The Court of Justice of the EU (ECJ), on referral from a preliminary ruling by the Supreme Court of Latvia, has held that the public policy defence in Article 34 of the 2001 Brussels Regulation (the 2001 Brussels Regulation) did not prevent the enforcement of a freezing order made without a prior hearing of third parties whose rights might be affected, provided that the third parties had the right to apply to the original court to vary or discharge the order. Meroni v Recoletos Ltd and others (Case C-559/14)
A freezing order was granted by the English court in proceedings brought by Recoletos Ltd against Mr Lemberg. The order prohibited Mr Lemberg from disposing of his assets, including shares which he held (directly or indirectly) in a Latvian company (V). Mr Lemberg was also the beneficial owner of shares in company Y which itself had substantial interests in V. In 2013 the Latvian courts made a declaration of enforceability of the freezing order. Mr Meroni, who was part of the management of Y, challenged this declaration arguing that as Y was not a party to the English proceedings the enforcement of the order in Latvia was contrary to the public policy exception in Article 34(1) of the 2001 Brussels Regulation and contravened Y’s rights to a fair trial as Y had not had the opportunity to argue its case in front of the English court when the application for the order was made.
The 2001 Brussels Regulation
This case refers to the enforcement provisions in Council Regulation EC 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the 2001 Brussels Regulation) because it relates to proceedings instituted before 10 January 2015. Council Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Recast Brussels Regulation) applies to the enforcement of judgments in proceedings commenced on or after 10 January 2015. Both Regulations contain similar provisions on the grounds for the non-recognition of judgments in other EU member states, therefore, this decision will be relevant to the enforcement of judgments under both Regulations.
Article 34 of the 2001 Brussels Regulation recognises a limited number of defences to the enforcement of a judgment in another EU member state. Those relevant to this case are:
“A judgment shall not be recognised:
- if recognition of the judgment is manifestly contrary to public policy in the member state in which recognition is sought;
- where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so….”
A freezing order prohibits a defendant from disposing of or dealing with its assets up to a stated figure. To succeed in obtaining a freezing order a claimant must show the court that there is a good arguable case on the merits, there is a real risk that the defendant may dissipate its assets and that it is just and convenient to grant the order. A third party which has been notified of the order and which assists in or permits the disposal of frozen assets will be liable for contempt of court. The Commercial Court's standard form freezing order provides that anyone served with or notified of a freezing order may apply to the court at any time to vary or discharge it.
A worldwide freezing order can cover all of the defendant's assets anywhere in the world. However, such order only has effect against the defendant and other persons subject to the jurisdiction of the English court, unless it is declared enforceable or is enforced by a court in another jurisdiction.
Question for the ECJ
The Latvian Supreme Court asked the ECJ whether the recognition and enforcement of an order made by a court of a member state, without prior hearing of a third party whose rights may be affected by the order, must be regarded as manifestly contrary to public policy in the enforcing state and manifestly contrary to the third party's right to a fair trial?
The ECJ held that the public policy defence in Article 34 of the 2001 Brussels Regulation did not prevent the enforcement of an order made by the court of a member state without a prior hearing of third parties whose rights might be affected, provided the third party had the right to apply to the original court to vary or discharge the order.
It observed that:
- in the underlying proceedings, a third party would not be affected by the freezing injunction until it received notice of it;
- t was for Recoletos Ltd (the claimant) to notify any affected third parties of the order and to prove that the relevant notification had been made;
- as set out in the body of the order, an affected third party had the right to challenge the order and apply to the court of origin for the order to be set aside or varied.
The judgment of the ECJ confirms that the public policy defence to enforcement in Article 34 of the 2001 Brussels Regulation (and Article 45 of the Recast Brussels Regulation) is to be construed narrowly and used only in exceptional cases as it undermines the policy to make judgments easily enforceable between member states.
It also clarifies that freezing orders which affect the rights of third parties not involved in the original proceedings, but who hold rights over assets affected by a freezing order, are unlikely to violate the public policy of the enforcing state or the fundamental right of a third party to a fair trial, provided that such third parties are given a genuine opportunity to challenge the relevant order.