Cukurova Finance International Limited v Alfa Telecom Turkey Limited (British Virgin Islands)

A court granting relief from forfeiture has inherent jurisdiction to extend time or otherwise vary the terms of relief. The governing question is whether variation is just and equitable.

Where the mortgagee has deliberately and effectively obstructed the mortgagor’s attempts to redeem, the court should be very slow to conclude that redemption has no real prospect. An extension may be appropriate if a real prospect would exist once the obstruction is removed and the mortgagee faces no unfair prejudice because the security exceeds the debt.

The court may suspend interest while the mortgagee’s collateral actions prevent repayment. It may also use an open-ended extension with liberty to apply where a fixed date would create avoidable uncertainty. The Privy Council may make an immediate protective order itself when necessary to preserve the effectiveness of its appellate jurisdiction.

This was the fifth judgment in litigation concerning secured shares which carried control of a Turkish mobile telephone company. The Board had previously held that the lender’s appropriation of the shares was effective, but that the borrowers could seek relief from forfeiture or exercise their equitable right to redeem: [2013] UKPC 2. It subsequently fixed the terms of redemption in [2013] UKPC 20, which were incorporated into an Order in Council dated 10 July 2013.

The borrowers alleged that the lender, acting through another creditor, had obtained New York injunctions which prevented them from charging the shares to obtain finance and prevented the nominated bank from receiving the redemption payment. They applied to extend the redemption period, determine the treatment of interest during the extension, and vary the payment machinery.

The central questions were whether variation was just and equitable, whether there remained a real prospect of redemption, and what revised terms should govern time, interest and payment.

1. Application granted. The Board varied the terms of relief from forfeiture and retained liberty to apply. An order granting such relief inherently permits the court to extend or otherwise vary its terms. The governing test is whether variation would be just and equitable, as supported by Chandless-Chandless v Nicholson [1942] 2 KB 321 and Starside Properties Ltd v Mustapha [1974] 1 WLR 816.

2. The lender had pursued steps in New York, in another creditor’s name but for its own interests, whose overriding aim was to thwart redemption. Those steps prevented the borrowers from charging the shares and sought to stop the nominated bank receiving the redemption money. A court should be very slow to conclude that mortgagors lack a real prospect of redemption where the mortgagee has comprehensively and persistently undermined their ability to redeem. There remained a real prospect that sufficient security could be provided if the New York orders were set aside.

3. The lender would suffer no unfair prejudice from an extension. The evidence indicated that the secured shares were worth substantially more than the debt. The borrowers’ delay in raising the problem caused no demonstrated prejudice. Alleged misconduct by one borrower concerning a separate creditor did not disqualify the borrowers from relief because it was a matter between other parties.

4. The redemption period was extended without a fixed terminal date. Either party could apply following a change of circumstances or at any time after 1 December 2013. This avoided the uncertainty and urgent applications which could result from substituting another fixed deadline.

5. Interest at 8% per annum over LIBOR was suspended from the end of 29 July 2013 because the lender’s positive actions were preventing repayment for collateral reasons. If the obstructive New York orders were reversed, interest would resume after a further 19 days, subject to agreement or further order. Liberty to apply was granted concerning any necessary alteration to the payment machinery.

6. Applying Belize Alliance of Conservation Non-Governmental Organisations v Department of the Environment of Belize (Practice Note) [2003] UKPC 63, the Board could make the order itself rather than advise Her Majesty to make it. Its inherent, statutorily grounded powers extend to orders needed for the proper exercise and preservation of its appellate jurisdiction.

• Privy Council: In Cukurova Finance International Limited v Alfa Telecom Turkey Limited (British Virgin Islands) [2013] UKPC 25, the Board granted the application and varied the terms governing redemption.
• Privy Council: In its fourth judgment, [2013] UKPC 20, the Board fixed the terms on which relief from forfeiture would be granted. Those terms were incorporated into an Order in Council approved on 10 July 2013.
• Privy Council: In its third judgment, [2013] UKPC 2, the Board held that the appropriation was effective but that relief from forfeiture or exercise of the equitable right to redeem remained available.
• Privy Council: In its first judgment, reported at [2009] 3 All ER 849, the Board upheld the BVI courts’ decisions that the appropriation was effective in principle.