The New York Court of Appeals has held that a New York court has the power to order a bank over which it has personal jurisdiction to turn over property of a judgment debtor located outside New York to a judgment creditor.

The consequences of this decision are far reaching for banks because entities which have registered in New York are subject to the personal jurisdiction of the New York courts by virtue of their registration. An unsatisfied foreign arbitration award or judgment could now be enforced in New York by obtaining a turnover order against the judgment debtor's bank registered in New York and that bank will be obliged to turn over the funds of that customer even if the customer's bank account is held at an overseas branch of the bank.

For judgment creditors, this presents an excellent new opportunity to enforce against judgment debtors' assets worldwide. However, banks subject to these orders may find themselves in a difficult position. If, for example, a New York court orders the New York branch of a bank to turn over the funds of a customer held by that bank in England, the bank may find that it would be acting in breach of mandate to its customer in England if it turns over the funds (meaning it will likely end up paying out of its own funds). If the bank fails to comply with the turnover order though, its New York branch will be in contempt of court.

By contrast, the English courts will not allow a third party debt order to be made in circumstances where the payment by the bank would not be a good discharge of the debt owed to its customer.

The decision in Koehler v The Bank of Bermuda Limited may yet be subject to appeal in the US Supreme Court. However, in the meantime this decision creates opportunities for judgment creditors with unsatisfied judgment debts or arbitral awards.

For more information about the case and its implications, click here.