Effective judicial protection of credit rights in the European Union

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 by Marco C. Gonçalves, Professor of Civil Procedure, University of Minho

The free movement of people, goods and services in the European Union – as a fundamental pillar for the construction of an internal market – led, inevitably, to an increase of the cross-border disputes, that is to say, disputes that are connected with two or more different Member States.

Consequently, this requires the European Union to adopt appropriate procedural instruments to allow the fast and effective resolution of these conflicts, within an area of freedom, security and justice.

In this regard, it is a fact that the European Union has been adopting a set of normative instruments of particular importance to guarantee access to justice in civil and commercial matters, mainly focused on judicial cooperation between the different Member States. In particular, stands out the definition of common rules on jurisdiction, recognition and enforcement of judgments in civil and commercial matters [1], service of judicial and extrajudicial acts [2], taking of evidence [3] and recovery of debts [4].

In any case, with regard to the judicial protection of credit rights in the European Union, the difficulties and problems that arise with regard to the effective satisfaction of creditors demand the urgent adoption of normative instruments that guarantee the protection and adequate satisfaction of these rights.

It is a fact that the Regulation nº 1215/2012, of 12 December, contributed to the free circulation of judicial decisions in the European area, as well as for the easier enforcement of these decisions, either by reaffirming the principle of automatic recognition of judicial decisions, or by abolishing the exequatur procedure, which constituted a strong obstacle to the simple and fast enforcement of judicial decisions in the different Member States of the European Union. In effect, the abolition of the exequatur procedure enabled a simplest, fastest and least expensive enforcement of court decisions, under the principle according to which judgments of the courts of one Member State must be enforced by the courts of another Member State without the need of any prior or additional procedure and in the same terms or conditions of the enforcement of domestic judgments.

In addition to the establishment of common rules regarding the judicial jurisdiction, recognition and enforcement of judgments, it is also worth noting that the protection of credit rights has known an important and significant advance with the establishment of appropriate legislative instruments for the formation of executive titles for uncontested claims.

Indeed, the creation of the European enforcement order for uncontested claims, the European order for payment procedure and the European Small Claims Procedure, has enabled creditors to obtain, in a simple, fast and inexpensive manner, an executive title, particularly in cases where their claims, resulting from a cross-border legal relationship, are not contested.

However, these legal mechanisms only allow a partial protection of credit rights, through the declaration and recognition of their existence in a document to which the law recognizes executive force, but do not give a satisfactory answer in cases where the debtor does not voluntarily comply its obligation and the creditor is forced to use an enforcement procedure.

In fact, due to the principle of the territoriality in enforcement matters, according to which each of the Member States has exclusive international competence to apply enforcement measures – such as the seizure of assets – within their territories, if the debtor fails to comply its pecuniary obligation, the creditor will have to apply in the court of the Member State where the debtor’s assets are located to be taken enforcement measures to seize those assets.

The problem becomes even more serious if we consider that, in the context of civil and commercial disputes, related to debt collection, the cases in which the debtor is domiciled in another Member State of the European Union or even the situations in which the debtor, despite being domiciled in the same Member State of the creditor, has his assets located in another Member State of the European Union or even in more than one Member State, are increasingly more frequent.

In these cases, the principle of the territoriality in enforcement matters leads to the ineffectiveness of the legal mechanisms in credit protection that are provided by the domestic law of the Member State in which the creditor is domiciled, since these instruments can only be implemented if the debtor’s assets are located in that Member State.

Consequently, if the debtor’s assets are located in a Member State where the creditor is not domiciled, the creditor is obliged to appeal to the courts of that Member State to apply enforcement measures. Thus, if the debtor has its assets dispersed in different Member States of the European Union, the creditor that wants to guarantee the effective and adequate satisfaction of its credit right may find itself in the need to initiate several enforcement procedures, for the satisfaction of the same credit right, in different Member States of the European Union, which, in addition to increased costs and expenses, also causes possible problems with lis pendens.

Indeed, the subsistence of the principle of territoriality, whereby each of the Member States has absolute sovereignty in the application of enforcement measures within their own territories, makes it absolutely impossible for the creditor to apply in the courts where he is domiciled the direct adoption, in the territory of another Member State, of adequate measures to allow the coercive satisfaction of its credit right.

Thus, in most cases in which the creditor and the debtor are domiciled in different Member States of the European Union, the lack of adequate legal instruments to allow simple, quick and effective protection of the credits results, in practice, in the impossibility to satisfy the creditors rights, with the consequent distortion of the normal functioning of the internal market and the competition rules. It is enough to think about the high legal costs that the creditor shall have to support if he intends to bring enforcement procedures in the courts of a different Member State – namely court costs and lawyers’ fees – as well as the difficulties related to the ignorance of the language and of the legal system [5].

The problems that we have just mentioned about effective judicial protection in enforcement matters, that is, the adequate satisfaction of credit rights through the implementation of coercive measures of seizure and subsequent sale of the debtor’s assets, also occur in the field of provisional protection.

In fact, if the debtor does not voluntarily fulfill the obligation to pay the debt to the creditor and, at the same time, tries to hide or dissipate its assets, the creditor who wishes to guarantee the effective satisfaction of his credit right will have to request the adoption of provisional and protective measures against the debtor.

In particular, the right of access to the courts, as a manifestation of the right to effective jurisdictional protection, allows the creditor to request the seizure of the debtor’s assets, that is, the provisional seizure of the debtor’s assets until the existence of the credit right is judicially recognized or until it is possible to adopt executive measures against the debtor for the coercive satisfaction of the credit right. This means that the arrest, in addition of being a precautionary measure with a conservative nature, has also an executive – or, at least, a pre-executive – nature, because the provisional seizure of the debtor’s assets, in addition of being carried out through the practice of enforcement acts, aims to allow, at a later time, the conversion of the provisional seizure of the debtor’s assets into a definitive and executive seizure.

Anyway, the arrest is a particularly effective precautionary measure mainly in the context of internal legal relations, that is, in cases where the creditor and the debtor are domiciled in the same Member State and the debtor’s assets are located in that same State.

Consequently, the constraints mentioned above, regarding the difficulty to implement enforcement measures in the context of cross-border disputes, also occur in the cases where the creditor wants to provisionally apprehend the debtor’s assets and they are located in a different Member State.

In this regard, it must be recognized that, in the field of precautionary protection, the establishment of a European Account Preservation Order procedure, by the Regulation (EU) nº 655/2014, of the European Parliament and the Council, of 15 May 2014, was a first and important step to facilitate cross-border debt recovery in civil and commercial matters, within the European space, thereby guaranteeing the satisfaction of credit rights and the effectiveness of jurisdictional protection.

In fact, this regulation introduced a uniform precautionary procedure for the preservation of bank accounts in the context of cross-border disputes [6], whereby a creditor, domiciled in a certain Member State of the European Union, can request, under its own responsibility, the seizure of the debtor’s bank accounts that are domiciled in another Member State of the European Union.

It occurs that, despite the recognized importance of the Regulation (EU) nº 655/2014, of the European Parliament and of the Council, of 15 May 2014, for the effectiveness of the judicial protection of credit rights and, consequently, to allow a greater sustainable development in the European Union, the weaknesses of this normative instrument are multiple and significant.

First of all, this regulation only applies to the seizure of bank accounts. So, if the creditor wishes to obtain the seizure of other assets that belong to the debtor – like, for instance, financial instruments that are deposited in a bank institution [7] – he will not be able to obtain adequate protection through this normative instrument.

On the contrary, under the principle of territoriality, the creditor will have to request, before the courts of the Member State where those debtor’s assets are situated, the application of the precautionary measures that are provided by the domestic law of that Member State.

In addition, if a creditor wishes to obtain the seizure of two or more bank accounts that belong to the debtor, one of which is located in the same Member State where the creditor is domiciled and the other one is located in a different Member State, the creditor will not be able to use this regulation to obtain the simultaneous seizure of all bank accounts that belong to the debtor.

In contrast, this regulation can only be applied when the creditor wants to obtain the seizure of a bank account located in a Member State that is not the Member State where the creditor is domiciled and where the seizure of bank accounts was requested. That is why, if the creditor also wishes to obtain the seizure of bank accounts located in the Member State of his domicile, he will have to use the conservative precautionary procedures that are regulated in the respective national legislation [8]. It is not easy to understand this unnecessary duplication of court proceedings, which causes an increase of the court costs and can lead to contradictory decisions, mainly because, in precautionary procedures, the judge’s decision is based on a summary and urgent analysis of the facts.

Secondly, the effectiveness of this regulation depends essentially on the creditor’s previous knowledge of the debtor’s bank accounts that he wants to be preserved.

In fact, if the creditor doesn’t know the debtor’s bank accounts that are located in another Member State of the European Union, he must justify, before the court of the Member State in which the application for bank account preservation has been presented, the reasons why he believes that the debtor holds a bank account that is located in the territory of the requested Member State. Such a legal requirement may, in the end, represent a denial of the right to effective judicial protection, since the creditor, despite suspecting that the debtor holds bank accounts located in the requested Member State, may, however, not have direct knowledge of concrete facts that allow him to substantiate or support this suspicion.

In addition, if the court of the Member State where the European Account Preservation Order procedure has been requested accepts the explanation presented by the applicant, concerning the reasons why he believes that the debtor holds a bank account in the requested Member State, the court does not have the power to obtain, directly from the national institution responsible for banking supervision, the information about the bank accounts held by the debtor in that Member State.

On the contrary, the court can only request, on the basis of judicial cooperation within the European Union, that the information authority of the executing Member State obtains the necessary information to identify the banking institutions in which the debtor holds bank accounts, as well as the debtor’s accounts, and, once these elements have been obtained, the information authority of the requested Member State must transmit them to the requesting court [9].

It is, in effect, a slow and complex procedure, which is contradictory and incompatible with the urgency that is inherent to the provisional protection. In fact, although Article 14(5), of the regulation establishes that the entities involved in this judicial cooperation procedure, aiming the obtaining of information, have the obligation to act quickly, the truth is that the speed of precautionary protection and the consequent effectiveness of the arrest are affected by the dependence on the cooperation of intermediary entities, which is why it would be preferable that the regulation allow the possibility of this information be obtained through direct and electronic communication between the court where the European account preservation order procedure is pending and the bank entities of the different European Union Member States.

Moreover, it should be noted that the provisional protection of the credit right is not possible if, within the scope of this intermediate and indirect cooperation procedure, the information authority is unable to obtain the necessary elements for the identification of the defendant’s bank accounts, since, in such case, according to Article 14(7), of the regulation, the request for the seizure of bank accounts must be rejected.

In the third place, the regulation treats the debtor’s creditors differently, in violation of the principle par conditio creditorum.

In fact, the submission of the request to obtain the necessary information for the identification of bank accounts held by the debtor in a Member State depends on whether the claimant already holds an enforceable title or, if such enforceability is not yet recognized, if, according to the relevant circumstances, it is possible to conclude by the large amount of the credit whose satisfaction is to be guaranteed and the creditor presents sufficient evidence to the court to demonstrate the urgent need obtaining this information, due to the risk that, without it, the subsequent enforcement of the credit against the debtor will be compromised [9].

Fourthly, the regulation presents weaknesses in the enforcement of the decision that ordered the seizure of bank accounts.

In fact, although this decision is automatically recognized in the other Member States of the European Union, without depending on previous formalities, and may be enforced in another Member State, with no need for a declaration of enforceability, the decision that determines the seizure of the bank account cannot be executed directly by the court that has issued it.

In contrast, that decision must be transmitted, on the judge’s initiative or at the request of the creditor, to the competent authority of the executing Member State, which, in turn, must take the necessary measures to ensure that the arrest order is enforced in accordance with its national law.

In that case, after the bank has issued a declaration, indicating whether and to what extent funds in the debtor’s account or accounts have been preserved and, if so, on which date the order was implemented, that declaration must be transmitted, without delay, to the competent authority of the Member State of enforcement, which, in turn, must transmit it to the court that issued the arrest order and, by registered post, attested by an acknowledgment of receipt, or by equivalent electronic means, to the creditor.

It is, therefore, a very complex and, consequently, time-consuming procedure, which undermines the urgency inherent to the provisional protection, since the seizure is not carried out directly and automatically, but it depends on the effectiveness of the cooperation between the different authorities involved, as well the particularities of the national procedural rules, regarding the seizure of bank accounts.

On the other hand, it should be noted that the several procedural instruments currently provided by the European Union law focus, essentially, on the judicial recognition of credit rights, which involves either the definition of uniform rules to determine the competent court – being that, through forum shopping rules, the legislator allows, whenever possible, the settlement of disputes by the most convenient forum to the plaintiff – or the establishment of simplified procedures to obtain an enforceable title for uncontested claims.

Simply, if the debtor does not voluntarily fulfill its obligation, even if the correlative credit right is already recognized in a judicial enforcement order, the creditor will have to bring an enforcement action against the debtor before the courts of the Member State where his assets are located, because of the sovereignty of the Member States in enforcement matters.

In our view, this constitutes an obstacle to the construction of a European common space of ​​justice, since, in practice, prevents the enforcement of judicial decisions and, moreover, the effective judicial protection of credit rights.

Therefore, it would be desirable to abolish the principle of territoriality in the enforcement of judicial decisions, in order to allow the free movement of coercive measures for the seizure of property in the european space, regardless the court where the correspondent judicial proceeding is pending.

Furthermore, it is also important to notice that the current obligation imposed to the creditor, to bring an executive action before the courts of the place where part or all of the debtor’s assets are located, regardless the court of the Member State in which the judgment took place, in addition of making the satisfaction of the credit right extremely difficult and costly – not least because the costs of a cross-border dispute may considerably exceed the amount of credit that is intended to be satisfied – allows the dissipation or the concealment of the debtor’s assets, leads to an excessive and unnecessary overload of the judicial system, discredits the effective jurisdictional protection and compromises the adequate satisfaction of credit rights.

For this reason, the European legislator must urgently implement normative legal instruments that guarantee the effectiveness of the enforcement and, consequently, the adequate satisfaction of credit rights, which involves the free adoption of provisional and enforcement measures within the European Union space – without prejudice to the possible cooperation of the national authorities – regardless the location of the court where the respective precautionary or enforcement procedure is pending.

In fact, only in this way it will be possible to guarantee the effectiveness of the judicial protection of credit rights in the European Union, as provided by the Article 6 of the European Convention on Human Rights.

[1] Regulation (EU) n.º 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

[2] Regulation (EC) n.º 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents), and repealing Council Regulation (EC) n.º 1348/2000.

[3] Council Regulation (EC) n.º 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters.

[4] Regulation (EC) n.º 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims; Regulation (EC) n.º 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure; Regulation (EC) n.º 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure.

[5] See, for further development, the Commission communication to the Council and the European Parliament “Towards greater efficiency in obtaining and enforcing judgments in the European Union” (98/C 33/03) [access: 10.02.2020], as well as the Green Paper on improving the efficiency of the enforcement of judgments in the European Union: the attachment of bank accounts {SEC(2006) 1341} /* COM/2006/0618 final */ [access: 10.02.2020].

[6] Under Article 3 of the Regulation (EU) n.º 655/2014, of 15 May, this law is only applicable to cross-border cases, being understood as such those cases in which the account to be preserved is located in a Member State other than the Member State of the court seised of the application for the preservation order or the Member State in which the creditor is domiciled.

[7] Gilles Cuniberti/Sara Migliorini, The European Account Preservation Order Regulation: A Commentary (Cambridge: Cambridge University Press, 2018), 364.

[8] See the section (10) of the preamble of the Regulation (EU) nº 655/2014 of the European Parliament and of the Council of 15 may 2014.

[9] Nicolas Kyriakides, “European account preservation order: what does the common law tradition have to say”, in Boundaries of European Private International Law, ed. Jean-Sylvestre Bergé (Bruxelas: Bruylant, 2015).

Picture credits: Fix my credit by CafeCredit.com.

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