at the date of the interim order, because when it was made IIFC had no existing obligation to pay the debt to the GOI. Whether any debt would become payable depended on whether IIFC owed any amount of principal or interest under certain bonds, as at 1 April 2018 (several weeks after the interim order was made). The interim order therefore also fell to be discharged on this basis.

Neil Kitchener Q.C. and Eleanor Campbell appeared for IIFC. Nehali Shah appeared for the Government of India. Please find the Judgment here.