Third Party Debt Orders (TPDOs) are a powerful tool for judgment creditors seeking to enforce a judgment by freezing and seizing funds owed to the debtor by a third party. However, utilising this enforcement method requires careful consideration and understanding of the legal processes. Missteps in applying for a TPDO can lead to wasted resources, delays, or outright denial by the court. Below, we delve into the key points of caution that must be observed when pursuing a TPDO.
Existence of a Debt Due to the Judgment Debtor
The foundational requirement for a TPDO is the existence of a debt owed by the third party to the judgment debtor. A critical test is whether the judgment debtor could personally sue the third party for the money in question. If the debtor has no legal grounds to demand payment from the third party, then the judgment creditor cannot use a TPDO to claim those funds. This principle was emphasised in Ferrera v Hardy [2015] EWCA Civ 1202, where it was made clear that a TPDO cannot put the judgment creditor in a better position than the debtor.
Practical Implications:
- Trust Funds and Agency Monies: Trust funds or monies held by a third party as an agent are unlikely to be successfully attached by a TPDO because the debtor would typically lack direct legal entitlement to those funds.
- Case Reference: In Breakthrough Funding Ltd v Dougall and others [2019] EWHC 3642 (Ch), the Court determined that a TPDO should not have been granted because the third party held no personal obligation to the judgment debtor under a consent order.
Debt Must Be Due or Accruing Due
Under Civil Procedure Rule 72.2(1), the debt owed by the third party to the debtor must be “due or accruing due.” This phrase implies that there must be an “immediate and unconditional obligation” for the third party to pay the debtor. If the obligation is conditional or not yet due, the TPDO cannot be applied.
Key Considerations:
- Condition Precedent: If the debt is subject to a condition precedent, such as awaiting certain events before becoming payable, it cannot be attached by a TPDO. For example, in Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy [2014] EWCA Civ 1603, the Court upheld that a debt under a TPDO must be immediately due.
- Case Law Insight: In Michael Wilson & Partners Ltd v Sinclair and others [2020] EWHC 1249 (Comm), the Court refused a TPDO because the debt was not yet due since no notice to repay had expired without payment.
Sole Ownership of the Debt
A TPDO can only attach debts owed solely to the judgment debtor. If the debt is jointly owed with another party, or if it involves a joint bank account, the TPDO cannot apply unless the judgment is against all account holders.
Important Points:
- Joint Bank Accounts: TPDOs are not applicable to joint bank accounts unless the judgment is against all account holders. This was established in Hirschorn v Evans [1938] 2 K.B. 801, which clarified that a TPDO cannot be made against joint accounts unless both account holders are liable for the debt.
- Joint Obligations: Similarly, if a debt is jointly owed to the judgment debtor and another party, as seen in Taurus Petroleum Ltd v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq [2013] EWHC 3494 (Comm), the TPDO cannot attach such debts.
Jurisdictional Considerations
The third party must be within the jurisdiction of the court for a TPDO to be enforceable. This means that the third party’s obligations to the debtor must be situated within the legal reach of the English court.
Key Jurisdictional Issues:
- Foreign Debts: Enforcing a TPDO on foreign debts is particularly challenging. Even if the third party is within the jurisdiction, if the debt is governed by foreign law, it may be difficult to enforce without risking the third party paying the debt twice.
- Legal Precedent: In Societe Eram Shipping Company Limited v Cie Internationale de Navigation [2004] 1 AC 260, the House of Lords discussed the limitations of enforcing a TPDO on foreign debts, noting that a TPDO should not be granted if it could lead to a double payment risk for the third party.
Situating the Debt Within the Jurisdiction
While the Civil Procedure Rules do not explicitly require the debt to be located within the jurisdiction, case law has established that this is a necessary condition for a TPDO to be effective.
Practical Example:
- Taurus Petroleum Ltd Case: In Taurus Petroleum Ltd, the Supreme Court confirmed that the debt must be situated where the debtor or the “characteristic performer” is resident. If the debt is situated outside the jurisdiction, and there is a risk that the foreign court will not recognise the TPDO as discharging the debt, the English court may refuse to grant the order.
Court discretion
Even if all legal requirements are met, the court retains discretion over whether to grant a TPDO. The court may refuse to issue the order if it would interfere with the principles of public international law, judicial comity, or if it believes that making the order could result in injustice.
Example of Judicial Discretion:
- Balengani v Sharifpoor [2020] EWHC 3888 (QB): In this case, the court considered the location of the debt (British Virgin Islands) and the potential for conflict with foreign legal principles. Despite the third party’s willingness to comply, the court exercised caution, requiring the judgment creditor to obtain permission from the BVI court before making the TPDO final.
Strategic Use of TPDOs
Third Party Debt Orders are a powerful enforcement tool, but they come with significant legal risks and challenges. Judgment creditors must carefully assess the nature of the debt, the jurisdictional issues, and the specific circumstances surrounding the debtor’s obligations before pursuing a TPDO. Misuse or misunderstanding of these orders can lead to significant delays, additional costs, and even failure to enforce the judgment.
