In a recent case in London, the court granted a very broad receivership order over 25 unrelated international construction contracts. The case illustrates the flexibility of the UK courts and the far-reaching effects they can have on international projects.

Where a claimant has an unsatisfied UK court order in its favour and the defendant has assets overseas, the UK courts are available to help the claimant enforce the judgment debt. One way of doing this is for the court to grant a worldwide freezing order (i.e. an order that usually stops a defendant from disposing of some or all of its assets, wherever they are in the world). Another, albeit relatively unusual method, is the making of a receivership order (whereby a receiver is appointed over certain assets of a company) where it appears to the court to be just and convenient to do so.

In the recent case of Masri, the parties were involved in long-running litigation concerning the ownership of an oil concession in Yemen. The claimant obtained a UK judgment in its favour for about US$63million. The defendants, part of a large international construction group, steadfastly refused to pay the debt despite, in the words of the court, "having available to them substantial funds out of which they could easily pay the judgment debt without in any way imperilling their ability to carry on their diverse and successful businesses".

Previous attempts to enforce the judgment debt by way of a receivership order in relation to the interest of the defendant in the oil concession were thwarted by the defendant deferring its entitlement to revenue, apparently indefinitely.

The claimant therefore sought from the UK courts a further receivership order to enforce the debt over 38 international construction projects between the defendants and parties unrelated to the proceedings (some of which were sovereign nations). The receivables under those contracts were said to be in the region of US$160million.

The defendants resisted the making of the order on five broad grounds. These included their contention that it would require a truly exceptional case to justify the court granting an order over the foreign assets of a foreign judgment debtor and that the order should not invite or require the defendants to breach pre-existing contractual commitments under the 38 unrelated projects.

The judge rejected these grounds and, in granting the order over the 25 contracts of which the defendants were the sole contractor (on the basis that these arrangements were more straightforward than the joint venture and consortium agreements), said that the order would not necessarily result in a breach of the terms of the unrelated contracts or cause inconvenience to third parties unless the defendants were determined not to co-operate with the receiver. On the contrary, the judge felt that the receiver was bound to ensure that the work on the projects continued in a seamless and uninterrupted manner, as it would be self-defeating for the receiver to deprive the projects of working capital.

Whilst this may be the case on the facts of Masri, the effect of such an order in other cases is likely to provide a basis for an employer to terminate (or determine) the relevant construction contract. Under the FIDIC form, for instance, an employer is entitled to terminate a contract if a contractor "has a receiving or administration order" made against it. The prospect of termination following the making of a receivership order could make such an order counterproductive. What, however, the Masri case demonstrates is that the UK courts are willing to assist a frustrated claimant in enforcing its judgment debt abroad, even if this means interfering with overseas construction contracts that have no connection with the UK.

Reference: Masri v Consolidated Contractors International UK Ltd [2008] EWHC 2492 (Comm)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 17/11/2008.