Monaco
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes. The respondent is prohibited from dealing with the assets that are referred to in the freezing order (and up to the amount determined by the judge) until a further order of the emergency judge or a decision on the merits of the claim is made.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
No. Furthermore, the concept of an “asset disclosure order” does not exist under the laws of Monaco. Therefore, prior to filing a request to the judge, the applicant must have knowledge of the location of the respondent’s assets. It should also be noted that according to recent case law, it is now possible to target “any bank in Monaco” in a request to freeze a bank account.
3. Briefly what is the relevant legal test?
The applicant shall demonstrate that their application is based on a “principle of claim” against the respondent.
The applicant can then seek an order against assets held either directly by the respondent themselves or by third parties. Depending on whether the assets targeted by the applicant are held by the respondent or by third parties, the applicant shall:
(i) identify the third party holding the respondent’s assets (such as a banking institution where the applicant targets a bank account held by the respondent) or, as the case may be, the respondent’s own debtors (such as contractors who owe money to the respondent based on contract or other debtors whose debts towards the respondent are due and payable); and/or
(ii) demonstrate a risk of disappearance of the assets, where the application is aimed at the registration of a mortgage or the freezing of moveable assets directly held by the respondent (at his place of domicile, for example). The demonstration of a risk of disappearance of assets is not required where the applicant seeks to freeze assets held by third parties.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant shall make an ex parte application to the president of the Court, in particular, setting out the reasons for the application and the basis on which the relevant test is met. The respondent may challenge the order before the emergency judge or choose to only challenge the order in proceedings on the merits.
Applications are made without notice to the respondent. The respondent (or any third party such as a bank) is only made aware of the application once the order itself is made and notified to them.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
No, however, the respondent can ultimately claim damages from the applicant if the judge eventually denies the applicant’s claim on the merits and if the freezing of the assets has caused a prejudice to the respondent (where the existence and extent of such prejudice has to be demonstrated by the respondent).
6. Can it be sought against third parties?
No, however, any third party holding frozen assets on behalf of the respondent is notified of the order and made “guardian” of the frozen assets.
7. What assets are covered by a freezing (or equivalent) order?
Any tangible or intangible assets, provided they are not perishable and are within the jurisdiction.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
Yes.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
The freezing order may be sought:
(i) before any proceedings based upon the merits of the request; or
(ii) pending a final decision on the merits (judgment or arbitration award) being awarded in a foreign jurisdiction against a debtor having assets in Monaco; in such a case, the freezing order would be a preliminary step before initiating proceedings for the recognition of the foreign decision or arbitration award in Monaco.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
Under Monegasque law, there is no general prohibition on the respondent’s use of their assets; any prohibition will be limited to the assets which are identified in the order and to the extent that they are in the possession of the respondent or third party identified in the application, when the order is enforced by the bailiff.
The freezing of furniture and personal belongings does not prevent the respondent from using them in the normal course of their daily life without moving them.
12. What happens after a freezing (or equivalent) order is granted?
Where the frozen assets are held by a third party, the deed of notification and enforcement includes a summons to the respondent and the third party holding the frozen assets (such as a bank) to appear in Court for the underlying litigation. The deed of summons is served by a bailiff and stipulates the date of the first hearing.
Where the order relates to assets which are in the possession of the respondent or to real estate, its enforcement does not include a writ of summons, nevertheless, the applicant has a duty to serve such writ on the respondent.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The applicant pays for the costs of the application for a freezing order, however, the final judgment on the merits may award that such costs (and all or part of the applicant’s lawyers’ fees) shall be borne by the respondent.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
With regards to bank accounts, only the amount available on the date of the enforcement of the order (and not the bank account itself) is frozen.
The balance of the account is disclosed to the bailiff and may only be amended by the following transactions if they have occurred prior to notification of the order:
(i) cheques or bills which were not yet recorded into the account;
(ii) cheques which were recorded but are ultimately unpaid;
(iii) cash withdrawals and payments by credit card; or
(iv) reversals of bills or promissory notes which were recorded in the account prior to notification of the order and which are not paid on maturity.
A third party to a freezing order is not prevented from exercising any rights of set-off arising prior to its notification of the freezing order.
The relevant bank has a duty to provide the bailiff with the updated balance 40 days after the enforcement of the order.
The freezing order does not affect securities granted to third parties over the assets; for example, any pledge in favor of the relevant bank or other third party remains valid. This is also the case for any other type of security such as the freezing of a bank account, a pledge over movables or a mortgage registration over real estate owned by the respondent, so long as such securities had been in place for the benefit of other creditors prior to the freezing order being granted to the applicant.
Furthermore, a third party to a freezing order does not need to enquire about the application of any money withdrawn by the respondent if the withdrawal appears to be permitted by the freezing order.
Any third party having an interest may also lodge a request before the emergency judge to seek the withdrawal of the freezing order, in particular where ownership of the assets seized is disputed (in cases of joint ownership or ownership by a third party such as a wife, husband or life partner, for example).
A freezing order only affects third parties outside of the jurisdiction in certain circumstances – see point 17.
15. What are the consequences of breach of a freezing (or equivalent) order?
A third party holding assets of the respondent which are subject to the freezing order could be declared personally liable towards the applicant in the event of a breach of a freezing order. Additionally, in cases involving the freezing of personal belongings held directly by the respondent, the individual appointed custodian of such assets by the judge could be subject to criminal punishments.
Under the laws of Monaco, any criminal offence presupposes the existence of a mental element. A freezing order is served by a bailiff on the third parties holding assets for the respondent. Therefore, in cases of breach (for example, if a third party has personally diverted or disposed of any movable property subject to the freezing order), it would be difficult for them to claim that they were not aware that they were breaching the order.
Liability may, however, be avoided if a third party can demonstrate that it is not due to their fault, for example, where a movable property was stolen or destroyed by fire, without any fault or negligence from the third party.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
See point 15 above.
17. Can a freezing (or equivalent) order be enforced abroad?
Whether a freezing order issued in Monaco can be enforced abroad or not depends on the local procedural rules in force in the relevant jurisdiction.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
No.
Contact
Patricia Kemayou Mengue Manager Associate 99 Avocats Associés Monaco pk@99avocats.com www.99avocats.com/en
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