CJEU considers whether freezing injunctions affecting third parties are contrary to public policy

Jayne Owens

In Rudolfs Meroni v Recoletos Limited, the Court of Justice of the European Union (“CJEU”) considered whether an English freezing injunction affecting third parties was contrary to public policy under the 2001 Brussels Regulation (Regulation 44/2001) and therefore unenforceable.  Under Article 34 of the Regulation, a judgment of an EU Member State court (which includes an interim protective measure, such as a freezing injunction) will not be recognised and enforced in another Member State if to do so is manifestly contrary to public policy in the Member State of enforcement.  The CJEU held that this public policy defence did not prevent the enforcement of a freezing injunction which had been granted without hearing from third parties whose rights might be affected, providing the third parties had the right to apply to the original court to vary or discharge the order.

The CJEU’s decision confirms that the public policy defence in Article 34 is to be narrowly interpreted, and can only be relied on in exceptional circumstances. The same will be the case for the equivalent provision in the Recast Brussels Regulation (Article 45).  The judgment also clarifies that freezing injunctions which affect the rights of third parties who were not involved in the original proceedings, but who hold interests in assets affected by the injunction, are unlikely to offend the public policy of the Member State where the injunction is to be enforced or to infringe the third parties’ right to a fair trial, where such parties are given a genuine opportunity to challenge the relevant order.

Background

In April 2013, the English Commercial Court granted a freezing injunction against Mr Lemberg, following an application by Recoletos. The injunction prohibited Mr Lemberg from disposing of his assets, including shares held (directly or indirectly) in a Latvian company.

The freezing injunction provided that anyone notified of it had the right to apply to the English courts to vary or discharge it. The order also provided that it extended in to persons outside the jurisdiction to the extent that it was declared enforceable or enforced by a court in the relevant Member State.  The Latvian courts declared the freezing order enforceable in Latvia.

Mr Lemberg was the beneficial owner of shares in another company (“Yelverton”), which had substantial interests in the Latvian company referred to in the freezing injunction. Mr Meroni, who was part of the management of Yelverton, challenged the Latvian declaration of enforceability.  He argued that:

  • the effect of the freezing injunction was to prevent Yelverton from exercising its voting rights in the Latvian company. As Yelverton was not a party to the English proceedings, enforcement of the injunction would therefore have the effect of infringing the property rights of a third party, which was contrary to the public policy exception in Article 34; and
  • enforcement of the injunction would also contravene Yelverton’s right to a fair trial, because it had not had the opportunity to make representations to the English court when the injunction was granted.

The Latvian Supreme Court asked the CJEU to clarify whether the recognition and enforcement of an order made by a Member State court without prior hearing of a third party whose rights might be affected by the order was contrary to the public policy of the Member State where the injunction was to be enforced, and whether such enforcement was contrary to the third party’s right to a fair trial.

CJEU’s decision

The CJEU held that, provided a third party whose rights might be affected by enforcement of the order had the right to apply to the original court to vary or discharge the order, such enforcement would not be precluded by the public policy defence in Article 34. Here, any third party would not be affected by the freezing injunction until it received notice of it.  Under the terms of the freezing injunction, it was for Recoletos to notify any third parties and it was also for Recoletos to prove that such notification had been made.  Once notified, the third party then had the right to apply to the English court to have the injunction varied or set aside.

In reaching this conclusion, the CJEU made a number of interesting comments on the scope of Article 34:

  • The concept of “public policy” had to be interpreted strictly, and could only be relied on in exceptional cases (Apostolides (Case C-420/07).
  • The CJEU’s role was to review the limits within which the courts of the enforcing Member State might rely on the public policy defence to refuse recognition and enforcement of a judgment from another Member State court, not to define the content of the public policy of a given Member State.
  • Recourse to the public policy defence in Article 34 could only be envisaged where recognition or enforcement of another Member State’s judgment would be at variance to an unacceptable degree with the legal order of the Member State where the judgment was to be enforced; in other words, it would have to infringe a fundamental principle of that legal order. That infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the enforcing Member State or of a right regarded as being fundamental within that legal order (Apostolides and Diageo Brands (Case C-681/13))..
  • In applying the 2001 Brussels Regulation, a national court had to comply with Article 47 of the Charter of Fundamental Rights of the European Union (“Right to an effective remedy and to a fair trial”), which provided that everyone whose rights and freedoms as guaranteed by EU law were infringed had the right to effective judicial protection. In this case, the terms of the injunction gave third parties who were affected by it a genuine opportunity to challenge the order. Therefore, there was no breach of Article 47 of the Charter.

Rudolfs Meroni v Recoletos Limited (Case C-559/14)

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