Law Reform
EUROPEAN COMMISSION Green Paper on improving the efficiency of the enforcement of judgments in the European Union: the attachment of bank accounts
LSLA RESPONSE
This document is the response of the London Solicitors Litigation Association (‘LSLA’) to the above consultation paper.
The LSLA is over 50 years old and represents the interests of a wide range of litigators in London handling a broad range of civil and commercial litigation. Through about 800 solicitor members and strong links with a wide number of professional bodies, it represents nearly all civil litigation practices in London. The LSLA operates through a Committee of 24 members which include members of the Civil Justice Council, Civil Procedure Rules Committee, Law Society Civil Litigation Committee, the Commercial Court Users Committee, the Supreme Court Lists Group and local Law Societies.
Question 1: Do you see a need for a Community instrument for the attachment of bank accounts as a way to improve debt recovery in the EU? If so, should it create a self-standing European procedure or harmonise Member States' legislation on the attachment of bank accounts?
Claimants are likely to support the proposal for a Community instrument for the attachment of bank accounts which could, depending on the specific provisions, be a valuable tool in combating cross-border fraud within the EU. Those who would be on the receiving end of such orders, specifically defendants and banks, may however have legitimate concerns regarding such an instrument.
It should perhaps be noted that, under article 65 of the EC treaty, measures in the field of judicial cooperation in civil matters are to be taken only "insofar as necessary for the proper functioning of the internal market". Some may question whether this requirement is met in respect of the current proposal, given that article 31 of the Council Regulation (EC) No 44/2001 (the Judgments Regulation) allows parties to apply to the courts of a Member State for provisional measures in support of litigation proceeding elsewhere within the EU. If individual countries have inadequate procedures, it is arguable that they should first be encouraged to improve those procedures rather than imposing a system of attachment orders enforceable throughout the EU.
If the proposal is to be adopted, there must be proper safeguards in place to protect the banks that will have to execute the attachment orders, and also for defendants, particularly if attachment orders are to be available at the pre-judgment stage (see question 3 below).
If there is to be a system of attachment orders enforceable throughout the EU, i.e. without the need for an application to the courts where assets are located, then we believe that it would be preferable to create a self-standing procedure rather than seeking to harmonise the laws of Member States in this area. A self-standing procedure would allow for greater certainty for all concerned (claimants, defendants and banks) since legal advisers throughout the EU would be able to advise on the availability and implications of an attachment order, without necessarily having to take local law advice in all relevant jurisdictions. It would also make things much simpler for banks executing such orders, as there would be one standard form of order and one set of procedures that would apply throughout the EU. If the alternative approach of harmonising Member States' laws were to be adopted, it would be far more likely that there would be variations of both form and procedure between the 27 Member States. That would make things much more difficult administratively for all parties, but particularly for banks. It would also increase costs.
Please note that we have approached the remaining questions on the assumption that a Community instrument for the attachment of bank accounts is to be adopted.
Question 2: Do you agree that a Community instrument should be limited to protective orders preventing the withdrawal and transfer of monies standing to the credit of bank accounts?
Yes, we agree that a Community instrument should be limited in this way, at least initially. Once the system has been in place for some time, and any initial difficulties that may arise from its implementation have been addressed, it may be appropriate at that stage to consider expanding the system to encompass other types of asset.
Question 3: Should an attachment order be available in all of the four circumstances outlined above in paragraph 3.1 or only in some of them?
We agree that a creditor should be able to apply for an attachment order at any of the stages outlined in the Green Paper, subject to appropriate safeguards being put in place to protect the debtor's interests particularly where an order is to be granted pre-judgment.
Further, where an application is made before the claimant has brought a substantive claim against the defendant, the claimant should be required to give a binding commitment to the court (in the form of an undertaking, in the English court, or an equivalent commitment elsewhere) that it will issue and serve its claim on the defendant within a brief defined period after the order is granted – see question 19 below.
Question 4: What onus should lie on the creditor to persuade the court that he has a claim against the debtor sufficient to justify the granting of an attachment order?
Where an application is made for an attachment order at the pre-judgment stage the claimant should be required, as a minimum hurdle, to demonstrate that it has a "good arguable case" against the defendant. This should require a case which is better than just barely arguable, but not necessarily one that the court considers likely to succeed on the balance of probabilities.
In addition, the grant of an attachment order should always be a discretionary remedy, so that the court will not grant the order unless satisfied that it is just and convenient to grant the order in all the circumstances of the case. The judge's view of the merits of the claimant's case will obviously be a factor in the exercise of this discretion.
We also consider that where the application for an attachment order is made without notice to the defendant (which we believe will be the usual case – see question 7 below), the claimant should have a duty to disclose to the court all defences to the claim which have been raised by, or are open to, the defendant. Where the claimant fails to comply with this duty, the order should be liable to be set aside.
Question 5: Should urgency be a condition for granting an attachment order prior to obtaining an enforceable title? If so, how should this condition be defined?
The claimant should be required to demonstrate that there is a real risk that, without such an order, the defendant's assets will be dissipated or hidden away such that any judgment against it will go unsatisfied. The test should be an objective one, looking to the likely effect of the defendant's actions and not the motive for them; i.e. the claimant should not be required to demonstrate that the defendant's intention in dissipating its assets is to defeat a judgment against it.
Again, in addition to this minimum hurdle, the court should have to be satisfied as a matter of discretion that granting the order is just and convenient in all the circumstances.
Question 6: Should the court have discretion when granting an Attachment Order to require the creditor to provide a security deposit or a bank guarantee? How should the amount of any such security deposit/guarantee be calculated?
We agree that the court should have a discretion to require the claimant to provide security (in the form of a deposit of funds or a bank guarantee) in respect of any sums the applicant may be ordered to pay the defendant(s) as compensation for loss caused as a result of the order. One factor that the court should be required to take into account in considering whether to require provision of such security is whether the claimant has sufficient assets within the EU to meet an order for payment of compensation.
The amount of any security should be calculated as a reasonable estimate of the losses that might be suffered by the defendant(s) as a result of the order.
Question 7: Should the debtor be heard or notified prior to the granting of a bank attachment?
The claimant should be entitled to make the initial application without notice to the defendant. Otherwise there would clearly be a risk that the debtor would take steps to hide the assets and/or move them outside the EU before the order could be obtained and/or executed.
The claimant should be required to serve a copy of the attachment order on the defendant once granted – see question 18 below. However, we consider that the claimant should be given a reasonable period of time in which to do this (perhaps 24 hours), to allow the order to be served on the relevant banks, and steps to be taken by the banks to execute it, before the defendant has been notified.
The defendant should be given the opportunity to challenge the grant of the order at a further hearing between the parties, if it chooses to do so.
Question 8: What should be the minimum degree of account information required for the issue of an Attachment Order?
We consider that the creditor should be required to show evidence (though not necessarily conclusive evidence) that the defendant has an account with the particular bank in question in a particular jurisdiction within the EU.
We believe that this strikes the right balance between the interests of claimants and those of the banks who will have to execute the attachment orders. If a claimant were required to give very specific account information (eg. account number) this would be likely to restrict very tightly the circumstances in which such orders would be available, given (i) the legal obstacles in the way of creditors seeking such information in respect of their debtors (such as, in the UK, the Data Protection Act 1998) and (ii) the lack of consistent Europe-wide procedures whereby a defendant can be required to disclose information regarding its assets, particularly at the pre-judgment stage (subject to any measures that may be introduced following the further planned consultation regarding transparency of debtors' assets, as referred to in the Green Paper).
On the other hand, requiring the claimant to specify the particular jurisdiction(s) within the EU in which the defendant is believed to have an account (or accounts) provides a limit to the burdens placed on banks in identifying and freezing relevant accounts.
Question 9: Do you agree that the courts having jurisdiction for the merits of the case under relevant Community law and/or the courts where the account is situated should be competent to grant an attachment order? Should the court of the defendant's domicile always have jurisdiction to issue an attachment, even if it does not have jurisdiction under Regulation 44/2001?
We consider that either of the following courts should have jurisdiction to grant an attachment order: (i) the courts having jurisdiction over the substantive claim under the relevant rules of Community law; and (ii) where the order sought relates to bank accounts situated in only one Member State, the courts of that Member State.
Where an attachment order is sought in respect of bank accounts in a number of Member States, we do not consider it appropriate for the claimant to be able to obtain an order from any of those Member States relating to accounts in the other Member States. If a claimant wishes to freeze accounts in more than one Member State, the appropriate course would be to seek an order from the courts with jurisdiction over the substantive claim.
We do not consider that an attachment order should be available from the courts of the Member State of the defendant's domicile, where that court does not have jurisdiction over the substantive claim under the relevant rules of Community law.
Question 10: Do you agree that the attachment should be limited to a specific amount? If so, how should this amount be determined?
We agree that the attachment should be limited to a specified maximum amount.
Given that the aim of the attachment is to preserve assets out of which a judgment against the defendant can ultimately be satisfied, the maximum amount of the attachment should be determined by reference to the maximum amount in respect of which the claimant has a good arguable case.
Question 11: Do you consider that the banks should be paid for the execution of an Attachment Order? If so, should the amount to which they would be entitled be capped? Should the creditor have to pay the bank in advance or should the amount due be deducted from the credit balance of the account seized?
We certainly agree that banks should be paid for the execution of an attachment order. The Green Paper suggests that it is arguable that banks should execute attachments as a matter of public duty and absorb any costs arising, since banks themselves are also creditors from time to time and therefore have an interest in the successful recovery of claims. In our view, however, the fact that banks (amongst other parties) will sometimes seek attachment orders as creditors does not mean that they have such an interest in the recovery of claims generally that they should be required to bear the cost of executing attachment orders in which they have no direct interest. Of course, where a bank is the applicant in respect of such an order it, just as any other creditor seeking an attachment order, will be required to pay the costs of the bank(s) executing the order.
We do not consider it either necessary or desirable to seek to fix in advance or to cap the amount that banks are entitled to charge for the provision of this service. Banks should be entitled to charge their reasonable costs of executing the order, including the costs of determining whether they hold any funds of the defendant. In addition, they should be entitled to compensation from the claimant if the court later finds that the attachment order has caused the bank to suffer loss and decides that the bank should fairly be compensated for that loss.
We do not believe that it would be practicable for the claimant to have to pay the bank in advance of the account being frozen. Nor do we consider it appropriate for the amount due to be deducted from the account seized, as these remain the funds of the defendant despite having been frozen. This would seem particularly inappropriate where the order has been obtained pre-judgment.
We believe the appropriate solution is for the claimant to be required, as a condition of obtaining the attachment order, to give a binding commitment to the court (in the form of an undertaking or equivalent commitment) that it will pay the bank's reasonable costs incurred as a result of the order, and that it will comply with any order the court may make if it later finds that the order has caused the bank to suffer loss for which it should be compensated. In the event that the claimant considers the level of the bank's charges to be unreasonable, it should be able to seek a direction from the court as to the amount payable under the terms of the undertaking.
Question 12: If an attachment order is to extend to several accounts, how should the sum to be seized be allocated among each of the accounts?
If the attachment order extends to several accounts, we consider that each bank addressed in the order should be required to freeze funds up to the full amount of the order. Where a defendant has more than one account at the same bank (whether the same or different branches) which contain a total sum greater than the limit of the order, the bank should be entitled to freeze funds in whatever proportion it chooses, in any or all of the accounts, so long as they total the limit of the order.
Where the amounts frozen by different banks exceed the limit of the order, we consider that the onus should then be on the defendant to apply to the court to release funds in particular accounts.
Question 13: How should the attachment of joint and nominee accounts be deal with?
Attachment orders should, in principle, be available in respect of joint and nominee accounts. Otherwise it would be easy for defendants to make themselves immune to such orders by putting their accounts into joint names or the name of a nominee company.
In such circumstances, however, the claimant should be required to show a real prospect that if judgment were obtained against the defendant, that judgment would be enforceable against the relevant account. This question is likely to depend on the relevant principles relating to ownership of, and enforcement against, such assets in the Member State where the account is situated.
Question 14: Should the question whether amounts are exempt from execution be dealt with ex officio when issuing/executing the attachment or should the onus be on the debtor to object on this ground? How and by whom should the amount exempt from execution be calculated and on what basis?
We consider that the onus should be on the defendant to apply to the court which has granted the order to exempt certain sums from the order on the basis that it is required for ordinary living or business expenses, or for legal costs.
Unlike an English freezing order, the attachment order envisaged will not apply to all assets of the defendant, but merely to accounts of the defendant at specified banks within specified jurisdictions. In our view, therefore, there is no reason to assume that the defendant has no other assets from which it can adequately provide for such expenses, unless that is established by the defendant.
Where the defendant applies to exempt sums from the order on this basis, we do not consider that it would be desirable or practicable to seek to define in advance how the exempt amount should be calculated. This should be for the discretion of the court, bearing in mind that the purpose of the attachment is to prevent the defendant taking steps with its assets which will leave any judgment against it unsatisfied. The order should not prevent the defendant from meeting its ordinary expenses or obtaining legal representation.
Question 15: Do you agree that the exequatur procedure should be abolished for the attachment order?
Yes, we agree that an attachment order should take effect directly throughout the EU without any intermediary procedure in the Member State where the order is to be executed.
Question 16: How should an attachment order be transmitted from the issuing court to the bank where the account is situated? What time limit should the bank have to respect in order to implement an attachment? What should the effect of an attachment order be on ongoing operations?
We consider that it should be possible to serve an attachment order on the relevant banks electronically, either by fax or e-mail. The claimant should be able to transmit the attachment order directly to the banks, without having to rely on the issuing court to effect service.
It is clearly important, for the protection of both the claimant and the bank, that there should be clarity as to the appropriate fax number / e-mail address for service of such orders, so that banks can ensure that they very quickly become aware of and act upon any such orders received. We would suggest a system whereby banks operating in any jurisdiction within the EU are required to notify the European Commission of the fax number(s) and e-mail address(es) at which they will accept service of such orders in each relevant jurisdiction, and that a publicly available list of such numbers / addresses be maintained by the European Commission.
We do not consider that there should be a specific time limit in which banks must execute an attachment order after receipt, though clearly banks should take action to freeze the relevant accounts as soon as is practicable in all the circumstances. Banks will have commercial and reputational reasons to wish to comply with such orders quickly and efficiently, quite apart from their desire to assist in combating cross-border fraud, and therefore will clearly wish to have systems in place for the proper handling of such orders. We do not consider that banks should be under any legal sanctions for a failure to execute an attachment order, save where there has been either deliberate flouting of the order or such a lack of proper systems as to amount to recklessness regarding compliance with such orders.
Question 17: Do you agree that upon receipt of an attachment, it should be the duty of the banks to inform the enforcement authority whether and to what extent an attachment has successfully secured the monies liable to be paid by the debtor to the creditor?
We agree that the banks addressed in the order should be required to inform the court which has granted the order, as well as the party which has obtained the order, whether and to what extent funds have been frozen as a result of the order.
Although there is no such requirement on banks served with English freezing orders, such orders normally include an order that the defendant disclose information as to its assets. If the proposed attachment order is not to include such a provision, we believe it is important that the banks executing the order be required to provide details of the amounts frozen.
Question 18: When and by whom should the debtor be notified formally that an attachment has been granted and taken effect?
See question 7 above. We consider that the claimant should be required to serve a copy of the attachment order on the defendant once granted, but that the claimant should be given a reasonable period of time in which to do this (perhaps 24 hours) so that steps can be taken to execute the order before the defendant has been notified.
Question 19: Should the attachment be revocable or lapse automatically if the creditor does not file the principal action within a specific time period?
At stated in response to question 3 above, we consider that where an application is made before the claimant has brought its substantive claim, the claimant should be required to give a binding commitment to the court that it will issue and serve its claim on the defendant within a brief defined period thereafter. Where this commitment is not fulfilled, the order should lapse automatically.
Question 20: On what grounds and to what extent should the debtor be entitled to object to the order for an attachment? Which court should be competent to hear the debtor's objection against an attachment?
The debtor should be entitled to object to the order on any grounds which demonstrate that the order either should not have been granted or should not be continued. This would include: that the claimant does not have a good arguable case against the defendant; that there is no real risk of dissipation of the defendant's assets; and that it is not just and convenient to continue the order in all the circumstances of the case.
We consider that the defendant should be required to bring its challenge in the court in which the attachment order was granted.
Question 21: Should the creditor's liability in case the attachment proves to be unfounded be harmonized on a European level and, if so, how?
We consider that the court should have a discretion to award compensatory damages for loss suffered as a result of the attachment order, if it later proves to have been unfounded (eg. because the claimant's claim is unsuccessful or because the defendant brings a successful challenge to the grant of the order).
The onus should be on the defendant to establish the amount of its loss and that such loss was caused by the attachment order. We do not believe that there should be any artificial cap on the amount of the damages recoverable, but this amount should not exceed the actual loss suffered.
Question 22: Should there be European rules that determine the ranking of competing creditors? If so, which principle should apply?
We do not consider that an attachment order should give the claimant priority over other creditors of the defendant. Accordingly, we consider that the funds covered by the attachment order should still be available to satisfy other bona fide debts of the defendant. To that end, other creditors should be able to apply for a variation of the attachment order to allow enforcement of their claims over the relevant assets.
Question 23: How should an attachment order be transformed into an executory measure once the creditor has obtained an order which is enforceable in the Member State where the account is situated?
The judgment creditor should be required to pursue normal enforcement measures in the Member State in which the account is situated, to enable any disputes over the enforceability of the judgment or the ownership of the frozen funds to be determined.
11 April 2007
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