Sarah Monnerville Smith September 20 2022 International sanctions: effect of freezing of assets on enforcement of court decisions Eversheds Sutherland (International) LLP | Litigation - France Sarah Monnerville Smith Litigation IntroductionFactsParis Court of AppealsSupreme CourtIntroductionOn 11 November 2021,(1) the Court of Justice of the European Union (CJEU) ruled that no precautionary attachment or seizure may be effected on frozen Iranian assets without prior authorisation from the competent national authority. On 29 April 2022,(2) the French Supreme Court outlined the consequences of CJEU's ruling by holding that:the limitation period with relating to claims for interest is suspended for the entire duration of the freezing measure; andthe debtors, subject to a freezing order, are exempted from any increase of the interest rate for late payment.FactsIn this case, a dispute arose over the enforcement of a judgment which had ordered the Iranian Bank Sepah to pay various sums of money to two American companies namely, "Overseas" and "Oak Tree". The judgment was rendered at a time when all of Bank Sepah's assets were frozen.The creditors had requested a partial release of Bank Sepah's assets which was implicitly rejected by the French minister of economy and finance.On 23 January 2016,(3) following the Iranian nuclear deal agreement (ie, the Joint Comprehensive Plan of Action), Bank Sepah recovered the free disposal of its assets in the European Union. In July 2016, the American creditors carried out various seizures against Bank Sepah. Bank Sepah challenged these seizures and argued that it was not liable for any interest on late payment as the freezing of the assets constituted a case of force majeure, which suspended the running of such interest.Paris Court of AppealIn a decision dated 8 March 2018, the Paris Court of Appeals rejected the force majeure argument on the grounds that, the freezing measure, being a "sanction", Bank Sepah could not rely on the existence of an external exonerating cause.However, noting that no enforcement measure had ever been taken on the frozen assets, the Court ruled that part of the interest, in any event, time-barred.Supreme CourtIn a decision dated 10 July 2020,(4) the Supreme Court confirmed that a debtor whose assets are frozen cannot invoke force majeure to avoid paying interest for late payment. It also referred the issue of the validity of precautionary measures on frozen assets to the CJEU for a preliminary ruling.On 11 November 2021, the CJEU ruled that no protective measure or precautionary attachment may be carried out on frozen assets without prior authorisation from the competent national authority.On 29 April 2022, the Supreme Court outlined the consequences of the CJEU's preliminary ruling, specfifying the effects of the freezing of assets on:the limitation period for interest; andthe increase in the legal interest rate.Limitation period for interest is suspended for duration of freezing measureArticle 2234(5) read in conjuction with article 2244(6) of the Civil Code provide that the extinctive prescription is suspended against the creditor holding an enforceable title who, following an impediment resulting from the law, is precluded from taking a protective measure or an act of forced execution.Drawing on the consequences of the impossibility for creditors to take precautionary measures against frozen assets, the Supreme Court concluded that the limitation period is suspended for the duration of the freezing measure when the conditions necessary to release the funds have not been met or the competent authority has refused to release such funds.Exemption from increase in interest on late paymentsArticle L. 313-3 of the Monetary and Financial Code (CMF) provides that the enforcement judge may exempt a debtor from paying the five-point increase in the legal interest rate provided for in this article, at the request of the debtor, and "in consideration of the debtor's situation".While this issue is debated among French scholars, the Supreme Court clearly stated that the purpose of this increase in interest is meant to encourage a debtor to comply promptly with the court decision. Consequently, any circumstance beyond the debtor's control that might hinder the enforcement of a court order must be considered part of the debtor's "situation" within the meaning of article L. 313-3 of the CMF.The Supreme Court therefore reversed the judgment of the Paris Court of Appeal for having refused to take into account the unavailability of Bank Sepah's assets resulting from the freezing measure to exempt or modulate the interest due.For further information on this topic please contact Sarah Monnerville Smith at Eversheds Sutherland LLP by telephone (+33 1 55 73 40 00) or email ([email protected]). The Eversheds Sutherland LLP website can be accessed at www.eversheds-sutherland.com.Endnotes(1) CJEU, 11 November 2021, Bank Sepah v Overseas Financial Limited (case C‑340/20).(2) Cassation assembly plenary, 29 April 2022, 18-18.542 18-21.814; "No one is bound to the impossible", P Théry, GPL, 21 June 2022, No. GPL437, p 2; "The consequence of the international freezing of Iranian assets on the interests of an enforcement measure", Gaz Pal, 17 May 2022, No. 17, p 43.(3) Pursuant to Council Implementing Regulation (EU) No. 2016/74 of 22 January 2016, which entered into force on 23 January 2016.(4) Cassation, Plenary Assembly, 10 July 2020, 18-18.542 and 18-21.814; S. Monnerville Smith and W. Pydiamah, "Sanctions économiques internationales, dernières actualités : de bonnes nouvelles pour les créanciers ?", Option Finance No. 1581, 9 November 2020, p 49.(5) Article 2234 of the Civil Code provides that time limitation "is suspended against a person who is unable to act because of an impediment resulting from law, agreement or force majeure".(6) Article 2244 of the Civil Code provides that "the limitation period or the period of foreclosure is also interrupted by a protective measure taken in application of the code of civil enforcement procedures or an act of forced execution".