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Third party debt orders: the importance of exclusive jurisdiction clauses

October 18, 2021

In Ross Leasing Ltd & Ors v Nile Air [2021] EWHC 2201 (Comm), the High Court determined not to make a final third party debt order on the ground that the third party debts were not situated in England, as the agreement governing the debt contained an exclusive jurisdiction clause for a foreign jurisdiction, and there was a risk that the third party would need to pay again in that jurisdiction.

 

Background

Nile Air (Nile) is an Egypt-based airline. Nile leased three aircraft from the claimants, who are aircraft leasing companies (the Claimants). Nile subsequently failed to fulfil its payment obligations under the various lease agreements. In September 2020, the Claimants commenced proceedings and successfully obtained summary judgement against Nile for approximately USD 4.4 million. Nile failed to pay.

The International Air Transport Association (IATA) is a trade association of airlines across the globe. One of the services it offers is its IATA Currency Clearance Service (ICCS), which allow airlines to accept payments globally and repatriate foreign proceeds to their home countries. IATA owed Nile approximately USD 450,000 (the Third Party Debts), mostly under ICCS. The Claimants sought a third party debt order against IATA under CPR Part 72, as such an order would have compelled IATA to pay the Claimants the monies it owed to Nile. The Claimants were granted an interim third party debt order, which Nile challenged at the hearing to decide whether to make the order final.

Nile objected to this order on the grounds that:

  1. The English court did not have the jurisdiction to make such an order, as the Third Party Debts were situated in Quebec and there was a risk that the Quebecois courts would not recognise IATA’s compliance with such an order as discharging IATA’s liability to Nile.
  2. The majority of the Third Party Debts were not “debt due or accruing due” on the date the order was given and therefore were not within the parameters of the order.

To address the issue raised in the second ground for objection, the Claimants sought and obtained a further third party debt order to capture debts that might have or had fallen due after the first one (and is not discussed further here).

 

The decision about jurisdiction

The court considered whether the third party debt order should be made final. The factors that an English court will consider when deciding to make a third party debt order final are:

  1. Whether the third party is within the jurisdiction of the English courts
  2. Whether there is a debt due or accruing to the judgment debtor from the third party.
  3. Whether the debt is situated within the jurisdiction of the English courts.
  4. If the debt is situated outside the jurisdiction of the English courts, whether the relevant foreign court would regard the debt as being automatically discharged by the English court order.
  5. If not, whether there is a “real and substantial risk” that the third party might be required to pay the debt twice over, both in England and in the relevant foreign jurisdiction.
  6. Taking all relevant factors into account, whether the Court should exercise its discretion to make the order final.

Taking these points in turn, the Court decided:

  1. IATA is headquartered in Quebec, but it has a UK establishment and a registered office in the UK so is within the English jurisdiction.
  2. At least some of the Third Party Debts were due and owing.
  3. The general rule is that a debt is situated in the country where the debtor resides, as the debtor’s country of residence is normally the jurisdiction where the creditor can enforce the debt. As IATA has an office in England, the prima facie position is that England is the situs of the Third Party Debts owed by IATA to Nile. However, Master Davidson decided that the general rule had been displaced here, as the Third Party Debts are governed by a contract that contains a Quebecois/Canadian exclusive jurisdiction clause. In reaching this conclusion, Master Davidson adopted the reasoning of the earlier (but non-binding) decision Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm).
  4. Expert evidence on Quebecois/Canadian law showed that, in Canada, the charging order would not automatically discharge IATA’s liability to Nile.
  5. Master Davidson concluded that the expert evidence showed that there was a real risk that IATA could be called upon to pay the debts twice over, and so he should not make the third party debt order final
  6. No issue of discretion arose given the risk of paying twice.

Therefore the Claimants failed to obtain a final third party debt order against IATA which would have satisfied some of Nile’s debt to the Claimants.

 

Key takeaways

This case now firmly establishes that where a debt is owed under terms and conditions that includes an exclusive jurisdiction clause for another country, there is a risk that the English Court will refuse to make a final third party debt order. This is because there might be a risk that the third party would need to pay twice, and this will depend on analysis of the law of the foreign jurisdiction. This is particularly relevant to banks and financial institutions, which are often the targets of third party debt orders and might be at risk of paying twice. For claimants, defendants and targets for such an order, it is important to be aware of the jurisdiction clauses in the relevant contracts, and the related foreign law issues that arise.

 

The authors would like to thank Christabel Ekundayo for her assistance in preparing this post.