The defendant's defence in the civil trial of lender fraud

Legal Insight

April 2017 -

Ioannis Psarakis, Lecturer, LL.M (III), PhD Cand.

Summary: A burglary action, a projection of the criminal crime of creditor fraud in civil law, is intended not to punish the wrongdoer (that is what criminal litigation is about) but to ultimately satisfy the creditor who has been harmed. For example, this damage was caused, for example, by the transfer of the debtor's property to his daughter so that the bank that had granted him a loan was unable to seize and auction the property (because it now belonged to his daughter and not to him) in order to satisfy the claim against him. In addition to the possibilities of defending the transferor father with allegations that would preclude the establishment of the civil tort of spoliation (such as the existence of other property or the absence of fraudulent intent on his part), the heightened formal requirements of drafting such an action usually facilitate the defendant's defence.

1. INTRODUCTION

A year ago, we published an article on our website entitled "The possibilities of defence in the crime of lender embezzlement". But in almost all of the cases, a parallel issue arises: another court case involving lender embezzlement; this time, however, not on the criminal side, but on the civil side.

The experience gained in the courtroom has led us to write this note. In it, we will attempt to set out - briefly - the legal and factual grounds on which the defence of a burglary action (so called in civil proceedings, the remedy in cases of creditors' fraud; otherwise known as an action pauliana) could be based. This is the action brought by, for example, the Bank against you.

2. SOME POSSIBLE CLAIMS OF THE DEFENDANT

- At the first level, the facts will be decisive in each case.

The action for the burglary of a legal transaction as an encroachment (Article 939 of the Civil Code) requires the established inadequacy of the debtor's assets to meet his debts at the time the action is filed: this time limits whether and to what extent the satisfaction of the creditor is frustrated by the alleged "encroachment". Therefore, a possible error in the wording of the claim of the e.g. defendant bank, which would show that the remaining assets were not sufficient to cover the debtor's obligations at the time of the execution of the 'fraudulent' transaction, but no reference is made to the situation at the time of the claim, will result in the claim being dismissed as legally unfounded. 

Because in order for the legal consequence of 939 CC (i.e. the breach of the legal transaction) to occur, everything that the plaintiff relies on must actually cause an inability to repay debts at the time of filing the action. And only at the second level will the Court decide whether what the plaintiff (e.g. the Bank) claims is true. 

If, however, the Bank does not plead the insufficiency of the debtor's remaining assets to meet his debts at the time of filing the action, but only refers - and this is not infrequently the case - only to the time when the "abusive" legal transaction was executed (e.g. the time of the signing or transcription of the contract), then already at this first stage the action will be dismissed, without it being necessary to examine the truth of what the Bank recounts; because even if it were proven to be true, nowhere does it mention that which is crucial for the application of Article 939 CC, namely the insufficiency of the other property at the time when it introduces its complaint to the Court, i.e. at the time of filing the action.

-At the second level, the fault of the defendant plays a major role in satisfying all the conditions set out in 939 CC.

In particular, it is required that the expropriator should at least have considered the frustration of the satisfaction of his creditors to be contingent (potential fraud) if they were to pursue enforcement against his assets; and, in addition, that this frustration should be causally linked to the expropriation, that is to say, that it should not have occurred anyway (requirement of a causal link).

However, the difference between the belief in the adequacy of property and the previously mentioned element, namely the actual adequacy of property, lies in the question of the time frame to which we refer in order to identify the necessary concepts. This is because, for the subjective attitude (belief) of the defendant, the decisive time is not that of the commencement of the action, but that of the expropriation act. In other words, we must have such evidence that we can argue that when he was alienated from the property in question, he did not even consider it as a possibility that the future satisfaction of his creditors would thereby be harmed because, for example, he still had a consistently high income or had other property which exceeded the debt.

In other words, while the time of the filing of the action determines whether and to what extent the creditor's satisfaction is frustrated by the alleged misappropriation, the time of the sale of the asset remains equally crucial. But, however, for another reason: because it is only by referring to it that the enforcer of § 939 et seq. Only by referring to this will it be possible to determine whether, at that time, the transferor acted to the detriment of his creditors, as the subjective element in the civil offence of fraudulent misappropriation of creditors is typified. The intention to cause harm must exist at the time when the fraud is committed.

- Great importance should also be attached to the issue of limitation periods. 

According to Article 946 of the Civil Code, an action for the breaking of an expropriation is time-barred five years after the expropriation. Not infrequently, banks in particular, due to case loads, neglect to pursue their rights. What should be borne in mind is that such negligence should be raised, subject to objection, since it is not taken into account ex officio by the Court.

- Report on the value of expropriated property.

It is well established that a break-in is not necessarily total, but only occurs to the extent that the creditor is damaged. This has been ruled by the relatively recent Supreme Court Plenary, in its decision No. 15/2012: "If the expropriated property has a value greater than the creditor's claim, the break-in is partial and is expressed in a proportion corresponding to the value of the creditor's claim to the value of the expropriated property" .

The objective value of the expropriated asset must therefore be stated when the action is brought, so that by relating it to the amount of the claim and that of the other (apparent) property, the court can find out 'up to what' part of the legal transaction must be expropriated in order to cover the claim of the plaintiff and the defendants can defend themselves.

The entire expropriation is only ordered to be broken up when the breaking up of only part of the expropriation - taking into account, of course, the value of the other apparent property - is not sufficient to satisfy the claim in full. 

That is to say, the burglary occurs only to the extent that the person challenging the act of expropriation is damaged, i.e. to the extent necessary to satisfy his claim, which otherwise (i.e. from the other apparent property, or property known to the opposing party) cannot be satisfied.

But in order for the Court to order total or partial expropriation, he must know the value of the expropriated item: otherwise, the claim is dismissed.

For the same reason, an indication of the value of the visible assets is necessary.

- Issues relating to the unlawfulness of the claim (claim formulated in this way, which is not provided for in the specific provision).

However, even if a burglary claim is upheld by the Court, what remains crucial is what will be the result of that decision: will the asset be returned to its original owner (so that the judgment can be enforced on, now his, property) or will "something else" happen?

For example, we often see plaintiffs making a request to have the title deed considered as having been revoked ex officio upon the issuance of the final or even final judgment. But this is wrong and is another element supporting the defendant's request to dismiss the action.

What exists as a legal effect is the burglary, which has the consequence, not of the automatic consideration of the legal transaction as having been annulled, but of its non-representation, and that only against the person who succeeded in the burglary.

Indicatively, the Athens Court of Appeal decision 1035/2011 ruled the following: "However, with Law 2298/1995 (effective from 4.4.1995) new provisions were introduced in the chapter of compulsory execution, which directly concern the effects of the breaking of the expropriation, which after the entry into force of Law 2298/1995 are formed as follows: If the creditor's action for expropriation against the third party is finally accepted, the expropriation is declared uncontestable against him, which uncontestability goes back to the time of the expropriation, as far as the relations between the parties to the dispute are concerned. The creditor may seize the property of his debtor, as defendant, the object which he had expropriated, and the third party is a stranger to the enforcement proceedings. The denunciation of the distraint does not result in the annulment of the expropriation, the third party remains the holder of the right, but he cannot oppose it against the creditor who succeeded in the distraint, the transferee and his successors, but he can oppose it against other creditors. After these regulations, the meaning of Article 943 CC, now consists in the prohibition of the third party to assert his right as long as it is required for the satisfaction of the creditor (Mattia, Amendments to the forced execution with Law 2298/1995 ElD. 36, p. Klavanidou, The abuse of creditors after Law 2298/1995 ElΔνη 36 p. 1463)". And not the consideration of the legal transaction as abolished between only the parties.

Under the provisions in force today, the legal transaction is still considered to be existing; moreover, it does not suffer from any ground of nullity or nullity! In the 1995 reform, the legislator considered that, in order to satisfy the interests of the creditor, it was not necessary for the expropriation deed to be considered null and void, even if only against the successful party. On the contrary, the least onerous way of pursuing the same objective was held to be the following: the deed continued to be considered valid, but specifically between the creditor who succeeded in the break-up and the defendant (to whom the transfer was made), not all the rights under the title but specifically the right to object to enforcement could be opposed.

- Failure to mention value of expropriated right (which will determine insolvency).

One of the elements of the basis of an action for eminent domain is the loss suffered by the creditor at the time the action is brought, from the allegedly eminent domain transaction. 

In order to ascertain this, however, he must also state the value of the allegedly encroached property, just as he had on the day he entered his complaint! 

The PPR 37889/2008, for example, makes it clear that a necessary element for the definition of a burglary claim is the mention of the value of the expropriated right to the property (in this case, the right of quiet enjoyment), and not at any time, but strictly at the time of filing the claim!

Moreover, the failure to mention the exact amount at the relevant time (when the action was brought) makes it impossible to enforce the judgment, since the expropriation is broken only to the extent that the party challenging the expropriation is harmed, as has already been stated above.  All of which is consistent. And in this respect, if the action for demolition suffers in any particular, the whole construction is demolished, resulting in the dismissal of the action. 

3. OPTIONS

The factual element of the civil tort of lender fraud is actually extremely detailed. The points just set out above are but a small sample of those that exist in case law and theory. Drafting an impeccable burglary claim is by no means an easy task, as many people think. 

This complexity should cause concern to the aggressor: he or she should be extremely diligent, draft a pleading in great detail, and be up to date with the latest jurisprudential developments in order to avoid stumbling blocks that are opportunistic. Flaws which, if the opposing party's lawyer is able to highlight, will have dire consequences for the opposing party. Conversely, the defendant's lawyer has a palette of allegations and details on which he can base his motion to dismiss the action. Precisely for this purpose, in-depth knowledge and continuous engagement and briefing is required. 

However, even if it is an obvious case of abuse (i.e. if this is the truth and it cannot be proved otherwise; e.g. the father did indeed transfer the apartment to his daughter because he knew that in a few months the Bank would close the mutual account he held with it and proceed with enforcement proceedings, and the Bank even has solid evidence to prove all this), the debtor can still defend himself; this time not by claiming that he did not embezzle, but by claiming something else, one step earlier, before the judgment on the merits (factual) of the claim: that is, by pleading that the action is defective because of the increased formal requirements and details that a flawless burglary action requires; which defect will ultimately lead to its dismissal.

The battle is fought on two levels, at least one of which must be won: factual and legal.