Fonu v Demirel & Anor

Factual and Procedural Background

The claimant, Savings Deposit Insurance Fund ("the Fund"), is a Turkish public legal entity established under Turkish banking law with authority to restructure and administer banks whose licences have been revoked, typically due to insolvency. The Fund repays depositors and acquires the assets of such banks. Initially part of the Banking Regulation and Supervision Agency, it became independent in 2003 and acquired rights to recover losses or properties sustained by banks whose shareholding rights were transferred to it, including proceedings commenced prior to its formation.

The Fund brought an action in England to enforce three judgments obtained in Turkish civil courts against the first defendant ("Defendant"), a controller of companies owning one of the failed banks. The judgments arose from claims related to losses and alleged misappropriations from three Turkish banks taken over by the Fund. The second defendant, Merrill Lynch International Bank Ltd ("MLIB"), was joined for disclosure purposes but is no longer an active party.

The English proceedings concern enforcement of a $30 million judgment relating to fraudulent loan transactions, while two smaller judgments were not properly constituted due to defective service. The court was asked to consider an application to set aside permission granted for service out of jurisdiction on the Defendant and a worldwide freezing injunction supporting the proceedings.

Legal Issues Presented

1. Whether the English court has jurisdiction to enforce foreign judgments against the Defendant under CPR 6.20(9) despite the absence of assets within the jurisdiction.
2. Whether the court should exercise its discretion to refuse jurisdiction or interim relief given the Defendant’s lack of assets in England and other factors.
3. Whether the claims enforced by the Fund constitute enforcement of foreign public law, which English courts will not entertain, given the Fund’s status as a public entity and the nature of the receivables.
4. The appropriateness of continuing a worldwide freezing injunction in light of the evidence regarding the Defendant’s assets.

Arguments of the Parties

Defendant's Arguments

• Jurisdiction under CPR 6.20(9) requires the existence of assets within the jurisdiction; no such assets exist here.
• The Fund has failed to show a good arguable case that the Defendant has assets in England against which the judgments can be enforced.
• The initial basis for jurisdiction (assets held by MLIB in London) was shown to be incorrect, as the relevant accounts were outside England.
• The court should exercise discretion against jurisdiction as England is not the proper forum.
• The enforcement of the judgments would be contrary to public policy and natural justice, and is inconsistent with the European Convention on Human Rights; an application to the European Court of Human Rights has been made.
• The claims are public law claims due to the Fund’s status and Turkish law, and English courts lack jurisdiction to enforce foreign public law.
• There is no merit in continuing the freezing injunction given the absence of assets in England and the doubtful effectiveness regarding foreign assets.

Fund's Arguments

• There is no requirement to identify assets within the jurisdiction to establish jurisdiction under CPR 6.20(9); enforcement of judgments is a common law money claim.
• The claim is to enforce private law rights already vindicated in Turkish civil courts, not public law rights.
• The judgments were obtained through ordinary civil proceedings and are enforceable despite the Fund’s public status.
• England is clearly the appropriate forum for enforcement and no other jurisdiction is suitable to determine the defences raised.
• The freezing injunction was rightly granted based on initial evidence of assets in London, though the basis for that has since changed.
• The Fund denies that the claims are public law claims and contends the nature of the judgments remains private law despite the Fund’s public legal status.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Carvill America Inc v Camperdown U.K. Ltd [2005] EWCA 645	Standard for reasonable prospect of success on claim (same as summary judgment test).	Applied to assess whether the Fund’s claim had a real prospect of success.
Seaconsar Far East Ltd v Bank Markazi Iran [1994] 1 AC 438	Standard of "good arguable case" for jurisdiction and serious issue to be tried.	Applied to determine whether jurisdiction was established on the facts.
Canada Trust Co. v Stolzenberg (No. 2) [1998] 1 WLR 547	Clarification of the "good arguable case" test for interlocutory jurisdiction.	Used to confirm the standard for jurisdiction and interlocutory relief.
Soc. Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260	Limits on jurisdiction regarding third party debt orders and territoriality.	Distinguished; no territorial limitation imposed on CPR 6.20(9) jurisdiction here.
Perry v. Zissis [1977] 1 Lloyd's Rep. 607	Necessity of jurisdictional basis to serve out of jurisdiction to enforce judgments.	Historical context for CPR 6.20(9) jurisdiction to enforce foreign judgments.
Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460	Test for forum conveniens and proper place to bring the claim.	Applied to determine that England was the proper forum for enforcement.
President of the State of Equatorial Guinea v. Logo Ltd [2006] EWCA Civ 1370	Rule that English courts have no jurisdiction to enforce foreign public or penal law.	Used to analyze whether the Fund’s claim was an impermissible enforcement of foreign public law.
Attorney General of New Zealand v Ortiz [1984] 1 AC 1	Characterization of acts as sovereign or non-sovereign for enforcement purposes.	Referenced in considering the nature of the Fund’s claims and sovereign authority.
Re State of Norway's Application (Nos 1 and 2) [1990] 1 AC 723	Limits on enforcement of foreign sovereign acts in English courts.	Used to support the principle that courts decline to enforce sovereign acts extraterritorially.
Government of India v Taylor [1955] AC 491	Distinction between sovereign authority and private rights for enforcement.	Supported the view that English courts decline to enforce sovereign acts but enforce private rights.
Kuwait Airways Corp. v. Iraqi Airways Co. [1995] 1 WLR 1147	State immunity and distinction between acts jure imperii and jure gestionis.	Referenced in relation to the Fund’s sovereign immunity in Cayman Islands proceedings.

Court's Reasoning and Analysis

The court first considered the jurisdictional basis under CPR 6.20(9) for enforcement of foreign judgments at common law, noting that statutory registration procedures did not apply to Turkey. It rejected the Defendant’s argument that the existence of assets within the jurisdiction was a pre-condition for jurisdiction, explaining that the rule was introduced to fill a procedural gap but does not impose a requirement to identify assets in England. The court found no support for a territorial limitation on jurisdiction under CPR 6.20(9).

In exercising its discretion, the court acknowledged that the absence of assets might be a factor but concluded England was clearly the appropriate forum for enforcement, especially as no other jurisdiction was suitable to determine the Defendant’s defences. The court noted that the initial basis for the freezing injunction—assets held by MLIB in London—had been shown to be incorrect, and therefore the injunction’s continuation was no longer justified.

Regarding the public law point, the court examined expert evidence on Turkish law about whether the receivables became public receivables upon transfer to the Fund. The Defendant’s expert argued that the claims were public law claims, which English courts cannot enforce, while the Fund’s expert maintained the claims remained private law claims, enforceable under ordinary civil procedures. The court found the Defendant’s expert evidence more cogent but held that the Fund had at least a real prospect of success on the private law characterization and thus the public law objection did not defeat jurisdiction at this stage.

The court applied established principles that English courts will not enforce foreign sovereign acts but will enforce private law claims, even if brought by a foreign state entity. The Fund’s enforcement of judgments obtained in Turkish civil courts was held to be a private law claim rather than an impermissible assertion of sovereign authority in England.

Finally, the court concluded that the freezing injunction should be discharged due to lack of evidence of assets in England and questionable effectiveness abroad, and that permission to serve out of jurisdiction should be set aside in respect of the two smaller judgments that were not properly constituted, leaving only the $30 million judgment to be pursued.

Holding and Implications

The court’s final decision was to SET ASIDE the permission to serve out of jurisdiction in relation to two of the three judgments and to DISCHARGE the worldwide freezing injunction. The proceedings were allowed to continue only as regards the $30 million judgment.

This decision clarifies that under English law, jurisdiction to enforce foreign judgments at common law under CPR 6.20(9) does not require the existence of assets within the jurisdiction. The court also confirmed that claims brought by a foreign public entity are not barred from enforcement if they arise from private law rights, notwithstanding arguments that the claims are public law in nature under foreign law. The ruling does not establish new precedent but applies established principles on jurisdiction, enforcement of foreign judgments, and the limits on enforcing foreign sovereign acts.