18-06-2015

Conservatory arrest in the Netherlands

GENERAL PRINCIPLES – A BRIEF SUMMARY

1. Arrests

a. Conservatory
b. Executory

2. Executory arrest

To enforce an established claim by:
(i) verdict of a national state court
(ii) an arbitral award
(iii) deed of mortgage/hypothecation

3. Conservatory arrest

General principles
• in principle to attach all assets of the debtor (art. 3:276 DCC)
• any type of claim; no distinction is made between maritime and non-maritime claims
• with the exclusion of (some) vessels; 1952 Brussels Convention
• preceding or during litigation proceedings
• aimed to establish security for the executorial phase
• if effective, conservatory arrests can provide for either a strong negotiating position under the pressure of the seizure or for substitute security such as a fund in an escrow account or a bank guarantee
• in general no preliminary court hearing
• quick, efficient and inexpensive
• a conservatory attachment will be converted into an executory attachment after and by means of the service of the verdict or arbitral award. Since only executory arrests can be executed (leading to the actual sale of the attached goods or the actual pay out of attached third party balances), the purpose of conservatory arrests obviously is to establish security for the creditor.

4. Conservatory arrest

How to obtain:
• a petition has to be filed at the President of the District Court (“rechtbank”).
• essential for competence: is any of the assets present (f.i.: (im)moveable property) or expected to be present (f.i.: a vessel to be expected in the Rotterdam Port) or is a third party under which the attachment is effected based within the district.
• place of domicile of either the claimant or the debtor is not required to be within such district.
• contents of such petition can be extremely brief:
(i) the name and other details of the parties
(ii) a (very) short description of the claim and its legal basis
(iii) the estimated claim amount, to be added with +/- 25% for interest and costs
(iv) a short description of the assets to be seized
(v) in case of a third party seizure: the details of the third party (bank, the debtor of the debtor).
• in normal cases the President’s granting for the effecting of the conservatory arrest can be obtained within one or two working days. In real time pressured matters – and only in real urgent matters (for instance: a container vessel of a foreign company to be expected in the Rotterdam Port for unloading and loading which could last for only a couple of hours after which the vessel will sail off) – the granting can be given on the spot (we have obtained them from the (acting) President on the golf course and at the President’s private residence).
• in general no preliminary hearing will take place. The first time the debtor finds out permission for a conservatory arrest has been granted, is with the actual effecting of the seizure. Great surprise effect; also a contentious tone will be set herewith.
• effecting the attachment is executed by the bailiff acting upon our instructions. We have a network and effecting procedures in place to execute the operation as quick and smoothly as possible throughout the whole of the Netherlands.
• Information about assets of the debtor might come from the client or can be obtained through our informal network (for instance locating inland barges; port service officials) or even through a professional research/detective agency, if so requested by the client.

5. Conservatory “hardware” arrest - Effects

• Asset freezing (“to put the vessel onto the chain”).
• In relation to registered assets in the Dutch registries (airplanes, vessels, immoveable property, shares) (effecting of) a future transfer of ownership is blocked.
• Even sequestration (removing) can be obtained in such cases when there are justified grounds that the debtor is not to be expected to obey the freezing of the moveable/non-registered asset. However regarding such sequestration more substantial costs are involved.
• Please note that third party rights in rem with respect to the attached goods such as, but not limited to, a pledge, mortgage or right of superficies, prevail over a later attachment. For example, a ship arrest does not prevail over a mortgage vested on the same vessel prior to the attachment. A later right in rem with respect to the attached goods does not prevail over the prior attachment.

6. Conservatory third party arrest – Effects

• Banks, the debtors of the debtor
• Freezing of funds if present at the actual moment of the seizure
o all funds are blocked irrespective of the size of the alleged claim
o no future funds blocked
o set off by banks with any balance due is allowed
o prior pledging overrules

• Please note that such an attachment freezes the situation at the moment of the actual seizure and that all funds are blocked irrespective of the size of the claim, but that no future funds are blocked (so payment on debtor’s bank account only minutes after the arrest are not part of the arrest and need to be arrested separately), except in case of agreements with a pre-set periodical payment obligation such as lease agreements.
• Third party is obliged to expose the amount of indebtedness towards the debtor within a certain time period so the claimant can decide whether it is favorable to keep the third party arrest in place.
• Even “constructing” of a third party relation can be tried (“Smokehouse” ruling, Dutch Supreme Court 9 June 1995, NJ 1996/448). Under circumstances such construction is upheld in litigation.

7. The aftermath

After the arrests are effected:
• In principle litigation, which can be foreign litigation as well, has to be started within a certain period set by the President of the District Court at granting the permission for the arrest. Such period can vary from 14 days to as much as 6 months and can be extended by a claimant’s request to the President of the District Court. Failure to start litigation timely will automatically result in the lapsing of the arrests by the operation of law.
• Jurisdiction regarding the proceedings on the merits will be ruled by:
o the contract between the parties;
o the applicable conventions/treaties or European Regulations; or
o the Dutch Private International Law.

• No litigation action is required when litigation is already pending but has not yet resulted in a verdict, which can also be pending foreign litigation. Sometimes this even can be advantageous, for instance when the Convention of Limitation of Liability for Maritime Claims (LLMC London 1976) applies. Under Dutch law the limits of liability in respect of such claims are lower than for instance in the English or German jurisdiction. So in case the vessel that has caused the damage is to be expected in a Dutch port, it is advisable to first start proceedings in the English or German jurisdiction so jurisdiction is established and as soon as litigation is under way a conservatory attachment of the vessel could be effected as soon as it shows up in a Dutch port. If the reversed sequence is being effected the Dutch jurisdiction could be given by the attachment as a result of which Dutch law and the lower LLMC limit apply.
• It is not uncommon that the arrest is lifted voluntarily by the claimant after the debtor has issued alternative security by means of placing a fund into an escrow account but mainly by means of a bank guarantee: Rotterdam Standard Form (to be preferred!) or the Standard Form of the Dutch Association of Bank (“NVB”).

• A bank guarantee (as per the Rotterdam Standard Form) is to be preferred by far over keeping the arrests in place. In case of insolvency/bankruptcy of the debtor all arrests lapse automatically and ipso jure by means of the Dutch Bankruptcy Code. Bank guarantees remain in place and valid in case of bankruptcy of the debtor and often offer an opportunity for negotiations with the receiver for settling the dispute and cashing under the bank guarantee.

• The debtor not willing or able to put up alternative security might counteract by starting summary proceedings before the District Court’s President who granted the seizure in order to have the arrests lifted. Such summary proceedings can be held in a matter of days or weeks at the maximum (in real urgent matters sometimes even shorter). Lifting without alternative security will only be ordered if the President in summary proceedings is convinced that the arrest is truly unjustified (for instance: in case of an obvious frivolous claim).

• If in the proceedings on the merits the claim is denied in full (in principle: only then) the claimant is regarded to have effected the attachments unlawful and tortuous and will be liable for all damages and losses arising there from. The alleged debtor however is required to take all reasonable steps to minimize such damages and losses, including in particular a quick reaction to the arrest or even possibly issuing a bank guarantee. If the claim of the claimant is only partially denied, it can only be held liable if it can be proven that by arresting assets of the debtor it has abused its rights (i.e. its intention was solely to harm the debtor with the arrest or not to lift the arrest against receipt of a bank guarantee offered by the debtor). Thus far the Dutch Courts have ruled that only in case the arrestor’s claim is denied in full, it is regarded to have acted tortuous. In a particular case the Dutch Supreme Court ruled that where certain goods were attached for an alleged claim of € 442,000.= of which an amount of only € 29,000.= was awarded, the arrest was deemed not te be unlawful (Dutch Supreme Court 11 April 2003, NJ 2003/440).

8. Further information

This article contains a brief summary of the general principles regarding conservatory measurements in the Netherlands. Further information can be obtained through:

Mr Bas Ort (partner) Mr Karan Doekhi
( + 31 78 699 2515 ( + 31 78 699 2510
E: ort@zwartbol.eu E doekhi@zwartbol.eu