Factual and Procedural Background
In 2013, the Plaintiff obtained an arbitration award against the Defendant, the Government of India ("GOI"). On 25th July 2017, the Court ordered enforcement of this award ("the Enforcement Order"). The Defendant applied on 2nd February 2018 to set aside the Enforcement Order, with the hearing scheduled for October 2018. On 23rd February 2018, the Plaintiff applied without notice for an Interim Third Party Debt Order pursuant to CPR Part 72, which was granted on 28th February 2018, restraining India Infrastructure Finance Company (UK) Limited ("IIFC (UK)") from paying a debt owed to the Defendant up to a specified sum unless the Court ordered otherwise. The Interim Order was served on IIFC (UK) on 5th March 2018.
On 19th April 2018, IIFC (UK) applied to discharge the Interim Order on four grounds: alleged non-disclosure by the Plaintiff; lack of Court jurisdiction because the debt is enforceable in India and payment under the English order would not discharge the debt under Indian law; immunity under the State Immunity Act 1978; and that the debt was not "due or accruing due" at the relevant time. The Court expedited the hearing of this application, which was set for 14th June 2018. The Court limited the hearing to Grounds 2 and 4 (jurisdiction and debt status), deferring Grounds 1 and 3 (non-disclosure and state immunity).
The Court's judgment concerns only Grounds 2 and 4. If either succeeds, the Interim Third Party Debt Order must be discharged and no final order made.
The relationship between IIFC (UK) and the Defendant involves IIFC (UK) being a UK-incorporated company, wholly owned by an Indian company whose sole shareholder is the Defendant. IIFC (UK) provides long-term foreign currency loans to Indian infrastructure companies, funded by bonds guaranteed by the Defendant. The Guarantee Fee Agreements require IIFC (UK) to pay an annual guarantee fee to the Defendant.
The Court notes the procedural history of the enforcement application, the Interim Third Party Debt Order, the discharge application by IIFC (UK), and the Court's directions on the hearing and evidence.
Legal Issues Presented
- Whether the Court has jurisdiction to make a Third Party Debt Order in respect of the debt owed by IIFC (UK) to the Defendant, given the situs of the debt and the application of foreign law.
- Whether the relevant debt was "due or accruing due" at the time the Interim Third Party Debt Order was made or served.
Arguments of the Parties
Appellant's Arguments (Plaintiff)
- The situs of the debt is determined by the residence or domicile of the third party debtor, IIFC (UK), which is incorporated and operates in England.
- The debt is enforceable in England because IIFC (UK) has assets and bank accounts in England.
- The situs is not determined by the governing law or jurisdiction clauses in the contract but by the debtor’s residence.
- The Guarantee Fee Agreements are governed by Indian law but the debt is due and payable by virtue of IIFC (UK)’s obligations and the Court’s jurisdiction.
- The Defendant, as the indirect parent of IIFC (UK), would regard the debt as discharged if IIFC (UK) complies with the Third Party Debt Order, reducing the Defendant’s liability to the Plaintiff.
Respondent's Arguments (IIFC (UK) and Defendant)
- The situs of the debt is India, the place where the debt is properly recoverable or enforceable, as determined by the exclusive jurisdiction clause in the Guarantee Fee Agreements.
- The Court lacks jurisdiction because payment under an English Third Party Debt Order would not discharge the debt under Indian law.
- The Guarantee Fee Agreements are governed by Indian law, and the exclusive jurisdiction lies with the Civil Courts of Delhi.
- There is a real or substantial risk that compliance with the Third Party Debt Order will not discharge IIFC (UK)’s liability to the Defendant, exposing IIFC (UK) to double liability.
- The debt was not "due or accruing due" at the relevant date because the guarantee fee falls due annually on 1st April and depends on contingencies such as outstanding principal and interest.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Societe Eram Shipping Co Ltd v Cie Internationale de Navigation [2003] UKHL 30; [2004] 1 AC 260 |
Jurisdictional requirement that the situs of the debt must be within England and Wales or that the foreign law recognises the English order as discharging the debt. |
Established that the Court lacks jurisdiction to make a Third Party Debt Order if the debt is situated abroad and the foreign law does not recognise the order as discharging the debt. |
| Taurus Petroleum Ltd v State Oil Marketing Co of the Ministry of Oil, Iraq [2017] UKSC 64; [2017] 3 WLR 1170 |
Confirmed principles on situs of debt and the Court’s jurisdiction over Third Party Debt Orders. |
Reiterated that the situs of debt is generally the debtor’s residence or where the debt is recoverable; English courts lack jurisdiction otherwise. |
| Martin v Nadel [1906] 2 KB 26 |
Debt is situated where it is properly recoverable; risks of double liability if foreign courts do not recognise garnishee orders. |
Supported the principle that garnishee orders should not be made if there is risk of double payment. |
| Swiss Bank Corp v Boehmische Industrial Bank [1923] 1 KB 673 |
Debt situs is where it is properly recoverable; payment under garnishee order discharges debt only if recognised by foreign law. |
Applied to assess jurisdiction and discretion regarding discharge risk. |
| Richardson v Richardson [1927] P 228 |
Debt must be properly recoverable within the jurisdiction for garnishee order to apply. |
Confirmed that debts not recoverable within the jurisdiction cannot be attached. |
| Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v Ras Al-Khaimah National Oil Co [1990] 1 AC 295 |
Discretion of the Court to refuse garnishee orders if there is a real risk of double payment. |
Reinforced the principle that the Court should not expose the garnishee to double liability. |
| Employers Liability Assurance Corp Ltd v Sedgwick Collins & Co Ltd [1927] AC 95 |
Discretion to refuse garnishee orders if risk of double payment exists. |
Used to illustrate the Court’s equitable discretion. |
| Heppenstall v Jackson [1939] 1 KB 585 |
Debt must be due or accruing due at the time of the garnishee order. |
Applied to determine timing of debt for Third Party Debt Orders. |
| O'Driscoll v Manchester Insurance Committee [1915] 3 KB 499 |
Debts owing or accruing include debts presently due but payable in future. |
Clarified the meaning of "due or accruing due" for garnishee orders. |
| Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy [2014] EWCA Civ 1603; [2015] 1 CLC 1 |
Debt must be immediately or conditionally payable by virtue of an existing obligation. |
Confirmed the test for debts subject to Third Party Debt Orders. |
| Hillside (New Media) Ltd v Baasland [2010] EWHC 3336 (Comm) |
Considered situs of debt in context of corporate domicile and enforcement under Lugano Convention. |
Supported the view that situs depends on debtor’s domicile and place of enforcement. |
| Kwok Chi Leung Karl v Commissioner of Estate Duty [1988] 1 WLR 1035 |
Confirmed situs of debt as place where debt is properly recoverable or enforceable. |
Reinforced general principles of situs of debts in conflict of laws. |
| Ellis v M'Henry (1871) LR 6 CP 228 |
Law governing the debt determines whether the debt is discharged. |
Explained private international law principles applicable to debt discharge. |
| Zoneheath Associates Ltd v China Tianjin International Economic and Technical Cooperative Corp [1994] CLC 348 |
Real risk of double payment is a ground to refuse making garnishee orders absolute. |
Applied to assess risk of double liability in enforcement proceedings. |
Court's Reasoning and Analysis
The Court first addressed the jurisdictional issue, affirming that a Third Party Debt Order can only be made if the debt is situated within the jurisdiction or if the foreign law of the situs recognises the English order as discharging the debt. The Court found that the situs of the debt under the Guarantee Fee Agreements is India, not England and Wales, because the agreements confer exclusive jurisdiction on the Civil Courts of Delhi and are governed by Indian law. The Court accepted expert evidence that the Indian Courts or arbitral tribunals would likely hold the debt situated in India and would not recognise compliance with the English order as discharging the debt.
Further, even if the Court had jurisdiction, it would exercise its discretion against making a final Third Party Debt Order due to the real or substantial risk that IIFC (UK) would face double liability. The Court relied on established principles that prevent garnishee orders being made if there is a significant risk of the third party paying the same debt twice under different jurisdictions.
Regarding whether the debt was "due or accruing due" at the time the Interim Order was made or served, the Court analysed the contractual terms. The guarantee fee was payable annually in advance on 1st April each year, contingent on the outstanding principal and interest. The Court concluded there was no immediate or unconditional obligation to pay the fee before 1st April 2018, and thus no debt "due or accruing due" on the dates of the Interim Order.
Accordingly, the Court found that the jurisdictional requirements were not met, and the debt did not satisfy the statutory conditions for a Third Party Debt Order.
Holding and Implications
The Court allowed the application of IIFC (UK) to discharge the Interim Third Party Debt Order.
The holding means that the Interim Third Party Debt Order is set aside and no final order will be made. The Court concluded it lacked jurisdiction to make the order because the debt is situated in India, and compliance with the order would not discharge the debt under Indian law, exposing the third party to a real risk of double liability. Additionally, the debt was not due or accruing due at the relevant time.
No new precedent was established; the decision applies established principles on jurisdiction, situs of debts, and the exercise of discretion in enforcement proceedings involving foreign law considerations.