A recent judgment of the Supreme Court on seizure concerned the interpretation of the so-called claimed declaratory decision after the pre-judgment attachment under Dutch law has been carried out. In this case, a company had left rental payments for an office building unpaid. Subsequently, a prejudgment attachment was levied on the premises of the sole director of the company. In the main case, a declaratory judgment was subsequently sought that the director, in addition to the company, was jointly and severally liable for the unpaid rent. The judgment is noteworthy because the Supreme Court considered that this declaration of rights could be a claim in the main action after a prejudgment attachment had been levied and could ultimately constitute an enforceable title. With this judgment, the Supreme Court clarified its case law on the claim in the main proceedings in the context of attachment and enforcement. Our Dutch litigation attorneys will elaborate on this judgment and its further significance.
LODGING A CLAIM IN THE MAIN ACTION AFTER PRELIMINARY SEIZURE UNDER DUTCH LAW
The parties in the conflict are Lisman B.V. and Rentec B.V. In 2004, the parties concluded a lease contract for the lease of an office building by Lisman to Rentec. It soon became apparent that Rentec was not fulfilling its obligations as a lessee and was leaving rent payments unpaid. Lisman’s claim on Rentec for rent arrears rises to about € 260,000. Lisman then has the amount of this claim conservatively attached to premises owned by the sole director of Rentec. On the basis of section 700 paragraph 3 of the Dutch Code of Civil Procedure, the introduction of the claim in the main action follows after the preliminary seizure by Lisman. In other words, Lisman had a summons served on Rentec and its director and started civil proceedings in accordance with section 93 sub c before the Subdistrict Court. In these proceedings, Lisman claimed dissolution of the lease contract. In addition, Lisman claimed that Rentec and its director are jointly and severally liable for payment of the overdue rent on the basis of managerial liability.
HOW DO THE DUTCH COURT AND THE COURT OF APPEAL RULE IN THE MAIN CASE?
The Subdistrict Court allowed the claims for rescission of the lease contract and payment of the rent owed by Rentec to Lisman. The claim to order Rentec’s director jointly and severally to pay, however, was dismissed by the district court. The company Rentec was subsequently dissolved and Lisman appealed against the judgment of the district court to the Court of Appeal. In these appeal proceedings in the Netherlands Lisman involved only the director of Rentec and claimed to declare the director jointly and severally liable for everything Rentec has been sentenced to in the first instance by the Subdistrict Court (a so-called declaratory judgment). This change of claim is in fact a reduction of the claim, because Lisman no longer claims that the director should actually be ordered to pay the rent arrears of Rentec. The court of appeal considered the declaration for justice to be less than the legal claim for condemnation. The court of appeal annulled the judgment of the subdistrict court and granted the declaratory judgment. In other words, the court of appeal declared that the director is jointly and severally liable with Rentec for everything for which Rentec was sentenced by the subdistrict court.
During the appeal proceedings, the director’s premises were sold privately at the request of the mortgage lender. After repayment of the mortgage, approximately EUR 100,000 were left. That amount remains on deposit with the notary. Disagreement arises between Lisman, the director and other creditors about the distribution of this deposit, as a result of which the case is referred to the court for claim validation proceedings. Our lawyers are regularly confronted with the question: what is a claim validation procedure?
WHAT IS A claim validation proceedings in the Netherlands
A claim validation procedure in the Netherlands (“renvooiprocedure”) is a procedure in a bankruptcy concerning the extent and existence of the claim. This procedure is often used when a submitted claim is disputed by the trustee or other creditors. In principle, the same rules apply in claim validation proceedings as in writ proceedings.
What is Lisman claiming in these claim validation proceedings?
In claim validation proceedings, Lisman claims inter alia recognition of its claim against the official receiver and admission of this claim to the ranking order. The District Court allowed both claims by Lisman. In essence, according to the Court of Appeal, in the claim validation proceedings in appeal it comes down to the question whether Lisman after a prejudgment attachment of the premises of the director, followed by a declaration in court in the main action, may share in the remaining proceeds from the execution. The director takes the position that Lisman should not be admitted to the ranking order. According to the director, Lisman should have an enforceable title in order to be admitted to the ranking scheme and the pronounced declaration of rights (for joint liability) is insufficient for that purpose.
What is a declaratory judgment under Dutch law?
A declaratory judgement is a decision by a court (at the request of one of the parties to the proceedings), in which a certain claim is granted. Often, a declaratory judgment is demanded that a party is liable, after which the extent of the damage must be determined at a later stage. In other words, the judge establishes the (legal) relationship or rights and obligations between the parties.
Laps of the preliminary attachment in the Netherlands?
The court of appeal considered that it did not follow from the claim modification or reduction that Lisman no longer maintained or withdrew the claim and attachment. Nor does this concern a lapse of the prejudgment attachment in the Netherlands, nor was the attachment cancelled. According to the court of appeal, an enforceable title from Lisman is not necessary to be admitted to the distribution of the proceeds of execution. The declaratory judgment, in which Lisman’s claim is established, is sufficient. The court of appeal annuls the judgment of the district court and rules that the seizure claim of Lisman should be admitted to the ranking scheme for the still available amount of approximately EUR 100,000.
HIGH COURT ON THE BRINGING OF MAIN PROCEEDINGS
The Supreme Court reiterates the starting point: “when a prejudgment attachment has been levied for a claim, an enforceable title is obtained by ordering the distrained debtor (director of Rentec) to pay that claim. “
The key consideration of the Supreme Court regarding the bringing of a claim in the main action reads: “It is not excluded, however, that the distraining party (Lisman) may suffice with a claim in the main action that serves to establish the justification and extent of his right of action. If the claim is upheld, the judgment will then constitute an enforceable title for the right of action established therein, if it is clear from that finding that the distraining party (Lisman) has a real claim to payment. The required clarity may consist of a finding in the judgment that the judgment debtor (Rentec’s director) is jointly and severally liable for what another party (Rentec) has already been ordered to pay.”
Next, the Supreme Court considered: “that it must have been clear to the director that Lisman’s claim was intended to establish that Lisman can actually claim payment of the claim for which she had levied attachment against the director. In the light of what has been considered above (…) this entails that the judgment in the main proceedings constitutes an enforceable title for the claim for which Lisman has levied attachment against the director.”
In summary, the declaration that the director is jointly and severally liable with Rentec, results in an enforceable title according to the Supreme Court in this situation. After all, it was clear that Lisman could actually claim payment of the claim and what amount the director had to pay to Lisman.
With this judgment, an 18-year-long procedure concerning an undisputed rental claim has come to an end. Based on the specific facts of this case, the question is to what extent the Supreme Court ruling will actually be relevant for future cases.
Dutch attorney specialized in seizures
MAAK Advocaten has an experienced team of lawyers specialized in matters of disputes and litigation and with a strong focus on the players in the manufacturing industry. Would you like to obtain legal advice on a claimed declaratory decision and pre-judgment attachments? The lifting of an attachment or related issues? Or does your company need support in conducting negotiations with a business partner, assisting in a form of alternative dispute resolution such as mediation or arbitration, conducting civil proceedings before the Dutch courts or courts of appeal or initiating summary proceedings (for dissolution)? Please contact our commercial lawyer in the Netherlands Max Schwillens, a lawyer specialized in seizures.