The English High Court has decided, in a judgment handed down on 6 August 2021 (Ross Leasing Limited and others v Nile Air), that three aircraft leasing companies cannot enforce a judgment that they had obtained against an airline, through the mechanism of a third party debt order in England against the International Air Transport Association (IATA). This was because the relevant IATA agreement contains an exclusive jurisdiction clause specifying that any claims should be referred to the courts of Quebec, Canada. The English court therefore said that the leasing companies had to make a claim on these funds in Canada, not in England.
This judgment is significant not only for its implications for enforcement of judgments and awards against airlines, but also for the general question of how third party debt orders can be enforced in England.
Third party debt orders
A third party debt order, which in the past was called a garnishee order (and is still called this in some jurisdictions), is a very useful mechanism for enforcing a court judgment or an arbitration award in England. Rather than pursuing the judgment debtor, the judgment creditor can go to a third party that owes a sum of money to the judgment debtor, with a court order that compels the third party to pay the money over to the judgment creditor instead. In this way, the judgment debtor can be bypassed; and the third party is likely to be more cooperative than the judgment debtor, as long as the third party can be confident that its debt is extinguished by paying the money to the judgment creditor. Obtaining a third party debt order can also sometimes make the judgment debtor more cooperative, because it might be relying on the money from the third party for cashflow purposes.
The factors that an English court will look at when deciding whether to issue a third party debt order are:
The third party must be within the jurisdiction of the English courts.
There must be a debt due or accruing to the judgment debtor from the third party.
The debt must be situated within the jurisdiction.
Alternatively, if the debt is situated outside the jurisdiction, the foreign court should regard the third party’s debt as being automatically discharged by the order of the English court.
If it is not automatically discharged, there should not be a real and substantial risk that the third party might be called upon to pay the debt twice over (i.e. both in England and in that jurisdiction).
Third party debt order against IATA
IATA is a trade association for airlines across the world, founded in 1945 and headquartered in Montreal, Canada. Almost three hundred airlines are members of IATA, and it covers over 80% of flights globally.
Among its many activities, IATA offers a Currency Clearance Service through which airlines can accept payments for flights anywhere in the world and repatriate those funds to their own countries. Effectively, IATA pools funds from ticket sales and pays these on as appropriate to individual airlines. Sometimes it pays these funds to others on behalf of the airlines, for example to national governments in return for allowing flights to fly over those countries. The agreement under which the Currency Clearance Service operates specifies that any disputes or claims must be referred to the courts of Quebec.
The cash held by IATA on behalf of airlines has been used to enforce judgments or awards made against IATA member airlines and other relevant entities that would otherwise receive that cash. Most significantly, in 2020 the Supreme Court of Canada decided that Instrubel, a Dutch company that had supplied military equipment (night vision goggles and thermal imaging technology) to the Government of Iraq, could enforce two arbitration awards against funds held by IATA (IATA v Instrubel NV). These were funds that IATA would otherwise have paid to the Iraqi Government in return for airlines flying over Iraq.
Claim against Nile Air
Nile Air is an airline based at Cairo International Airport. It is the largest private airline in Egypt. It leased three Airbus A320-200 aircraft from some leasing companies. However, Nile Air did not make the payments under the lease agreements, so the leasing companies started legal action in England and obtained a judgment for approximately US$ 4.3 million against Nile Air. Nile Air did not pay this amount so the leasing companies took further legal action to enforce the judgment.
One of the assets of Nile Air was approximately US$ 450,000 that IATA was due to pay to it, mostly out of the IATA Currency Clearing Service. Since IATA has an office in London and is therefore within the jurisdiction of the English courts, the leasing companies applied for a third party debt order to compel IATA to pay this money to them rather than to Nile Air.
The High Court considered the factors listed above and decided not to make the order. This was because the exclusive jurisdiction clause in the IATA Currency Clearing Service agreement meant that the debt was situated in Canada not in England. Also, the expert evidence about Quebec law indicated that the Quebec courts might not recognise any payment made by IATA in England as automatically discharging IATA’s debt to Nile Air. This was of course an issue for the Quebec courts to finally decide, but the English High Court acknowledged that there was risk that, if IATA paid over the money to the leasing companies in England, it might have to pay out the money a second time to Nile Air in Canada.
This case is a good illustration of the strategy of enforcing judgments and arbitration awards against funds held by IATA. That is not the only course of action available to a judgment creditor of an airline, of course – and in this case, the leasing companies might be able to enforce the judgment against any property owned by Nile Air in England, which could include any Nile Air plane that lands at an English airport. But the IATA funds have the advantage of being easily accessible, as cash in bank accounts.
However, the case also indicates that any such enforcement action should probably be brought in Canada if the relevant IATA agreements contain an exclusive jurisdiction clause specifying the Canadian courts. The English courts, at least, will not issue a third party debt order against IATA in those circumstances (it might be possible to pursue such action in other countries, since this question might be answered differently in another jurisdiction).
Generally, this shows that in order to obtain a third party debt order, you need to consider carefully the details of the debt that you seeking to enforce against. This might include seeking from the third party disclosure of the terms of the relevant agreement under which the debt is owed, to check whether there is an exclusive jurisdiction clause that might mean you have to purse the third party debt enforcement action elsewhere and not in England.
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