Recovery of a Sum Unlawfully Collected
An action for recovery is the action for performance brought by a person who, although in reality owing nothing, has been compelled to pay under the pressure of compulsory enforcement in consequence of enforcement proceedings taken against them, in order to reclaim the sum unlawfully collected. Set out in Article 72 of the Enforcement and Bankruptcy Act No. 2004, this provision is an important protective mechanism enabling a person who is not a debtor to recover a payment made under the threat of enforcement.
In enforcement law the rule is that a person who asserts that they are not a debtor should bring a negative declaratory action before payment is made. Payment may nevertheless have been made for a variety of reasons; beyond that point what is at issue is no longer a declaration that no debt exists, but the return of the money paid. It is here that the action for recovery comes into play as the principal route for reclaiming a payment made under the threat of enforcement.
Below we address, in the light of the legislation and the case law of the Court of Cassation, the conditions required for an action for recovery, the time limit to which it is subject, the rules of proof, the points at which it departs from the negative declaratory action and the problems most frequently encountered in practice.
Definition and Scope of the Action for Recovery
Legal Nature and Purpose
An action for recovery is an action for performance brought by a person who, without bearing the status of debtor, has been compelled to pay under the threat of enforcement because of enforcement proceedings, in order to reclaim money unlawfully collected. The outcome sought through the action is to secure the return of a payment made in respect of a debt that does not in fact exist and to restore to the claimant the sum unlawfully collected. Connected with the provisions on unjust enrichment, this action is intended to undo the legal consequences of a payment made where no debt was owed.
Its Position Within Enforcement and Bankruptcy Law
The action for recovery, governed by Article 72 of the Enforcement and Bankruptcy Act No. 2004, is the counterpart of the negative declaratory action for the stage after payment has been made. A person who maintains that they are not a debtor may, as a rule, take the route of a negative declaratory action before paying. Once payment has been made, however, what arises is no longer a declaration as to the existence of the debt but the recovery of the money paid. The action for recovery is therefore a special type of action dedicated to the return of a payment made under the threat of enforcement.
In Which Cases Is It Used?
This route is taken where, despite no debt in fact existing, payment has been made within the framework of finalised enforcement proceedings and under the threat of enforcement. It is the principal route for reclaiming payments made where the debt never arose, has been extinguished or has been miscalculated. For the action to be heard, the payment must have taken place after the enforcement proceedings were commenced and the action must be brought within the preclusive period laid down by law.
Conditions of the Action
Whether an action for recovery may be brought depends on the conditions laid down in Article 72 of the Enforcement and Bankruptcy Act No. 2004 being satisfied together. If any one of these conditions is absent, the action is dismissed.
- Payment of a Sum That Was Not Owed
At the foundation of the action lies the fact that payment has been made in respect of a debt that does not in reality exist. The claimant must prove that they were not a debtor as regards the sum paid. The fact that the debt never arose, was subsequently extinguished or was incorrectly calculated shows that this condition is met.
- The Payment Must Rest on a Ground Amenable to Restitution
The payment made must be legally recoverable in nature. In this connection the payment must relate to a claim capable of restitution within the framework of the provisions on unjust enrichment. Payments made in respect of an existing and valid debt cannot form the subject matter of an action for recovery.
- The Payment Must Have Taken Place After the Enforcement Proceedings Were Commenced
An action for recovery may be pursued only in respect of payments made after the proceedings have begun. This route is not available for payments made before the proceedings; in such a case an action for unjust enrichment under the general provisions may arise.
- The Payment Must Be Made After the Proceedings Have Become Final and Under the Threat of Enforcement
The payment must have been made within the scope of finalised proceedings and under the threat of attachment or similar enforcement measures. Payments made freely, without any enforcement pressure, cannot form the subject matter of this action. It falls to the claimant to prove that the payment was made under the threat of enforcement.
- The One-Year Preclusive Period (Art. 72(7))
The action must be brought within one year from the date on which the payment took place. Allowing this period, which is preclusive in nature, to elapse extinguishes the right to bring the action. The court has regard to the period of its own motion.
Comparing the Action for Recovery with the Negative Declaratory Action
Two principal actions are available to a person who asserts that they are not a debtor: the negative declaratory action and the action for recovery. The essential distinction between these two complementary routes is whether or not payment has been made.
Which Action in Which Situation?
If payment has not yet been made, a person who maintains that they are not a debtor may bring a negative declaratory action seeking a declaration that the debt does not exist. Once payment has been made, however, what is at issue is not a declaration as to the absence of the debt but the recovery of the sum paid, and the route to be taken at that stage is the action for recovery.
The Distinction Between Before and After Payment
A negative declaratory action is brought before payment is made and seeks a declaration that the debt does not exist. An action for recovery, by contrast, is brought after payment and is directed at the return of the money handed over under the threat of enforcement. The fact that payment has been made is therefore the decisive element that converts the negative declaratory action into an action for recovery.
The Difference in Terms of Legal Consequences
If a negative declaratory action succeeds, it is declared that no debt is owed and the enforcement proceedings become ineffective. Where an action for recovery succeeds, on the other hand, the sum previously paid is ordered to be returned to the claimant. Although both actions are intended to protect the person who maintains that they are not a debtor, one focuses on the question of the existence of the debt and the other on the recovery of the payment made.
Conversion from a Negative Declaratory Action into an Action for Recovery
Under Article 72(6) of the Enforcement and Bankruptcy Act No. 2004, if no interim injunction has been obtained while the negative declaratory action is pending, the proceedings are not stayed; the creditor may continue the proceedings and levy attachment. If during this process the debt that is the subject of the proceedings is paid to the creditor, the negative declaratory action is thereafter pursued as an action for recovery. In other words, where the debt is paid before the action is concluded, the action is converted into an action for recovery automatically by operation of law.
No separate application by the claimant debtor is required for this conversion to take place. By operation of the statutory provision, upon payment the purpose of the action ceases to be a declaration as to the absence of the debt and turns instead to the recovery of the money paid.
If, while the negative declaratory action is pending, the debtor has paid only part of the debt that is the subject of the proceedings, the action is converted into an action for recovery as regards the part paid; as regards the unpaid part it continues to be heard as a negative declaratory action.
If the conversion has not been taken into account by the court of its own motion, has not been raised by the parties either, and the action has been concluded as a negative declaratory action, the debtor need not bring a fresh action for recovery in order to reclaim the money paid. The debtor may submit the judgment given in their favour to the enforcement office and seek restitution of enforcement.
For the details of the negative declaratory action, our note entitled “Negative Declaratory Action” may be consulted.
Time Limits and Limitation
The action for recovery is subject to the preclusive period in Article 72(7) of the Enforcement and Bankruptcy Act No. 2004. The rules on the period are decisive as to whether the action may be heard and are taken into account by the court of its own motion.
- The One-Year Preclusive Period
The action must be brought within one year from the date on which the payment was made. Once this period, which is preclusive in nature, has elapsed, the right to bring the action ceases to exist. Even if the parties do not raise the point, the court assesses the period of its own motion.
- The Moment the Period Starts to Run
The period starts to run on the date on which the payment made by the claimant, who was not a debtor, was actually effected. If the payment was made in instalments, the period is calculated separately for each instalment.
- The Difference from the Statute of Limitations
The preclusive period and the statute of limitations are distinct institutions. The statute of limitations is a defence that must be raised; unless the parties invoke it, the court does not take it into account. A preclusive period, by contrast, extinguishes the right of action and is taken into account by the court of its own motion. For this reason, missing the one-year period in an action for recovery leads to the action being dismissed without the merits being examined.
Proceedings and Proof
The action for recovery is an action for performance subject to the general provisions, and the element that determines the course of the proceedings is proof. The claimant is expected to establish that, although not a debtor, they made the payment because of enforcement proceedings and under the threat of enforcement.
Burden of Proof
As a rule the burden of proof lies with the claimant. The claimant must show that they were not in fact a debtor, that the payment was made within the scope of the proceedings and that it took place under the threat of enforcement. If the respondent argues that the payment rested on a legitimate debt, it is for the respondent to prove that assertion.
Proving That Payment Was Made Under the Threat of Enforcement
For a payment to be accepted as having been made under the threat of enforcement, it is regarded as sufficient that the proceedings have become final and that there is a possibility of attachment, sale or similar measures being applied. The records in the enforcement file, the payment order, the attachment measures and the documents relating to the course of the proceedings are the principal items of evidence demonstrating the existence of that threat.
Evidence and Documents
The evidence that comes to the fore in the action includes the records of the enforcement file, payment receipts, bank transfer slips, collection documents and written statements. Documents establishing that the payment was made into the enforcement file carry particular weight in terms of proof.
The Role of a Reservation of Rights
It is not compulsory to enter a reservation of rights at the time of payment in order for the action to be brought. In the case of payments made under the threat of enforcement, the absence of such a reservation is no obstacle to bringing the action. That said, entering a reservation of rights when making the payment serves as strong evidence supporting the claimant’s case. Such a reservation establishes that the payment does not amount to an acknowledgement of the debt and was made solely because of enforcement pressure. An action may also be brought in respect of payments made without a reservation; in that event, however, the claimant must prove by other evidence that the payment was made not of their free will but under the threat of enforcement.
The Practice of the Court of Cassation
The case law of the Court of Cassation consistently states that, for the action to succeed, the payment must have been made under the threat of enforcement and it must be established that the claimant was not in fact a debtor. In assessing proof, the manner in which the payment was made, the stage the proceedings had reached and the statements of the parties are considered together.
Damages
An award of damages against the unsuccessful party at the conclusion of an action for recovery is not governed by the Enforcement and Bankruptcy Act No. 2004. Accordingly, no damages may be awarded against the unsuccessful party as a consequence of the outcome of this action. By contrast, in an action for recovery converted from a negative declaratory action, damages may arise if the conditions are met.
Damages in Favour of the Claimant/Debtor
If an action for recovery converted from a negative declaratory action is decided in favour of the claimant debtor and it emerges that the proceedings were unlawful and pursued in bad faith, the claimant debtor may seek compensation for the loss suffered by reason of the action. The damages to be assessed by the court may not be less than twenty per cent of the claim pursued in the proceedings that has been shown to be unlawful.
The details of this subject are addressed in our note entitled “Unlawful Enforcement Proceedings and Bad-Faith Damages”.
Damages in Favour of the Respondent/Creditor
If an action for recovery converted from a negative declaratory action is decided in favour of the respondent creditor, the creditor may claim compensation for the loss arising from the delay in obtaining the claim by reason of the interim injunction. The damages to be determined by the court may in no event be less than twenty per cent.
Detailed explanations on this heading may be found in our note entitled “Compensation for Wrongful Denial in Enforcement Proceedings”.
The Nature of the Damages
The damages tied to the outcome of an action for recovery are ancillary claims. They may arise in favour of the claimant if the action succeeds and in favour of the respondent if it is dismissed. For damages to be awarded, the party must have made an express request and the statutory conditions must be satisfied.
Procedural Matters
In an action for recovery, which is an action for performance subject to the general provisions, the elements that determine the outcome are that the action is brought by the correct procedure and in time, that proof is soundly established and that the connection with the enforcement file is accurately demonstrated. Observing the one-year preclusive period and showing that the payment was made under the threat of enforcement form the central axis of the proceedings.
The Court with Subject-Matter Jurisdiction
Subject-matter jurisdiction is determined according to the source and legal nature of the claim pursued in the proceedings. There is therefore no single general rule; the court with subject-matter jurisdiction varies according to the area of law in which the claim arose. The situations most frequently encountered in practice are as follows:
- Actions for recovery relating to invoice, current account and contractual claims arising from a commercial transaction → Commercial Court of First Instance
- Actions for recovery relating to claims arising from the employee–employer relationship, such as severance and notice pay, wages, overtime and annual leave → Labour Court
- Actions for recovery relating to claims arising from a lease relationship or from the Condominium Ownership Act No. 634 → Civil Court of Peace
- Actions for recovery relating to contractual or invoice claims where one of the parties is a consumer → Consumer Court
- Actions for recovery relating to claims for which no specially designated court is provided → Civil Court of First Instance
Note: depending on the nature of the dispute, in very exceptional cases the Family Court may also have subject-matter jurisdiction.
The Court with Territorial Jurisdiction
The rules on territorial jurisdiction in an action for recovery are not regarded as a matter of public policy. For this reason neither the court nor the enforcement office examines jurisdiction of its own motion; an objection to jurisdiction must be raised by the parties.
The court with territorial jurisdiction may be the court of the place where the enforcement office conducting the proceedings is situated, or equally the court determined according to the general and special rules on jurisdiction in the Code of Civil Procedure No. 6100.
The Statement of Claim
The statement of claim is one of the most important elements determining the fate of an action for recovery. The following matters are expected to appear in the pleading clearly and concretely:
- The identity and address details of the parties
- The enforcement office conducting the proceedings and the file number
- Into which enforcement file, on what date and on what grounds the payment was made
- Factual and legal explanations showing that the claimant was not in fact a debtor
- Concrete facts showing that the payment was made under the threat of enforcement
- An express request for the return of the sum paid
- Information as to any reservation of rights, negative declaratory action or earlier proceedings
- The evidence relied upon (the enforcement file, payment receipts, bank transfer slips, written documents and the like)
The relief sought must be clear; the amount whose return is sought, ancillary items such as interest and costs, and any claims for damages must be set out separately. An abstract or incomplete pleading may lead to the dismissal of the action or to its being unnecessarily prolonged.
Court Fees and Litigation Costs
An action for recovery is subject to an ad valorem court fee. The fee is calculated on the basis of the sum whose return is sought and is paid in advance when the action is brought.
Throughout the proceedings, service costs, where necessary the court-appointed expert’s fee, in exceptional cases the costs of an on-site examination, and file and letter of request expenses are met by the claimant as an advance. If the action succeeds, these costs are placed on the respondent.
Enforcing the Judgment Before It Becomes Final
The enforceability of certain court judgments depends, as a rule, on their becoming final. In actions for recovery, there are two separate possibilities:
- An Action for Recovery Converted from a Negative Declaratory Action
Where the debt has been paid under the threat of compulsory enforcement while the negative declaratory action was pending and the action has been converted into one for recovery, the judgment must become final before it can be enforced.
- An Action for Recovery Brought Directly (Art. 72(7))
In an action brought directly under Art. 72(7) after payment has been made under the threat of enforcement, without any negative declaratory action having been brought, the subject matter of the judgment is a monetary claim. For this reason, no requirement of finality applies to the enforcement of the judgment.
General Assessment
The action for recovery is an effective protection that restores the sum unlawfully collected to those who have been compelled to pay under enforcement pressure although owing nothing. It is nonetheless a type of action that is strictly bound by a time limit, carries a heavy burden of proof and is highly sensitive to procedural error. Where the one-year preclusive period is missed, where it cannot be established that the payment was made under the threat of enforcement, or where the wrong type of action is chosen, even well-founded claims may come to nothing.
Independent Legal Assessment
In recovery files the first step is to determine the legal footing on which the payment took place. A payment made before the proceedings became final and a payment made at the attachment stage are subject to different procedural routes, even if they concern the same sum. Likewise, whether the payment was made into the enforcement file or directly to the creditor changes the strategy of proof from the outset.
Another critical point is that payments made while a negative declaratory action is pending convert the action into one for recovery automatically. A failure to raise that conversion in the proceedings does not cause any loss of rights; it does, however, change the route to be followed afterwards — whether a fresh action or restitution of enforcement. In practice we recommend that particular regard be had to the following headings:
- Recording each payment date separately so that the one-year preclusive period is calculated on an instalment-by-instalment basis
- Entering a reservation of rights at the time of payment or, where that is not possible, gathering in the file the documents evidencing enforcement pressure
- Correctly identifying the court with subject-matter jurisdiction from the outset according to the source of the claim, so as to eliminate the risk of a declaration of lack of jurisdiction
- Assessing the likelihood of an objection by the opposing party, bearing in mind that territorial jurisdiction is not examined of the court’s own motion
- Expressly raising the claim for bad-faith damages in files converted from a negative declaratory action
- Establishing whether the judgment is subject to a requirement of finality, according to whether the action was brought directly or arose by conversion
Independent Legal provides advisory and litigation services in disputes concerning unlawful enforcement proceedings, negative declaratory actions and actions for recovery, from the planning of the process through to the enforcement of the judgment.