Banks holding money for a judgment debtor are the target of domestic enforcement action in the form of third party debt orders. These orders carry with them an administrative burden for the bank. While it can deduct a statutory sum of currently £55 from the debt to cover its expenses this nominal amount (if deducted at all) may not reflect the actual compliance cost to the bank.
Thankfully, the English court does not grant applications for “speculative” third party debt orders and will only make an order if the judgment creditor has evidence to substantiate its belief that the judgment debtor has an account with the relevant institution. However, this may prove to be less of an obstacle to judgment creditors once the Tribunals, Courts and Enforcement Act 2007 comes into force.
Sections 95–105 of the Act deal with Enforcement of Judgments and Orders and provide for a new system for the courts to obtain information about judgment debtors. There is no commencement date for these provisions yet and it is likely that commencement will take many months while precise regulations are drafted.
Under the Act a judgment creditor may ask the court what kind of action would be appropriate to take to recover a judgment debt, known as an information application. Such an application may trigger requests (of government departments) or orders (to third parties) by the court for information to be provided. This may include “prescribed information” and upcoming regulations will define (among other things) what is meant by this. The information so requested or ordered will then be provided to the court and may only be used by the court to provide the creditor with information about the type of enforcement action to take, to enable the court to make a further information request, or to enable enforcement. Unauthorised disclosure of the information is an offence, punishable by up to two years in prison.
Compliance with information orders will be mandatory, save that the Act (section 100) provides that if the person to whom the order is addressed does not hold the information, cannot find a person of the description of the debtor, or can show that the effort and expense involved in finding and passing on the information is unreasonable, this will not be a breach of the order provided that a certificate of explanation is provided to the Court.
It is not clear from the Act whether the courts will apply a proportionality test or how otherwise unreasonableness will be assessed in this context, but the pending Regulations may have some answers.
Information orders are likely to be targeted at credit reference agencies and banks, and indeed they are specifically mentioned in the explanatory notes to the Act. This will result in an increased burden on banks, who may need to allocate additional resources to deal with them. The result is an identifiable and potentially burdensome exception to the usual confidentiality of the banker/customer relationship.
On top of this domestic legislative development, in October 2006, the European Commission published a Green Paper aimed at improving the efficiency of the enforcement of judgments in the European Union (EU). This included a proposal for the attachment of bank accounts by way of a self-standing EU-wide “attachment order”. The Commission has recently published the results of its consultation.
The Commission first suggested using attachment as a means of improving cross-border enforcement many years ago and the latest proposals are based on research coordinated by Professor Dr Burkhard Hess of the
The Hess research made several proposals but the Green Paper was restricted to a protective order. Under this proposed “European order for the attachment of bank accounts”, a creditor could secure a sum of money due to or claimed by him by preventing the removal or transfer of the debtor’s funds held in one or several bank accounts within the EU. This would be of protective effect only, meaning that it would block the debtor’s funds in his account but would not have the effect of transferring them to the creditor. Such an order issued in one member state would be recognised and enforceable throughout the EU without the need for a declaration of enforceability.
Of particular interest is the view that an attachment order should be available at any stage, even prior to issue of a claim. The end result of this is similar to a freezing order in English law rather than a post-judgment attachment such as a third party debt order. Indeed, many of the potential features of the order envisaged (such as an undertaking to meet any loss caused) will be familiar to English practitioners. The major difference is that a creditor could apply for an attachment order simply to secure funds (the Green Paper refers to “a real risk that enforcement of the claim may be frustrated if the measure is not granted”), not just where the debtor is expected to dissipate them.
The majority of respondents to the consultation rejected the idea of the order being converted into an executory measure, such as requiring the transfer of frozen money to a claimant following judgment. The two stages will thus remain separate for now. As noted by the Financial Markets Law Committee, this means that creditors will still need to obtain local legal advice on the effect of any order and the means by which it could be enforced against the relevant account. There is also potential overlap between national and the proposed EU procedure and it remains to be seen whether there will be a proper impact assessment dealing with that.
There was no consensus on the grounds for the grant of an attachment order, but there would have to be some basis for the creditors claim against the debtor. As one would expect, there is currently no uniformity in domestic law across the EU.
Of some concern is the absence within the current proposals of any requirement for the applicant to specify the account details of the debtor. Indeed, there remains the possibility that the procedure will be used as a fishing expedition “just in case” a debtor holds an account at a bank: an increased administrative burden for banks. This issue reveals the tension between making the procedure as simple as possible, and allowing the banks to deal with it safely, swiftly and at low cost.
It has also been suggested that, once an attachment order has been made, it would be electronically transmitted to a bank automatically. This brings into play a number of questions about the efficiency, security and cost of monitoring the electronic system.
Whether or not, and in what particular form, this proposal is eventually implemented in, the enforcement and monitoring of attachment orders will create additional costs for banks. There is no consensus on whether they should receive any fee for dealing with them, or whether they will bear the costs — which they will ultimately pass on to their customers in increased charges. It will concern banks that, with the proposals potentially requiring them to do more than they currently do under current domestic enforcement rules, the fee ought to be set at a level that reflects the true costs of compliance.
Michael Isaacs is a partner in the finance and banking disputes team at Addleshaw Goddard.
