Lithuanian Code of Civil procedure establishes a freezing order as a tool that could be used to freeze the assets owned by a defendant in order to safeguard the enforcement of the court judgment.
Similarly, as in the UK, the claimant should demonstrate that he has (i) a prima facie case, (ii) that without issuing a freezing order the enforcement of the court judgment will become impossible or at least much harder and (iii) that the injunctions sought are proportional, does not restrict defendant more than it is necessary to guarantee the smooth enforcement of the future judgment.
Although the law was rather stable on this matter, the case law demonstrates a significant switch. Up to 2012, it was rather easy to get the freezing order. The courts used to rely on the fact that the amount of the claim is significant to the certain defendant and this used to be a sufficient argument to get the freezing order.
However, around 2012 the case law switched significantly. The courts started to require to demonstrate clear evidence on the unfair steps that may be taken by the defendant (hiding property, transferring it without fair compensation, etc.).
This made it rather hard to get the freezing order. Usually, the courts would grant it only in some exceptional cases.
As to the tactics, as the claimant is required to demonstrate the exact unfair practices of the defendant, the timing of asking the freezing order is rather important. The request should be filed not too early so that certain mistakes of the defendant could be demonstrated.
The effect of the freezing order reaches any assets owned by the defendant within the territory of Lithuania. In case it is needed to freeze the assets that are in different jurisdictions, enforcement of the order in those specific jurisdictions will be needed. Additionally, if the assets of the holding company are frozen, this would not have a direct effect on the assets owned by the daughter companies.
Court order on provisional measures, including protective measures, is an effective tool, useful to get – enforcing foreign orders.
Getting a freezing order in the EU jurisdiction allows you to enforce it easily in different jurisdictions within the EU according to the Brussels regime.
According to Brussels regime Member State if the provisional measure applied is not in the law of different members where the enforcement is sought, the court of such member state should apply available measures, that “has equivalent effects attached to it and pursues similar aims”. Therefore, although for example, Lithuanian law is silent on “provisional liquidator” that is an important tool in the UK, Lithuanian court’s right to appoint an asset administrator as a provisional measure, would be a proper answer in enforcing the UK court’s order on provisional liquidator.
Although it is a great pity that the UK is no longer part of the EU, at least during the transition period up to the end of 2020 the UK will also enjoy the benefits of the Brussels regime.
In addition, the UK and the Baltic States have strong economic ties, a significant number of Baltic States citizens live in the UK, therefore, I have no doubts that a similar regime will remain in place after the transitional period is over.
There is one issue that is very important to consider. Our Code of Civil Procedure requires that the defendant would be informed about the court hearing where the provisional measures were applied whereas under the Brussels regime this is not a mandatory requirement. Therefore, after the transitional period is over, if there will be no additional agreements on the application of Brussels to UK court orders, serving a defendant might be an important issue while enforcing the UK court order.
Moreover, we have the rules of the Code of Civil Procedure in place that allows our national courts to assist foreign courts in the pending litigations while applying interim measures. Filing an independent application for provisional measures simultaneously as it is filed in other jurisdictions instead of seeking enforcement of foreign court order would be a useful strategy.
Answering the question whether Baltic States courts are more welcoming to the orders of certain countries, generally yes, the EU court orders would be enforced more easily.
However, we had the case in Latvia where we were enforcing a freezing order issued by the Lithuanian court against AirBaltic, the Latvian national airline. This was a very long-lasting fight that led us up to the Latvian Supreme Court and the famous European Union Court of Justice judgment in flyLAL case. Ties to the government pocket is another risk that makes enforcement proceedings a bit harder, however doable.
Three issues you should keep in mind:
- Risk of compensating damages – important not to ask too much.
In Lithuanian case law, you might find examples where the application of freezing orders was used as a weapon against the defendant in order to put pressure and encourage to negotiate the settlement of the matter.
This gets very risky as the courts started perceiving frivolous requests for provisional measures, where they are granted at least temporarily, as a tort of the claimant and a basis to claim the compensation of damages. This is the case, for example, where the provisional measures are not sufficiently related to the main claim in the case.
Motieka & Audzevičius has a present case where a major Lithuanian conglomerate filed a claim on such a basis against its indirect minority shareholder. The shareholder froze the transaction of the acquisition of assets worth over 300 million EUR. During the application of the freezing order, the price of the assets increased by 80 million EUR. However, later the freezing order was annulled both by Lithuanian and Maltese courts. Lithuanian Supreme Court perceived the request of the defendant as illegal actions. At the moment, we are litigating the causal link and damages issues.
This should make your client cautious when asking the freezing order and check whether certain restrictions are actually needed to safeguard the claim that he or she brings to the court.
In case you are too late in getting the freezing order and the assets form the Lithuanian entity were transferred to different jurisdictions, this is not a loss.
For example, Motieka & Audzevičius represents the Serbian government in a case where the debtor – Lithuanian holding company – transferred its assets (shares of different entities) to the Cyprus holding company.
We successfully annulled the transaction in Lithuanian courts. Although the freezing order was not timely issued, Lithuanian courts were very receptive to annulling unfair transactions where the claimant demonstrates that the transaction violated the creditor’s rights.
- AML burden and possible tort claim against the financial institution.
The last example, that could be used if a freezing order was not timely issued or properly enforced, is questioning whether relevant financial institutions conducted AML duties properly.
In January 2020 German entity initiated a tort case against Lithuanian bank where it most probably did not conduct KYC properly for the entity used by the fraudsters. Although there might be fewer examples where the banks in the Baltics would be used for money laundering or fraud purposes nowadays, the question of their past liability could be well developed in local courts.