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European freezing orders over bank accounts – coming soon

At the beginning of next year (on 18 January 2017) a Regulation establishing a European Account Preservation Order (EAPO) will be applied by participating Member State courts. This instrument represents a new (and potentially potent) weapon in a claimant's armoury, allowing a claimant to secure ("freeze") monies in a defendant's bank accounts across Europe in one strike.

Single application process

The EAPO procedure marks a significant development in European law. For the first time, a claimant will be able to make a single application to the courts of one Member State to obtain an order which will "freeze" monies held by a defendant in bank accounts across all participating Member States; without further applications being required to the local courts of enforcement. This is therefore an especially efficient tool for claimants where the defendant has multiple accounts across different Member States. By way of illustration, 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. 

Scope

The UK (irrespective of any Brexit) 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 throughout the lifespan of a dispute; from before substantive proceedings are initiated to after 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 those claimants domiciled in participating Member States (ie excluding UK, Danish and non-EU litigants).

Risks and protections for defendants

Although the test for issuance of an EAPO was tightened up as the legislative process progressed, the Regulation still poses a number of risks for defendants. These concerns may be greater in some jurisdictions than others as the Regulation allows a significant degree of discretion for the Member State court when assessing whether or not to grant the order (as well as reverting to Member State law on a number of points). This inequality between jurisdictions may be compounded as the application procedure does not generally require an oral hearing and an EAPO is granted (as is to be expected) ex parte (ie before notifying the defendant).

The defendant may, however, take some comfort from the fact that the claimant will generally be required to provide security for pre-judgment EAPOs and occasionally for post-judgment EAPOs (with the form and amount being determined by the court of issuance). Further a claimant must provide "sufficient evidence" there is an "urgent need" for such a measure and without it there is a risk enforcement will be "impeded or made substantially more difficult".

Obligations on banks

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" and issue declarations as to compliance. Banks may also have to carry out certain searches in respect of a defendant's bank accounts – the Regulation introduces a mechanism by which a claimant may make a preliminary information request to identify a defendant's accounts for post-judgment EAPO applications. Banks will therefore need to have an understanding of which accounts and funds may be caught in each participating Member State as well as have internal processes in place to ensure compliance with any EAPOs or information requests received within quite tight time periods.

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. Instead, specific local law advice will be required on its implementation and impact in different Member States with potentially the force of any EAPO granted varying from one jurisdiction to another.

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 courts to apply in practice. 

Where on the web

Regulation (EU) 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross border debt recovery in civil and commercial matters: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:JOL_2014_189_R_0004

Legal and Regulatory Risk Note
Europe