A recent judgment of the Amsterdam Court of Appeal marks the latest trend in Dutch law to strengthen the position of the debtor in the context of pre-judgment attachments. The Court of Appeal gave effect to the full disclosure principle that stipulates that the creditor, in its request for leave to make pre-judgment attachments, should properly inform the court of the merits of its claim and the dispute with the debtor. The Court of Appeal also gave full effect to the 'well-founded fear of embezzlement' requirement that applies amongst others to the attachment of shares, which demonstrates that this requirement is much more than just a formality.
The foreign top holding of a multinational (the "Debtor") was involved in foreign arbitral proceedings with a foreign subcontractor (the "Creditor") concerning an alleged monetary claim. The Creditor won the arbitral proceedings. At the request of the Debtor, however, the arbitral award was set aside by the competent foreign state court.
The Creditor pursued its claim again. It started second arbitral proceedings and won again. Before the Debtor had filed its request with the competent foreign state court to have the second arbitral award also set aside, the Creditor came to the Netherlands to ask the District Court of Amsterdam for leave to make several pre-judgment attachments (conservatoire beslagen) on assets of the Debtor. The leave was granted, following which the Creditor made pre-judgment attachments on shares in a Dutch intermediate holding company held by the Debtor and under several (indirect) Dutch subsidiaries of the Debtor on monies owed by these subsidiaries to the Debtor. These attachments served to secure recourse on the Debtor in case the Creditor, in subsequent Dutch exequatur proceedings, should obtain leave to enforce the second arbitral award in the Netherlands.
The pre-judgment attachments had serious negative consequences for the Debtor. The Debtor started summary proceedings before the District Court to have the attachments lifted. The District Court rendered an unfavourable decision, after which the Debtor started turbo summary appeal proceedings before the Court of Appeal of Amsterdam. The Debtor argued amongst others that the attachments had to be lifted because (i) the Creditor in its request for leave to make pre-judgment attachments (the "Request") had failed to fulfil its obligation to properly inform the District Court of the merits of its claim and the dispute with the Debtor and (ii) there was no fear of embezzlement with respect to the shares in the Dutch intermediate holding company, which had a multibillion dollar value. The Court of Appeal honoured both arguments and lifted the attachments.
Relevance of the case:
The full disclosure principle
In its report of April 2010 regarding pre-judgment attachments the Council for the Administration of Justice (Raad voor de Rechtspraak) concluded that there was an imbalance in the strong position of creditors and the weak position of debtors in the context of pre-judgment attachments. The Council advised to strengthen the position of debtors through giving better effect to the full disclosure principle. This principle stipulates that creditors, in their request for leave to make pre-judgment attachments, should properly inform the court of the merits of the claim and the dispute with the debtor. As a decision on a request for leave to make pre-judgment attachments is given ex parte (i.e. without the debtor being heard) this information obligation of the creditor is very important. It serves to enable the court to make an as good as possible assessment of the case before deciding to grant the leave, which can have far-reaching negative consequences for the debtor.
The advice of the Council was followed by the National consultation of the chairmen of the civil and sub district divisions of the district courts (het Landelijk overleg van de voorzitters van de sectoren civiel en kanton van de rechtbanken). This led to a more detailed inclusion of the full disclosure principle in the Attachment Syllabus (Beslagsyllabus) of June 2011. This is a manual for courts to assess requests for leave to make pre-judgment attachments. The Attachment Syllabus prescribes that deceit of a court resulting from providing insufficient information in a request for leave to make pre-judgment attachments can be a sufficient reason to decide to award a claim of the debtor that the attachments must be lifted. The legal basis of such a decision is the truth and completeness obligation that is laid down in article 21 of the Dutch Code of Civil Procedure.
In the case at hand the Debtor had argued that in the Request, in violation of the rules of the attachment syllabus, the Creditor had not informed the District Court of the first arbitration proceedings and of the setting aside of the first arbitral award. The Court of Appeal decided that the Creditor had indeed failed to provide this information and that this information would have been relevant for the decision of the District Court whether or not to grant leave to make the pre-judgment attachments. For this reason the Court of Appeal was of the view that it was under an obligation to lift all the attachments. The judgment marks the recent trend in Dutch law to strengthen the position of the debtor in the context of pre-judgment attachments.
The application of the full disclosure principle by the Court of Appeal appears to be in line with the recent proposal for a European Union regulation 'Creating a European Account Preservation Order to facilitate cross-border debt recovery in civil and commercial matters' (see recital 12 of the proposal).
The 'well-founded fear of embezzlement' requirement
The Court of Appeal also strengthened the position of debtors with respect to pre-judgment attachments of shares. Leave to make such attachments is only granted if a creditor demonstrates 'well-founded fear of embezzlement' with respect to the shares. The same applies to attachments of certain other assets, such as moveable property in the possession of the debtor as well as real estate. Generally, courts allow some latitude for fulfilment of this requirement.
In the turbo summary appeal proceedings, however, the Debtor substantiated its arguments why there was no 'well-founded fear of embezzlement' with respect to the multibillion dollar shares in the Dutch intermediate holding company. The Court of Appeal ruled that the Creditor had not or had insufficiently refuted this argumentation and decided that, as a result, it was under an obligation to lift the attachment on the shares. As such, the case demonstrates that the 'well-founded fear of embezzlement' requirement for pre-judgment attachments is much more than just a formality.
 Please note that the Creditor did not rely on, and the Court of Appeal did not apply, article 765 of the Dutch Code of Civil Procedure (DCCP). That article stipulates that a creditor is not required to demonstrate 'well-founded fear of embezzlement' if the debtor, as in this case, does not have a known domicile in the Netherlands. It is, however, uncertain whether article 765 DCCP is enforceable against every debtor, as the article can be regarded as discriminatory under EU law and under certain investment treaties.