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Cypriot bank entitled to notify bank of freezing order pending appeal, appeal court confirms

Out-Law News | 18 Jan 2018 | 12:35 pm | 3 min. read

A worldwide freezing order, obtained by a Cypriot bank in Cyprus, was fully enforceable immediately upon registration in England and Wales, the Court of Appeal has confirmed.

The appeal court's ruling overturns that of a High Court judge, who had ruled that notifying third parties of the terms of the freezing order was in breach of a Brussels 1 Regulation provision preventing the applicant from taking 'measures of enforcement' other than protective measures before the subjects of the order had exercised their right to appeal. The appeal court confirmed that notifying other banks of the existence of the freezing order was not a 'measure of enforcement'.

In June 2016, the High Court had declared that the registration order was not "fully effective and enforceable" in England and Wales until any appeal against it had been determined. The bank was prevented by the wording of the Brussels 1 Regulation from taking any "measures of enforcement", and these included serving notice of the freezing order on banks and other third parties, the judge had said.

Lord Justice Flaux, giving the judgment of the Court of Appeal, said that this interpretation of Brussels 1 was incorrect. The wording of the regulation "allows of only one answer", he said.

"The conclusion that the Cypriot Freezing Order once registered was as fully effective and enforceable as an English judgment would be, subject only to the appellant not being entitled to take measures of enforcement other than protective measures pending determination of the respondents' appeal is not only mandated by the terms of the Civil Jurisdiction and Judgments Order 2001 [which gave effect to Brussels 1 in England and Wales] but also by the Rules of Court," he said.

"[I]n my judgment, the steps taken by the appellant in the present case were not on any view 'measures of enforcement'. Service of a registration order on the party against whom enforcement is sought ... by definition cannot be a 'measure of enforcement' given that it is required and not prohibited. In those circumstances, it is difficult to see how the service of a registration order or the foreign judgment on a third party or notification to the third party of the terms of such an order or foreign judgment could conceivably amount to a 'measure of enforcement'," he said.

"The correct analysis is that notification of the terms of a judgment or order is just that and no more. It may be a step which is necessary for subsequent enforcement, but it is not enforcement per se," he said.

Cyprus Popular Bank Co. Ltd had obtained a worldwide freezing order in the Cypriot courts against various individuals, including some of its former officers, who it had sued for breach of fiduciary duty, abuse of position, conspiracy and negligence. The order was made final until completion of the main proceedings. It then obtained an order registering the freezing order as a judgment of the English High Court under the Brussels 1 Regulation. This order gave the individuals the right to appeal against it within two months of service.

Civil fraud and asset recovery expert Jennifer Craven of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment would provide "welcome relief" to those seeking to enforce worldwide freezing orders obtained in other EU member states, to which Brussels 1 applies, "given how acutely time-sensitive applications to freeze assets can be".

"Parties in such cases need no longer worry about obtaining a separate freezing injunction in England which, following the hearing at first instance in this case, had been advisable, given the doubt cast by that decision on the status of a worldwide freezing order once it had been registered in England," she said.

"The judgment also confirms that notification of a freezing order, whether to the respondent or to a third party such as a bank, and even if it contains a penal notice, will not amount to an enforcement measure which, under Brussels 1, it is impermissible to take pending appeal. Claimants are therefore able, once a freezing order has been registered in the UK, to notify parties including banks of its terms in the usual way, and indeed should remember the importance of swiftly doing so," she said.

Brussels 1 was superseded on 10 January 2015 by the Brussels 1 (Recast) Regulation, which is in different terms, meaning that the same issues would not as a matter of course arise in respect of freezing injunctions obtained in EU member states after this date, Craven said. However, it was "possible that the judgment may take on greater significance in the future for the UK in light of Brexit", she said.

"This is because one option that it has been suggested that the UK might adopt on its exit from the EU in relation to reciprocal recognition and enforcement of judgments, and which the UK has indicated it plans to pursue alongside other measures, is accession in its own right to the 2007 Lugano Convention," said Craven.

"The Lugano Convention is in very similar terms to Brussels 1 on the question of what steps parties may take pending an appeal against a declaration of enforceability. As a result, if Lugano were to become the relevant regime, the judgment would then become more relevant again to the enforcement in England of worldwide freezing orders originating from an EU member state. The Lugano Convention is already the applicable regime for, and therefore this judgment is also relevant to, judgments from the courts of Norway, Switzerland and Iceland," she said.