The Commercial Court held that it did not have jurisdiction to make a third-party debt order (TPDO) where the debt in question was situated in a country whose courts would not recognise compliance with the order as discharging the third party’s liability to an award debtor. In reaching this conclusion, the court set out a number of principles for determining the jurisdiction in which a debt was deemed to be situated for legal purposes (the “situs”).
In Hardy Exploration & Production (India) Inc v Government of India & another  EWHC 1916 (Comm), an oil and gas exploration company obtained an arbitration award against the Indian government. It sought to enforce the award by means of a TPDO against a finance company that owed money to the Indian government under a guarantee fee agreement. The finance company objected on a number of grounds, one of which was that the court had no jurisdiction because the situs of the debt was in India and, as a matter of Indian law, payment pursuant to an order of the English court would not discharge the third party’s debt to the Indian government.
The situs of the debt
The Commercial Court set out the following principles:
- The court only has jurisdiction to make a TPDO where the situs of the debt is either in England and Wales, or in a jurisdiction where payment under the order will be recognised as discharging the debt.
- The situs of a debt must be determined under English conflicts of laws rules.
- The principles that determine the situs of a debt, which is a chose in action, are not necessarily the same as those that determine the situs of real property or personal property.
- The English court would not trespass upon the sovereign authority of a foreign court to deal with debts whose situs is within the foreign jurisdiction.
- The situs of a debt is intrinsically linked to the law governing the debt, since that law will determine whether or not the debt is discharged.
- The situs of the debt is not necessarily the same place in which the obligation to pay the debt has to be performed.
- There is a general presumption that a debt has its situs in the place where the debtor is domiciled, but this presumption can be displaced where another court has jurisdiction, e.g. under a jurisdiction clause.
- Prima facie, the situs of the debt is the jurisdiction in which the existence of the debt has to be established. Once the existence of the debt has been confirmed by a competent court or tribunal, the situs of the debt is in each jurisdiction where there are mechanisms available to enforce the judgment or award.
- If the foreign court is likely to take a different view of the debt’s situs, the English court can consider that as a factor when exercising its discretion as to whether or not to make the TPDO.
In the present case, the guarantee fee agreement did not include an express choice of law, but did include both an arbitration clause and an exclusive jurisdiction clause in favour of India. There was a dispute as to the effect of these clauses under Indian law. After considering expert evidence, the Commercial Court held that the exclusive jurisdiction clause was effective, and therefore the situs of the debt was in India. Since payment under a TPDO would not discharge the debt under Indian law, the court held that it did not have jurisdiction to make such an order.
The majority of previous authorities on the situs of a debt have not set out the applicable principles with the same degree of detail as in this case. In particular, there has been very little previous judicial consideration of the potential difference between where a debt is payable and where its existence falls to be determined. As a result, this decision provides useful guidance which potential claimants should take into account when considering what assets may be available against which to enforce any judgment or award.