Cukurova Finance International Ltd and others v Alfa Telecom Turkey Ltd (British Virgin Islands)

On an interlocutory application pending an appeal, the court should preserve the position that will make the appeal effective where interim changes may be irreversible or difficult to undo. Relevant considerations include the risk that the appeal will become abortive, the adequacy of damages, the balance of convenience, and whether proposed undertakings can genuinely restore the position.

A payment condition is inappropriate where it secures no presently existing or contingent indebtedness and may prevent the appeal from being heard. Undertakings framed by reference to the ordinary course of business may be insufficient where ordinary-course decisions could produce fundamental change. The status quo should continue where existing management is functioning and the evidence does not establish a compelling reason to transfer control.

The judgment concerned an interlocutory application in continuing litigation between Cukurova companies and Alfa concerning the appropriation of charged shares securing a substantial loan. In an earlier judgment, the Board had decided that registration as owner was not necessary for valid appropriation.

Bannister J held that there had been no relevant event of default and that the shares could be redeemed on payment of principal and contractual interest. On 20 July 2011, the Court of Appeal of the British Virgin Islands allowed Alfa’s appeal. On 5 December 2011, it granted a stay and interim injunctive relief, conditional on payment of the tendered sum into court.

The Board considered Alfa’s application to discharge or vary the continuing order, replace the injunctions with undertakings, and retain the payment condition pending the final appeal.

The Board, in the judgment delivered by Lord Mance, dismissed Alfa’s application and advised that the order confirmed on 14 March 2012 should continue pending the hearing of the appeal or further order.

1. Payment condition. A condition requiring payment of US$1,446,824,709.42 into court had no proper security rationale. Security may be appropriate for indebtedness that will become payable if an appeal fails. Here, however, the value of the appropriated shares exceeded the outstanding debt, and Alfa accepted that it owed a substantial balance. The tendered sum could become payable only if Cukurova succeeded and then sought to redeem the shares. The condition was sought in circumstances where failure to satisfy it could cause the appeal to lapse. It therefore had no logic or basis and could not stand (paras [11]–[14]).
2. Interim protection pending appeal. The court had to consider the balance of convenience and the competing rights of the parties. Relevant matters included the risk that refusal of relief would render the appeal abortive, whether damages would be an adequate remedy, whether the proposed undertakings were sufficiently effective to restore the position, and whether interim changes would be fundamental or difficult to reverse.
3. Inadequacy of undertakings. Allowing Alfa and TeliaSonera to take control could produce two successive changes in management if the appeal succeeded. The proposed undertakings were not shown to be watertight. Restrictions on dealings outside the ordinary course of business were also uncertain, since an ordinary-course transaction could involve a fundamental and irreversible business decision. Third-party interests could further prevent restoration of the previous position (paras [16]–[23]).
4. Existing management and governance issues. The evidence did not establish a real management impasse at TIHAS. Nor was the Board satisfied that Cukurova was blocking compliance with the amended corporate governance requirements. Those issues could have arisen independently of the appropriation and did not justify transferring control before the merits appeal was determined (paras [21], [24]–[25]).

1. Privy Council: On 6 February 2012, the Board indicated that permission would be granted to appeal the Court of Appeal’s interim order. In this judgment, reported at [2012] UKPC 20, it dismissed Alfa’s application to discharge or vary the order and continued the interim protection.
2. Court of Appeal of the British Virgin Islands: On 20 July 2011, the Court of Appeal allowed Alfa’s appeal from Bannister J’s decision. On 5 December 2011, it granted a stay and injunctive relief pending the appeal, subject to payment into court of the tendered sum.
3. First instance, Bannister J: On 20 May 2010, with an order dated 29 June 2010, the judge held that there was no event of default on which Alfa could rely and that the charged shares could be redeemed on payment of principal and contractual interest.