Collecting Debts Based On Foreign Judgments And Arbitral Awards In Turkey

I. Introduction

Foreign judgment enforcement in Turkey is the practical gateway for a creditor holding a judgment or arbitral award obtained abroad, and recovering the underlying commercial debt in Turkey is rarely a matter of a single action. However firm the decision, it cannot be taken straight to enforcement in Turkey. Collecting the debt requires the decision first to be enforced (tenfiz) under the Act on Private International and Procedural Law, and then pursued through execution under the Enforcement and Bankruptcy Law.

For foreign judgment enforcement in Turkey, recovery on a foreign decision should be seen as two distinct stages, making the decision enforceable in Turkey, and then actually collecting the debt. That said, the time between those two stages matters can be equally important as the stages themselves. While foreign judgment enforcement in Turkey is pending, a debtor who disposes of assets can render the decision worthless. The success of the recovery therefore often depends on securing the claim from the very outset.

It should be noted here that the conditions for enforcing a foreign arbitral award, a valid arbitration agreement, arbitrability and consistency with public order, along with the public-order debates that arise in practice, belong to the distinct field of arbitration law and are examined in our article on the recognition and enforcement of foreign arbitral awards.

II. Foreign Judgment Enforcement In Turkey As The Precondition For Collection

In foreign judgment enforcement in Turkey, a foreign court judgment or arbitral award can take effect through one of two methods, recognition (tanıma) and enforcement (tenfiz). Recognition gives the foreign decision the effect of res judicata and conclusive evidence in Turkey; while its content is thereby accepted as valid for the purposes of Turkish law, the decision cannot, on its own, be carried out through the enforcement organs.

Enforcement goes further: it gives the foreign decision the same executory force as a judgment of a Turkish court and allows it to be carried out through compulsory execution. In matters where the ultimate aim is to collect the claim from the debtor in fact, the route to be taken is therefore enforcement, not recognition, for the claim can be collected against the debtor’s assets only once the decision has been enforced.

At this point it is worth adding that whether the decision to be enforced is a court judgment or an arbitral award also shapes the path to some degree. Both serve the same aim, making the foreign decision enforceable in Turkey, but are governed by different rules.

Foreign court judgments are enforced under Articles 50 et seq. of the Act on Private International and Procedural Law, while foreign arbitral awards are enforced mainly under the 1958 New York Convention, to which Turkey is a party, together with Articles 60 et seq. of the same Act. Even so, because the basic route and the post-enforcement collection stage are largely shared, the logic of the process is, for the creditor, the same in either case.

III. Protecting The Claim During Foreign Judgment Enforcement In Turkey

Securing Assets By Interim Attachment

Although enforcement actions are heard under the simplified procedure, they can still take considerable time to conclude and become final, and in the meantime a debtor who disposes of assets may render the recovery fruitless. To guard against this, the creditor may apply, under Article 257 of the Enforcement and Bankruptcy Law, for interim attachment of the debtor’s assets and receivables in Turkey.

Interim-attachment requests are not, however, subject to the same conditions for every claim. The Enforcement and Bankruptcy Law distinguishes, for these purposes, between matured and unmatured claims. For a matured claim the court may order interim attachment without inquiring into any intent on the debtor’s part to dissipate assets, whereas for an unmatured claim it is available only where further conditions are met, such as the debtor having no fixed domicile or acting to evade its obligations.

Which of these two categories a claim based on a not-yet-enforced foreign decision belongs to is unsettled. There is no express statutory rule on the point, and the case law of the Court of Appeal and the regional courts of appeal is inconsistent, with decisions to be found in both directions.

Moreover, since there is as yet no final judgment at this stage, interim attachment is granted in practice only against security. That security is calculated as a proportion of the claim subject to attachment and commonly reaches between ten and twenty per cent of the claim, and in some cases more. As this is a significant up-front cost for high-value claims, it makes investigating the debtor’s assets in Turkey and the realistic prospects of recovery, before any application is made, all the more important.

Finality Of The Enforcement Decision And The Move To Execution

Although interim attachment secures the claim on a provisional basis, whether the enforcement decision must become final before actual collection can begin is a separate question to be assessed. Because an appeal on points of law against an enforcement decision stays its execution as a rule, in practice the decision’s finality is usually awaited, and judgment-based enforcement is commenced only thereafter.

Whether the same holds at the intermediate-appeal stage, however, is unclear. As the statute refers only to the appeal on points of law, there is no express rule on whether an intermediate appeal stays execution, and here too the case law of the Court of Appeal and the regional courts of appeal is inconsistent.

IV. Points Specific To Foreign Creditors In Foreign Judgment Enforcement In Turkey

Security And Reciprocity

The process described so far operates regardless of whether the creditor is foreign; even so, a few additional points warrant assessment where the creditor is. The first of these, and perhaps the most important, is the security obligation imposed on foreign creditors and claimants.

Foreign natural and legal persons who bring an action or commence enforcement proceedings in Turkey are, as a rule, required to provide security. This obligation, set out in Article 48 of the Act on Private International and Procedural Law, applies both to the enforcement action and to the proceedings that follow. The amount is set by the court, but because the security is a guarantee rather than a final payment, it may be returned to the creditor at the end of the process.

The principal exception to this obligation is reciprocity. Where a bilateral agreement on security exists between Turkey and the State of which the creditor is a national, that foreign party may be exempt from providing security. Because whether the exemption applies must be assessed on the facts and the creditor’s nationality, against the provisions of the relevant agreement, these matters should be examined thoroughly before any legal process is commenced.

It should be noted here that this security obligation is different in nature from the interim-attachment security mentioned above. It is intended to secure the litigation costs and attorney’s fees that the foreign party would have to pay if it lost the action it brought. The security under the Enforcement and Bankruptcy Law, by contrast, is directed at the loss a debtor or third party may suffer from a wrongful interim attachment.

Because the two securities serve different purposes, where no exemption applies by virtue of reciprocity, a foreign creditor who also seeks interim attachment during the enforcement process may have to provide both at once.

Assessing The Collection Strategy In Advance

Taken together, these elements mean that, in recoveries based on a foreign decision, both predictability and the prospects of successful collection depend on a thorough assessment at the outset, one that identifies the rights and obligations that may arise and settles on a strategy for the claims to be made and the applications to be brought.

Whether the debtor holds attachable assets in Turkey, whether reciprocity exists between Turkey and the State concerned, and the risk the decision carries on public-order grounds should be weighed together with the cost and duration of the process, and the methods and claims should be settled accordingly.

V. Conclusion

Recovering a claim based on a foreign court judgment or arbitral award in Turkey is not, even for a creditor holding a final decision, a single and direct step. The decision can take effect in Turkey only through enforcement, and the claim can be collected only through the execution carried out after that stage. In addition, the success of the process often depends less on the decision itself than on how far the stages surrounding it are anticipated and managed. Protecting the claim throughout the action, managing the uncertainty over finality, and accounting in advance for the obligations specific to foreign creditors are foremost among these stages.

Indeed, these stages are not independent of one another. The longer the enforcement action takes, the more directly the early protection of the debtor’s assets determines whether anything of value remains to be collected when it concludes. On this view, whether a foreign decision turns into a genuine recovery in Turkey depends less on having obtained the decision than on structuring the whole recovery coherently, and from the very outset.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.