Application to set aside
The Commercial Court recently held(1) that orders which extended time for service of a claim form by a bank on a Russian defendant by two years and granted permission for alternative service of the claim on his English solicitors were appropriate, as there was evidence that it might take that long to serve the claim and there were grounds for believing that the defendant might not accept service in Russia.
The claimant, a Kazakh bank, issued proceedings in England against two of its former employees. The claimant alleged that the first defendant had fraudulently misappropriated $269 million from the bank and that the second defendant, a Russian national employed by the claimant in its Moscow office, had assisted the first defendant in connection with the alleged fraud.
The claimant obtained permission under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965 to serve its claim on the second defendant out of the jurisdiction. The claim form was issued on December 17 2010, meaning that its six-month validity for service was due to expire on June 17 2011.
On December 17 2010 the claimant's solicitors asked the solicitors for the second defendant, Olswang, to confirm whether the firm had instructions to accept service of the claim form. On December 29 2010 the claimant provided Olswang with a Russian translation of the particulars of claim and enquired again whether it had instructions to accept service. Despite various chasing letters, Olswang did not respond until March 1 2011, when it confirmed that it was not instructed to accept service. In a subsequent letter, Olswang informed the claimant that the second defendant would not accept service voluntarily in Russia because he did not feel capable of defending the claim at the same time as dealing with the other litigation that he faced in connection with the alleged fraud.
The claimant subsequently took time-consuming and costly steps to prepare notarised Russian translations of all relevant documents for service in Russia under the convention.
On June 7 2011 the claimant's solicitors were advised by the Foreign Process Section of the Royal Courts of Justice that it normally took between one and two years to effect service of a claim in Russia.
The claimant subsequently applied for an extension of time for service until June 2013 under Civil Procedure Rule (CPR) 7.6(2) and for an order for alternative service under CPR 6.15. In support of the application, the claimant submitted that:
- an extension of time was required because the six-month period for service had been consumed in ascertaining whether the second defendant would accept service in England, as well as by without-prejudice discussions; and
- alternative service was necessary, as there was a genuine risk that the second defendant might seek to evade personal service.
The judge granted the application and made an order that extended the validity of the claim form until June 2013 and gave the claimant permission to effect service on Olswang.
The second defendant applied to set aside the order, submitting as follows:
- Neither Olswang's delay in confirming that it did not have instructions to accept service nor the without-prejudice discussion justified the claimant's failure to attempt to effect service under the convention before June 17 2011.
- The extension might prejudice limitation points that the second defendant wished to take.
- As far as the application for alternative service was concerned, there was no valid reason to believe that there would be difficulty in serving under the convention. The mere fact that service in Russia might take considerable time was not a good reason that would justify an order for alternative service.
- The order for alternative service prejudiced the second defendant further because he would lose the important convention right to receive Russian translations of the claim documents and would therefore face the expense of having them translated.
- Alternative service would have the effect of accelerating the proceedings at a time when the second defendant's resources were entirely consumed in defending other proceedings.
With regard to the application for an extension of time, the court applied the decision in Cecil v Bayat that an extension of time under CPR 7.6(2) should not be granted unless the claimant could show a good reason for the failure to serve within the validity of the claim form. At the very least, a claimant must show that it has taken reasonable steps to serve, and that there was a difficulty in effecting service. Furthermore, because the second defendant intended to rely on a limitation defence, which could be prejudiced by the extension of time, the claimant had to demonstrate a good reason for not serving the claim form by June 2011 that surmounted the limitation issue.
Examining the parties' conduct, the court was critical of the claimant's delay in commencing the process of effecting service by over one month for no good reason. However, the court considered the claimant's costly and time-consuming preparation of notarised translations within the period of the claim form's validity to have been a reasonable step to take towards service, which in part mitigated the delay in the claimant's other conduct.
The court considered that owing to the amount of time that service in Russia would take, there was overall a good reason to extend time, notwithstanding the limitation issue. The court acknowledged that the cause of this delay was outside the claimant's control and would inevitably have necessitated an extension of time for service in any event. If that reason were insufficient to surmount the limitation issues, time could never be extended for service of any claim in Russia in cases where limitation issues arose.
Given the Foreign Process Section's evidence that service could take up to two years, the court considered the extension until June 2013 to be appropriate.
With regard to the court's jurisdiction to permit alternative service out of the jurisdiction under CPR 6.15, the court was persuaded by the obiter (ie, passing) comment in Cecil that an order should be made where there is "good reason" to do so. The court commented that a desire for speed would not justify an order for service by alternative means, but that an order would be justified where there were grounds to believe that a defendant had avoided personal service or would seek to do so.
On the evidence, the court considered that there were grounds to believe that the second defendant might refuse to accept service in Russia. Furthermore, the court considered it relevant that the second defendant had known the details of the claim against him since the end of December 2010, when the translated particulars of claim had been provided to his solicitors.
The court's decision highlights a number of important issues of which parties should be aware when serving out of the jurisdiction. Although an extension of time and permission for alternative service were ordered, the thresholds to be met were high and strict:
- The court heavily criticised the claimant's failure to commence the procedure under the convention as soon as it knew that Olswang had not been instructed to accept proceedings. The mitigating factor in this case was that an extension would have been required in any event because service in Russia under the convention could take up to two years.
- The court will conduct a strict balancing act when determining whether there is a 'good reason' to grant an extension which may prejudice a limitation argument. The good reason must be sufficient to surmount the limitation issues.
- When seeking permission for alternative service, the claimant must demonstrate grounds for believing that the defendant may refuse to accept service.
For further information on this topic please contact Sarah Trimmings at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).