Alfa v Cukurova, Part VII

Like a low budget horror film, the Alfa v Cukurova litigation seems to have an inexhaustible supply of sequels. However, beyond a propensity for repetition, there the parallels to low budget horror films ends (or low budget anything: the parties have spent millions of dollars in legal fees fighting for control of the US$3.3 billion BVI incorporated joint venture vehicle). And unlike the denizens of Elm Street or Crystal Lake, the end of this series seems to have a slightly less predictable finish.

On 30 January 2013 the Privy Council handed down the seventh, and what may be the last, substantive judgment in the seemingly interminable Alfa Telecom v Cukurova litigation (report at UKPC [2013] 2). In a surprising decision, the Privy Council determined that Alfa had validly enforced the underlying share security, but awarded relief from forfeiture. The decision is likely to prove controversial. Whilst affirming the availability and exercisability of appropriation of collateral as a summary out of court remedy, hedging the remedy in by making available relief from forfeiture is certain to attract a great deal of commentary.

The History

The background facts are complex, but in summary: In 2005 the two protagonists entered into a joint venture whereby the Cukurova group sold to Alfa a 49% interest in a BVI single purpose vehicle which held a significant stake in Turkcell AS, a telecoms company listed on the New York stock exchange. In addition, Alfa advanced a substantial loan to the Cukurova group, approximately US$1.3 billion of which was secured by mortgages over the remaining shares which Cukurova held in the BVI SPV (Harneys acted for the Alfa group on the original transaction, and Harneys' associated fiduciary company formed all of the offshore vehicles for both parties in the transaction). Alfa actually took two share mortgages over Cukurova's 51% interest in the BVI SPV: one governed by BVI law and one governed by English law. The main purpose of the English law governed mortgage was to make available the English law remedy of appropriation under the Financial Collateral Arrangements (No 2) Regulations 2003. This would prove to be crucial.

The Litigation

The relationship was fairly rocky from the outset, and eventually in 2007 Alfa sought to accelerate the loan and exercise its rights as a secured creditor in relation to Cukurova's 51% stake in the SPV. Perhaps predictably, given the values at stake, this then created an avalanche of...