Aircraft leasing - third party debt orders not available for foreign debt – English High Court
In the recent decision of Ross Leasing Ltd and Anor v Nile Air  EWHC 2201 (Comm), the English High Court examined whether third party debt orders (formerly garnishee orders) could be made in respect of a foreign debt.
A judgment creditor applied to make an interim third party debt order, final, in respect of a debt owed to the judgment debtor by a third party, International Air Transport Association (IATA). The judgment creditor and debtor were both aircraft leasing companies. The judgment creditor obtained judgment against the judgment debtor in respect of unpaid rent and other charges due under aircraft leases. In turn, IATA owed money to the judgment debtor. IATA was a company formed under the laws of Canada with a UK establishment and a registered office in England and Wales. Classic "garnishee" territory thus far. However, the debt owed to the judgment debtor was governed by Canadian law, and subject to a Canadian exclusive jurisdiction clause.
The following issues were identified:
- Is the third party within the jurisdiction?
- Is there a debt due from the third party to the judgment debtor?
- Is the debt situated in the jurisdiction?
- If the debt is situated outside of the jurisdiction, would the foreign court regard the debt discharged by a third party debt order of the English Court?
- If not, is there a real and substantial risk that the third party might be called upon to pay the debt twice?
- Should the Court exercise its discretion to make a final third party debt order?
Applying these principles, it was held that:
- IATA was within the English jurisdiction;
- IATA did owe the debt to the judgment debtor;
- However, the situs of the debt was Canada - prima facie a debt is situated where it is recoverable and where the debtor resides, but this is displaced where there is an exclusive jurisdiction clause in favour of a different jurisdiction;
- And, Canadian law would not regard the IATA debt as discharged by an English third party debt order;
- There was therefore a real and substantial risk that IATA could be called upon to pay twice, if the third party debt order was made final; and
- Accordingly, the application was dismissed.
This decision clearly identifies the legal principles relating to third party debt orders in respect of foreign debt and is likely to be relevant in offshore jurisdictions.