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third party debt orders and paying agents February 26, 2014

Posted by Bradley in : markets , trackback

The English Commercial Court (Mr. Justice Blair) has held in Merchant International Company Ltd v Naftogaz and the Bank of New York Mellon that there is no jurisdiction to make a third party debt order (these used to be called garnishee orders) with respect to funds held by a bank as a paying agent for a note issue. The reason was that the funds when held by the paying agent were not owed as a debt to the note issuer. And this was so even though the issuer responded to the judgment creditor’s attempts to obtain the funds designed for the investors by paying further funds to the paying agent, and some of the money was repaid to the judgment debtor:

Though the balance of the money was repaid in due course, I do not consider that this was pursuant to an obligation that was capable of being attached by a third party debt order. This avoids a conclusion that would mean that MIC had in effect itself created a debt by virtue of the action it had taken. Whilst it was suggested on its behalf in argument that it had “got lucky”, it does not follow that there was an attachable debt.

The doctrinal issues are different from those in NML Capital v Argentina but the decision does suggest it may be better to be acting as a paying agent in London than in New York.

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