Eastern Caribbean Court Of Appral Considers Enforcement Issues In 'Alfa v Cukurova'

On 20 July 2011 the Eastern Caribbean Court of Appeal ("ECCA") handed down the latest decision in the long running case of Alfa Telecom Turkey Limited v Cukurova Finance International Limited and Cukurova Holdings AS.

At the trial of the substantive action, the trial judge held decisively in favour of Cukurova, finding that no event of default had occurred and that accordingly, it was not open to Alfa to enforce its security. Alfa appealed the decision and the ECCA subsequently ruled in its favour and set aside the judgment of the trial judge.

The case itself raises several matters of law but there are two main points of note for commercial lawyers in the British Virgin Islands.

Firstly, Justice Gordon held that the trial judge erred in concluding that an acceleration letter served on Cukurova by Alfa on 16 April 2007 was vitiated because its reliance on invalid acts of default constituted a fundamental breach of contract. Justice Gordon stated: "Service by a lender of a demand letter relying on acts of default which are disputed by the borrower and subsequently not made out cannot constitute a breach of contract unless there is an express or implied duty to rely on valid acts of default in the relevant lending agreement.1 While there may have been an implied duty for the appellant to assert acts of default in good faith, there is no justification for construing the Facilities Agreement as containing an implied term that the lender would only assert such acts of default which might, if disputed by the borrower, be either agreed to be valid, or determined by a competent court to be valid".

This finding clearly fits with the common sense approach that a lender cannot be expected to refrain from instituting enforcement proceedings against a borrower purely on the basis that, despite the fact that it feels that an event of default has taken place under the relevant facility agreement, it has niggling concerns that the borrower or a court may disagree and that the lender may find the tables turned and that it may itself be deemed to be in breach of contract.

The ECCA found that Cukurova had committed various acts of default under the Facilities Agreement, and that the English share charges were enforced by a valid appropriation of shares, as referred to in a letter from Alfa's BVI counsel to Cukurova on 27 April 2007.

This is not to say that a lender can seek to accelerate a loan for breach of contract on the basis of frivolous claims; which...