Global law firm White & Case LLP has secured an important victory for its client, Turkish conglomerate Çukurova Holding A.Ş., in its long-running dispute with Russia’s Alfa Group concerning share ownership of Turkey’s largest mobile telephone operator, Turkcell. The proceedings began almost six years ago in the courts of the British Virgin Islands and relate to a 13 percent holding in Turkcell, currently valued at approximately US$2 billion. The Privy Council (the final court of appeal from the British Virgin Islands) today delivered its judgment in favour of Çukurova.
Alfa argued that Çukurova had committed events of default under a US$1.4bn loan facility granted by Alfa and that, as a consequence, Alfa was entitled to appropriate* the shares, which had been put up as collateral by Çukurova to secure the loan. If its appropriation had been upheld, Alfa would have acquired indirect control of Turkcell.
After a three-week trial in April 2010, the British Virgin Islands Court found that there had been no event of default, and that Alfa’s purported appropriation was invalid. This judgment was overturned on appeal by the Eastern Caribbean Supreme Court in 2011. The Privy Council – comprising Lords Neuberger, Mance, Kerr, Clarke and Sumption – heard the final appeal over four days in October 2012.
The Privy Council decided that, while an event of default had been established by Alfa, it was not wilful and caused no prejudice to Alfa. The Board held that Çukurova should be granted relief from forfeiture and given an opportunity to redeem its shares. The court has requested further submissions in relation to the precise terms of that redemption and an order is anticipated in early 2013.
“Despite the fact that a large number of English law security documents now contain an appropriation provision, this is the first case in which the exercise of the remedy has been challenged and successfully overturned,” said White & Case partner John Reynolds. “In reaching its decision, the court found that Alfa was primarily concerned with the shares not as security for its loan but for the control over Turkcell that they would provide. The Privy Council’s judgment shows that, in certain circumstances, the appropriation will not be final and that it is possible for the court to exercise its jurisdiction to grant relief from forfeiture to allow a borrower to redeem its security.”
The White & Case team was led by London-based partner John Reynolds, supported by partner Charles Balmain and associates Amanda Cowell and Paddy Patrick (all London) and local partner Yalin Akmenek (Istanbul). Çukurova was represented by Kenneth MacLean QC, James Nadin, David Caplan (One Essex Court) and Arabella di Iorio (Head of Litigation at Maples and Calder (BVI)).
*The remedy of “appropriation” is a novel means of enforcing security (introduced by the Financial Collateral Arrangements (No2) Regulations 2003, which implement a European Directive), by which the lender becomes owner of the secured asset.
