(1) Cukurova Finance International Ltd (2) Cukurova Holdings A.S v Alfa Telecom Turkey Ltd [2013] UKPC 2 (BVI)


On 30 January 2013, the BVI Privy Council handed down judgment in the ongoing battle between Cukurova Finance International Ltd and Cukurova Holdings A.S

(together “Cukurova”) and Alfa Telecom Turkey Ltd (based in the BVI) (“Alfa”). In an unexpected move, the Privy Council held that although Alfa had validly enforced its underlying share security following an event of default, Cukurova should be granted relief from forfeiture of those shares.


Through a BVI SPV, Cukurova held the majority shareholding of Turkcell Holdings AS (“TCH”) which in turn held the majority shares in a Turkish cell phone network listed on the Istanbul and New York Stock Exchanges.

In 2005, TCH entered into a subscription agreement with Alfa for $1.6bn in return for a 49% interest in the BVI SPV. In addition, the parties entered into a Facility Agreement for a further $1.7bn, the majority of which was secured by way of two mortgages over the remaining shares in the BVI SPV.

Following this agreement, a third party Telia Sonera Finland OYJ (“Sonera”) brought arbitration proceedings against Cukurova alleging that Cukurova was obliged to transfer its shares in TCH to Sonera by virtue of a pre-emption agreement. In 2007, Sonera was awarded US$3.1m and specific performance. Sonera announced the award in the press before the official award itself was granted.

Three months later, Alfa sent a letter to Cukurova alleging 16 events of default under the Facility Agreement (including a material adverse change in the financial condition of Cukurova) and demanded immediate repayment of the loan. On the same day, Alfa sought to appropriate the shares in the BVI SPV. In response, Cukurova disputed the events of default and sought to restrain the enforcement.

The BVI Commercial Court held that none of the alleged events of default had been made out. In an obiter statement, the Court noted that had an event of default been made out, Alfa would not be precluded from enforcing the Facility Agreement by virtue of Cukurova’s allegation that Alfa had acted in bad faith or with an improper purpose. However, the Judge noted that it was not necessary for him to decide on the issue as he had found in favour of Cukurova.

The Court of Appeal disagreed and held that three events of default had been established. Alfa was therefore entitled to accelerate the loan and appropriate the shares. The Court of Appeal agreed with the Commercial Court’s obiter statement and as a result, the claim for relief from forfeiture did not succeed.

Issues on appeal

On appeal, the BVI Privy Council was asked to consider:

  • Whether an event of default had occurred;  
  • Whether Alfa’s acceleration of the loan and appropriation of the charged shares was vitiated by bad faith or improper purpose (it was alleged that the main purpose was to appropriate the shares in the BVI SPV rather than allow Cukurova to repay the loan); and  
  • Whether Cukurova should be accorded relief from forfeiture.


The Privy Council agreed that Sonera’s arbitration award had a material adverse effect on the financial condition of Cukurova and that an event of default had been established. All that Alfa was required to show was that, subjectively, it had an honest and rational belief that the arbitration award had a material adverse effect. In this regard, the notice of default, which was approved by Alfa’s parent company, was sufficient to demonstrate that Alfa genuinely believed that there had been a material adverse change.

In relation to the allegations concerning bad faith and improper purpose, the Privy Council agreed with the Court of Appeal and held that generally, “if a chargee enforces his security for the proper purpose of satisfying the debt, the mere fact that he may have additional purposes, however significant, which are collateral to that object, cannot vitiate his enforcement of the security.”

The Privy Council then considered the issue of equitable relief from forfeiture and remarked that relief in equity was distinct from bad faith and improper purpose, and that it must be considered on its own terms as a freestanding remedy. Having determined that the Privy Council did have jurisdiction to grant equitable relief, they considered the key facts relevant to the exercise of its discretion including the terms of the Facility Agreement, the nature of the material breach and the actions subsequently taken by Alfa (particularly its rejection of tender for payment of the loan which Cukorova alleged was so that Alfa could gain control of the BVI SPV and thereby the Turkish cell phone company).

In the circumstances, and notwithstanding Alfa’s submissions on acting in the interests of commercial certainty, the Privy Council determined that this case involved a number of unusual features which were unlikely to be repeated and therefore relief against forfeiture should be available to Cukorova subject to ‘appropriate conditions’ to be determined at a further hearing.


This decision provides useful guidance on the factors courts will take into consideration when deciding if a materially adverse change has occurred. It also provides guidance on factors to be considered when determining whether or not a party has acted in bad faith or for improper purpose when exercising its security.

In addition, this decision provides a warning to lenders that in certain cases, the appropriation of shares by a lender may not be final. The court may exercise its discretion to grant equitable relief from forfeiture and allow a borrower the opportunity to redeem its security after the lender has sought to appropriate it.

The stage is set for another drawn out battle between the parties as the ‘appropriate conditions’ of forfeiture are argued at the next hearing.