Turkey: An Important Ruling From The Turkish Court Of Appeal Regarding The Bankruptcy Jurisdiction

The 23rd Chamber of the Turkish High Court of Appeal (Court of Appeal) recently gave a significant ruling which changed the bankruptcy case structure and ended a dispute within the legal environment. According to the ruling, when parties have agreed on a competent court of jurisdiction other than the courts where the debtor is seated, the creditor will not be allowed to file a bankruptcy claim at the courts where the debtor is seated, providing that the dispute arises out of an agreement in which the parties have agreed on a different jurisdiction. To clarify the dilemma, first we will briefly explain the Turkish bankruptcy system, then clarify the facts of the dispute itself.

Turkish bankruptcy system

Under Turkish bankruptcy procedures, the creditor makes an application to the execution office and the execution office sends a payment order to the debtor. The order indicates that if the debt is not paid or no objection is made within seven days, the debtor will be declared bankrupt by an application to the commercial court. If the debtor objects to the payment order, the creditor has right to file a bankruptcy case before the commercial court. Upon the trial, the commercial court first investigates whether there is debt. If there is a debt, the court lifts the objection of the debtor, orders the debtor to pay the debt amount and if the debt is not paid then declares the debtor bankrupt.

The merits of the case

The bankruptcy case was between a group of Turkish jewellery companies (the defendants) and five international banks ( the claimants) from different countries. There are nine cases in total with the same subject filed by the claimants. The courts of first instance made an order to declare the insolvency of the defendants. However, the Court of Appeal overruled three decisions out of nine. the Court of Appeal's ruling is about the case between a French bank among the claimants and one of the defendant companies of the jewellery group.

The dispute between the claimants and the defendants arose in late 2008. The French bank was selling gold bullion to the defendants. The defendants and the French bank a commercial relationship since 2003. The French bank was sending the gold bullion to the defendants and the defendants were paying the price of the delivered gold within 120 days. The payment time for each delivery was being agreed between the parties on a case by case basis. The parties agreed on the jurisdiction of the English Courts and the choice of law was English law in the agreement between the parties.

The dispute arose when the French bank asked the defendants to pay back the price of all the delivered gold bullion, which was around US$500m, before the due date. The defendants requested a payment schedule to be agreed because payment of such an amount at once would not be possible due to the cash flow of the defendants. While the negotiations between the parties were going on, the French bank obtained a freezing order from the English Courts and filed a claim in England. A few days later, the French bank also filed a criminal complaint against the defendants' management in Turkey. After the relevant investigation, the Turkish judicial authorities ruled that there was a commercial dispute and dismissed the criminal complaint. Then the French bank filed the bankruptcy case against one of the defendant companies, which was one of jewellery companies involved in the gold bullion trade, and ended with the Court of Appeal's abovementioned decision.

Jurisdiction dilemma

When the French bank filed the bankruptcy case, the defendants' counsels objected to the Turkish Court's jurisdiction, claiming that the agreement was governed by English law and the English Courts had jurisdiction over the dispute. Their argument was that bankruptcy cases are composed of two stages. The first stage is finding out whether there is a debt or not. This stage of the case is conducted just like a receivable claim before the court, except a receivable claim case is at the end of the case.

In a bankruptcy case, if the receivable is not paid the debtor will be declared bankrupt, whereas a case claiming a receivable does not have the same consequence. For instance, if the French bank filed directly a receivable claim, the court would have decided that it didn't have jurisdiction over the case because the competent courts are English Courts. Therefore, if the court decides that it has jurisdiction over the dispute, it will be a fraus legi facta. The defendants' counsels also argued that the French bank already filed a case in England and if the defendants were ordered to pay an amount to the French bank during a trial in England, then only the French bank could make this England court order the subject of a bankruptcy case in Turkey, since the first stage of the bankruptcy case would be duly completed as per the parties' agreement. The Turkish first instance court rejected the defendants' counsellor's objections, deciding that it had jurisdiction because the jurisdiction over a bankruptcy case arises from the independency of each country and the French bank never pursued its case in England. The defendants claimed that no notice or documents were ever duly served.

Court of Appeal overrules

After four years at trial, the Turkish court ordered the bankruptcy of one of the defendant companies. The lawyers appealed the decision. The Court of Appeal overruled the decision of the local court and ruled that the objections made by the defendants were right. The French bank firstly should have filed its claim in England.

The Court of Appeal's ruling has great importance, since it will prevent foreign companies from filing unjust bankruptcy cases in Turkey when parties have agreed on different jurisdictions.

After the Court of Appeal overruled the decision of the local court and sent the case back to the court of first instance, the court of first instance abided by the decision of the court of appeal.

Conclusion

The order ruled by the Court of Appeal is very important since the order of first instance court was allowing parties to directly claim a bankruptcy filing at the Turkish courts to collect debts, even though the parties had agreed on the jurisdiction of a foreign court.

In other words, for the party seated in Turkey, putting a jurisdiction clause in a contract stating that a foreign court has jurisdiction over disputes arising out of the contract did not prevent the opposite party from claiming a bankruptcy filing in Turkey and neutralising the jurisdiction clause.

The order ruled by the Court of Appeal clearly states that if there is a jurisdiction clause between parties, the creditor first needs to determine whether there are any receivables or not by making a claim before the court with jurisdiction. Only after this ruling can a bankruptcy claim be filed with the Turkish courts.

Originally published in Financier Worldwide, October 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions