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Mon May 20 2024

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How to ensure payment by an overseas client

1 Aug 12 How can a UK contractor enforce payment from an overseas client? Laura Phoenix explains.

There are two considerations when trying to win payment from an overseas client.

Firstly, ‘Can the contractor enforce a judgment or monetary award in the country where the client is based?’

And secondly, ‘Where are the overseas client’s chargeable assets?’

European Union based clients

The starting point is to consider whether your potential overseas client lives or is incorporated in an EU member state.

If so, then there is a streamlined procedure for enforcing judgements obtained in UK courts, thanks to the European Enforcements Order Regulation (EEO). This can work to your advantage if your debtor client has assumed themselves and their assets are ‘safe beyond our shores’ and did nothing to defend the UK court proceedings; the debtor will have missed the boat as regards defensive action during the UK legal proceedings only to find that there is no right to object to enforcement under the EEO.

Clients based further afield

Enforcement works on the basis of reciprocity. Commonwealth countries tend to have reciprocal arrangements in place with the UK, governed by the Administration of Justice Act 1920. This is not a watertight guide, as things can change; Hong Kong, for example, is no longer a party to any arrangement with the UK, although in reality UK judgements can still be enforced in Hong Kong by Hong Kong’s local lawyers. Contact me for a list of countries covered by the Administration of Justice Act 1920.

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Seizing, freezing and charging UK assets

If your client owns UK property, such as the site your work relates to, you could secure any judgment debt via a charging order against the property. A charging order can be registered to show your interest against the property to any potential purchaser or lender and the debt, which should include legal costs, must be discharged in full before the property can be sold. Interest continues to accrue on the sum secured until the debt is satisfied.

The obvious disadvantage is the impact on your cash flow as the mere existence of a charging order will not necessarily entitle you to obtain an order for sale of the property, but it should safeguard the debt as long as there is sufficient equity in the property to cover the charge. Other registered interests (such as a lender’s) may take priority over yours and there is no guarantee that proceeds from the sale will be sufficient.

Third party debt orders

Another option - currently little used - is to apply for a third party debt order. This is an enforcement method by which sums owed to a judgment debtor, but still in the hands of a third party (e.g. the debtor’s client, bank or employer), are frozen and seized for the benefit of the judgment creditor. Third party debt orders can only be obtained where the third party is within the UK jurisdiction.

Summing up

Before accepting an order from an overseas client you would be wise to consider what your enforcement options will be if the client fails to pay.

Laura Phoenix is a construction associate at Thomas Eggar

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