Preliminary Attachment Decision of the Regional Court of Appeals Concerning Foreign Arbitration Award Subject to Enforcement
Introduction
Preliminary attachment refers to the temporary seizure of a debtor's assets to secure a creditor's claim. While it serves as a vital instrument for safeguarding the rights of creditors, it is subject to specific and stringent conditions under Turkish law to prevent any potential misuse.
Regulations about preliminary attachment are codified in the Turkish Enforcement and Bankruptcy Law numbered 2004 (EBL). Under Article 257 of the EBL, a preliminary attachment decision may be issued only if the claim is due and is not secured by a pledge. For claims that are not yet due, a request for preliminary attachment is permissible solely in exceptional circumstances. According to Article 257/2 of the EBL, if the debtor lacks a specific residence and is preparing to conceal or abscond with assets to evade obligations, or if fraudulent activities that infringe upon the creditor's rights can be substantiated for this purpose, a preliminary attachment decision may be rendered for claims that are not yet due.
Given that the debtor's assets are temporarily seized in this manner, it is necessary to protect both the debtor and relevant third parties against the potential for unjust enrichment of the creditor. To this end, the legislator has instituted a requirement for the creditor to furnish a security. Following Article 259 of the EBL, the creditor must deposit security in an amount determined by the court to cover any damages that the debtor and third parties may incur should the creditor later be deemed unjustified. However, if the claim for preliminary attachment is predicated on a judicial ruling, no security is required. Should the claim be based on a document of a judicial nature, the court retains the discretion to assess the necessity of security.
The conditions for preliminary attachment as stipulated in the EBL have been examined in the decision of the 14th Civil Chamber of the Istanbul Regional Court of Appeals numbered 2024/929 E. 2024/1007 K., dated June 12, 2024, concerning the enforcement of a foreign arbitration award. This article will delve into the pertinent aspects of the decision.
Dispute Subject to the Decision
The plaintiff submitted a request for preliminary attachment based on a claim associated with an arbitration award that is subject to enforcement by Turkish courts. In this regard, a lawsuit was initially filed for the enforcement of the arbitration award issued by the International Chamber of Commerce. Following the first-instance court's decision to reject the case, the regional court of appeals examined the matter upon appeal and overturned the first-instance court's ruling, thereby ordering the enforcement of the arbitration award.
After this enforcement decision, the plaintiff requested a preliminary attachment ruling concerning the claim subject to the enforcement decision. The plaintiff asserted that the claim was due and that there was no necessity for the enforcement decision to be finalized for the condition of the due date to be satisfied. Furthermore, the plaintiff indicated that the claim was not secured by a pledge and that the debtors had disposed of a significant portion of their assets during and after the arbitration proceedings, and that they also continued to conceal the remaining assets. In this regard, the plaintiff argued that the conditions outlined in Articles 257 and following of EBL were applicable in the specific case, thereby allowing for the issuance of a preliminary attachment decision. The plaintiff further contended that since the claim subject to the preliminary attachment had been established by a final and enforceable arbitration award, the preliminary attachment should be granted without the requirement for security, per Article 259 of the EBL.
Evaluation by the First Instance Court
The court examining the case first assessed that the conditions for preliminary attachment under Article 257 of the EBL were met. Considering that the claim was based on the enforcement decision issued by the Turkish court, the court concluded that there was no need to obtain security from the creditor following Article 259 of the EBL. The debtor filed an objection against the preliminary attachment decision, arguing that an appeal had been made against the enforcement decision rendered by the regional court of appeals and that the enforcement decision had not yet become final. Therefore, they contended that a preliminary attachment decision could not be issued without obtaining security and that the claim could not be considered a due claim.
In its additional decision, the court reviewing the objection emphasized that the arbitration award subject to enforcement was a "final" and "enforceable" decision, stating that it was thus due in the sense of Article 257/1 of the EBL. However, the court reconsidered its stance on security and, taking into account that the enforcement decision under appeal had not yet become final, concluded that security amounting to 20% of the claim in question must be deposited for the issuance of a preliminary attachment decision.
Evaluation by the Regional Court of Appeals
The RCA, in its examination of the appeal against the decision, initially assessed the issue of whether the claim was due. In this regard, it reviewed the pertinent regulations concerning the enforcement of foreign arbitration awards within Turkish courts. The relevant provisions regarding the enforcement of foreign arbitration awards are articulated in Article 60 and subsequent articles of Law numbered 5718 on Private International Law and Procedural Law. Under Article 60 of the PILP, for a foreign arbitration award to be enforceable in Turkish courts, it must be final, possess enforceability, or be binding upon the parties involved. Given that the claim in question is grounded in a "final" foreign arbitration award, it must be considered a specific and due claim, thereby fulfilling the conditions for preliminary attachment as delineated in Articles 257 and following the EBL.
Having determined that the requisite conditions specified in Article 257 of the EBL were present in the concrete case, the Regional Court of Appeals proceeded to conduct a comprehensive assessment regarding the requirement for security. As a general rule, Article 259 of the EBL stipulates that security is not required for claims based on a judicial decision. If the claim is contingent upon a document of a judicial nature, the court retains discretion concerning the necessity of security. In other words, if the claim is based on a document classified under Article 38 of the EBL as a judgment, the court may, at its discretion, issue a preliminary attachment decision without the imposition of security.
An enforcement proceeding cannot continue without the enforcement decision becoming final when an appeal has been filed against the foreign arbitration award. Although the filing of an appeal against the enforcement decision suspends the enforcement proceedings, this circumstance does not preclude the issuance of a preliminary attachment decision In such cases, it is necessary to determine whether security is required. Considering all these factors, the RCA concluded that since the enforcement of the foreign arbitration award could not proceed until the decision became final, the foreign arbitration award could not be classified as a judgment or a document of judgment nature at this stage. Consequently, the RCA ruled that the preliminary attachment decision should be issued against the provision of security.
Conclusion
In its pertinent decision, the RCA unequivocally established that the claim, which is predicated on the enforcement of a final arbitration award constitutes a "specific and due claim" within the meaning of Article 257 of EBL and that a preliminary attachment could be sought concerning this claim. However, in relation to the requirement for security against the preliminary attachment decision, the court adopted a more cautious approach by evaluating the enforceability of the enforcement decision.
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