Masri v Consolidated Contractors International Co Sal & Ors

The judgment debtors, Consolidated Contractors International Company SAL (“CCIC”) and Consolidated Contractors Oil and Gas Company SA (“CCOG”), apply for permission to appeal from orders made by Tomlinson J on 21 October 2008 and for stays of the operation of the orders until the disposal of the applications and/or appeals. CCIC and CCOG are part of a substantial group based in the Lebanon, the Consolidated Contractors Group, and their business consists in particular, for present purposes, of large scale international construction projects. The proceedings by Mr Masri against, among others, CCOG and CCIC were commenced in 2004 and related to an agreement for the sharing of costs and profits in respect of an oil concession in the Yemen. CCOG has a 10% interest in the concession and Mr Masri claimed that the agreement gave him a 10% interest in that 10% interest. Following a jurisdictional contest and a trial on the merits, judgment on liability in favour of Mr Masri was handed down by Gloster J on 28 July 2006. Subsequently, there was a judgment on quantum in March 2007 and an award of an interim payment of $30 million with costs of some £700,000. The judgment debt is now somewhat in excess of $60 million and has not been paid.

As Tomlinson J said in this case, there is no doubt that the group in general, and the judgment debtors in particular, have 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 successful businesses. But they have made it absolutely clear that they have no intention of paying the judgment debt. They have commenced proceedings in the Yemen for a declaration that they are not liable to Mr Masri, and those proceedings were subsequently discontinued pursuant to an anti-suit injunction issued by the Commercial Court and upheld by this court. They have commenced proceedings both in the Lebanon and in Greece, from where they are run, for declarations that the judgment of the English court is not enforceable in those jurisdictions.

In December 2007 Gloster J gave judgment, appointing a receiver by way of equitable execution over the income from the concession, and confirmed freezing orders against the judgment debtors. The receivership order made by Gloster J was stayed until 15 January 2008, pending the judgment debtors’ application to the Court of Appeal for permission to appeal. Permission was given on that day to appeal to this court in circumstances to which I will revert, and the appeal was dismissed on 4 April 2008: [2008] EWCA Civ 303; [2008] 2 Lloyds Rep. 128.

Other relevant events were these: on 14 April 2008, at the suit of individual shareholders in the judgment debtors, the Lebanese court made an order prohibiting members of the group from complying with Gloster J’s orders, unless and until they had received exequatur in Lebanon; and on 23 May 2008 David Steel J handed down judgment, holding that the orders in the Lebanon had the effect that the judgment debtors were not obliged to comply with the information requirements of the orders Gloster J made in December 2007. That judgment is presently under appeal in this court. As I said at paragraph 61 of my judgment in the receivership appeal, it would not have taken many customers or many shipments to clear the judgment debt. But the judgment debtors have taken steps to render the original receivership ineffective.

As I have said, on 15 January, Rix LJ and Jacob LJ granted permission to appeal from the receivership order and extended the stay of execution on terms. One of the conditions was that CCOG should notify Mr Masri’s solicitors of any sale of oil or any agreement for the sale of oil, or any transfer of oil to a purchaser, and direct its counterparties, in respect of sales or transfers of the oil from the concession, to make payment into a designated bank account in the name of the judgment debtors’ solicitors, who undertook to the court that payment would not be made out of the account except with the express written consent of Mr Masri or his solicitors or pursuant to an order of the court.

As I found, sitting as a single judge of this court, in my judgment of 2 April 2008, [2008] EWCA Civ 288, the evidence on the basis of which this court was induced to make this order was seriously misleading. I said:

“39

Taken together the material supplied to the Court of Appeal by or on behalf of CCOG communicated the information that as at 15 January, 2008, sales of oil were agreed two to three months before extraction, usually for a whole month’s production and sometimes for more; sales of oil had to be agreed this far in advance for the operation reasons given by Mr Burgan in his evidence; liftings took place at least once a month and sometimes more often, and were expected to continue during the course of any receivership; payments were received at most 35 days from the bill of lading date, but sometimes slightly sooner, as CCOG gave it discount for early payment; it would be commercially damaging for CCOG if there was any interference in the course of regular sales to existing buyers; CCOG was able to store up oil entitlements for a matter of days within each month, but could not do so for longer periods. A failure by CCOG to take its ongoing entitlement to oil on a regular basis would constitute a breach of the terms of the JOA [the joint operating agreement].

40

These witness statements and the skeleton argument would have led any reasonable reader in the position of this court, or Mr Masri, to believe that the defendants would have had no opportunity to avoid monies being received within a month or so January 15, 2008 (and thereafter) because sales would already have been arranged, they could not be postponed for commercial reasons and oil could not be stockpiled for long periods, and that this position would continue.”

In fact the position was -- as Mr Burgan who made the witness statement on behalf of the judgment debtors well knew -- that since early November 2007 CCOG had concluded no contracts of sale in respect of their oil to which they were entitled, and there were no sales arranged for January, February and March, whether arranged two or three months in advance of the extraction or at all. In addition, in late January 2008 it was agreed between the operator of the concession and CCOG that the operator would not allocate any oil to CCOG for the time being on the express understanding that there would be no forfeiture of CCOG’s entitlement to oil; consequently no payments were made into the designated London account. The further consequence was that although this court upheld the receivership order made by Gloster J, the judgment debtors have endeavoured to render the entire exercise nugatory by deferring indefinitely their entitlement to revenue.

Among the assets subsequently disclosed following the order of Gloster J were the receivables due to CCIC pursuant to the 38 construction projects, where CCIC was the contractor either alone in the case of 25 projects or as a participant in a joint venture or pursuant to some other arrangement.

Receivables under those contracts were said to be some $397 million as at 31 December 2006 but were said, as of 29 February 2008, to be $111 million where CCIC was the sole contractor, and $53 million where it was in a joint venture or other arrangement. Consequently, the figure was reduced from about $397 million to about $164 million, and it would seem that the reason for the reduced figure is that CCIC has not taken on new business recently and therefore the receivables figure has been reducing as projects complete. But as before, on any view, it seems that CCIC and CCOG have at present sufficient assets to pay or secure the judgment debt.

As a result of these developments, on 4 June 2008 Mr Masri applied for a further receivership order over CCIC’s contractual receivables and Tomlinson J handed down judgment on 21 October 2008, making a second receivership order and confirming three further freezing orders, but staying the receivership order until 5 November to permit the judgment debtors to make an application to this court for permission to appeal, and the stay has been continued until today when Mr Layton, on behalf of the judgment debtors, made submissions on permission to appeal.

I will endeavour to summarise Tomlinson J’s lengthy and careful judgment. He accepted that the receivership sought before him was much broader than the receivership order affecting the oil concession which had been made by Gloster J and confirmed by this court. He found that the practical difficulty which Mr Masri would encounter in pursuing conventional means of attachment overseas, and the difficulties which the judgment debtors would seek to put in his way, amply justified the making of the new receivership order. He referred to the fact that in the 4 April judgment I had regarded the circumstances justifying the making of that order as unusual and perhaps unique. He said that it was appropriate to restrict any receivership order which might be made at that stage to one in respect of the 25 projects where CCIC was the sole contractor. He was not satisfied that the grant of the receivership order sought would necessarily require CCIC to commit breaches of its existing contractual obligations or that it would involve unwarranted interference with the rights of third parties. The receiver would need to be made aware of the contractual arrangements and would deal with them on a case-by-case basis. He would have no interest in riding roughshod over the contractual rights of others, but in any event it was plain that CCIC had available to it free resources to ensure that no project was jeopardised. The role of the receiver, he said, was essentially a simple one: to collect receivables.

The judge rejected the argument of the judgment debtors that they were constrained in what they could disclose to the court or to the receiver about their contractual arrangements by the provisions of the Lebanese criminal law, by the Lebanese civil law and/or by order of the Lebanese court made on 14 April 2008, to which I have referred.

Firstly, as regards the criminal law, Article 579 of the Lebanese criminal code provides:

“Any individual who is, according to his position, his employment his job or his art, aware of a secret and divulges it without a legal reason or uses it for his own benefit or for the benefit of a third person, shall be punished by imprisonment for a maximum of one year plus a penalty not over 400,000 Lebanese Pounds, in case the said action causes a damage even if it is a moral one.”

The judge expressed doubt whether this provision applied to company directors and whether the Lebanese court would regard a director of CCIC as acting without a legal reason, in circumstances where CCIC did no more than comply with the order of a court to whose jurisdiction it had expressly submitted. But the judge said that that question did not need to be resolved because the judgment of the Privy Council, delivered by Lord Nicholls, in Brannigan v Davison [1997] AC 238, pointed to the court adopting a flexible discretionary approach when faced with a suggestion that compliance with its requirements would involve incrimination under another system of law. See also Morris v Banque Arab et Internationale d’Investissement [2000] CP Rep 65. He said that there was no evidence to suggest that a criminal prosecution would be likely in Lebanon were the directors to comply with the court order requiring disclosure of the contractual arrangements. The prospects of such a prosecution were fanciful.

The second matter was Lebanese company law. Article 197 of the Lebanese Code of Commerce provides:

“All shareholders and debenture holders have the right to review at the head office of the company the stock schedule, the balance sheet the profit and losses accounts, the list of shareholders, the board of directors’ report, the auditors’ report, the consolidated profits and losses account, the consolidated balance sheet if any exists, and the auditors’ report regarding the two latter within fifteen days preceding the annual meeting. In case they were denied that right, the deliberations of the annual meeting are void…”

The judge concluded that whatever that provision did do, it did not impose a restriction on directors of the company in disclosing information concerning it to a third party in the event that, in the ordinary course of the company’s affairs, they deemed it in the interests of the company to do so. It would seem obvious that the directors of the company had that power. But in any event, even if he were wrong, there was nothing in the judgment of the Lebanese court -- or in the evidence I think he must have meant -- which suggested that the inhibition on the directors extended beyond the information contained in the formal documents enumerated in article 197.

Thirdly, on 14 April of this year the Lebanese court issued an order forbidding CCOG, the holding company of the group, and various directors from giving any information about CCOG pursuant to the orders of Gloster J in 2007. The judge considered that the Lebanese judgment did not prohibit compliance with any judgment of the English court; it simply prohibited compliance with the orders of Gloster J and should not inhibit the court from making the orders sought before Tomlinson J.

In any event, the application for the order of the court was made at the instance of, or at the very least with the active cooperation of, the judgment debtors. In such circumstances it would not be appropriate to regard the Lebanese order as inhibiting the English court from making an order which the interests of justice required. He did not consider that compliance with the order which he proposed to make would in fact be prohibited by the order of the Lebanese court.

He also made three freezing orders, one over bank accounts of CCIC and CCOG; a second over the receivables of CCIC, and a third over shares in Nigerian companies owned by CCOG.

The judge refused permission to appeal from his judgment. The reason he gave is that he believed that, on matters of broad principle, he had followed the lead given by this court in the receivership appeal, and the other points went to the assessment of the evidence or the exercise of his discretion which did not in themselves raise points of principle.

The applications before the court today are these: first, CCIC applies for permission to appeal against the receivership order; second, CCIC and CCOG apply for permission to appeal against parts of the three freezing orders; and thirdly, they apply for stays of the receivership order and parts of the freezing orders.

Most of the written submissions and the oral presentation relate to two matters. The first is the permission to appeal from the receivership order involving (it is said) matters of general principle. The second topic relates to both the receivership order and parts of the freezing orders, namely the extent to which the judgment debtors or their officers can be required to give information which is said to be contrary to a duty not to give that information under foreign law.

The grounds for the proposed appeal in relation to the receivership order are these: first, receivers by way of equitable execution can only be appointed where it is necessary to do so, or where there are special circumstances justifying the appointment. Something more than mere convenience is required and there must be some difficulty arising from the nature of the property which precludes the use of legal means of enforcement. There is no necessity because debts could be attached and taken in execution in each of the relevant foreign jurisdictions.

It seems to me that there is nothing in this point. If any case involved special circumstances, this is such a case; and it is entirely unrealistic, given the history of this matter and what has happened to date, that it could be said that debts could be attached and taken in execution in each of the of the relevant foreign jurisdictions.

Second, it is said the judge failed to give sufficient heed to the much vaster scale of the order sought by Mr Masri against CCIC and to the fact that it would impact on existing contracts. He did confine the CCIC orders to the receivables under 25 major international construction contracts, and declined to extend it to 13 other such contracts in which CCIC was only a joint venture partner, but even that (it is argued) was on a manifestly different scale from Gloster J’s order and overstepped the line beyond which the English court ought not, in principle, to go. In particular, those contracts characteristically involve three parties: the employer, a bank and the contractor, and there would be numerous sub-contracts. The projects were financed by banks to whom the contract receivables were payable and in whose hands they were security for a repayment of the project finance.

I accept that the order was wider than the order made by Gloster J, but it seems to me that the principles involved are the same and that the differences between the two orders were not differences of nature and the issues were entirely within the discretion of the judge.

The third point is that the effect of the receivership order enables the receiver to cream off contract receivables, notwithstanding that they are required to run the individual projects by enabling payments to be made to sub-contractors suppliers and staff.

It seems to me that it would entirely be CCIC’s own fault if, as a result of the receiver taking money out of the contracts rather than CCIC voluntarily paying the judgment debt, there were contractual difficulties. The judge said at paragraph 25 that the receiver was bound to ensure that the work on the projects continued in the seamless and uninterrupted manner, since unless he did so the project would not generate revenue which would be available to be collected in. It would be self-defeating for the receiver to deprive the projects of working capital. It is possible that this passage confuses a receiver with a receiver and manager but the matter would be entirely academic if CCIC were to pay the judgment debt.

I turn to the points about information. The receivership order requires information to be given about contract revenues and assets representing the same. It also provides that payment is not required if inconsistent with any contractual obligations to an independent third party undertaken in the ordinary course of business and at arm’s length. But of course the nature of those obligations under the order has to be disclosed. The Bank Account Freezing Order and the Shares Freezing Order each contain requirements that the judgment debtors provide certain information, and it is said that none of these provisions should have been included because they sought to impose duties on the judgment debtors (and by extension through the law of contempt on their directors) which contradicted their duties under Lebanese law and were contrary to comity. They also say that the judge’s doubts about the effect of Lebanese law were misplaced. In particular, they say in relation to article 197 that the judge wrongly took it upon himself to construe the provision according to its natural meaning and effect without taking into account the evidence of Lebanese law. Under article 197 it is said that the directors are placed in an impossible position by the disclosure requirements of the English court order.

So far as the Lebanese criminal law is concerned, the applicants say that the judge should have accepted the evidence of the judgment debtors’ expert and regarded the potential exposure to criminal liability as a reason not to impose the information requirements.

But on this application the judgment debtors do not grapple with the point made by the judge, which was made in the context of the criminal law aspect, and which applies equally to all other aspects of the foreign law, namely that the court has a flexible discretionary approach when faced with the suggestion that compliance with its requirements would involve incrimination under another system of law. Consequently, in my view it is not necessary to decide whether there is anything in the points of Lebanese law, because there is no doubt that the cases to which the judge referred -- and there are many cases in other common law jurisdictions to similar effect – show that the court has a discretion when making its own orders to take into account the effect of disclosure requirements under its orders in the light of foreign blocking orders or laws on secrecy. Consequently the points of criticism on the interpretation of Lebanese law adopted by the judge are not in any sense decisive.

A number of other criticisms are made, mostly of detail, of matters which are in principle well within the scope of the judge’s discretion, and I would not extend this discussion further on those points.

The question of a stay therefore does not, in my view, arise because I have come to the firm view that permission to appeal should not be granted. But if I had considered that there were arguable grounds for appeal I would have taken the view that this court should impose a condition of payment in of the whole of the judgment debt on conditions similar to those imposed by the House of Lords when granting leave to appeal in the receivership appeal, conditions which were not complied with by the judgment debtors with the result that the appeal was struck out.

I would therefore dismiss the applications.

I agree.