European Regulation on the Freezing of Bank Accounts
A new Regulation establishing a European Account Preservation Order (EAPO) came into force on 17 July 2014 and will be applied by participating Member State courts from 18 January 2017. This instrument represents a new (and potentially powerful) tool in a claimant's armoury, allowing it to secure ("freeze") monies in a defendant's bank accounts across Europe. Although the test for issuance of an EAPO was tightened up as the legislative process progressed, the Regulation still raises risks for defendants and some courts may grant such orders more readily than others.
The EAPO procedure marks a significant development in European law. For the first time, a claimant will be able to make an application to the courts of one Member State to obtain an order that will "freeze" monies held by a defendant in bank accounts in all participating Member States, without further applications being required. By way of illustration, under this new legislation, a claimant in proceedings in Milan will be able to seek an EAPO from the Italian court and that Italian order will then be effective to freeze monies held in a defendant's Spanish, German and French bank accounts. A claimant will no longer have to make three separate applications to the courts of those Member States for such relief.
The UK and Denmark have not opted into this Regulation and, accordingly, are not bound by it. However, UK and Danish account holders in participating Member States will be impacted, as will banks operating in participating Member States.
EAPOs are intended to be an alternative to protective measures available under national laws. They will be available before substantive proceedings are initiated, during proceedings, or after a judgment is obtained. EAPOs can be sought in cross-border civil and commercial proceedings before the courts of all participating Member States. Controversially, the Regulation seeks to limit their availability to claimants in those proceedings domiciled in participating Member States (ie excluding UK and Danish litigants, as well as non-EU litigants).
The application procedure for an EAPO will generally be ex parte (ie without notice) and on paper. The Regulation provides a significant degree of discretion for the Member State court when assessing whether or not to grant such an order, although a claimant will generally be required to provide security for pre-judgment EAPOs. A claimant must provide "sufficient evidence" there is an "urgent need" for such a measure, as without it there is a risk that enforcement will be "impeded or made substantially more difficult".
This is another piece of European legislation that imposes extensive obligations on banks. Banks will be under an obligation to "freeze" accounts subject to an EAPO "without delay". Banks may also have to carry out certain searches in respect of a defendant's bank accounts, as the Regulation introduces a mechanism by which a claimant may make a preliminary information request to identify a defendant's accounts (this searching mechanism is available for post-judgment EAPO applications).
Significantly, the Regulation involves a delicate (and somewhat complicated) interplay between national and European law. This mixture of EU and national law has the practical effect that banks will not be able to adopt a uniform pan-European response to this legislation and instead may require specific local law advice as to its implementation and impact in different Member States.
The Regulation is complex. It spans 54 articles, with some 51 Recitals (like other recent EU instruments, many of these Recitals contain text one might expect to find in operative provisions). The use of standard forms for the application process for an EAPO should not disguise the fact that this is an enormously detailed piece of legislation, and one that may be difficult for litigants, their advisers and the court to apply in practice.
We have prepared a detailed guide to the Regulation for clients. Please contact us to request a copy.
Sarah will be presenting an EAPO client seminar on 4 December 2014.