Snooze – you lose!

Stephen Moverley Smith QC and Hugh Miall succeed in striking out $½ Bn claims in gold-bullion litigation saga.

The Commercial Court today handed down judgment in Société Générale v Goldas Kuyumculuk & Ors [2017] EWHC 667 (Comm), where claims worth over $480m brought by the Claimant bank and freezing orders obtained in 2008 were struck out in light of the bank’s failure to serve the claim forms by a permitted method in the jurisdictions in question and subsequent decision not to take any further steps in the proceedings for over 8 years.

Background

The Defendant companies were Turkish and Dubai incorporated entities which carried on business manufacturing jewellery and trading in gold bullion as part of the ‘Goldas’ Group, once Turkey’s largest gold trading entity. In March 2008 and early April 2008, the Claimant obtained worldwide freezing orders against the Defendants. Shortly after obtaining each freezing order (albeit not as soon as practicable) the Claimant issued proceedings in respect of sums said to be due for bullion delivered on consignment and in respect of guarantees for payment of those sums.

The Claimant purported to serve the claim forms in Turkey in March and April 2008 by, inter alia¸ delivery through a Notary Public. It did not use the process set out in the Hague Convention, to which Turkey is a signatory. The Defendants informed the Claimant that they did not consider service to have been effective.

The Claimant sought to serve the Dubai Defendant through the Foreign Process Section of the RCJ in accordance with the relevant bi-lateral treaty. However, service was not effected in Dubai owing to the refusal of an employee at the relevant offices to accept service. The Claimant’s lawyers were informed of the failure to effect service in September 2008.

In mid-April 2008, however, as the Judge found, the Claimant took the decision not to pursue the English proceedings, but to pursue the Defendants in Turkey and Dubai, primarily through insolvency proceedings. The Claimant contended it intended to keep the English proceedings under review. Nevertheless, it took no further steps in the English proceedings.

In February 2016, the Defendants applied to strike out the claims and discharge the freezing orders inter alia on the basis that the Claimant had failed to serve the proceedings (which were now limitation barred) and had abused the process of the Court in failing to progress the proceedings, particularly where freezing orders remained in situ. The Defendants sought an inquiry as to damages on the cross-undertaking given in relation to the freezing orders.

By cross-applications issued in May 2016, the Claimant sought to argue (i) that the proceedings had been served (although in relation to Turkey this argument was later conceded by the Claimant); (ii) that in the event service had not occurred for orders remedying the failure to serve by retrospective deemed alternative service under CPR r6.15; dispensing with service under r6.16 and/or extending the time for service of the claim form under r7.6 (which the Claimant abandoned at the hearing); (iii) that the Claimant should have summary judgment on the claims.

Decision

In his judgment, Popplewell J found that the claim forms had not been served. He dismissed the Claimant’s applications to remedy the failure to serve. In doing so, the Judge found that the Claimant’s failure to serve within time had been culpable and amounted to a breach of undertakings to the Court. The Judge further found that the Claimant had abused the process of the Court by (i) failing to progress the action expeditiously where a freezing order had been obtained; (ii) deciding to put the proceedings on hold (or to “warehouse”) the proceedings; (iii) breaching the undertakings given to the Court in obtaining the freezing orders. In summary, the Judge held:

“SocGen chose to pursue proceedings in Turkey to recover the price or value of the gold in place of pursuit of the claim in these proceedings which were put on hold for about 8 years until after the validity of the claim forms had expired and after the limitation period had expired, abusively warehousing the English proceedings and improperly maintaining freezing orders in place, in circumstances where it knew that the validity of service in Turkey was disputed, ought to have known that the claim forms had not been served in Turkey and did not believe that the claim form had been served in Dubai. None of those features suggest there is good reason for validating defective service, still less by a method which was contrary to the Hague Convention and Dubai Bilateral Treaty, nor exceptional circumstances justifying dispensing with service. On the contrary they provide good reasons for not doing so.”

The Judge struck out the claims and discharged the freezing orders. Further, the Judge has ordered that there be an inquiry as to damages suffered by the Defendants by reason of the freezing orders remaining in place after mid-April 2008.

The judgment will prove a very helpful authority in relation to: (i) the relevant requirements of service in Turkey and Dubai; (ii) the principles of when the Court will order alternative service or dispense with service under rr6.15 and 6.16 (including whether the decision in Abela v Baardarani [2013] 1 WLR 2043 (SC) is applicable in the context of a Hague Convention or Bi-lateral Treaty case); (iii) the circumstances in which abuses of process may be committed by failing to prosecute claims with appropriate diligence or where decisions have been taken to warehouse those proceedings without seeking permission from the Court; (iv) when the Court will order an inquiry as to damages.

A copy of the judgment can be found here.

 

Stephen Moverley Smith QC and Hugh Miall acted for the successful Defendants, instructed by Morgan Rose Solicitors.