Negative Declaratory Action

A negative declaratory action is brought by a person seeking a declaration that it does not owe a debt claimed from it (Enforcement and Bankruptcy Law Art. 72). In commercial life, it is used against an unjustified invoice, a promissory note without consideration or unfounded enforcement proceedings.

Before and After Enforcement

• Before enforcement: The debtor may seek a declaration of non-liability before any enforcement starts. At this stage, the court may grant an injunction against enforcement on security of not less than 15% of the claim.
• After enforcement: The debtor may file even if it did not object to the payment order or its objection was removed. Enforcement generally continues, but the debtor may request an interim injunction preventing funds held by the enforcement office from being paid to the creditor, on security.

Compensation

• If the debtor wins and the creditor’s enforcement was unjustified and in bad faith, the creditor may be ordered at the debtor’s request to pay compensation of not less than 20% of the claim.
• If the debtor loses and the injunction delayed the creditor’s collection, the debtor compensates the creditor’s loss at not less than 20%.

See Bad Faith Denial Compensation.

Recovery Action

A debtor who paid money it did not owe under threat of enforcement may claim its return within one year of payment. A negative declaratory action filed during enforcement continues as a recovery action after payment.

Proof and Mediation

In a negative declaratory action, the burden of proof is generally on the party claiming to be the creditor. In monetary commercial cases, applying to mediation before a negative declaratory action is also mandatory. The competent court depends on the nature of the dispute.