An ‘orange hammer’ for every Legalink-litigator

An ‘orange hammer’ for every Legalink-litigator[1]

A)    Introduction

The Netherlands is considered to be a thriving jurisdiction for international companies to establish their business. The Netherlands have an open economy with a pro‑business climate and the Dutch judiciary is ranked among the most efficient, reliable and transparent worldwide.

This article focuses on the litigation-side of law practice. Its purpose is to disclose some very interesting opportunities the Dutch jurisdiction can offer to non-Dutch parties and their lawyers, even in cases in which no Dutch party is involved, in which non-Dutch laws apply to the (potential) dispute at hand and – cumulative – a non-Dutch court has exclusive jurisdiction. At this point you might wonder how, under aforementioned circumstances, Dutch law might be of any relevance. Good thinking, but read on. We believe that the ‘toolbox’ of every Legalink-litigator should contain a good ‘orange hammer’. Would you like to know what we mean by this metaphor and how it can benefit your legal strategy? Dive in!

 When analyzing a (potential) civil dispute, the following points will quickly probably shoot through your mind, no matter in what jurisdiction you are practicing law:

 -        Do I have enough evidence to support my client’s position, taking into account the position(s) of the opposing party? How do I get my hands on additional evidence?

 -        When claiming payment of an amount of money on behalf of a client: does the opposing party have sufficient assets to recover my client’s claim? How can I ensure that these assets are still present at the end of a (sometimes long and costly) litigation in which the clients’ claims are (wholly or partly) awarded?

 -        How strong is my clients position at the negotiation table? How, in addition to constructing a sound argumentation, can I strengthen that negotiating position?

 This article aims to provide our colleagues within the Legalink-network with the insight that Dutch laws can make a substantial contribution to their client's position on each of these points, even in cases in which – as said – the Dutch court has no jurisdiction over the conflict between the parties, the case has nothing to do with Dutch law as far as its content is concerned and neither of the parties to the conflict is domiciled in the Netherlands.

 In this article, we will first talk go into how to improve the chances of successfully recovering what is owed (paragraph B), then we will discuss ways to gather additional evidence (paragraph C) and finally, we will deal with the topic on strengthening one’s position during negotiations.

 B)     Prejudgment attachments and freezing orders

 Dutch lawyers are not surprised by it anymore, but it always causes amazement among non-Dutch lawyers: how relatively easy it is to obtain a prejudgment ‘conservatory’ attachment (in Dutch: conservatoir beslag, hereinafter a ‘prejudgment attachment’) in the Netherlands. We do not mean a European Bank attachment based on regulation EU No. 655/2014[2], which is hardly used in the Netherlands, but a much easier and more commonly used route under domestic Dutch laws.[3]

 In the Netherlands, it is relatively easy to obtain a prejudgment attachment, which allows a party, by way of an injunction, to ‘freeze’ assets of the opposing party in view future (or already pending) legal proceedings on the merit. This prejudgment attachment can in principle be levied on all kind of assets of the opposing party, for example balances of bank accounts, current or future entitlements arising from pending contracts with third parties, real estate and/or movable goods. This prejudgment attachment prevents that these assets are no longer available for recovery for claims of the party that obtained the prejudgment attachment. If the claim for which the attachment was obtained is granted (in whole or in part) in the proceedings on the merit, the attachment will change from "conservatory" to "executory" in nature and the relevant assets can be sold by execution. If the claim is denied, the attachment will become void when the judgment is final.

 The foregoing may not strike you as remarkable. The following may well do: a Dutch court examines the application for permission to impose a prejudgment ex parte, that is, without hearing the party against whom the prejudgment attachment takes place. The court only conducts a so-called ‘summary investigation’ (in Dutch: summier onderzoek) into the claim for which the prejudgment attachment is intended. In practice, this means that if an attorney-at-law can reasonably argue why his/her client, taking into account the known defenses of the opposing party, has a claim against the opposing party, obtaining permission is pretty easy. Permission is usually granted within two working days; the permission itself consists of nothing more than a stamp on the application, with a few handwritten notes.[4] The ease and speed of this procedure stands in sharp contrast to the far-reaching consequences that a prejudgment attachment can have for the un-heard (alleged) debtor as opposing party; for example, it can severely and for a long time affect its liquidity.

When a prejudgment attachment is levied while the claim is not yet subject of proceedings on the merit, these proceedings must be initiated by the attachor on a short-term basis. In most cases, the court that grants the permission for the prejudgment attachment sets that term at 14 calendar days.

What can the opposing party do when faced with a prejudgment attachment? The law provides that if it is established after the proceedings on the merits that the attachment was made for a claim that is unfounded, the attachor is liable for the damages suffered as a result. This, however, is often only cold comfort: apart from subsequent evidentiary discussions about the extent of the damage and the causal link between such damage and the attachment, the opposing party will rather want to prevent such damage than to recover it. If the opposing party experiences considerable hindrance as a result of the prejudgment attachment, the most common counteraction is for the opposing party to seek the release of the prejudgment attachment by means of summary proceedings. Such summary proceedings usually takes 2 to 4 weeks until the final judgment. There are four legal grounds on which a prejudgment attachment can be lifted[5]:

1. if formal requirements have been violated that render the prejudgment attachment void (this is not often the case);

1. if the court is able to establish in the summary proceedings that the claim(s) for which the prejudgment attachment took place, is (are) unfounded. In practice, it is pretty difficult to get the prejudgment attachment lifted on that ground. Judges seem rather careful of depriving the attachor of security for a claim that may have merit.  If the judge in preliminary relief proceedings cannot yet properly assess whether the claim is unfounded (for example because it requires further proof, for which there is no room in summary proceedings) the attachee usually loses these summary proceedings; the attachment remains in place. There is a broad consensus among Dutch lawyers that this is an unbalanced system;

1. if the attachment is unnecessary; that is, the opposing party provides enough coverage for the claim, for example, due to an solid insurance policy that will actually cover the claim in case it is awarded;

1. if the opposing party provides adequate alternative security for the claim, such as by means of an adequate bank guarantee with a known bank;

The Dutch prejudgment attachment extends further than an European Bank attachment based on regulation EU No. 655/2014 (hereinafter: the European Bank Attachment):

1. let us note first that the Dutch regime is much broader in that it includes other types of assets (claim under third parties other than banks, real estate, etc.);

1. the Dutch regime is substantively more accessible. In the case of an attachment of bank accounts (or under other third parties), under Dutch procedural law it need not be argued that the attachment is necessary because otherwise there is a real fear that the assets of the opposing party will no longer be available for recovery. Moreover, there are fewer requirements for the plausibility of the clients’ claim compared to the route of the European Bank Attachment;

1. finally, the Dutch regime also extends further. When an attachment is placed under a third party, with a European Bank attachment, only the bank balance is attached for the amount of the claim(s) for which the attachment serves as security. Under the Dutch regime, the entire bank balance available at hand is automatically attached, including any amount exceeding the estimated amount of the (alleged) claim of the party filing the attachment.

It is good to know that this "Dutch" prejudgment attachment can also be filed in cases where no Dutch party is involved in the dispute. It suffices that the opposing party has assets in the Netherlands, for example, a debtor that domiciled in the Netherlands, real estate, or a subsidiary. In the latter case, the shares can be attached, with which the potential dividend stream is also immediately affected by the attachment. Moreover, it is rather usual that there are current account receivables between group companies; balance in favour of the (non-Dutch) parent company can be attached as well, regardless whether the claimant has knowledge of the existence thereof. The Dutch interim relief judge in whose jurisdiction the asset (or part thereof) is located, has jurisdiction under national Dutch laws on civil proceedings to grant (or deny) the attachment order.[6] The proceedings on the merits, in which the claim is substantively granted or denied, need not to be conducted in the Netherlands; proceedings before the foreign governmental court or a foreign arbitration will suffice just as well, provided that the judgment is recognized in the Netherlands. Furthermore it is not an obstacle for the Dutch preliminary relief judge that the claim for which the permission for the prejudgment attachment is requested, is governed by (from a Dutch perspective) ‘foreign’ law. As long as the application for the prejudgment attachment takes the preliminary relief judge somewhat by the hand as to the foreign law provisions that are invoked, the matter will be decided upon the same way as if the claim would be subject to Dutch law.

We would like to advise our Legalink-colleagues in cases whereby their client acts as a claimant, to check with the client whether he or she is familiar with debtors of the opposing party in the Netherlands (including banks). Please feel free to call or email the authors of this article.[7] For Legalink-partners, we are happy to – free of charge – check the Dutch public registers whether real estate, registered ships or companies are owned by the opposing party.

C)    Getting access to additional documentary evidence.

The Dutch laws on civil proceedings allow a party to claim documentary evidence relevant to its legal position. This may be documentary evidence that was once in one's possession but has been lost[8], but also documents that one never had and of which one does not know the exact content.[9] For a claim to disclose documentary evidence of the latter category (hereinafter: a “disclosure claim”) to succeed, the following requirements apply:

1. the claimant must have a ‘legitimate interest’ (in Dutch: rechtmatig belang) in the documents claimed. This is to be understood as an evidentiary interest; the documents claimed have to be relevant in the context of a potential claim or defense of the claimant;

1. the documents must relate to a 'legal relationship' to which the claimant is a party. That legal relationship may be, for example, its alleged claim under a breach of contract or in tort. It is not required that the claimant be a 'party' to the very document (e.g., a contract or letter) itself from which a copy is sought. The claim for disclosure may also be brought against a 'third party' not involved in the underlying dispute. If the party from whom the requested documents are sought disputes the existence of the legal relationship with sufficient justification (e.g., "there has been no breach of contract"), then it is up to the claimant to bring forward such facts and circumstances and to substantiate them with already existing evidence in order that the legal relationship is "sufficiently plausible".[10] It is not required that the claimant already proves the legal relationship in question. After all, the claim for disclosure generally serves to complete this proof;

1. one cannot start a fishing expedition: requested documents must be sufficiently capable of being delineated, such as by subject matter and the parties involved. However, it is not required that the claimant be familiar with individual pieces of evidence.[11] Nevertheless, the existence of the documents claimed must be sufficiently made clear;[12]

1. The aggrieved party must have the documentary evidence in its possession. It also follows from some lower case law that this condition is met when the aggrieved party does not have the documents itself, but can easily acquire them, for example by requesting them from a third party[13] 

If these requirements are met, the disclosure claim is, in principle, allowable. No documents can however be requested from a party who can invoke a legal right to privilege (such as an attorney-at-law).[14]There are some other exceptions that are very restrictively applied, which we will not go into here. It is common practice that (high) fines are linked to non-compliance with the granted claim to documentary evidence.

In the Netherlands, it is also possible, after obtaining permission from a preliminary relief judge in ex parte proceedings, to file an prejudgment attachment on the relevant documents. This is to make sure that, if the disclosure claim is awarded, the relevant documents are still available (and not: deleted, ‘lost’, etc.). Hence, this prejudgment attachment does not serve as security for recovery of a claim (as mentioned above in paragraph B), but to make sure that the attachment documents itself can be handed over to the claimant once the disclosure claim has been awarded. This measure may be compared to a so-called Anton Piller order in English and English-derived jurisdictions.

Such a prejudgment attachment of documents requires the services of a specialized bailiff, usually supported by several IT-experts and sometimes even the police, making an – unannounced – search of premises of the party (or parties) against whom the prejudgment attachment is awarded. This is a far-reaching measure: one can speak of a civil search warrant. The bailiffs and ICT experts will search diligently on site for documents that may fall within the scope of the prejudgment attachment. Hard drives, phones, mailboxes, cloud storage, etc. is copied on the spot. The party (parties) against whom the prejudgment attachment for documents is directed (which is not necessarily the opposing party in the underlying dispute, see above under II.), is obliged to make login data available upon first request so that access can be obtained to (cloud) storage. This obligation and other obligations to ‘cooperate’ with the prejudgment attachment for documents may be subject to judicially imposed penalty payments. One of the writers of this article once handled a case in which he requested and obtained permission for a prejudgment attachment for documents at multiple locations at the same time, where a judicial imposed penalty of EUR 5.000 per hour was set in place. The bailiff takes custody of the attached documents and releases it only after the legitimacy of the disclosure claim has been decided upon by the court. Then, the filtering of all attached documents begins. The bailiff is bound to strict confidentiality, also (and especially) towards his client, who may (thus) not be present at the search of premises mentioned above in connection with the prejudgment attachment for documents. If the disclosure claim has not yet been filed, then it must be filed within a period of time to be determined by the preliminary injunction judge after the attachment has been made (usually 14 calendar days) .

Like the application for a prejudgment attachment for recovery (see paragraph B), the request for permission for a prejudgment attachment of documents is assessed by the court without prior warning or hearing the party at which premises the search for documents takes place, regardless whether that party is also the opposing party of the (alleged) claim for which the documents are required as proof. The judge will decide upon the request within a few days. Because of the far-reaching nature of this type of prejudgment attachment, high standards do apply here. Not only must a sufficient explanation be given as to how the above requirements of a claim for disclosure will be met (see above under I. u/I IV.), but facts and circumstances must also be brought forward from which it follows that the prejudgment attachment of documents is necessary for this purpose: there must be a well-founded fear that the documents in question will otherwise be lost and that the proof of the claim(s) for which the prejudgment attachment of documents (and the following disclosure claim) takes place, cannot be collected by other means that are less intrusive. In other words, the principles of proportionality and subsidiarity are guiding. The measure of prejudgment attachments of documents is – next to IP-related cases – especially common in civil cases involving (well-founded suspicions of) fraud and violation of non-competition- and/or exclusivity clauses, but is also possible in other types of cases.

The foregoing implies that a disclosure claim, whether or not combined with a prejudgment attachment of documents, may also be at issue in disputes between two parties from – for example - the United Kingdom, where a judge (or arbitrator) in London has exclusive jurisdiction and the laws of England and Wales apply.[15] I am referring to the situation in which a third party, domiciled in the Netherlands, has (or with some effort can obtain)[16] access to documents that may be relevant to that dispute. That 'third party' can, for example, be the director and/or employee of one of the parties, but also a group company or an advisor (accountant, auditor, tax adviser, etc.).[17] The exclusive jurisdiction of the non-Dutch court or arbitrator in the relationship between the parties to the underlying dispute is not of relevance for a disclosure claim against a third party. The applicability of non-Dutch law to the underlying dispute between the parties (or any legal relationship to the third party) is neither an impediment as the statutory provisions on the disclosure claim and the prejudgment attachment of documents are part of the Dutch laws on civil proceedings (and not: substantive law). Dutch courts will always apply Dutch laws on civil proceedings, also the (alleged) claim itself is governed by (from a Dutch perspective) foreign laws.

We would like to advise our Legalink-colleagues, in cases where additional evidence is required or helpful for a claim or a defense, to check with the client whether it is familiar with any Dutch parties who might have possession of such evidence (or who might easily can get access to these documents[18]). If yes, the Dutch jurisdiction might be helpful to achieve the goals.

 D)    Strategies to strengthen one’s position during negotiations

 A prejudgment attachment as explained in paragraph B serves a legitimate purpose: securing recovery. The disclosure claim, possibly combined with a prejudgment attachment of documents, as explained in paragraph C also serves a legitimate purpose: finding supporting evidence. None of these measures should serve primarily as a (mere) mean to simply put an opposing party under pressure. If these measures are taken just to put a party under pressure,  the exercise thereof may very well be unlawful.

A legitimate exercise of (one of) the measures described above, however, will often have the additional effect of making the other party in the underlying dispute feel – with good reason - seriously pressured. This is inherent to the measures at hand and does on itself not prejudice the position of the claimant. A prejudgment attachment for recovery may result in the opposing party's liquidity being seriously squeezed. For a company, this may even threaten its continuity to such an extend that a lengthy court proceeding on the merits of the claim cannot be awaited. A disclosure claim may cause the opposing party to fear that it will have to disclose documents that it had hoped would remain secret. If a prejudgment attachment of documents has been filed, then this fear may increase further as the documents at hand are taken out of the control of the opposing party. It is imaginable that an opposing party will no longer dare to deny certain (unlawful) conduct in proceedings on the merits (or give a false reading to it), especially if he/she is heard under oath, fearing that the truth will come to light through the claim for disclosure anyway. In short: invoking the measures described above might significantly strengthen your client(s)' negotiating position at an early stage of the case.

 E)     Finally

We hope this article provides you with some new insights and that it may be of value when outlining a(n) (international) litigation strategy. With some tongue-in-cheek in mind, we like to state that aforementioned measures of Dutch procedural law can serve as an ‘orange hammer’ for the Legalink-litigator; a tool that belongs in your legal toolbox. Are you looking for a suitable partner to operate this tool properly and safely? We, at Ekelmans Advocaten, are happy to assist you.