A related application brought by SocGen seeking 'alternative service' of the forms under the Civil Procedure Rules (CPRs), or alternatively doing away with the need for service altogether, was dismissed by the court. However, the appeal court overturned the judge's ruling that an inquiry into whether the subjects of the freezing order should be entitled to damages should take place after finding that the subjects had taken an "excessively long" time to begin a damages claim.
"In upholding the first instance decision to dismiss the freezing orders, the Court of Appeal has sent a powerful message to those seeking this form of interim relief," said civil fraud and asset recovery expert Bill Geiringer of Pinsent Masons, the law firm behind Out-Law.com. "Applicants asking the court to exercise its discretion to grant a freezing order before issuing proceedings must be aware of and ensure compliance with the various undertakings given to the court."
"Failure to comply with the undertaking to issue and serve proceedings as soon as practicable after obtaining a freezing order is not only likely to lead to the freezing order being discharged, but also the claim being dismissed – a disastrous scenario for any claimant. Compliance with local laws regarding service in foreign jurisdictions is therefore an absolute necessity following the granting of a freezing order," he said.
A party granted a freezing order that was later discharged may ultimately suffer "significant unwanted financial consequences" due to the cross-undertaking to pay any damages suffered by a respondent, Geiringer said. It was therefore reassuring that the appeal court had also "stressed the importance of bringing any such claim for damages swiftly" in its judgment, he said.
In March 2008, SocGen issued proceedings against three Turkish companies and one Dubai company in the Goldas group of companies in relation to 15.725 metric tonnes of gold bullion. Three days previously, the bank had obtained freezing orders "in substantial sums" against the four companies, on the basis of an undertaking that proceedings would be issued and served "as soon as practicable".
The following month, SocGen successfully applied to have the freezing orders extended, again based on an undertaking that formal proceedings against the four companies would be issued and served "as soon as practicable". The judge was told that service had already taken place in Turkey, and that service through diplomatic channels in Dubai would take up to six months.
The statement that service had taken place in Turkey was based on erroneous advice from a firm of Turkish lawyers, who had not appreciated that, under the Hague Convention, the only valid method of service was through the Turkish Ministry of Justice. Attempts at service through diplomatic channels in Dubai also failed.
The court was willing to infer that the Turkish companies knew of the contents of the claim form and of the attempts at service. However, High Court judge Mr Justice Popplewell said that this was not on its own a "good reason" to justify granting SocGen the order that it sought for alternative service. SocGen should have made its application much earlier, but instead it had chosen to "warehouse" the English court proceedings in order to bring an alternative claim in bankruptcy against the companies in the Turkish courts.
The judge said that SocGen's conduct had been "abusive". The bank "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 eight years until after the validity of the claim forms had expired and after the limitation period had expired", he said. There was "no good reason for validating defective service, still less by a method which was contrary to the Hague Convention and Dubai Bilateral Treaty", he said.
While the Court of Appeal upheld this decision, it did not come down as harshly as Mr Justice Popplewell on whether negligence or incompetence by a party's lawyer would always rule out alternative service. This would depend on the facts of the case, it said. Here, it was particularly relevant that the time limit for making the claim had expired while SocGen pursued its alternative case in Turkey, the appeal court said.
"[T]he judge's minor error goes nowhere near vitiating his evaluation of all the factors in the case; in the context of the case as a whole any error was immaterial and this could should not interfere with what is a balanced and careful judgment," said Lord Justice Longmore, giving the judgment of the court.
"Clearly, the decision reaffirms the significance of a freezing order in the court's eyes," said civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons. "The court will not grant such orders lightly, and will expect compliance with the myriad of undertakings that a court can order in return for exercising its discretion to freeze assets."