Cukurova Group

July 2010
John Reynolds, Amanda Cowell

White & Case successfully represented the Cukurova Group in a long-running dispute with Russia's Alfa Group concerning the ownership of a controlling shareholding in Turkcell Iletisim A.S., Turkey's largest mobile phone company.

In May 2010, the recently-established Eastern Caribbean Commercial Court in the British Virgin Islands held that Cukurova was not in default under a loan agreement with Alfa and therefore Alfa's attempts to appropriate its security were ineffective. It went on to rule that Cukurova is entitled to redeem the security for the loan.

In 2005, Alfa Telecom Turkey Limited (Alfa) and Cukurova Finance International Limited formed a joint venture company, known as Cukurova Telecom Holdings Limited (CTH). Cukurova Finance holds a 51% shareholding in CTH, whilst Alfa holds the remaining 49%. CTH itself has an indirect 26.98% shareholding in Turkcell. In late 2005, Cukurova Finance borrowed US$1.4 billion from Alfa and, as security for the loan, charged its shares in CTH to Alfa.

In April 2007, Alfa gave notice claiming that Cukurova Finance had committed 16 events of default under the loan facility and accelerated the loan. The share charges gave Alfa a right of appropriation under the Financial Collateral Arrangements Regulations (No 2) 2003 (the FCA Regulations) which Alfa attempted to exercise by writing to Cukurova Finance claiming to have appropriated the shares. Cukurova Finance subsequently obtained an injunction preventing Alfa from becoming legal owner of the shares and from taking any steps to enforce its security. The injunction was granted without prejudice to Alfa's purported appropriation of the shares.

Shortly afterwards, in May 2007, Cukurova Finance tendered repayment of the loan principal and outstanding interest to Alfa, which Alfa refused.

Preliminary issues as to the scope and application of the FCA Regulations were raised, certain of which were ultimately determined by the Privy Council in London, the final appellate court for the Eastern Caribbean jurisdiction. This was the first time that the FCA Regulations (which reflect the European directive on financial collateral arrangements) had been considered by the courts.

The case proceeded to a full trial on the merits, over three weeks in April 2010. In late May, Mr Justice Bannister delivered his judgment finding that Cukurova was not in default under the loan facility, as Alfa had alleged, and that Alfa's attempt to exercise the power of appropriation over Cukurova's shares was ineffective. The Court also held that Cukurova had been entitled, since its tender of repayment of the loan in May 2007, to redeem its security.

The case is now on appeal to the Eastern Caribbean Court of Appeal.