Demirel v Tasarruf Mevduati Sigorta Fonu

This action was brought at common law to enforce three judgments given in favour of the claimant (‘TMSF’) against the defendant in Turkey. On 6 December 2005 TMSF sought and obtained two orders from Mr Justice Lawrence Collins. The first was a world-wide freezing injunction relating to Mr Demirel’s assets up to a value of US$46 million and an order providing for the provision of information by Mr Demirel as to his assets. The second was an order granting permission to serve the proceedings and the first order on Mr Demirel out of the jurisdiction. On 16 December 2005 Patten J varied the freezing injunction somewhat but substantially reimposed it.

Mr Demirel applied to discharge those orders. His application came before Mr Justice Lawrence Collins (‘the judge’). The application was successful in part. By an order made on 21 December 2006 the judge, among other things,

set aside the order granting permission to serve the proceedings out of the jurisdiction in relation to judgments no 2001/1300 dated 26 November 2001 and no 2002/551 dated 11 June 2002 respectively; and

set aside the freezing injunction.

It was accepted before the judge by TMSF that, contrary to the evidence it had put before the judge on the without notice application, the judgments of 26 November 2001 and 11 June 2002 were not final. The judge accordingly set aside the order in respect of those judgments. By contrast, it was accepted on behalf of Mr Demirel that there is at least a serious issue to be tried on the question whether the judgment of 20 November 2001 is final.

The applications before the judge in December 2005 were supported by an affidavit sworn by Ms Gulay Dogan of TMSF which described the background to the claims and said in paragraph 7 that TMSF had left it until late 2005 to enforce the judgments in England “since it only recently (9 November 2005) received evidence that [Mr] Demirel has assets here”. She said much the same in paragraph 30.

Mr Demirel swore an affidavit which stated that he had not at any relevant time had assets here. The judge held that, if it were necessary for TSMF to establish the presence of assets in England, the order for permission to serve the proceedings out of the jurisdiction would be set aside. However, as appears below, he held that it was not necessary to do so. He rejected a number of further submissions made on behalf of Mr Demirel and refused to set aside the order for permission to serve out of the jurisdiction.

The judge did however discharge the freezing order. He did so on the basis that the injunction was rightly granted but that, as he put it at [88], there was no point in its continuance, since the disclosure (ie of information) had been made, there were no assets here and the effectiveness as regards foreign assets was doubtful. The judge also ordered Mr Demirel to pay 75 per cent of TMSF’s costs of the application and to pay £30,000 on account of that liability by 18 January 2007. Mr Demirel did not pay.

The judge refused permission to appeal but, on a renewed application for permission to appeal made to this court out of time (and for other relief), Rix LJ adjourned the application for permission to appeal to be heard on notice to TMSF with appeal to follow if permission was granted. He said that he would have granted permission to appeal if there were no need for an extension of time. He directed that the application for an extension of time be heard at the same time as the application for permission to appeal and, in effect, granted a stay.

It is convenient to consider the issues in the appeal before considering whether it is appropriate to grant an extension of time. Mr Demirel advances essentially three grounds of appeal as follows:

that the court had no jurisdiction to permit service out of the jurisdiction on the true construction of CPR 6.20(9) (“the jurisdiction point”);

if there was jurisdiction, that permission to serve out should have been refused on the ground that the proceedings would serve no useful purpose (“the no useful purpose point”); and

in any event, that the claim should be heard in the Cayman Islands and not here (“the forum conveniens point”).

Before considering these grounds in turn, we should note that it is not now sought to re-open a number of points raised before the judge. First, TMSF does not seek to reopen any point upon which it lost before the judge. Second, (and perhaps more importantly for present purposes) Mr Demirel does not seek to reopen any point upon which he lost, other than the three grounds set out above. Thus he does not seek to reopen what the judge called the public law point, which was that the court had no jurisdiction to enforce foreign public law and that this is what TMSF is asking it to do here. The judge held that TMSF had a real prospect of success on those issues. He held that, if the principles expressed by this court in President of the State of Equatorial Guinea v Logo Ltd [2006] EWCA Civ 1870 were applied, it was highly likely that TMSF would succeed on this point. In any event, it was open to Mr Demirel to raise the point hereafter, albeit not on an application to set aside the grant of permission to serve the proceedings out of the jurisdiction. We turn to consider the grounds of appeal in turn.

CPR 6.20(9), which we will call ‘the rule’, provides:

It is important to note that it is not sufficient for a claimant to show that his claim is a claim “made to enforce a judgment or arbitral award” because, as is common ground between the parties, the rule expressly provides that in such a case a claim form may be served out of the jurisdiction of the court “with the permission of the court”. The rule does not specify the circumstances to be taken into account in the exercise of its discretion to grant permission. In addition, CPR 6.21(2A) provides for a further condition, namely that the court will not give permission unless satisfied that England and Wales is the proper forum in which to bring the claim.

Mr Edward Cohen submitted to the judge and submits to us that jurisdiction to give permission to serve a claim form out of the jurisdiction to enforce a foreign judgment only exists where, at the time when the application is made, there are assets in England and Wales against which the judgment can be enforced or at least where the judgment is otherwise enforceable in England and Wales. An alternative formulation canvassed in the course of the argument was that at the time of the application there must be at least a real prospect of assets within the jurisdiction against which the judgment could be enforced within a reasonable time.

Mr Cohen relies in this regard upon the well-known cases decided under RSC Order 11 and its predecessors. Perhaps the best-known of them is The Hagen [1908] P 189, where Farwell LJ said at page 201:

Mr Edward Cohen submits that, although the words of the rule are apparently unqualified, when they are construed in their context they are plainly qualified in one of the ways he has suggested. Alternatively, he submits that there is a doubt, which must be resolved in favour of the foreign defendant for the reasons given by Farwell LJ. Mr Lawrence Cohen submits by contrast that there is no room for doubt, that the words are unqualified and that they should be so construed.

The judge accepted Mr Lawrence Cohen’s submission. He held that there is no ambiguity, that the words are clear and that there is no reason to imply a requirement that there must be assets in the jurisdiction (or any of the other formulations suggested on behalf of Mr Demirel) in order to permit service out of the jurisdiction under the rule.

At [52] the judge, who has almost unrivalled experience in this area of the law, correctly said that the origin of the rule was RSC Order 11 rule 1(1)(m), which was added in 1985 to fill a gap revealed in cases where the judgment creditor wished to enforce the judgment against assets in England but there was no reciprocal enforcement arrangement enabling the foreign judgment to be registered in England. It is true, as Mr Edward Cohen observes, that it does not follow that the rule was intended to include actions to enforce judgment against those without assets in England. On the other hand, the draftsman did not limit the jurisdiction to cases where there were existing assets within the jurisdiction. He could readily have done so if he had wished. After all, as Mr Lawrence Cohen observes on behalf of TSMF, the phrase “within the jurisdiction” is used no less than twelve times in the various sub-paragraphs of rule 6.20.

It may well be that the reason the draftsman did not limit the rule was (as the judge observed at [53]) that there is nothing in the CPR Part 74 registration procedure that requires the presence of assets within the jurisdiction. We agree with the judge that it would be odd if the rule were so interpreted as to put the judgment creditor in this respect in a significantly worse position than in the case where a registration arrangement exists.

We also agree with the judge that, whilst it is true that the rule uses the expression “to enforce”, which Mr Edward Cohen suggests presupposes assets within the jurisdiction, CPR Part 74 is itself headed “Enforcement of Judgments in Different Jurisdictions” in circumstances where (as just stated) registration under Part 74 does not require the existence of assets within the jurisdiction. Moreover, we accept Mr Lawrence Cohen’s submission that enforcement of a judgment naturally includes enforcement by action: see Pritchett v English and Colony Syndicate [1899] 2 QB 428 at 434 and Godfrey v George [1896] 1 QB 48 at 51 per Lord Esher, where he said “…this is an order in a civil matter and … it may be enforced by action as if it were a judgment”.

We note in passing that the note in the 1985 White Book, which was the first new edition after the introduction of RSC Order 11 rule 1(1)m includes the following:

Finally we agree with the judge that there is nothing in Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260 which suggests or requires a different conclusion. Mr Edward Cohen relies upon the approach of the House of Lords to the construction of CPR 72.1(1), which the House did not construe literally. He relies upon the approach of Lord Hoffmann at [45] where Lord Hoffmann said this in the context of a reference to “all debts” in RSC Order XLV rule 2:

As the judge put it at [54], the essence of that decision was that a territorial limitation should be read into the provisions for third party debt orders in order to prevent a conflict of jurisdiction and the risk of double payment, whereas in the present case there is no good ground for limiting the words. Moreover, there the garnishee order created a security over the debt and, as that debt was governed by the law of Hong Kong, it could only be discharged in accordance with the law of Hong Kong. No such considerations apply here.

This is a very different case. In our opinion there is no ambiguity in the rule and we see no reason to give it other than its ordinary and natural meaning. In short we agree with the judge on the construction point, essentially for the reasons he gave.

We would only add three points. The first is that Mr Edward Cohen had considerable difficulty in formulating the restriction which he submits is implicit in the rule. Should it require assets at the date of the issue of the proceedings or at some future date and, if so what? It is not easy to answer these questions, except by saying that it cannot have been intended that the words should be limited.

The second point is that we see no reason to limit the jurisdiction of the court. It would, as Mr Lawrence Cohen observes, prevent the giving of permission to serve out in circumstances where there was a belief, hope or expectation that assets belonging to the defendant existed or would or might arrive within the jurisdiction but at the time of the application it was not possible to identify any assets actually within the jurisdiction. Or the claimant may wish to enforce a foreign judgment by compelling a person within the jurisdiction who has the right to call for assets of the defendant outside the jurisdiction to call for such assets.

The third point is that there is no reason to give the rule an unnatural construction or to imply restrictions into it. The rule is discretionary so that the court will only grant permission if it is just to do so in all the circumstances of the case. As we see it, it is in connection with the exercise of the general discretion under CPR Rules 6.20 and with the application of 6.21(2A) that the court should have regard to the statements of principle in cases like The Hagen. We turn to the exercise of discretion.

This is part of a wider submission made by Mr Edward Cohen. He submits that the judge should have considered whether in the exercise of his discretion the permission to serve out should be allowed to stand in the light of the general principles to which I referred earlier. Mr Cohen relied, not only upon The Hagen, but also upon the Dreyfus Brothers case cited by Farwell LJ, in support of a submission that great care should be taken before requiring a foreign litigant to answer proceedings in England. In response to the suggestion that some of the statements in the older cases now seem rather old-fashioned or, as someone recently suggested, a sound of distant trumpets, he referred by way of example to Insurance Corporation of Ireland v Strombus International Insurance Co [1985] 2 Lloyd’s Rep 138 at 144, where, in the context of a claim for a negative declaration of non-liability by insurers, Mustill LJ said that the court should be careful not to bring a foreigner here as a defendant, where no positive relief is claimed against him unless it can be shown that a “solid practical benefit” would ensue.

That was a very different case from this but we, accept that the court should not automatically exercise its discretion in favour of permitting service out of the jurisdiction unless it is just do so and that it will ordinarily not be just to do so unless there is a real prospect of a legitimate benefit to the claimant from the English proceedings. We see no reason why that benefit should not be indirect or prospective.

Such an approach would we think be consistent with the approach of the court to petitions to wind up unregistered companies to which Arden LJ drew our attention in the course of the argument. In that context it has been held that it is not necessary that the company should have assets within the jurisdiction but the court must be satisfied that there is a reasonable possibility that that the winding up order will benefit the petitioner and the court must have jurisdiction over one or more of those interested in the distribution: see eg Re Compania Merabello San Nicholas SA [1973] Ch 75 and Re Latreefers Inc [2001 BCC 174. Thus, again by way of example, in Banco Nacional de Cuba v Cosmos Trading Corp [2000] BCC 910 an order was refused because the connection with the United Kingdom was minimal and no benefit to the creditors could reasonably be expected.

Thus a claimant seeking to enforce a foreign judgment by action does not have to show that there are assets in the jurisdiction. To require him to do so would be tantamount to construing the rule as if it were limited in that way. The claimant must show that he has a good arguable case in the action, that is that he has a good arguable case that judgment should be given based upon the foreign judgment. He must in our opinion ordinarily show further that he can reasonably expect a benefit from such a judgment. Otherwise there would be no useful purpose in the proceedings.

Mr Edward Cohen submits that the judge did not sufficiently deal with this aspect of the case. It is true that the judge did not spell out his reasoning in detail but, to be fair to the judge, Mr Cohen accepts that he did not put the cases to which we were referred before him, who was in any event no doubt very familiar with them. The judge said that he did not consider there was anything in any of the discretion points made by Mr Cohen.

The principal thrust of Mr Cohen’s submissions is that (as is indeed the case) the original application claim was based on the existence of assets within the jurisdiction but that, given the judge’s now unchallenged conclusion that there are not and never were any assets within the jurisdiction, no solid practical benefit would accrue from a judgment in England. Mr Cohen further relies upon these factors. Mr Demirel was and is neither resident nor domiciled in England and had and has no personal connection with England. Merrill Lynch International Bank Ltd (‘MLIB’), which had been thought to hold a bank account for Mr Demirel did not in fact do so, with the result that no debt was due to Mr Demirel in England. In short there is no useful purpose in the preoceedings.

It is further submitted that Mr Demirel has a number of defences to the claim. Mr Cohen accepts that there is a serious issue to be tried on whether the judgment in Turkey is final and that an appeal against it failed, albeit only because it was out of time. However he submits that, if Mr Demirel is acquitted in criminal proceedings which are brought against him in Turkey, to the extent that they cover the same issues as the civil proceedings the judgment in the civil proceedings will be set aside. He also submits that the same will be the case if his challenge to the process in Turkey, which we were told is to be heard by the Grand Chamber of the European Court of Human rights in October, succeeds. His case is that the trial process was unfair and contrary to the rules of natural justice. He also says that he has been mistreated in Turkey. In any action to enforce the judgment his defences will include that the judgment was contrary to public policy, that in any event full recovery has been made by TMSF and that the claim is not justiciable because it is not a private claim.

As to the merits, it cannot be (and is not) seriously suggested that TSMF does not have a good arguable case that the action on the judgment will succeed. Whether any of the above defences are available to Mr Demirel and whether, if they are, they succeed will be a matter for the trial of the action. They do not assist Mr Demirel in this appeal, except to the extent that he can rely upon the proceedings in the Cayman Islands to which we return below.

In order to assess the possible benefit to TSMF by the English proceedings it is necessary to refer briefly to the underlying allegations and the position of Mr Demirel. We can take them essentially from the judge’s summary at [4] to [6]. The actions which resulted in the three judgments were commenced in the wake of the collapse of three Turkish banks, Bank Ekspres AS, Sümerbank AS and Egebank AS, which were taken over by TMSF after the collapse. Mr Demirel was the controller of a group of companies which owned Egebank AS. TMSF's case is that at the time of its demise Egebank AS had accumulated losses of over US$1.2 billion, that investigations subsequently revealed that some US$490 million had been misappropriated from Egebank AS by Mr Demirel, his family and associates, and approximately US$336 million had been misappropriated from the other banks. In short a very substantial fraud is alleged against Mr Demirel.

On December 22, 1999, the management and supervision of Egebank AS was transferred to TMSF. Its banking licence was revoked on February 18, 2001. The operations of, and most of the shares in, Bank Ekspres AS were transferred to TMSF in 1998, and TMSF assumed management from December 12, 1998. TMSF assumed the management and operations of Sümerbank AS from December 22, 1999.

TSMF had little idea about the nature and whereabouts of Mr Demirel’s assets, although it thought that he had an account with MLIB in London. As a result of the information that he was ordered to give, TSMF learned about his assets. The account thought to be in London was in fact in Delaware. In his affidavit of assets Mr Demirel said that in 1997 he had asked ‘ML Bank’ (without identifying which part of Merrill Lynch) to establish a trust and that they established two trusts for him in the Cayman Islands. The trustee of the two trusts, namely the Dolphin Trust and the Mana Trust, is Merrill Lynch Bank and Trust Company (Cayman) Limited. The assets of the trust comprise shares in four companies. The assets of the companies are in cash held in three accounts in the Cayman Islands. The total cash held as at 31 October 2006 was just over US$ 23.7 million.

Mr Demirel is the principal, if not the sole, beneficiary under the trusts. The assets of the trusts are, however, the subject of freezing injunctions obtained by TSMF in the Cayman Islands on 5 December 2005 in an action commenced on 1 December 2005 which makes proprietary claims against Mr Demirel in very large sums indeed in respect of the misappropriation of the banks’ monies. The claims exceed both the judgment and the value of the assets so far identified, although it must be said that Mr Demirel denies that he has any other assets outside Turkey except for a bank account in Delaware which has been exhausted by legal expenses. Mr Demirel also asserts that TSMF and others have unlawfully seized his assets in Turkey. We should add that on 23 February 2007, that is after the decision of the judge, TSMF issued new proceedings in the Cayman Islands which replace and repeat the proprietary claims and add a claim to enforce the judgment in the same terms as in the present action in England.

In these circumstances Mr Edward Cohen submits that Mr Demirel has no assets in or connection with England. He further submits that the English proceedings are oppressive and that TSMF can obtain any relief which it is or might be entitled to in the Cayman Islands. He submits that, if the action here is permitted to continue he will be faced with the invidious and unfair position of having to decide whether to defend proceedings giving rise to various issues of substance and difficulty at very substantial cost and inconvenience, with no benefit to TSMF because there will be no assets against which it will be able to execute a judgment. He adds that that all assumes that he can obtain funding, which TSMF is seeking to obstruct in the Cayman proceedings and that his position is exacerbated by the fact that he is prevented from leaving Turkey.

It is to our mind important that this is a case in which a judgment has been obtained in Turkey on the basis of conclusions that Mr Demirel is guilty of fraud. Experience suggests that in such cases, if the findings are true, it is often difficult to locate a defendant’s assets. Indeed this is often the case where judgments are obtained in large amounts. Judgment debtors are often reluctant to advertise the nature and whereabouts of their assets. There is no evidence that that is the true in the present case but it seems to me to be a real possibility.

Mr Demirel has been involved in business in Turkey on a very large scale indeed. He has not kept his assets in Turkey and, perhaps naturally, he has made use of the international banking system. Through a company he calls Merrill Lynch International he has procured the setting up of trusts to shelter his assets in the Cayman Islands. It seems to us to be not unlikely that, if free to do so, he might use other parts of the international banking system of which London is now a central part. It is we think a reasonable possibility that one of these days Mr Demirel will have assets in London, either in the form of physical assets or in the form of claims against other institutions. In these days of global business we should, in our opinion be somewhat less parochial than once we were.

The present position is that TSMF has a valid Turkish judgment in a large sum against Mr Demirel. The judgment is dated 20 November 2001 and we infer that it became enforceable at about that time. By section 24 of the Limitation Act 1980 an action shall not be brought after the expiration of six years from the date on which the judgment became enforceable. Thus an action to enforce the judgment will be time barred in England in late 2007 or perhaps early 2008. If this appeal is allowed no action can be brought in the future because it will be time barred and Mr Demirel will be able to bring funds to London free of a risk of execution. It is common ground that, if this appeal succeeds, the proceedings will be set aside. The continued existence of the action seems to me to be of potential benefit to TMSF.

We are not persuaded that there is a significant risk to Mr Demirel if the action remains on foot. Some of the defences in the actions here and in the Cayman Islands seem to be the same or very similar, although not identical because issues of public policy may well be different. However, to the extent that they are the same or similar, it seems good sense that the issues be tried either here or there. We would expect sensible case management to avoid both unnecessary delay and unnecessary expense. If Mr Demirel succeeds he will of course (other things being equal) be entitled to his costs. We are not persuaded that he will not be able to find funds to pay his lawyers, as he has apparently done to date. In any event, if his concern is expenditure in two jurisdictions, he can apply for the issues in one to be tried before the other and if it is sensible so to order, we are confident that the court will do so.

There is a further consideration. If TMSF obtains a judgment in England it can properly make use of the various methods of and aids to enforcement, including an oral examination of the judgment debtor as to the nature and whereabouts of his assets at the time, which is not of course now but when the English judgment is obtained (if it is).

In all these circumstances, the judge was in our opinion correct to reach the conclusion he did, subject to any relevant issue of forum conveniens.

It will be recalled that CPR 6.21(2A) provides that the court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim. The simple answer to in this case is perhaps that England is obviously the proper place to bring a claim to enforce a judgment in England because there is nowhere else where such a claim can be brought. Thus, if there is a real prospect of the claimant being able to benefit from the action in England to enforce a Turkish judgment in England, it is difficult to see why it would be right not to hold that England is the proper place to bring the claim within the meaning of the rule.

There might be cases in which it would not be just to allow service out in England because of the risk of multiplicity of proceedings. There are in deed many such cases, of which the Strobus International case is but one. However, this is not such a case. For the reasons we have given we conclude that there is a sufficient possibility of benefit to TMSF to permit it to proceed with the action and any problems arising out of the possibility of the same or similar issues being decided in different courts should be left to be dealt with by sensible case management.

Mr Demirel does not at present have permission to appeal. However, like Rix LJ, subject to the question whether to grant an extension of time, we would grant permission to appeal and dismiss the appeal. In these circumstances, we do not think that we should take time considering whether to grant an extension of time. We see no prejudice to TMSF if we grant the extension sought. We would therefore do so, grant permission to appeal but dismiss the appeal.