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European Account Preservation ("Freezing") Orders: An Update

December 2012

This article provides an update on the status of the draft EU Regulation on European Account Preservation Orders (EAPOs).

Following a consultation in 2011 on the draft Regulation (to which Allen & Overy LLP contributed) the UK Government opted out of this instrument, expressing concern about its scope, operation and the impact on defendants and banks.

Negotiations on the instrument have continued at a European level and the outgoing Cypriot Presidency has now released a paper commenting on the status of the initiative and making certain recommendations as to its future progress.

In July 2011, the European Commission published a new draft Regulation introducing EAPOs. This Regulation6 will herald a significant change for parties involved in cross-border litigation. It will enable a claimant to make a single application to the courts of one Member State to obtain an order which will "freeze" bank accounts held by a defendant in other Member States, without further intervention by the courts in those Member States.

The draft Regulation contains a uniform application process to obtain an EAPO.It also seeks to standardise the implementation process across Member States. Applications will usually be made on an ex parte basis and on paper using standard form documentation. An EAPO can be granted before proceedings are initiated, during proceedings or after a judgment is obtained. The instrument will offer an alternative means of securing bank accounts in litigation, in addition to those remedies currently available under national law (although the existence of an EAPO may be a factor taken into account in granting a national remedy).

Whilst the proposed draft Regulation offers some benefits for claimants, there are areas of significant concern for banks, particularly around the scope of the draft Regulation, rights of set-off and the added administrative burden. For a fuller analysis of concerns please see the September 2011 edition of the European Finance Litigation Review. In October 2011, following a consultation on the draft instrument the UK Government announced that, although in favour in principle of such a pan-European tool, the UK would not opt into the proposal at that time.

Following several months of meetings of the Working Group on Civil Law Matters in 2012, the outgoing Cypriot residency has now issued what is effectively a "handover note" to the Council on this measure. The Cypriot paper sets out certain proposals that the outgoing Presidency considers would help protect the position of the debtor:

  • during any application for an EAPO the applicant should provide an affirmation that the information it is providing is true and complete. The applicant should be reminded that any deliberate false statements or
    omissions may have legal consequences
  • only a court should be empowered to issue an EAPO
  • an EAPO should be revoked without any intervention being required on the part of the debtor if the applicant fails to initiate substantive proceedings within the time-limit specified in the proposed Regulation
  • the applicant should be liable to the debtor for any damage caused by any violation by him of his duties under the proposed Regulation, under circumstances and standards to be agreed later by Member States
  • when the applicant applies for an EAPO before initiating proceedings on the substance of his claim, the applicant should, in principle, have to provide some kind of security to ensure adequate compensation to the debtor for damage caused by any violation by the applicant of his duties under the proposed Regulation. The court should have discretion to dispense with this requirement in situations where the provision of such security would be inappropriate or unnecessary.

These all appear to be sensible proposals. However, the paper does not appear to address a key concern about this instrument (at least from the English perspective), namely, the low test to be applied by the Member State court making the EAPO. It is also unclear whether other concerns expressed about the draft instrument (such as the very broad definition of "financial instruments"; the ambiguity surrounding bank's right of set-off; and the extra administrative burden placed on banks and governments) have been recognised by the Working Group or within the Council. The Cypriot Presidency said it had put work on this instrument "at the top of its agenda" during its Presidency.

Despite prioritising this measure it seems there remain many issues to agree. The Cypriot Presidency recommends that the Council has an "orientation debate" and sets some general guidelines for future work on this instrument.

Ireland takes over the Presidency in January 2013 (unlike the UK, it has opted in to this draft Regulation) and it will be interesting to see the approach it takes to this measure.

Northern Europe