Freezing of a Bank Account in Interim Relief Proceedings - Does the Defendant Have Any Means of Defence?

Freezing of a Bank Account in Interim Relief Proceedings - Does the Defendant Have Any Means of Defence?

Interim relief proceedings (postępowanie zabezpieczające), governed by Part Two of the Polish Code of Civil Procedure, constitute one of the most effective instruments for protecting a creditor's interests even before a final and binding judgment is obtained. It suffices for the claimant to substantiate (uprawdopodobnić) the claim and to demonstrate a legal interest in the granting of interim relief for the court – frequently sitting in camera and without hearing the other party to freeze the funds held in the defendant's bank account or to encumber his real property with a compulsory mortgage. Such a construction may create the impression that the defendant (the obligated party) is entirely defenceless against interim relief. In reality, the legislature has provided him with an entire system of protective measures both preventive and subsequent enabling him to respond actively to the interim relief granted, rather than passively awaiting further developments in the case.

Grounds for Granting Interim Relief and the Limits of Creditor Protection

Pursuant to Article 730 § 1 of the Code of Civil Procedure (CCP), interim relief may be sought in every civil case subject to adjudication by a court, both prior to the commencement of proceedings and in the course thereof. The granting of interim relief is conditional upon the cumulative fulfilment of the two prerequisites set out in Article 730¹ § 1 CCP: substantiation of the claim and demonstration of a legal interest in the granting of interim relief. A legal interest exists where the absence of interim relief would render impossible or seriously impede the enforcement of the judgment to be rendered in the case, or would otherwise render impossible or seriously impede the attainment of the purpose of the proceedings (Article 730¹ § 2 CCP). Significantly, in ruling on the application, the court is obliged to balance the interests of both parties in such a manner as to afford the entitled party due legal protection while not burdening the obligated party beyond what is necessary (Article 730¹ § 3 CCP). This directive of proportionality is pivotal for the entire analysis that follows interim relief must never serve as an instrument of repression, but exclusively as a precautionary measure, and the burden it imposes on the obligated party must be commensurate with the risk of non-enforcement of the future judgment. Moreover, interim relief may not be aimed at satisfying the claim, unless a specific provision provides otherwise (Article 731 CCP).

Among the methods of securing pecuniary claims, exhaustively enumerated in the CCP, the legislature indicates, inter alia, the attachment of movable property, of remuneration for work, of a receivable arising from a bank account or of another receivable or property right, the encumbrance of real property with a compulsory mortgage, and the establishment of compulsory management over an enterprise. In practice, the freezing of a bank account is the most frequently applied measure it is swift, effective, and requires no participation of the obligated party at the stage of issuing the order.

Freezing of an Entrepreneur's Bank Account the Right to "Unfreeze" Funds Within One Week

The most practical and, at the same time, the least widely known instrument available to an entrepreneur whose account has been frozen by way of interim relief is the procedure whereby the court upon an application of the obligated party filed within one week from the date of service upon him of the order granting interim relief determines the amounts that may be withdrawn to cover current payments of remuneration for work (together with tax and other statutory charges) and the current costs of the business activity conducted. The court may also otherwise regulate the use of the frozen account, and the sum thus released is subsequently transferred to the deposit account of the Minister of Finance, unless the interim relief consists in an obligation to pay a specified amount.

The significance of this provision can hardly be overstated the defendant entrepreneur need not passively await the conclusion of the dispute. The application should precisely indicate the amounts sought and the titles of the payments, together with supporting documentation (e.g. payroll lists, contracts, payment demands); the court is not bound by the amounts indicated in the application and may determine them of its own motion. The court's order authorising payment is addressed directly to the bank – without any need to obtain additional consent from the court enforcement officer. The one-week time limit is instructional in the sense that its expiry does not deprive the obligated party of the right to file the application; nevertheless, it is in the entrepreneur's interest to act as promptly as possible in order to minimise the risk of a loss of financial liquidity.

Security Deposit as Protection of the Obligated Party's Interests

The second, symmetrical protective mechanism is the institution of the security deposit (kaucja) under Article 739 CCP. This provision empowers the court to make the enforcement of the order granting interim relief conditional upon the entitled party's lodging of a security deposit covering any potential claims of the obligated party (or of other persons) arising as a result of the enforcement of the interim relief. The obligated party then enjoys priority of satisfaction from that deposit over other receivables, immediately after enforcement costs (Article 739 § 1 CCP). An exception applies where the entitled party is the State Treasury, as well as to interim relief securing maintenance claims, claims for a pension, and employee entitlements up to the amount of one full month's remuneration (Article 739 § 2 CCP).

The security deposit is not applied automatically the prerequisite for its imposition is a finding by the court that the enforcement of the interim relief creates a genuine risk of damage on the part of the obligated party. Where the circumstances of the case do not indicate such a risk, the court should refrain from requiring a deposit, and if an application to that effect is filed by the obligated party, it should be dismissed as unfounded. Making the enforcement of an order granting interim relief conditional upon the lodging of a security deposit is admissible in all cases in which the enforcement of the interim relief may cause damage to the obligated party. In practice, this means that the obligated party, when filing a response to the application for interim relief or an interlocutory appeal against the order granting it, should demonstrate to the court a specific risk of pecuniary damage – for instance, by indicating the loss of business partners, the costs of a stoppage in business operations, or a loss of liquidity – in order to induce the court to apply Article 739 CCP.

Means of Appeal and the Application for Revocation of Interim Relief

The obligated party also has at his disposal the classic procedural remedies. An interlocutory appeal (zażalenie) lies against an order of the court of first instance concerning interim relief and is examined by the court of second instance. The court may set aside the challenged order only where the proceedings are vitiated by nullity which materially narrows the practical prospects of overturning the order by way of an interlocutory appeal, provided the application for interim relief was formally correct.

Irrespective of the interlocutory appeal, the obligated party may at any time file an application for the revocation or amendment of a final and binding order granting interim relief, should the ground for the interim relief cease to exist or change. Of particular practical importance, interim relief lapses by operation of law if the obligated party deposits, into the deposit account of the Minister of Finance, a sum corresponding to the entitled party's claim this constitutes a means of independently and swiftly releasing the frozen funds without awaiting a decision of the court. It should also be borne in mind that the court appends the enforceability clause to the order granting interim relief of its own motion, and where the enforcement of the interim relief has been made conditional upon the lodging of a security deposit by the entitled party, that clause may be appended only after the deposit has actually been lodged – which affords the obligated party an additional instrument for verifying the formal correctness of the enforceable title.

The Entitled Party's Liability in Damages as Subsequent Protection

The final, subsequent pillar of protection of the obligated party is the claim for damages under Article 746 § 1 CCP. This provision grants the obligated party the right to demand from the entitled party compensation for the damage caused by the enforcement of the interim relief, where the entitled party failed to file the statement of claim within the time limit set, withdrew it, or where the statement of claim was returned or rejected, the action was dismissed, or the proceedings were discontinued. This claim expires if it is not pursued within one year from the date on which it arose (Article 746 § 1 CCP), and where a cassation appeal has been lodged, that period runs from the final conclusion of the cassation proceedings (Article 746 § 1¹ CCP). If the obligated party fails to bring an action for damages within one month from the commencement of the said period, the court, upon the entitled party's application, returns to him the security deposit previously lodged.

Of key significance here is the well-established position of the Supreme Court, according to which the liability provided for in Article 746 § 1 CCP is liability on a risk basis (na zasadzie ryzyka), independent of any fault on the part of the entitled party – the unfavourable outcome of the main proceedings, for the purposes of which the interim relief was established, suffices in itself. This position has subsequently been repeatedly reiterated in the case law of the common courts, according to which liability under Article 746 CCP is stricter than tortious liability on general principles under Article 415 of the Civil Code, since it does not require proof of fault on the part of the entitled party. The prerequisites of liability are therefore exclusively: the occurrence of damage, the causal link between the damage and the enforcement of the interim relief, and the occurrence of one of the circumstances enumerated in Article 746 § 1 CCP. This rigorous liability of the entitled party constitutes a significant deterrent against the reckless use of the institution of interim relief and provides genuine compensation for the obligated party whose business operations have been paralysed by ill-founded interim relief.

Conclusion

An analysis of the provisions of Part Two of the Code of Civil Procedure leads to an unequivocal conclusion: a defendant against whom interim relief in the form of the freezing of a bank account has been applied is not deprived of the means of defence – quite the contrary, the legislature has equipped him with an extensive, multi-layered system of protection. At the stage of the interim relief proceedings themselves, he may avail himself of the expedited procedure for unblocking funds for remuneration and current business activity (Article 752² CCP), invoke the creditor's obligation to lodge a security deposit, and also lodge an interlocutory appeal or seek the revocation or amendment of the interim relief should the ground therefor cease to exist. Where, on the other hand, the interim relief proves ill-founded and the action is dismissed or the proceedings otherwise conclude unfavourably for the claimant, the obligated party is entitled to a risk-based claim for damages under Article 746 CCP. Effective recourse to these instruments requires, however, a prompt response – particularly in the case of an application under Article 752² CCP, the time limit for which is merely one week from service of the order – as well as precise documentation of the circumstances justifying the application of the given measure. For this reason, in every case in which a claim has been secured by the freezing of a bank account, it is advisable to consult a professional legal representative without delay, who will assess which of the measures described above will prove most effective in the given factual circumstances.

Frequently Asked Questions

Does the freezing of a bank account by way of interim relief cover all funds held in the account?

As a rule, yes, the attachment covers the entire bank account indicated in the order granting interim relief. However, an entrepreneur may, within one week from service of the order, apply to the court for authorisation to make payments towards employees' remuneration and the current costs of business activity (Article 752² § 1 CCP).

How much time does the defendant have to file an application to unblock funds in a frozen account?

The time limit is one week from the date on which the order granting interim relief is served upon the obligated party (Article 752² § 1 CCP).

May the claimant be required to secure the defendant's interests before the attachment is enforced?

Yes, the court may make the enforcement of the order granting interim relief conditional upon the claimant's lodging of a security deposit covering the defendant's potential claims for damages (Article 739 § 1 CCP), where the enforcement of the interim relief could cause him damage.

What can the defendant do if he considers the interim relief to be unfounded?

He may lodge an interlocutory appeal against the order granting interim relief (Article 741 CCP) or, at any time, file an application for its revocation or amendment, invoking the cessation or change of the ground for the interim relief (Article 742 § 1 CCP).

Is the defendant entitled to damages if the claimant loses the case after obtaining interim relief?

Yes, pursuant to Article 746 § 1 CCP, the obligated party is entitled to a claim for compensation of the damage caused by the enforcement of the interim relief, and the claimant's liability is independent of fault.