Jersey Unreported Judgments
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URL: http://www.bailii.org/je/cases/UR/2016/2016_135.html
Cite as: [2016] JCA 135
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Botas -v- Tepe [2016] JCA 135 (08 August 2016) URL: http://www.bailii.org/je/cases/UR/2016/2016_135.html Cite as: [2016] JCA 135 |
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Appeal regarding enforcement of international arbitration awards made against the First Appellant.
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Before : |
Sir David Calvert-Smith, President; Robert Logan Martin Q.C.; and David Anderson Q.C. |
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Between |
Boru Hatlari IIe Petrol Taşima AŞ (also known as Botaş Petroleum Pipeline Corporation Limited) |
First Appellant |
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Turkish Petroleum International Limited |
Second Appellant |
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Botaş International Limited |
Third Appellant |
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And |
Tepe Inşaat Sanayii AŞ |
Respondent |
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And |
Nacap BV |
Party Cited |
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Advocate D. Evans for the Appellants.
Advocate E. Moran for the Respondent.
judgment
logan martin ja:
1. This appeal concerns the enforcement of two international arbitration awards made against the first appellant. The respondent seeks enforcement against assets belonging to the first appellant which comprise shares held by the first appellant in the second and third appellants, and (in this appeal) debts due by the third appellant to the first appellant. That enforcement is resisted by the appellants upon a series of contentions including that the shares in question are subject to sovereign immunity.
2. The first appellant is Boru Hatlari Ile Petrol Taşima AŞ, also known as Botaş Petroleum Pipeline Corporation Limited ("Botaş") which is a company registered in Turkey and wholly owned by the Republic of Turkey ("the Republic"). The second appellant is Turkish Petroleum International Limited ("TPIC") which is a company registered in Jersey. The third appellant is Botaş International Limited ("BIL") which is also a company registered in Jersey. TPIC and BIL are both wholly-owned subsidiaries of Botaş. The respondent is Tepe İnşaat Sanayii AŞ ("Tepe") which is a company registered in Turkey. The party cited is Nacap BV ("Nacap") which is a company registered in the Netherlands.
3. The matters in issue were the subject of a hearing before the Royal Court (Sir Michael Birt, Commissioner, and Jurats Nicolle and Kerley) and judgment was given on 19 January 2016 ("the Royal Court judgment") (Tepe-v-Botas [2016] JRC 012A). Both the appellants and the respondent appeal against aspects of the Royal Court judgment.
4. Botaş is a company incorporated by charter engaged in aspects of the oil and gas industry. It was involved in the construction of the Baku-Tbilisi-Ceyhan pipeline which transports oil from oilfields in Azerbaijan through Georgia to the Ceyhan oil terminal on the Turkish coast. The pipeline was constructed by a consortium of companies known as the "Main Export Pipeline participants" who appointed Botaş as the main contractor for the construction of the Turkish section of the pipeline. In 2002, Botaş engaged Tepe as construction and engineering sub-contractors for a part of the pipeline works under a contract referred to as "the Stations Contract". At the same time, Botaş engaged an unincorporated joint venture known as "TPN" as construction and engineering sub-contractors for a part of the works under a contract referred to as "the Lot A Contract". The parties in TPN were Tepe and Nacap. Each of these contracts contained an arbitration clause which provided that any arbitration was to be under the rules of the International Chamber of Commerce, that English law was to be applied and that the place of the arbitration was to be Paris.
5. On dates in 2005, Botaş terminated the Stations Contract and the Lot A Contract. Each termination was disputed and the entitlement of Botaş to terminate and other issues were referred to two arbitrations, referred to respectively as "the Stations Arbitration" and "the Lot A Arbitration". The two arbitrations were conducted by separate arbitration panels and in each case two partial awards and one final award were made against Botaş (hereafter "the Awards"). Botaş appealed against certain of the Awards to the Cour d'Appel in Paris and in one case to the Cour de Cassation. All of these appeals were unsuccessful or were withdrawn. The result is that in the case of each arbitration, the Awards are enforceable against Botaş. The amounts of the Awards are detailed in paragraphs 13 and 17 of the Royal Court judgment and amounted as at December 2014 to approximately US$64.7 million in the case of the Stations Arbitration and to approximately US$27.8 million in the case of the Lot A Arbitration. In each case, Botaş was also obliged to return certain securities, bonds and guarantee letters which had been provided by Tepe in respect of each contract (and referred to in the Royal Court judgment respectively as "the Stations Securities" and "the Lot A Securities", and collectively as "the Securities"). These had values respectively of approximately US$5.6 million and US$15.9 million. In July 2014, Nacap and TPN had assigned their whole rights under the Lot A Contract to Tepe and the proceedings have since been pursued by Tepe alone in respect of matters arising from both the Stations Contract and the Lot A Contract. The Royal Court allowed Nacap to be joined as a party cited but Nacap did not play any part in the proceedings before the Royal Court nor did it before this Court.
6. The enforcement of international arbitration awards is provided for in Part 4 of the Arbitration (Jersey) Law 1998 ("the Arbitration Law") which states in part:-
Article 29, which is referred to in Article 42(1), provides that an arbitration award "may, by leave of the Court on an application made ex parte, be enforced in the same manner as a judgment or order to the same effect; and, where leave is so granted, the act of court shall specify the manner of enforcement."
7. The subject of sovereign immunity is covered by statute, namely the State Immunity Act 1978 of the United Kingdom ("the Act") which is extended to the Bailiwick by the State Immunity (Jersey) Order 1985 ("the 1985 Order") subject to modifications provided in the Schedule to the 1985 Order. These modifications are primarily to the effect that "any reference to the United Kingdom shall be construed as a reference to the Bailiwick": see Article 1(1) in particular; but that is subject to exceptions and other modifications within the 1985 Order which are of no significance for the purposes of this case, subject to one exception which we identify below. The particular provisions of the Act which are relevant for the purposes of this judgment are as follows:-
8. Each of the Awards made in favour of Tepe is a "Convention award" for the purposes of the Arbitration Law. On 17 November 2014, Tepe presented two Representations seeking the leave of the Royal Court to enforce the Awards "pursuant to Articles 29 and 42 of the Arbitration Law." Tepe also sought and was granted ex parte an interim arrêt entre mains in respect of the shares held by Botaş in TPIC and any debts owed by TPIC to Botaş. This was subsequently extended to cover the shares held by Botaş in BIL and debts owed by BIL to Botaş. The shares held by Botaş in TPIC and BIL are referred to hereafter as "the Shares".
9. Botaş filed pleadings in the Royal Court disputing the entitlement of Tepe to enforce the Awards on what were said to be "three broad grounds" as described in paragraph 20 of the Royal Court judgment as follows:-
As a result, Botaş contended before the Royal Court that the Representations should be dismissed and the interim arrêt lifted whereas Tepe contended that leave to enforce the Awards should be granted and the interim arrêt confirmed.
10. Following a hearing on the Representations, the Royal Court first rejected the claim of sovereign immunity in respect of the Shares and confirmed the arrêt in that respect, and secondly refused to confirm the arrêt in respect of the debts due by TPIC and BIL to Botaş. These are the subject respectively of the appeal by the appellants and the cross appeal by the respondent. The Royal Court determined other issues but these are not the subject of any appeal before this Court.
11. The question of whether the Shares in TPIC and BIL may be subject to the sovereign immunity of the Republic requires to be considered against the background of the nature of the companies concerned. In summary, Botaş is a company constituted in Turkey by charter. All of its 500,000 shares are owned by the Republic (with the exception of a single "representative share" which is held by its General Manager) and Botaş has been treated throughout the proceedings as being wholly owned by the Republic. Botaş was formed as the Petroleum Pipeline Corporation and was originally a subsidiary of the Turkish Petroleum Corporation (referred to as "TPAO") which was itself wholly owned by the Republic. As already noted, TPIC and BIL are both companies registered in Jersey and the Shares, being the shares in each of TPIC and BIL, are wholly owned by Botaş.
12. The formation and regulation of Botaş, TPIC and BIL, as well as of enterprises established and owned by the Republic more generally, are the subjects of a number of legislative and administrative documents which were exhibited in evidence before the Royal Court and referred to in the course of the appeals. These have been provided in translation along with copies of the originals. The first is the Decree Law on State Economic Enterprises No. 233 dated 8 June 1984 ("Decree Law 233") and we set this out at some length as its provisions have been referred to substantially. The translation of Decree Law 233 (including reference to subsequent amendments within the text) includes the following:
The Decree Law provides for the financial provision of state enterprises and under the heading of "Plan, program and budget of enterprises" states in part as follows:
Provision is made for the liquidation and sale of enterprises in part as follows:
Article 60 provides that the enterprises subject to Decree Law 233 are shown on an annexed list. That list includes Botaş under its former name of Petroleum Pipeline Corporation but the list does not include either TPIC or BIL as its subsidiaries.
13. The setting up of TPIC was authorised by a Decision of Council Ministers, Decision No 88/13180, dated 28 July 1988 ("Decision 88/13180") which recorded a decision made "In accordance with Article 58 subparagraph 3" of Decree Law 233. Decision 88/13180 provided:-
Article 2 provided that the company's headquarters were to be in Jersey, that the nominal capital should be US$3 million and "that more than half of the company's capital shall belong to the Turkish Petroleum Corporation (TPAO)". Article 6 provided in general that the activities of TPIC should be directed by the directors of TPAO.
14. By a Council of Ministers' Decision, Decision No.95/6526, dated in February 1995 ("Decision 95/6526"), the Ministers decided "as per Article 3 of the Statutory Decree no 233 that the subsidiary status of the Petroleum Pipeline Corporation (BOTAŞ) which is a subsidiary of the Turkish Petroleum Corporation, be cancelled and BOTAŞ be reorganized as an independent enterprise." A Decision of the Council of Ministers, Decision No.2012/4152, dated 22 January 2013 ("Decision 2012/4152") recorded a decision made in accordance with Article 58 of Decree Law 233 and provided that the capital of TPIC was to be increased to $500million which was to be fully paid in cash from the equity capital of TPAO, and that the shares in TPIC belonging to TPAO were to "be transferred to the Petroleum Pipeline Corporation [that is to say Botaş] free of charge following the capital increase..." Decision 95/6526 and Decision 2012/4152 are examples of the Council of Ministers exercising its power to transfer the ownership of state enterprises and in this case the result was that TPIC became a wholly owned subsidiary of Botaş which in turn had become an independent enterprise owned by the Republic.
15. Decision 2014/4152 also amended Article 6 of Decision 88/13180 as follows:-
16. The result of these Decisions in summary is that TPIC was formed and is regulated in accordance with Decisions made by reference to Decree Law 233 and it is managed and operated subject to direction by Ministries of the Republic.
17. In the case of BIL, the Decision of the Council of Ministers, Decision No 96/8293, dated 6 June 1996 ("Decision 96/8293"), which was made "as per Article 58 of the Statutory Decree no 233", provided for the establishment by Botaş of a company to be engaged in activities in the fields of oil and gas operations and whose headquarters were to be in Jersey. More than half of the nominal capital of US$500,000 was to belong to Botaş. It was stated that "The establishment principles and capital composition of the company shall be governed by the Board of Directors of the Petroleum Pipeline Corporation in accordance with the conditions required by the foreign legislation ...". Article 6 provided for the activities of BIL to be directed by Botaş and for its directors to be directors of Botaş. Article 6 was amended by a Decision of the Council of Ministers, Decision No 2006/11325, dated 27 November 2006 ("Decision 2006/11325") which provided a replacement Article 6 as follows:-
This was reflected in the (Jersey) Articles of Association of BIL which were amended by a Written Resolution signed on behalf of Botaş and the other representative shareholder in November 2012 which replaced Article 91 with Articles which regulated the appointment of directors in accordance with Decision 2006/11325, and provided that the Chairman of the board of directors was to be the General Director of Botaş.
18. The result in the case of BIL is similar to that in the case of TPIC. BIL was formed and is regulated in accordance with Council of Ministers' Decisions made by reference to Decree Law 233 and it is managed and operated subject to direction by Ministries of the Republic. The only significant difference is that the Ministerial involvement in BIL is provided for both in Decision 96/8293 as amended and in its Articles of Association, whereas in the case of TPIC, the Ministerial involvement is provided for only in Decision 88/13180 as amended.
19. These are the documents to which our attention was drawn in connection with Botaş, TPIC and BIL. There are other legislative and administrative documents which are of more general application to enterprises owned by the Republic and their subsidiaries. The first of these is the Decision of Council of Ministers, Decision number 2014/6842, dated 30 September 2014 ("Decision 2014/6842") which was decided "in accordance with Article 29 of the Decree Law no 233". Article 1 provided in part:-
The enterprises and their subsidiaries listed in the table at the end of Decision 2014/6842 include TPAO and Botaş but not TPIC or BIL. The other Articles of Decision 2014/6842 include the following which are relevant:-
20. The next legislative and administrative document which has been referred to is entitled "Law No 4046, Adopted on 27th November 1994, Concerning Arrangements For The Implementation Of Privatization And Amending Certain Laws and Decrees With The Force of Law" ("Law 4046"). Law 4046 provides in part:-
The remaining forms of establishment listed in the succeeding paragraphs of Part A are not relevant. Part B of Article 1 then summarises the provisions related to the purpose stated in Part A as including the establishment of a "Privatization High Council" and a "Privatization Administration". The duties of the Privatization High Council are set out in Article 3 which provides that under the chairmanship of the Prime Minister and with other members including the Deputy Prime Minister, the Privatization High Council is to take decisions to include organisations referred to in Article 1 within the scope of privatisation, to effect the necessary restructuring of these organisations, and to adopt a range of associated and ancillary measures including in particular "if and when required to decide to purchase and resell shares, securities and other negotiable instruments of the Organizations in the privatization programme."
21. The last legislative and administrative document which has been referred to is Law 4734, the "Public Procurement Law" ("Law 4734"). The Royal Court noted (at para 151) that Law 4734 was not referred to specifically before it, nor was it discussed in detail before this Court, but its effect is not disputed. Law 4734 provides that State Enterprises and enterprises owned more than half by a State Enterprise are subject to regulation as to how they should procure goods, services and works, and the Law established a Public Procurement Authority to oversee public procurements. It is also not disputed that Law 4734 applies to TPIC and BIL.
22. There are two further documents concerning the status of Botaş, TPIC and BIL. These have been provided by the Republic and are relied upon by the appellants. The first is a certificate provided by the Ambassador of the Republic addressed to the United Kingdom dated 16 February 2015 ("the Ambassador's Certificate") which states in part:-
"1. Botaş is a state economic enterprise within the scope of the Decree Law numbered 233 under Turkish law and the shares of Botaş are owned by the Treasury of the Republic of Turkey.
2. TPIC and BIL were established by Cabinet Decrees pursuant to Article 58/3 of the Decree Law numbered 233. The shares are owned by Botaş and therefore they are indirectly owned by the Treasury of the Republic of Turkey.
3. There are restrictions imposed upon the sale, transfer and use of the Shares and the operations of TPIC and BIL under Turkish Law.
4. The Shares have never been used, are not in use, and are not intended for use by or on behalf of the State of the Republic of Turkey for commercial purposes."
It may be noted that the Ambassador's Certificate should be read in the context of section 13(5) of the Act, and that a certificate has been given by the Ambassador to the United Kingdom. That is because the reference to the United Kingdom as it is in section 13(5) is an exception to the basic position under the Act in its application to Jersey which is that a reference to the United Kingdom is to be taken to be a reference to the Bailiwick: see Article 1(1) of the 1985 Order. That is not the position in the case of section 13(5) and it means that where a certificate is given in connection with sovereign immunity claimed in Jersey, that certificate is to be given by the relevant Ambassador to the United Kingdom.
23. The second document provided by the Republic is a letter addressed to Botaş by the Minister of Energy and Natural Resources dated 20 February 2015 ("the Minister's letter") which begins by referring to the enforcement proceedings being taken in the Royal Court by Tepe and to the fact that the issued share capital in TPIC and BIL which has been made the subject of an interim order by the Royal Court is owned by Botaş. The Minister then narrates the circumstances of the setting up of TPIC and BIL and in particular says the following:-
"I confirm that the Government of the Republic of Turkey considers that the shares in TPIC and BIL held by Botaş are essential state-owned assets. The Government of the Republic of Turkey exercises to a specific degree control over the ownership and operations of TPIC and BIL pursuant to Turkish law with the intention of furthering the public interest."
The Minister then sets out details of the nature and scope of the Republic's "interest in and control over the shares and operations of TPIC and BIL". The Minister concludes his letter by stating:-
"TPIC and BIL are considered as key state-owned assets by the Government of the Republic of Turkey. TPIC and BIL were both established in order to secure the energy needs and security of the Republic of Turkey and both TPIC and BIL have been appointed to assist implementation of various international agreements to which the Republic of Turkey is a party."
24. We address aspects of the Royal Court judgment in some detail below in dealing with the issues raised by the appeals, but in order to complete the background against which these issues are to be considered, we summarise the contents of the judgment.
25. As we have already noted, the Royal Court identified the three broad grounds under which it considered the merits of the Representations. Before addressing these grounds in its judgment, the Royal Court began by referring to criticisms of the conduct of the arbitrations which were said to demonstrate unfairness in the procedure adopted by each arbitration panel such that the Royal Court should not recognise and enforce either award. These criticisms had been made in the skeleton argument for Botaş but not in its pleadings nor were they advanced in the oral submissions before the Royal Court. Nevertheless, the criticisms were addressed comprehensively in the Royal Court judgment by reference to the limited circumstances in which an award may not be enforced by reference to Article 44(2) and (3) of the Arbitration Law. The Royal Court concluded (at para 50) that for the reasons given it did not accept that any of the grounds set out in Article 44(2) and (3) had been made out. We need not refer to this aspect any further as the appellants do not seek to appeal that finding although in their submissions filed in this Court they have expressly sought to reserve the position of Botaş in relation to the enforceability of the Awards in any other jurisdiction.
26. The Royal Court turned to consider the first broad ground. It noted that the disputes which had arisen had been referred to arbitrations in which Botaş had participated and which had found in favour of Tepe. As a result, Botaş was indebted to Tepe in a total sum of just under US$95 million as at 19 July 2015, a sum which was increasing at the rate of approximately US$10,000 per day. Botaş was a substantial company which based upon its accounts which the Royal Court had seen could choose to pay the sums outstanding if it wished. It had not done so nor had it returned the Securities which it had been ordered to return.
27. In addressing the issue of sovereign immunity, the Royal Court noted that there was no dispute that Botaş is the legal and beneficial owner of the Shares and that it is an entity separate from the Republic and not itself entitled to sovereign immunity. The Royal Court set out (at paras 54-57) the provisions of the Act which were relevant to its judgment and which we have largely replicated above. The Royal Court then acknowledged that it was the Court's duty to give effect to sovereign immunity (at paras 58-62). It noted that the Republic had not sought to intervene in the proceedings but it had provided the Ambassador's Certificate and the Minister's letter. The Royal Court stated that it would consider the terms of these documents further and noted (at para 61) that it had a duty to consider whether sovereign immunity applies notwithstanding that the Republic is not a party to the proceedings. The overriding duty to this effect exists whatever may be the state of the pleadings, and is derived from section 1(2) of the Act. The existence of a court's duty in this respect is emphasised in United Arab Emirates v Abdel Ghafar [1995] ICR 65, per Mummery J at p 73, and Kensington International Limited v Republic of Congo [2003] EWHC 2331, per Tomlinson J at para 71.
28. The Royal Court then considered sovereign immunity at common law (at paras 63-75) and the distinction between adjudicative proceedings and enforcement proceedings (at paras 76-85). In doing so, the Royal Court discussed a number of the authorities which have been advanced in the course of this appeal and which we shall consider below. The Royal Court then turned in light of its discussion on adjudication and enforcement to consider (at paras 86-98) whether it was section 6(4) or section 13(2)(b) of the Act which was applicable in the circumstances of this case. The Royal Court observed that this was not a situation where enforcement was being sought of a judgment against the Republic but rather enforcement against the assets of Botaş, and this was not a situation clearly envisaged by the Act. It was the judgment of the Royal Court that the exercise was "more properly categorised as an exercise of the Court's adjudicative jurisdiction, because the Court will need to consider whether the Republic has the control or prima facie has the interest claimed in assets which attract sovereign immunity." The Royal Court then stated that it followed that section 6(4) is the applicable provision.
29. The Royal Court then reviewed the evidence (commencing at para 99) concerning the control and/or interest asserted by the Republic in the Shares whilst re-emphasising that it was only in respect of the Shares that sovereign immunity was being claimed. The Royal Court considered the Laws and Decisions of Ministers' set out above and by which an enterprise such as Botaş has come to be established and regulated, as well as the formation of TPIC and BIL. The Royal Court considered aspects of Turkish law which were potentially relevant namely the law on privatisation with reference to Law 4046, the law on state economic enterprises with reference to Decree Law 233, the law on what is referred to as "parallelism", the law on attachment under Turkish law, and other related aspects. In doing so, the Royal Court referred to expert evidence on Turkish law and on parallelism which had been given by Dr Cedat Çal, who had been called by Botaş, and by Professor Fadlullah Cerrahoğlu, who had been called by Tepe. We shall refer to the material aspects of the Royal Court's consideration of the evidence when dealing with the submissions which were made to this Court. The Royal Court concluded on the issue of sovereign immunity (at paras 199-204) by deciding that the Republic is not entitled to claim sovereign immunity in respect of the Shares. In doing so, the Royal Court referred to the decision of the Privy Council on an appeal from a decision of this Court in La Generale des Carrières et des Mines v F G Hemisphere [2012] 2 CLC 709 ("Hemisphere") where it was said that the assets which are protected by state immunity are the same as those against which a State's liabilities can be enforced. The Royal Court observed that the Shares are legally and beneficially owned by Botaş and there had been no suggestion that the Shares or any other assets of Botaş could be enforced against in respect of the liabilities of the Republic. The fact that the Republic had a "a high level of control over how Botaş manages its business" was not sufficient to entitle the Republic to claim sovereign immunity not least in a situation where the Shares could not be taken to satisfy the liabilities of the Republic. The Royal Court emphasised that it had given careful consideration to the views of the Republic as expressed by the Ambassador and the Minister but referred also to Article 17 of Decision 2014/6842 which obliges public enterprises to pay their debts. In light of these reasons, the Royal Court held that having found that the Shares did not attract sovereign immunity, there was no reason not to confirm the arrêt.
30. In dealing further with the first broad ground, the Royal Court referred finally (at paras 205-207) to the arguments which it had heard that if sovereign immunity were to have been established in principle in respect of the Shares, that sovereign immunity would not in fact apply because, by reference to section 13(4) of the Act, there is no immunity in the case of enforcement against property which is in use or intended for use for commercial purposes. Given its conclusion that sovereign immunity did not apply to the Shares, the Royal Court did not address this issue further.
31. The Royal Court then turned (commencing at para 208) to consider the second broad ground advanced by Botaş which was that the Court had no jurisdiction, or should not exercise any such jurisdiction, in respect of the debts owed by TPIC and BIL to Botaş. This issue was not advanced by reference to sovereign immunity and the submission for Botaş was that the interim arrêt should be discharged upon the basis that the debts are situated in Turkey and that the Royal Court has no jurisdiction to order an arrêt over foreign situated assets, or at least that the Royal Court should not exercise any such jurisdiction unless it was satisfied that the Turkish courts would regard the debts owed by TPIC and BIL as being automatically discharged by the arrêt. In reply, Tepe submitted that the Royal Court has jurisdiction over TPIC and BIL because they are both registered in Jersey and the Court could be satisfied that there was no realistic possibility of TPIC or BIL having to pay these debts twice because of the relationship between them and Botaş.
32. The Royal Court considered first (at paras 214-220) the nature of an arrêt and the circumstances in which it may be granted over a debt situated outside the jurisdiction, and found that an arrêt "had proprietary consequences and took effect as an order in rem against the debt owed by the third party to the judgment debtor." The Royal Court noted that this was the position adopted unanimously by the Court of Appeal in Hemisphere (at [2011] JLR 486) and also referred to what had been said at first instance in Hemisphere (at [2010] JLR 524) where the Commissioner stated that the decision of the House of Lords in Societé Eram Shipping Co Ltd v Cie Internationale de Navigation and others [2004] 1 AC 260 ("Eram") provided reasoning and conclusions which were entirely consistent with those underlying the process of arrêt entre mains in Jersey. The Royal Court then addressed (at paras 221-232) the test for ascertaining where a debt is situated and applied that test to the location of the debts owed by TPIC and BIL to Botaş. Having assessed the evidence, the Royal Court found that in the case of both TPIC and BIL the place of performance and the obligation to pay Botaş were situated in Turkey and not in Jersey. The issue before the Royal Court was whether the arrêt would by itself be recognised by the Turkish courts as having extinguished the liability of TPIC and BIL to Botaş. The Royal Court found that the respondent had failed to discharge the burden of establishing that and refused to confirm the arrêt in respect of the debts owed by TPIC and BIL to Botaş.
33. The Royal Court then addressed (at paras 248-286) three subsidiary points in relation to the debts whilst recognising that this was strictly unnecessary as the Court had refused to confirm the arrêt in respect of those debts. The first was whether there should be an exception in relation to payments made in the ordinary course of business and the third concerned future liabilities. The Royal Court found in favour of the respondent in respect of each of these but we need not refer to them further as they were not the subject of appeal. The second subsidiary issue was in connection with set-off. The Royal Court had received evidence that BIL was owed by Botaş a sum of US$62 million as at April 2015 which sum greatly exceeded the amounts owed by BIL to Botaş. The Royal Court observed that under English law the fact that there is a right of set-off is a good reason to exercise its discretion not to make a third party debt order and, had it been minded otherwise to do so, the Royal Court would not have confirmed the arrêt in relation to BIL.
34. The Royal Court then turned (at paras 287-294) to consider the final broad ground which concerned the return of the Station Securities and the Lot A Securities and determined that it had jurisdiction to make an order directing Botaş to do so. We say no more about this issue because it formed no part of this appeal and this Court has been informed by the appellants that the Securities have now been returned.
35. Finally, the Royal Court set out the result of the hearing as follows:-
36. In their Re-Amended Notice of Appeal, the appellants state as follows:-
"Botaş, TPIC and BIL (collectively "the appellants") will ask the Court of Appeal to set aside the following findings of the Royal Court:
(i) That the Republic of Turkey (the "Republic") does not have control over the Shares sufficient to engage its immunity pursuant to the State Immunity (Jersey) Order 1985 (the "1985 Order"), implementing the State Immunity Act 1978 (the "1978 Act") in the Bailiwick of Jersey.
(ii) That the Republic does not have an interest in the Shares sufficient to engage its immunity pursuant to the 1985 Order.
(iii) That, as a consequence, Tepe was entitled to an arrêt entre mains confirmée over the Shares."
Thereafter, the appellants gave further notice specifying the grounds in support of their Re-Amended appeal.
37. The appellants had originally challenged two further findings. The first was regarding the jurisdiction of the Royal Court to order the return of the Securities and the second concerned the leave given to Tepe to enforce the awards pursuant to Article 42(1) of the Arbitration Law. Neither of these findings was ultimately the subject of challenge in the course of the appeal.
38. In its Notice & Cross Appeal, the respondent states that it will ask the Court of Appeal to affirm the order made by the Royal Court in respect of its confirmation of the interim arrêt entre mains in favour of the respondent and to dismiss the appeal of Botaş. The respondent gave notice that it would contend that the Royal Court's decision to confirm the interim arrêt should be affirmed on the following further grounds:-
"i. The Court failed to apply Section 14 of the Act. Where enforcement is against assets owned by a separate entity, immunity only applies in the circumstances set out in Section 14. It having been conceded by Botaş that it has no immunity under Section 14, it is not open to the Republic of Turkey and/or Botaş to assert a separate immunity under Sections 6(4) or 13(2)(b) in order to circumvent the applicability of Section 14 and the attendant lack of immunity by reason of Section 14.
ii in the alternative:
a. The Court was wrong to find in paragraph 93 of the Judgment that Section 13(2) only applies where there is a judgment against the State in question. Section 13(2)(b) applies in the context of the process of enforcement of an arbitral award against the property of a State irrespective of whether there is a judgment against the State...
b. if, Section 13(2)(b) applied (and the Shares were the property of the Republic of Turkey), the commercial purposes exception in Section 13(4) would apply.
iii. in the further alternative:
a. the Court was wrong to find that Section 6(4) applies. Section 6(4) only applies to adjudicative proceedings in circumstances where proceedings are brought against a party (other than a State) and involve competing claims over property of which the State claims to be in possession or control or in which it claims an interest. The application for an arrêt entre mains is properly characterised as enforcement proceedings in relation to which Section 14, alternatively Section 13(2)(b) apply (see above), but not section 6(4); and
b. if Section 6(4) applies, the Court was entitled to entertain the proceedings by reason of the application of the commercial transaction exception in Section 3.
iv. The Court was wrong to find in paragraph 144 of the Judgment that the principle of parallelism in Turkish law has the result that the consent of the Council of Ministers is required for a change of ownership of the Shares...
Tepe will ask the court of Appeal to set aside the following findings of the Royal Court:-
(i) That an arrêt entre mains will only be imposed on a foreign situated debt where the foreign court would regard the debt as automatically discharged by the order of the Jersey court (paragraphs 216 to 220 of the Judgment).
(ii) That the right of set-off as between Botaş and BIL justified the Court's refusal to confirm the arrêt entre mains over the BIL Debts (paragraphs 274 to 280 of the Judgment)."
The respondent does not appeal against the refusal to confirm the arrêt in respect of the debts due by TPIC to Botaş upon that basis that these debts are said to be "relatively modest". The issues before this Court in relation to the debts therefore concern only enforcement of the Awards in favour of Tepe against the debts due by BIL to Botaş.
39. These Notices and grounds are supported by appellants' submissions and respondent's contentions filed in this Court and by the oral submissions which were made before the Court by Advocate Evans for the appellants and by Advocate Moran for the respondent.
40. In light of these grounds of appeal, and not least because the contentions for the appellants and the respondent overlap to a certain extent, we shall address the issues raised by the appeals under the following headings (and we refer in each case to the findings challenged by the appellants and respondent, and the further grounds for the respondent, all as set out in the Re-Amended Notice of Appeal and Notice & Cross Appeal just quoted):-
(i) The provision contained in the Act which is applicable to the establishment of sovereign immunity in the circumstances of this case (Notice for the respondent, further grounds i, ii, a and b, and iii, a);
(ii) Whether sovereign immunity has been established in respect of the Shares (Notice for the appellants, challenged findings (i), (ii) and (iii); Notice for the respondent, further ground iv);
(iii) In the event that sovereign immunity has been established, whether the exception for commercial purposes applies (Notice for the respondent, further ground iii, b);
(iv) Whether the arrêt should be confirmed in respect of the debts due by BIL to Botaş (Notice for the respondent, challenged findings i and ii).
As will be apparent, issues (i), (ii) and (iii) relate to sovereign immunity and to matters raised in the appeal by the appellants, and issue (iv) relates to matters raised in the cross appeal by the respondent.
41. The appeal and cross appeal were supported by extensive written submissions and contentions which were supplemented by the oral submissions presented by Advocate Evans and Advocate Moran. In relation to issues (i) and (ii) we provide at this stage a summary of these which arise in the context of whether in principle sovereign immunity can be established in respect of the Shares.
42. Advocate Evans who appeared for the first to third appellants relied upon the Minister's letter and the Ambassador's Certificate and referred to aspects of Turkish law. He referred to the finding of the Royal Court that the principle of parallelism has the result that the consent of the Council of Ministers would be required for any disposal, liquidation or similar of a subsidiary of a State Enterprise. In summary, the Republic can dispose of the Shares, determine the capital and control the composition of the boards of TPIC and BIL. Botaş considers itself subject to these restrictions. The restrictions contained in paragraph 53(3) of Decree Law 233 will always be engaged when state immunity is an issue. Advocate Evans emphasised that by the principles of state immunity it was not appropriate to implead a foreign State whether or not that State had participated in the proceedings. He referred to the common law authorities and submitted that they made no distinction between adjudicative proceedings and enforcement proceedings. There is no logical basis for distinguishing between the delivering up of property in which a state has an interest and enforcement against such property. This was supported by the United Nations Convention on Immunities of States and their Property ("the UN Convention") which, although it was not in force or ratified, was helpful in an immunity context. He referred to the associated Report of the International Law Commission, at paras (11) and (12) on pp 24-25. He referred to AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm) and to O'Keefe and Tams, The United Nations Convention on Jurisdictional Immunities of States and their Property (2013), at pp 109 and 315-6. He emphasised that the property of a State was not restricted to ownership.
43. Advocate Evans then referred to the law in Jersey by reference to the Act. Sections 1, 6(4) and 13(1) and (2)(b) make it clear that one cannot enforce against the property of a State. Section 14(1) refers to an entity distinct from the executive organs of the government of a State. Section 6(4) does not codify the rule but by giving an exception to the wider rule demonstrates that the common law rule against direct impleadment continues to apply. This rule does not distinguish between types of proceedings and is about interference with property. Belhaj v Straw [2015] 2 WLR 1105 demonstrates that section 6(4) expressly reflects the prohibition on indirect impleadment. The decision in Rahmatullah v Ministry of Defence [2014] EWHC 3846 (QB) confirms that the rule is reflected in section 6(4) and the common law position remains. Advocate Evans referred to Fox and Webb, The Law of State Immunity (Third Ed), at p 167, and Alcom Ltd v Republic of Colombia [1984] AC 580. The position of the respondent is contrary to the common law, international law and common sense and that is made clear by the UN Convention. The first sentence of paragraph 92 of the Royal Court judgment is wrong for these reasons. The respondent has submitted that section 14 is the complete answer to the claim because it provides no immunity when the asset is owned by a separate entity. The appellants accept that Botaş is a separate entity but not that the conditions of section 14 are satisfied. AIG shows that the immunities contained in sections 13 and 14 are supplementary and that they can both be engaged at the same time. Section 14 does not preclude a state asserting an interest in or control over property. Advocate Evans referred to Belhaj, and to the territorial basis of English law: see Masri v Consolidated Contractors International Co SAL [2009] QB 450, per Lawrence Collins LJ at para 46; which demonstrate that the test is of "some legal foundation under any legal system", and this is consistent with the common law cases such as Compania Naviera Vascongado v Steamship "Cristina" and others [1938] AC 485 ("The Cristina"). In the particular case of BIL, there is a legal foundation in Jersey by reference to its Articles.
44. Advocate Evans referred to what were the nature of the interest and the nature of control. He questioned the finding of the Royal Court (at para 186) that the Republic was not in control "in the sense of having absolute control on a day to day basis" and suggested that that was not a test derived from the case law but one formulated by the Royal Court. The critical question is not who has day to day control but who controls the disposal of the assets whether by reference to section 6(4) or 13(2)(b). The process of execution seeks to take away the very asset which the State has the power to prevent. Both interest and control are met in the present case. The Republic has the power to dispose of the Shares and has control over the Boards of TPIC and BIL. The result is that the Republic has unilateral power to require a transfer of the shares from one company to another or to itself. Law 4046 on privatisation applies to the Shares and thus restricts their potential disposal. All of these give legal foundation demonstrating that the Turkish legislative provisions and Decisions meet all of the indicia for interest and control. The situation is analogous to that in the common law cases of The Cristina and USA and Republic of France v Dollfus Mieg et Cie SA and the Bank of England [1952] AC 582 ("Dollfus Mieg"). The case of France Fenwick & Co Ltd v The King [1927] 1 KB 458 which had been cited by the respondent can be distinguished because in the present case there is an immediate right to possession under Turkish law. The Republic could transfer the Shares into government ownership. Immunity is not established simply because the Republic indirectly owns the Shares although that is part of the background. The specific provisions of Turkish law referred to apply only to the Shares and impose restrictions on the transfer and disposal of the Shares. The Republic has de facto power to exercise control and has already done so. Turkish law regulates the appointment of the directors of TPIC and BIL and that has been put into effect. That is not simply an indirect consequence of ownership and where the Republic orders a state-owned company to transfer shares into other ownership it is not just acting as a shareholder but passes a specific piece of Turkish legislation.
45. In respect of the law on parallelism, the Royal Court had accepted the evidence of Doctor Çal who was the more expert witness on administrative law. The respondent adduced no evidence on this topic and the Royal Court was correct to accept it. The finding on parallelism should stand.
46. In reply for the respondent, Advocate Moran submitted that section 14 is conclusive and is in two parts. Section 14(1) sets out what is meant by a State and distinguishes a separate entity, and section 14(2) sets out the circumstances in which a separate entity may have immunity from jurisdiction and enforcement. A separate entity means an entity which is state-owned or operated: see Lord Goff in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2001] 3 WLR 1117. There is no dispute that Botaş is a separate entity of the State and separate entities are subject to a presumption of non-immunity. If there is no immunity from jurisdiction, there is no immunity from execution except in the case of a central bank: see section 14(4). Although a separate entity which has immunity and which submits to the jurisdiction may still have immunity from the seizure of its assets: see section 14(3); that is dependent upon its having immunity in the first place. Otherwise, an entity which is a separate entity has no immunity and all of its property is available for execution. Advocate Moran referred to Dicey, Morris and Collins, The Conflict of Laws (Fifteenth Edn, 2012), at p 9, which is a consequence of section 14, and Yang, State Immunity in International Law (2013), at paragraph 5.3. Section 14 means that if there is no immunity, all of the assets of Botaş are available for execution and would be immune only for sovereign acts. A State can choose how to structure its own affairs and if the ownership of assets in foreign jurisdictions is entrusted to a separate entity, the assets will in principle be available to satisfy the debts of the separate entity. Botaş has never had any right to immunity because it has never exercised sovereign functions. Advocate Moran referred to Hemisphere.
47. In the alternative, Advocate Moran submitted that the view of the Royal Court that section 13 could only apply where there was a judgment against a State itself was not correct. Section 13(2)(b) does not say "judgment or arbitral award against the State". She referred to passages from Hansard on the State Immunity Bill [HL], 17 January and 16 March 1978, to the European Convention on State Immunity 1972, ("the European Convention"), Articles 23 and 26, and to AIG. Advocate Moran submitted that any protection in the present case would arise under section 13 not section 6. There is complete separation within the Act and adjudicative and enforcement proceedings are treated together only in section 10, which relates to admiralty actions, and in section 14, which relates to state entities. An arrêt is a remedy in rem and the present action is one in rem to arrest the Shares. If there were to be any immunity of the Republic or of Botaş, it would have to be in sections 13 or 14 and not section 6(4). The Act provides that a judgment can be enforced against a State but not against the property of a State unless an exception applies but the judgment can be enforced against anything that is not the property of a State including a state entity.
48. Advocate Moran then considered what constituted the property of a State for the purposes of section 13(2)(b). There was no dispute that the Shares were and had been legally owned by Botaş. In Hemisphere, Lord Mance said (at paras 28-30) that save in very exceptional circumstances the assets of a state entity are not to be considered the assets of a State. This was consistent with Alcom, AIG and the European Convention. The wording used in section 6(4)(a) and (b) was wider in scope than the property of a State. If the legislature had intended section 13(2)(b) to be wider, it would have said so. The appellants were inviting the Court to re-write section 13(2)(b). If the appellants were correct, section 14 would be rendered pointless. By reference to Hemisphere, it would not be possible for a creditor of the Republic to enforce its debt against the Shares which are legally and beneficially owned by Botaş. If the Court found that the Shares were the property of the Republic, then state immunity would be largely swept aside because judgment creditors throughout the world would become entitled to seize indirectly owned assets. Advocate Moran referred to O'Keefe and Tams and Fox and Webb, and to what were the elements of possession, interest and control. She submitted that the common law is wider than the Act: see Fox and Webb, Chapter 7, at p 1; and the purpose of the Act was to restrict the common law. By reference to p 167, and Holland v Lampen-Wolfe [2000] 1 WLR 1573, anything covered by Part 1 of the Act is not now covered by the common law.
49. Advocate Moran referred to the common law cases under reference to section 6(4). In the case of possession, Dollfus Mieg concerned an adjudicative claim and the governments had a right of immediate possession of the gold bars in question under a contract of bailment. In The Cristina, the Spanish government had practical possession (as well as control) after the requisitioning of a ship registered in Spain with a Spanish owner. In the case of interest, the circumstances in The Parlement Belge (1880) 5 PD 197 demonstrated that actual ownership is sufficient to establish interest. In Juan Ysmael & Co v Government of the Republic of Indonesia [1955] AC 72 the government failed to establish interest because the contract of sale upon which it relied was manifestly defective. In Rahimtoola v Nizam of Hyderabad [1958] AC 379, the State held legal title to money and the right to sue the bank for its return. The more recent cases of Rahmatullah, Belhaj and Fawaz Al-Attiya v Hamad Bin-Jassim Bin-Jaber Al Thani [2016] EWHC 212 (QB) were examples of the fact that the interest in question must be a legal interest, not a political or social interest in a more general sense. In the case of control, the only case decided on this basis was The Cristina. France Fenwick demonstrated a distinction between the exercise by a State of a power to prohibit the unloading of the cargo of a ship, which did not amount to requisition, and actual requisition.
50. Advocate Moran applied these principles to the present circumstances. In the case of possession, it was common ground that the Shares were in the possession of Botaş. The Republic could pass a decree transferring the shares to the Republic but it had taken no steps to do so. The Republic had the power to "requisition" the Shares but had not exercised it. In the case of interest, the Republic has no legal or beneficial interest in the Shares. The only legal interest under Jersey law is that, under the Articles of Association of BIL (but not TPIC), the Republic has the right to appoint directors, but having done so it has no control over them and they are obliged to behave under Jersey law like any other director. This is not in any event an interest in the Shares but rather an interest in the activities of BIL and TPIC. In the case of control, Botaş was 100% owned by the Republic. It had been established as a state economic enterprise and it is effectively a commercial business with the ability to set up subsidiaries and sell them. By reference to Decree Law 233, Botaş is a State Economic Enterprise not a monopoly. By reference to paragraph (3) of Article 58, the Committee of Ministers may authorise enterprises to set up foreign subsidiaries which are not otherwise covered by Decree Law 233 and such enterprises are thus free to dispose of their shares. Botaş is included in the list annexed to Decree Law 233 and thus is subject to the law, but neither TPIC nor BIL as subsidiaries of Botaş are on the list and are thus not subject to it. As a result, Botaş has the authority to sell the Shares without the permission of the Republic. In relation to the privatisation law, Law 4046, its scope is wide. It may apply to anything which is state-owned, including Botaş and its assets but the key point is that it applies only to a voluntary disposition. It would not apply to the attachment of assets. In relation to the law on parallelism, Advocate Moran accepted that having authorised the establishment of TPIC and BIL, the Republic could authorise Botaş to transfer the Shares either to the Republic or elsewhere but she did not accept that parallelism prevented Botaş from selling the Shares. In relation to attachment under Turkish law, and although it had been confirmed that the share certificates were still in Turkey, the Royal Court erred because if the Republic was rightly asserting control over the Shares, then one would assume that they could not be attached in Turkey. It is not consistent with the Republic having sufficient control that assets can be attached under Turkish law. The power of the Republic to direct Botaş in relation to the Shares is an economic power of the sort which arises in relation to any State Enterprise. Article 28 of Decision 2014/6842 is of general application and is an obligation on Botaş under Turkish law which is not referred to in the Articles of either TPIC or BIL and is thus not a matter of Jersey law. The law on public procurement applies to all State Enterprises and is a law of general application and does not give the Republic any control of TPIC or BIL.
51. In relation to the finding of the Royal Court on parallelism, the question is whether Botaş itself, having established TPIC and BIL, has equal authority to undo the act. The finding of the Royal Court should be overturned because what had been said by Professor Kamal Gözler in his work on Administrative Law ("Gözler"), at p 754 (which had been provided in evidence in translation) disagreed with the expert evidence of Dr Çal.
52. In summary, Advocate Moran submitted that section 14 of the Act applies and, if not, reading sections 13 and 14 together, one may apply section 13 even where there is no judgment against the State so long as the property in question is the property of a State. On the evidence, as the Royal Court concluded, the Shares were not the property of the Republic. If it were necessary to consider section 6(4), none of possession, interest or control had been established. If the appellants were to be successful, almost every indirectly owned subsidiary of every State which is incorporated abroad would have immunity. The present is not a case of requisition or immediate possession and, if the Republic had wanted to have sufficient interest and control over the Shares, it would have needed already to have passed a decree requiring Botaş to transfer the Shares to the Republic. Only that would be analogous to a requisition case.
53. In reply on the application of sovereign immunity, Advocate Evans submitted that whether the proceedings were adjudicative or enforcement proceedings should make no difference: see Fox and Webb, at p 481. The expression "the property of a State" used in section 13(2)(b) is a "shorthand" not only for property that a State owns, but also property that it does not own but which is in its possession or which it controls: see the commentary in O'Keefe and Tams on the UN Convention and the associated International Law Commission. The drafting process demonstrated that it was accepted by all state parties that property which was not owned by a State but of which a State was in possession or which it controlled, was caught by the immunity. By reference to the judgment of Aikens J in AIG at para 45, the expression "the property of a State" in section 13(2)(b) went beyond purely ownership interests. In AIG, none of the parties had contended for the existence of anything other than a contractual or beneficial interest and thus Aikens J did not have to consider the wider concept of interest and/or control. If a contractual interest is sufficient to render an asset "the property of a State", the Turkish law provisions are the same in effect because Botaş has agreed with the Republic not to dispose of the Shares without its consent which is the equivalent of a contractual interest. In relation to the common law cases and the distinction between adjudicative proceedings and enforcement proceedings, the claims against ships were in rem claims which had long been considered a hybrid category which involved both adjudication and enforcement. The respondent had never explained why this distinction had any rational basis since both types of proceeding interfere with a State's sovereign interests in the same way. It is generally accepted that enforcement immunity is a stricter immunity than adjudicative immunity and it is wrong to suggest otherwise for the obvious reason that when steps are taken to seize assets which a State owns or in which it claims an interest or which it controls, then the consequences of those steps are more severe than if a court simply orders a State to pay money: see Fox and Webb, at p 481, and O'Keefe and Tams, p xxxix. The interest and/or control immunity must apply to the facts of this case. It either falls within the concept of "the property of a State" in section 13(2)(b) consistently with the approach taken by the UN Convention and in AIG, or it is contained within the common law principle which is reflected in section 6(4) and which was the approach taken by the Royal Court. The fact that different wording is used in sections 6(4) and 13(2)(b) (as well as in Section 10) suggests a greater degree of drafting precision than in fact existed, see the reference to "a convoluted style of draftmanship" by Lord Diplock in Alcom. Advocate Evans referred also to passages from Hansard, and to Fox and Webb, at p 165.
54. As for section 14, the present case does not concern whether Botaş has immunity as a separate entity. Botaş itself has never asserted any immunity under section 14. This case is concerned with immunity asserted by the Republic. Section 14 grants separate entities a separate and additional immunity to those granted to a State but that does not have the effect of excluding an immunity that a State would otherwise be able to claim if it did not own the shares in the company that owns the property. This could be seen from the judgment of Lord Mustill in Kuwait Airways, at p 1171 and in AIG where it was recognised that both the National Bank of a State and the State itself could have different types of interest in immunity in the same property.
55. In relation to the decision of the Privy Council in Hemisphere, that case was about whether a judgment against a State could be enforced against the assets of a wholly state-owned company. Lord Mance observed that the assets which are protected by State immunity should be the same as the assets against which the State's liabilities can be enforced: see paragraph 29. This means that the test for determining whether a state-owned entity is an organ or alter ego of a State should not change depending on whether the entity is claiming immunity or whether (as in that case) it was being held responsible for the State's debts: see para 255 of the judgment of Pleming JA in the Court of Appeal. The Privy Council was not addressing the question which arises in the present case which is where a separate entity is not an organ of the State and has its own interest, but the State itself has some separate interest in or control over particular assets of the entity.
56. In relation to the indirect interest which the Republic has as 100% shareholder in Botaş, it is accepted that something more is required and it is that under Turkish law the Republic may exercise its sovereign power to direct Botaş to transfer the Shares. This applies only to foreign companies incorporated under Article 58(3) of Decree Law 233. In relation to the privatisation law, Law 4046, even if it might apply to all assets of Botaş and not just the Shares, that does not change the fact that there are further specific provisions of Turkish law applying directly and only to the Shares. The cross-examination of Dr Çal applied only in the context of a voluntary transfer of a public asset to a private party and the evidence of Professor Cerrahoğlu did not address Law 4046 at all. It was not open to the Royal Court to draw the conclusion that Law 4046 extends to all assets of State enterprises as that was not put to the experts at first instance and in a situation where the Royal Court was relying on translations from the original Turkish. In relation to attachment, the Shares could not be subject to attachment in Turkey as they are not in Turkey and, in any event, sovereign immunity issues could not arise in Turkey. The fact that a Turkish court might have power to order enforcement against particular assets does not affect the interference which would arise from a foreign court deciding to enforce against those assets.
57. In seeking to challenge the findings of the Royal Court in accepting Dr Çal's evidence on the Turkish administrative law principle of parallelism, the respondent has not met the high threshold required. The fact that Decree Law 233 which might otherwise regulate the sale of TPIC and BIL did not apply was not put to him in cross-examination.
58. Having reviewed the parties' contentions, we turn to determine the issues which arise under the headings identified above.
59. This issue concerns the section of the Act which is applicable to the proceedings before the Royal Court. Allied to that is whether the proceedings are properly to be characterised as adjudicative proceedings or enforcement proceedings.
60. The Royal Court found that it was section 6(4) but that is challenged by the respondent, and the respondent has also relied upon section 14. In order to address this issue, we begin by referring in detail to the Royal Court judgment.
61. At the outset in addressing the categorisation of the proceedings, the Royal Court acknowledged that:-
62. The Royal Court noted (at para 77) that the distinction was acknowledged in the case of Alcom Ltd v Republic of Colombia and others where, in dealing with the Act, Lord Diplock said (at [1984] 1 AC, p 600):-
63. The Royal Court also referred (at para 78) to the distinction between adjudicative and enforcement proceedings which is described in Fox and Webb at pp 173-174, as follows:-
64. The Royal Court noted (at paras 79-84) that Dicey, Morris and Collins, at paras 10-010 and 10-014 is to like effect and observed that the "difference has also recently been authoritatively reiterated by the International Court of Justice (ICJ) in Jurisdictional Immunities of the State (Germany v Italy; Greece intervening) ICJ Reports 2012" ("Germany v Italy"), in which the judgment of the Court said:-
65. The Royal Court concluded:-
66. Against this background, the Royal Court proceeded (commencing at para 86) to consider which is the applicable provision in the Act. The position of the appellants which was advanced by Advocate Nicholls who then appeared on their behalf, was that the Court was concerned with the principles described in the common law cases which we shall consider below and which are broadly reflected in section 6(4), that is to say, does the Republic have control of or a prima facie claim to an interest in the Shares sufficient to attract immunity? If so, sovereign immunity applies and that is an end of the matter. On behalf the respondent, Advocate Moran contended that the Royal Court was concerned with the enforcement stage which is dealt with in section 13(2)(b) and immunity only applies under that section to "the property of a State". It is not sufficient for a State merely to have a claim to control of or an interest in the property; it must satisfy the Royal Court that the property in question is "the property of a State". The respondent relied upon the distinction between the adjudicative and enforcement jurisdictions of the Royal Court and submitted that the present case was concerned with enforcement. As the Royal Court put it (at para 88) "The imposition of an arrêt over the Shares was a means of enforcing a judgment (or in this case an arbitration award declared to be enforceable as a judgment) under the Arbitration Law". The Royal Court referred to the adoption of the approach of Lord Diplock in Alcom in the case of AIG Capital Partners Inc v Republic of Kazakhstan [2005] EWHC 2239 (Comm).
67. The Royal Court then noted that Advocate Moran for the respondent had argued that the Shares are not the property of the Republic. They are legally and beneficially owned by Botaş which is a separate entity and not entitled to any immunity. The Republic has no legal, equitable or contractual right or interest in the Shares. In reply, Advocate Nicholls for the appellants referred to section 10 of the Act which deals with Admiralty proceedings and confers immunity in relation to ships and cargo and in respect of which the immunity was conferred on a ship or cargo "belonging to a state". This expression was defined in section 10(5) as including references to "... a ship or cargo in its possession or control or in which it claims an interest". For the appellants it was submitted that the expression "the property of a State" in section 13(2)(b) must be interpreted in like manner.
68. In response to these arguments on the effect of section 13(2)(b), the Royal Court supported the position of the respondent. It drew attention to the absence of any provision equivalent to section 10(5) within section 13 and concluded:-
69. The Royal Court then proceeded to provide its reasoning in support of that final conclusion (commencing at paragraph 93). The Royal Court accepted the distinction between adjudicative jurisdiction and enforcement jurisdiction but stated that:-
70. The Royal Court noted that there appeared to be no authority for this proposition but then referred to what was said in SerVass Inc v Radifian Bank [2013] 1 AC 595, where Lord Clarke of Stone-cum-Ebony said (at para 9) that the issues were solely concerned with the scope of a state's immunity "from execution of a judgment given against it which is governed by section 13(2)(b) and 13(4)", and in AIG, where Aikens J said (at para 43) that "The jurisdiction of the UK courts as to enforcement against a state is dealt with by Section 13". In both cases, the Royal Court emphasised the references to judgment which had been given against a State. The Royal Court also referred to the judgment of the ICJ in Germany v Italy at para 113 where it was stated that "Even if a judgment has been lawfully rendered against a foreign State... it does not follow ipso facto that the State against which judgment has been given can be the subject of measures of constraint on the territory of the forum State... with a view to enforcing the judgment in question."
71. The Royal Court judgment continued:-
72. The Royal Court then stated (at para 96) that this was not a situation clearly envisaged by the Act and that it had not found it easy to fit the facts into the scheme of the Act. This appeared to be something of a hybrid situation such as referred to by Lord Diplock in Alcom. The Royal Court provided the reasoning for its decision as follows:-
73. The Royal Court then drew an analogy by reference to the circumstances in the case of Juan Ysmael which we discuss below and concluded:-
74. The Royal Court has found that it is section 6(4) of the Act which applies. With respect, this Court does not agree. It is clear, as the Royal Court has acknowledged for itself, that Part 1 of the Act deals separately with adjudicative proceedings and enforcement proceedings, and section 6 falls within the sections dealing with the former. This division within Part 1 is clearly described by Lord Diplock in Alcom and this Court has no reason to disagree with what is an authoritative statement on the structure of the Act of the highest order. Section 13 falls within the sections dealing with the latter and is concerned with enforcement proceedings.
75. In our judgment, consideration of whether the enforcement of the Awards falls within the ambit of adjudicative proceedings or enforcement proceedings begins with the power which is given in Article 42(1) of the Arbitration Law. What that provides is that an international arbitration award "shall, subject to the following provisions of this Part, be enforceable in Jersey either by action or in the same matter as the award of an arbitrator is enforceable by virtue of Article 29." The respondent has followed that procedure in this case in seeking the enforcement of the Awards. In our judgment, that demonstrates that proceedings taken to enforce an international arbitration award are on the face of it enforcement proceedings. It is the case by reference to the succeeding provisions, in particular Article 44(2) and (3), that circumstances may exist which lead to the refusal on the part of the Royal Court to enforce an international arbitration award but that is incorporated by Article 42(1) as part of the enforcement process and it does not bring that aspect into the category of adjudicative proceedings. Proceedings taken pursuant to Article 42(1) are therefore in our judgment enforcement proceedings.
76. One then turns to what is provided for in section 13(2)(b) and section 6(4) of the Act. Section 13(2)(b) states that "the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale." Once again on the face of it, that formulation fits precisely with the situation in which the respondent is seeking to enforce the Awards against the Shares which are alleged by the appellants to fall within the description of the property of the Republic such that the exclusion provided is activated by reason of sovereign immunity. Indeed, not only does the respondent seek enforcement of the Awards against the Shares as such property, the Shares are also subject in these proceedings to an action in rem for their arrest. A situation in which a party is seeking to enforce arbitration awards against property which may be the property of a State is therefore a situation to which section 13(2)(b) appears to apply.
77. In the case of section 6(4), not only is it within the sections of the Act dealing with adjudicative rather than enforcement proceedings, but its terms do not suggest that it is intended to be applicable to enforcement proceedings. It applies where "proceedings relate to property" and that suggests proceedings between parties over the property itself. In this case, the dispute is not about the Shares themselves as their ownership by Botaş is not in dispute, but rather about whether the background circumstances and the position of the Republic can give rise to sovereign immunity. That is the situation with which section 13(2)(b) is concerned.
78. The Royal Court explained its conclusion (at para 93) by reference to the fact that in its judgment the immunity in relation to enforcement which is reflected in section 13 arises only where there is a judgment against the State in question. We do not agree. It does not appear to us that there is anything within section 13(2) as a whole, nor in subsection (2)(b), which requires a judgment (or award) to be enforceable against the State before it can fall within the jurisdiction of the Royal Court to enforce. That is not something which is stated within section 13(2)(b) as there is no reference to the nature of the proceedings in respect of which enforcement is sought. In this respect, a distinction may be drawn with section 13(1) which prohibits the imposition of sanctions against a State in respect of "proceedings to which it is a party". Section 13(2)(b) contains no such qualification in relation to the nature of the proceedings in respect of which enforcement is sought.
79. The Royal Court suggested that its view is "self-evident" because assets belonging to a party can only be taken to satisfy a judgment against that party. That may be so as a matter of general principle but, with respect, it does not encompass the present situation. The assets here, namely the Shares, belong to Botaş which is the party against which the Awards have been made. The issue of potential state immunity is a separate one which arises because the Republic asserts that it has sufficient interest in and control of the Shares to result in their being immune from the enforcement which is sought. That is not an issue which depends upon the nature of the particular judgment or award which has been given, nor against whom it has been given, but it arises out of the existence of the concept of state immunity formerly under the common law and now under the Act. As we have already said, the wording of section 13(2)(b) fits precisely within a situation where arbitration awards are sought to be enforced against property which a State claims is subject to sovereign immunity. As such there is nothing within section 13(2)(b) which appears to preclude its application just because the awards have not been made against the State itself. The assessment of whether or not that claim to sovereign immunity is justified is a question which arises because section 13(2)(b) is engaged and not a question which is separate from it.
80. The Royal Court acknowledged that there appears to be no authority on this point but it referred to passages in the judgments in the Supreme Court in SerVass, in the High Court in AIG, and in the ICJ in Germany v Italy. These cases were all concerned with judgments which had been given against a State and whilst this Court acknowledges that the passages referred to by the Royal Court do refer only to the enforcement of a judgment against a State, it appears to us that what was said was no more than a description which was apposite in the circumstances of the particular cases, and should not be taken as excluding a situation such as the present in which what is provided for in section 13(2)(b) is otherwise applicable. In SerVass, Lord Clarke said (at para 9) that the Supreme Court was "solely concerned with the scope of [a State's] immunity from execution of a judgment against it which is governed by section 13(2)(b) and 13(4)" but that statement appears to us to be no more than a description of the applicability of these subsections of section 13 in such a situation rather than a definitive statement that their application is confined only to such a situation. The same may be said about the passages quoted from the judgments in AIG and Germany v Italy.
81. The position in the case of the European Convention is also the same. Article 23 states in part that "No measures of execution... against the property of a Contracting State may be taken in the territory of another Contracting State...". Nothing is said to suggest that this that can apply only where there is a judgment or award against the Contracting State in question. In contrast, Article 26 does refer to the manner of enforcement of "a judgment rendered against a Contracting State" in particular proceedings relating to an industrial or commercial activity, but it does so "Notwithstanding the provisions of Article 23". It may be inferred that it is Article 23 which provides the overall protection with additional and particular provision being made in Article 26. Likewise, in promoting an amendment in the House of Lords to the State Immunity Bill which introduced what became section 13(2)(a) and (b) of the Act, the Lord Chancellor (Lord Elwyn-Jones) on 16 March 1978 said that other than in the case of proceedings relating to ships and cargo, "States will remain immune from execution being levied against their property". His Lordship did not suggest that this was limited only to cases where there was a judgment or award against the State itself. We regard each of these separate sources as consistent with the fact that section 13(2)(b) provides protection against enforcement in the case of "the property of a State" whether or not the judgment or award being enforced is against the State itself.
82. In reaching its conclusion (at para 96), the Royal Court stated that the present circumstances might be described as a "hybrid" situation such as referred to by Lord Diplock in Alcom. Although Lord Diplock did refer to there being hybrid situations and ones in which it was not possible to identify clearly whether proceedings were adjudicative or enforcement, it is our view that that does not apply in the circumstances of this case. The Royal Court explained its position (at para 96) by saying that "The Court is being asked to adjudicate on the existence of the control or interest of the Republic rather than ruling on whether a liability of the Republic can be enforced against assets of the Republic (which is the situation envisaged in the enforcement jurisdiction as reflected in section 13)." It appears to us that the need to "adjudicate" on whether the Shares are the property of the Republic is something which is inherent in the enforcement process provided for by section 13(2)(b) in a situation where a State claims an interest sufficient to justify sovereign immunity. It does not give rise to a need to "adjudicate" on something which falls outwith what is dealt with in section 13(2)(b); rather it is a part of what it provides for. The fact that the Royal Court might decide to refuse enforcement on the ground of sovereign immunity is an inherent part of that process and does not take it beyond what are properly enforcement proceedings.
83. This leaves the contention by the respondent that the situation in this case is truly one which is covered by section 14. That is said to be because we are dealing here with an entity rather than with the State itself. In our opinion, the present is not a situation which falls within section 14. These proceedings concern the enforcement of international arbitration awards and for the reasons already explained we regard that as falling within the scope of section 13(2)(b). These are not proceedings against a state entity as such, but rather enforcement proceedings, including proceedings to arrest in rem, which are directed against particular property rather than against a state entity itself. Whatever might be the situation were proceedings to be raised against TPIC or BIL for the purpose of establishing rights against these entities, and which could be a situation in which section 14 would become engaged, that is not the situation where what is being sought is enforcement against Botaş in respect of the Shares in those companies in particular by proceedings in rem. We repeat that in our judgment the circumstances fall precisely within what is provided for in section 13(2)(b), that is to say proceedings for the enforcement of international arbitration awards, and as such we consider that section 14 is not engaged.
84. We are therefore satisfied that the enforcement of the Awards is subject to the potential sovereign immunity which may be established pursuant to section 13(2)(b) of the Act. The result is that the arrêt may be confirmed unless it is the case that the Shares are properly which is to be regarded as "the property of a State", namely the Republic, in which case enforcement will be excluded by the operation of section 13(2)(b).
85. This issue turns initially on what is the effect of section 13(2)(b) which we have found to apply. The Royal Court observed (at para 92) that had the situation been one in which section 13(2)(b) applied, the respondent would succeed because the Shares which are owned by Botaş are not the property of the Republic. The Royal Court proceeded upon the basis of section 6(4), which we have found not to apply, and this might suggest that because we have held that it is section 13(2)(b) which applies, the issue can be resolved immediately in favour of the respondent. This is not accepted by the appellants and we have heard submissions on the meaning and effect of the expression "the property of a State" is section 13(2)(b). These raise the overall issue of whether sovereign immunity may be asserted in respect of the Shares.
86. In turning to address what is the effect of section 13(2)(b) in this case, we begin by looking at the common law authorities which were considered by the Royal Court (at paras 63-75) and which were referred to before us in particular by Advocate Evans for the appellants. It was common ground before the Royal Court and before us that whether or not the Shares are subject to the sovereign immunity of the Republic may be considered against the background of the pre-existing common law which applied equally to Jersey (albeit that Advocate Moran submitted that the common law was wider than the Act). That is in principle because the Act translates into legislation pre-existing rights and obligations derived from international law.
87. The first common law authority is The Cristina (that is Compania Naviera Vascongado v Steamship "Cristina" and others). The circumstances were that the Cristina was a ship belonging to the appellants who were a Spanish company registered at Bilbao which had been the subject of a decree made by the Spanish government requisitioning all vessels registered in that port. Upon arrival in Cardiff, the Spanish consul had boarded the vessel, stated that she had been requisitioned, dismissed the master and put a new master in charge. The appellants issued a writ in rem claiming possession of the Cristina as their property. The Spanish government entered a conditional appearance upon the basis that an order should not be made as it would implead a sovereign foreign state. The House of Lords agreed holding that the courts of England would not allow the arrest of a requisitioned ship because this would have the effect of impleading a foreign state. There are two passages in the speech of Lord Atkin which are particularly relevant (at pp 490-491):-
The two principles described by Lord Atkin were affirmed by Lord Wright (at pp 503 and 506) as noted by the Royal Court (at para 66). In relation to the circumstances, the Royal Court referred to what Lord Wright said (at p 513):-
The proposition that a foreign state may not be impleaded even where it is not a party to the particular proceedings is not in issue in the present case and is embodied in section 1(2) of the Act. What was critical in The Cristina was why it was that sovereign immunity had been established where a ship had been requisitioned.
88. Lord Atkin (at p 507) distinguished the circumstances in The Cristina from those in The Parlement Belge where the mail packet in respect of which sovereign immunity had been claimed was in the ownership of the Belgian government. Lord Wright also mentioned (at p 507) the circumstances in The Broadmayne [1916] P 64 which concerned a ship requisitioned by the British government. Before us, Advocate Evans referred in particular to what had been said in that case by Swinton Eady LJ (at p 70):-
89. The next case referred to by the Royal Court was Dollfus Mieg (that is USA and Republic of France v Dollfus Mieg et Cie SA and the Bank of England). The circumstances were that the Bank of England held as bailee for the governments of the USA, France and the UK gold bars which were claimed to be the property of a French company. The bars had been seized unlawfully by the German authorities during the Second World War and taken to Germany where they were recovered by Allied forces and lodged with the Bank of England pending ultimate disposal. In the House of Lords, Earl Jowitt (at p 603-4) referred in particular to what had been said by Lord Wright and Lord Atkin in The Cristina and then himself said:-
Earl Jowitt continued (at p 605):-
Advocate Evans referred before us to the speech of Lord Radcliffe where he said (at p 617) that "the principle recognized in The Parlement Belge has been carried much further since then. It has been applied even when the sovereign had not claimed, let alone proved, that he was the owner of the property that was the subject of the action", and his Lordship then referred to examples of this including The Cristina. Lord Radcliffe also said (at pp 616-617):-
90. The Royal Court then considered (at para 73) the case of Juan Ysmael & Co v Government of the Republic of Indonesia in which the Privy Council considered an action in rem and the arrest of a ship in Hong Kong raised by Juan Ysmael upon the basis of ownership of the vessel. The Government of Indonesia resisted by claiming sovereign immunity because it said that it was the owner having bought the vessel from an agent of Juan Ysmael. The Privy Council rejected the Government's claim upon the basis that its title was manifestly defective because the person who had purportedly sold the vessel to the Government had no authority to do so.
91. The Royal Court set out a number of passages from the judgment delivered by Earl Jowitt in which he referred to the authorities, in particular The Cristina and Dollfus Mieg, including the approval by Lord Radcliffe in Dollfus Mieg of the rule stated in Dicey just quoted. Earl Jowitt continued in Juan Ysmael (at p 87):-
Earl Jowitt then referred (at pp 89-90) to The Jupiter [1924] P 236, in which Scrutton LJ had relied upon the rule, and continued:-
92. In his submissions before this Court on the common law authorities, Advocate Evans also referred to Rahimtoola v Nizam of Hyderabad. The circumstances were that during an invasion by Indian troops of Hyderabad, money contained in a bank account in the name of the Nizam and his government had been transferred without authority to Rahimtoola who was then the High Commissioner for Pakistan and who received it on the instructions of the Foreign Minister of Pakistan. The Nizam commenced proceedings against Rahimtoola and the bank which had received the funds. Rahimtoola asked that the writ in the action be set aside as against him on the ground that it sought to implead a foreign sovereign namely Pakistan. The House of Lords allowed an appeal against the decision of the Court of Appeal holding that notwithstanding that the money had been transferred to Rahimtoola wrongfully, the writ should be set aside and the proceedings against the bank stayed because it was the sovereign state of Pakistan which had legal title to the subject matter of the action.
93. Advocate Evans referred to the following passages in the speeches which were delivered. In the course of his speech, Lord Reid referred to the decision in Dollfus Mieg and then said (at p 404):-
Lord Cohen said (at pp 405-406):-
Finally, Lord Denning said (at p 417):-
It may be noted that an absence of agreement with certain of the views of Lord Denning was expressed (see the conclusions of the speeches of Viscount Simonds (at p 398) and Lord Reid (at p 404)) but it does not appear to us that such qualification applies to the passage just quoted.
94. In dealing with what had been demonstrated by the common law authorities which had been cited to it, the Royal Court concluded as follows:-
We observe that these comments were made by the Royal Court by reference to section 6(4) which it had found to apply.
95. We then turn to the reasoning of the Royal Court in support of its conclusion that the Shares are not subject to the sovereign immunity of the Republic. We do so recognising by reference to what was said by Earl Jowitt in Juan Ysmael that it is not sufficient for a State merely to assert an interest. This means that what is said in the Ambassador's Certificate and the Minister's letter cannot be determinative of the issue. It was for the Royal Court itself to be satisfied that the nature of the interest of the Republic in the Shares was or was not sufficient to establish sovereign immunity. For the reasons already explained, that is in any event the exercise which is inherent in a situation where section 13(2)(b) is applicable.
96. In assessing the evidence concerning the control and/or interest asserted by the Republic, the Royal Court began (commencing at paragraph 99) by considering the significance of the various legislative and administrative documents already discussed. The Royal Court had heard evidence on Turkish law from Dr Çal on behalf of the appellants and Professor Cerrahoğlu on behalf of the respondent. The appellants relied upon four headings which the Royal Court referred to in turn. In the case of privatisation (commencing at para 105), Law 4046 applied to the Shares as subsidiaries of Botaş. Law 4046 provided that the Privatisation High Council ("PHC"), chaired by the Prime Minister, could determine that a state-owned company was to be privatised. That was a decision for the PHC, and the appellants argued that what the respondent was seeking was in effect the privatisation of the Shares without the PHC's consent. The Royal Court noted that it was the evidence of Dr Çal that Law 4046 was concerned only with voluntary decisions to transfer assets and that the Law would not prevent the assets from being attached as the result of an order by a court in Turkey. The Royal Court accepted that as a matter of Turkish law, Botaş would require the consent of the PHC in order to dispose of the Shares but if Botaş were to sell the Shares to a bona fide third party without the consent of the PHC, the purchaser would acquire a good title. The Royal Court concluded that if Law 4046 were to operate in the way suggested by the appellants, given that it applies to all subsidiaries of state-owned entities, it would mean that all subsidiaries of all entities owned directly by the Republic would have the benefit of an entitlement to claim sovereign immunity. The Royal court observed that although the requirement for the consent of the PHC gave the Republic a level of interest or control it was not sufficient to attract sovereign immunity.
97. The Royal Court then turned (commencing at para 112) to consider the effect of Decree Law 233 in respect of TPIC and BIL. Once again, the Royal Court had heard evidence from Dr Çal and Professor Cerrahoğlu and the Court preferred the evidence of the latter. The Royal Court noted that Decree Law 233 had the effect that once established, a State Enterprise has a legal personality and is subject to the provisions of private law other than in relation to the reserved matters set forth in the Decree Law. That does not apply to TPIC and BIL because by reference to paragraph (3) of Article 58, the Decree Law does not apply otherwise to an overseas subsidiary. Article 58(3) contains an exemption provision and is so headed and once the Council of Ministers has authorised the establishment of a company abroad, that company is not subject to Decree Law 233. The Royal Court observed that this accords with the practicalities because a company incorporated abroad will be governed by the law of its place of incorporation and to be subject also to Turkish law would be "a recipe for confusion and uncertainty". The Royal Court relied on other aspects which had been the subject of evidence namely the approval of the Court of Accounts and the views of those who had advised a Minister which were consistent in demonstrating how Article 58(3) is generally understood in Turkey. The Royal Court also referred to Article 1(2) of Decision 2014/6842 which excludes subsidiaries established under Article 58(3) from Decree Law 233. The Royal Court therefore accepted the evidence of Professor Cerrahoğlu and noted that in contrast Dr Çal had simply asserted that the Court of Accounts and the Minister were wrong.
98. The Royal Court then turned (commencing at para 138) to the doctrine of parallelism which, based upon the opinion of Dr Çal, "means that any transfer of ownership of TPIC and BIL can only be achieved in the same manner as it was created i.e. by Decision of the Council of Ministers." The Royal Court noted that in the course of evidence, Advocate Moran had put it to Dr Çal that TPIC and BIL were not established by a Decision of the Council of Ministers, but rather they were established by TPAO and Botaş with the authority of a Decision of the Council of Ministers made under Decree Law 233. This had been accepted by Dr Çal and Advocate Moran had then suggested, applying the passage from Gözler at p 754, that it was Botaş (and TPAO) which thus had the power to revoke the formation of TPIC and BIL by liquidation, sale, or whatever, but Dr Çal had responded that this was a misreading. Having assessed this evidence, the Royal Court found that the principle of parallelism had the result that, where the Council of Ministers consents to the incorporation of a subsidiary of a State Enterprise, the consent of the Council of Ministers is also required for any disposal, liquidation or sale of that subsidiary, and that that conclusion applies to the Shares.
99. The Royal Court dealt (at paras 145-151) with the contention for the appellants that the Republic has sufficient control and/or interest in the Shares to attract sovereign immunity by reference to the various legislative and administrative documents, the contents and effect of which we have referred to above. The first was Decision 2014/6842, in particular Article 28 which applies to overseas subsidiaries of State Enterprises and requires the communication of information concerning the subsidiaries to the Under Secretariat and the Ministry of Development. The respondent did not dispute the existence of that provision but pointed out that it applied only to Botaş and not to TPIC and BIL. The Royal Court next noted the control of the boards of TPIC and BIL which, in the case of TPIC, arises from Decision 2012/4152 and its amendment of Article 6 of the original Decision 88/13180 establishing TPIC, and in the case of BIL, from Decision 2006/11325 which amended Decision 96/9293 to similar effect. In summary, the Royal Court found that Ministers play a part in determining the direction and appointment of directors to the boards of TPIC and BIL. The Royal Court then referred to Decree Law 4734 on public procurement and, as we have already observed, noted that the position of the appellants was not disputed. Decree Law 4734 applies to any corporation more than half of which is owned by a State Enterprise, and the Decree Law sets thresholds for which contracts are subject to it and the procedures by which tenders for such contracts must be conducted.
100. Having considered these aspects, the Royal Court turned (commencing at para 152) to assess the level of control by the Republic over Botaş. The Court noted that the appellants had relied upon a number of powers under Decree Law 233 whereby the Republic and its Ministers had control over Botaş and its subsidiaries, including the power to determine their fields of activity, approve strategic plans, make decisions regarding liquidation and sale, and control the appointment of directors. The appellants had relied on Decision 2014/6842, whereby Botaş was obliged to send financial and other information to the Ministry for 2015. The appellants had also relied on a separate law, Law 2477, under which employees of Botaş were deemed to be civil servants and subject to public appointment processes. The respondent did not dispute that the level of control went beyond that of a 100% shareholder although it had been emphasised that these aspects were not specific to Botaş but applied to all State Enterprises.
101. The Royal Court noted (commencing at paragraph 155) that it had heard evidence from both experts at some length on the question of whether the assets of Botaş, such as the Shares (and assuming they were situated in Turkey rather than in Jersey) could be subject to attachment to enforce a judgment of a Turkish court. The Royal Court agreed with the appellants that this issue was not relevant to the question of whether the Republic had sufficient interest or control over the Shares so as to engage sovereign immunity as this would not be relevant in the Turkish courts. Nevertheless, the Royal Court considered the issue and having assessed the competing evidence preferred the evidence of Professor Cerrahoğlu which was that the assets of Botaş, including shares in any subsidiary, would not be immune from attachment by way of enforcement under Turkish law.
102. The Royal Court then turned (commencing at paragraph 165) to its conclusions on the evidence of control and interest. For convenience, we set out these in full:-
In relation to the references within these conclusions to particular paragraphs in the Royal Court judgment, we have sought to summarise their contents in our own paragraphs above.
103. The Royal Court then considered (commencing at para 170) whether the degree of control and interest was sufficient to attract sovereign immunity. At the outset, it is to be noted again that the Royal Court recorded that Botaş accepted that it was the legal and beneficial owner of the Shares and that it is an entity separate from the Republic which is not itself entitled to sovereign immunity. Botaş further accepted that its assets were not generally immune from enforcement and there was thus no claim to sovereign immunity in respect of the debts owed to it by TPIC and BIL. In the case of the Shares, Botaş claimed that the Republic has interest in or control over the Shares which is sufficient to engage its sovereign immunity.
104. The Royal Court started from the position that the assets of a wholly-owned state entity are quite separate from the assets of the State itself. The Royal Court referred to the decision in Hemisphere and noted that the Privy Council had held that the assets of a company wholly owned by a State could not be the subject of the enforcement of an arbitration award against the State itself. The Royal Court considered that this distinction is reflected in section 14 of the Act whereby separate entities wholly owned by a State do not in general have any form of immunity.
105. The circumstances in Hemisphere concerned two international arbitration awards which had been made against the Democratic Republic of Congo (the "DRC"). FG Hemisphere Associates LLC sought to enforce the awards against the assets of La Générale des Carrières et des Mines (referred to as "Gécamines") which was a mining corporation owned by the DRC. The Royal Court examined the constitutional position of Gécamines and concluded that "the exceptional degree of power accorded to the state over the affairs of Gécamines, at all levels, was such that the company was no more, in truth, than an arm of the state with responsibility for operations in a sector of vital importance to the national economy". The Royal Court concluded that Gécamines was at all material times an organ of, and to be equated with, the DRC and it upheld the claim to sovereign immunity. The Court of Appeal refused an appeal against that decision by a majority. Gécamines appealed to the Privy Council, and that appeal was allowed.
106. The decision in the Court of Appeal had applied the common law test derived from Trendtex Trading Corporation v Central Bank of Nigeria [1977] 1 QB 529. The Royal Court and Court of Appeal had looked at the formal constitutional position of Gécamines, at the control exercised by the DRC in practice over Gécamines, and at Gécamines' functions. Gécamines questioned whether the test derived from Trendtex was appropriate for the determination of questions of liability and execution. It submitted that the law ought to recognise it as a separate juridical entity unless it could be seen as a sham or was being used to conceal wrongdoing, neither of which had been suggested.
107. In giving the judgment of the Board, Lord Mance said:-
108. In the present case, and in addressing the aspect of control, the Royal Court referred (commencing at para 176), to what had been said in particular by Lord Atkin and Lord Radcliffe in The Cristina and observed that:-
109. The Royal Court then looked for some specific additional level of control which might bring the extent of control within what is envisaged in The Cristina and Dolffus Mieg. It referred to three factors. The first was the fact that Botaş cannot dispose of the Shares or alter the share capital of TPIC and BIL without the consent of the Republic by reference to the law on privatisation, the law on parallelism, and Decision 2014/6842. The second was the control which the Republic has over the appointment of the directors of TPIC and BIL. The third was the law on Public Procurement which applies to TPIC and BIL. The Royal Court found that the law on privatisation, parallelism and public procurement would be equally applicable to any other wholly owned subsidiary of a State Enterprise and to apply sovereign immunity to all such subsidiaries would be inconsistent with the principles underlying the Act. As to the power over who are appointed directors of TPIC and BIL and over the disposal of the Shares, that does not take the matter further. The business of Botaş is managed by its directors once appointed and the Shares are legally and beneficially owned by Botaş.
110. The Royal Court concluded on the matter of control by saying:-
111. In addressing the interest asserted by the Republic in the Shares, the Royal Court started (commencing at para 187) from the position that the assets of a separate legal entity which is wholly owned by a State are separate from the assets of the State itself. Reference was made again to the authoritative statement of that principle in Hemisphere, although the Royal Court noted that that case was concerned with whether a wholly owned company's assets could be attached in respect of the liabilities of a State rather than the position in the present case which is concerned with whether a State can claim immunity in respect of assets of a wholly owned company. The Royal Court referred to what had been said by Lord Mance in his judgment at paragraph 29. The Royal Court noted that it had accepted all of the various controls asserted on behalf of the Republic, with the exception of the applicability of Decree Law 233 directly to TPIC and BIL and the ability to attach the property of a State Enterprise in Turkey, but it then proceeded upon the assumption that even those two aspects had been estalished in favour of the Republic. The Royal Court then concluded on the matter of interest:-
That was a conclusion expressed in the context of section 6(4), but we regard it as relevant in a situation where section 13(2)(b) is engaged. This is particularly so given that the Royal Court considered the evidence in this case against the background of the common law cases which we consider to be equally applicable to adjudicative and enforcement proceedings.
112. The Royal Court continued:-
113. The Royal Court then referred further to what had been said by Lord Mance in Hemisphere, of which we quote only the following:-
114. The Royal Court concluded that it was entirely consistent with the views of the Privy Council in Hemisphere that the Republic is not able to claim sovereign immunity in respect of the assets of Botaş, including the Shares. The Royal Court also observed that its conclusion was consistent with the position described in Dicey, Morris and Collins, at para 10-010. The Royal Court concluded (at para 204) that having held that the Shares do not attract sovereign immunity, there was no reason not to confirm the interim arrêt in respect of the Shares.
115. In summary, Advocate Evans contends that the expression "the property of a State" as used in section 13(2)(b) includes something more than simply what is within the ownership of the State and that the first sentence in para 92 of the Royal Court judgment is in error. He has referred to the general principle that enforcement against the assets of a State is generally regarded as being subject to a higher threshold than the establishment of jurisdiction in adjudicative proceedings. He has referred to the UN Convention and to passages in Alcom and AIG. What this means is that the standard by which what is "the property of a State" for the purposes of section 13(2)(b) must, having regard to the fact that the Act is intended to embody pre-existing international obligations, be judged by requirements which are at least as stringent as the requirements of section 6(4). This will mean that whether the respondent can enforce the Awards in respect of the Shares in a situation where the Republic claims that the Shares are subject to sovereign immunity will not be judged against a lower threshold than would have been the case if the potential immunity of the Shares had to be judged for the purpose of adjudicative proceedings in which case section 6(4) would apply. The Republic has at least the same protection that it would have had in respect of its claimed interest in the Shares if sovereign immunity were to have been asserted either in the arbitrations which actually took place or in other proceedings in which the Shares were material.
116. This Court is satisfied that this must be correct. If what was intended by the Royal Court in what it said in paragraph 92 was that section 13(2)(b) applies only where a State is the direct owner of property such that it may be said to be the "property of a State", then that in our opinion would not be correct, although in fairness to it, the Royal Court was summarising briefly a position which is had found not to apply and it did not consider the matter further at that stage because it was dealing thereafter with section 6(4). We reach our conclusion primarily because, as we have already said, the Act embodies pre-existing international obligations. In that respect, it is clear from the UN Convention that it was expected that the threshold for sovereign immunity in respect of enforcement proceedings would be at least as high in the protection of a State as the threshold in respect of adjudicative proceedings. To construe the expression "the property of a State" as applying only where the State itself has ownership would in our judgment compromise that principle and could potentially suggest that in passing the Act, the United Kingdom, and thus Jersey, had departed from what were acknowledged to be the protections to be afforded to a State in respect of assets in which it claims an interest and which are potentially the subject of enforcement proceedings. We accept that, as Advocate Moran suggested, the Act does represent a move away from the former common law principle of absolute immunity and is an endorsement of the restrictive principle of sovereign immunity: see Hemisphere, the discussion in the judgment of Lord Mance at paras 7-14; but in our opinion the expression "the property of a State" nevertheless encompasses more than what is constituted by direct ownership.
117. This is supported by what was said in AIG. In that case, the claimants had obtained leave to register an arbitration award against the Republic of Kazakhstan in the High Court as a judgment. They then sought to enforce it by obtaining charging orders against assets in London which were held to the order of the National Bank of Kazakhstan which was the central bank of Kazakhstan. The Royal Court noted that amongst the issues before the court was whether section 13(2)(b), together with section 14, prevented enforcement against those assets. It was not disputed that legal title to the assets was with the National Bank but beneficial ownership rested with the Republic of Kazakhstan through the National Fund of Kazakhstan. In his judgment at para 45, Aikens J referred to what had been said by Lord Diplock in Alcom (at p 602) which was that the expression "property" in section 13(2)(b) "is broad enough to include as being the property of a banker's customer the debt owed to him by the banker which is represented by the total amount of any balance standing to the customer's credit on current account." Aikens J also referred to the obiter remarks of Stanley Burnton J in AIC Ltd v Federal Government of Nigeria [2003] EWHC 1357 (QB) at para 47 that the expression should be given the same meaning in section 13 and section 14. Aikens J concluded:-
118. This Court is satisfied that it is appropriate for the purposes of section 13(2)(b) to assess the interest of the Republic in the Shares by reference to the formulation set out by Aikens J in AIG¸ derived as it was from what was said by Lord Diplock in Alcom. The result in our judgment is that the Shares will be subject to sovereign immunity if it is the case that the Republic has a sufficient "right or interest, legal, equitable or contractual" in the Shares.
119. In addition, we consider that the expression "the property of a State" will also include property which could be demonstrated to be under the control of the State. To the extent that this may not be expressed explicitly in what was said by Aikens J in AIG, we consider that it is established by reference to the common law cases referred to above, and in particular The Cristina. In his speech which we have quoted above, Lord Wright (at p 513) referred to the fact that, by its act of requisitioning, the Spanish Government had "taken possession and control of the Cristina." He continued, in words which we regard as critical, "That is all that is needed to justify the claim to immunity on the ground of 'property'." The significance of the introduction of the term "control" by Lord Atkin and Lord Wright in The Cristina was emphasised by Earl Jowitt in Dollfus Mieg.
120. We are therefore satisfied that the potential existence of "control" by a State is a component in the meaning of the "property" of a State along with "right or interest" as derived from AIG. That "control" is such an element was stated directly by Lord Wright and we cannot see how the introduction of the Act, in particular section 13(2)(b), could be said somehow to have removed that component from the meaning of the expression "the property of a State". Were that not to be the case, it would once again give rise to the risk that in passing the Act, and in particular section 13(2)(b) which deals with enforcement proceedings, the UK had departed from the recognised principle of international law that the threshold for enforcement should at least be no less that the threshold for establishing jurisdiction in adjudicative proceedings.
121. The result, in our opinion, is that in considering the evidence of what is the relationship between the Republic and Botaş for the purposes of section 13(2)(b), it is appropriate to have regard both to "control" and "interest". This means that in practical terms the elements to be assessed are the same as in the case of section 6(4) (albeit that they are referred to in particular terms in section 6(4)).
122. We are therefore satisfied that in order to address the issue of sovereign immunity in relation to the Shares, it is appropriate to consider whether the Republic has a degree of control, and/or interest, which is sufficient to establish its sovereign immunity in respect of the Shares. What this means is that in practical effect the extent of the Republic's right or interest in, or control of, the Shares can be assessed having regard to the same factors as were assessed by the Royal Court. Its assessment was made in the context of section 6(4) which refers to property "in the possession or control of a State", and property "in which a State claims an interest". To the extent that we are considering the right, interest or control of a State, it is our judgment that these may be regarded as equivalents of what was considered by the Royal Court not least because a right to property will exist where a State has possession or control. And once again, the fact that the entitlement to sovereign immunity under section 13(2)(b) is being judged by a standard equivalent to that stated in section 6(4), is consistent with the international law principle that immunity from enforcement proceedings is no less that immunity from adjudicative proceedings.
123. Before proceeding, we pause to make two incidental observations. The first is that in judging what will be a sufficient interest to engage sovereign immunity, an interest of the State which is no more than political or social will not be sufficient: see in particular Belhaj, the judgment of the Court given by Lord Dyson MR at paras 43-47 by reference to the UN Convention. Our second observation is that in judging the interest which may exist against the background of the common law cases, there is no distinction in the fact that certain of those cases were dealing with an admiralty jurisdiction. The absence of any difference was stated by Earl Jowitt in Dollfus Mieg where he said that "there is, I think, no special doctrine applying to ships which does not equally apply to gold bars."
124. Turning to our own assessment and consideration of the grounds of appeal, we consider that the starting point is the guidance given to this Court by the Privy Council. Although the circumstances in Hemisphere concerned the status of a separate entity, that is a state-owned company, in the context of section 14 of the Act, nevertheless we regard the principle expressed by Lord Mance as equally applicable in the circumstances of this case. We repeat that his Lordship said (at para 29) that "The assets which are (subject to waiver and to the commercial use exception in s. 13(4) of the 1978 Act) protected by State immunity should be the same as those against which the State's liabilities can be enforced." The Royal Court rightly recognised the importance of this principle in the context of the Act as a whole and we consider that it can be applied directly to the present circumstances. The Shares do not belong to the Republic; they belong to Botaş. The Shares are assets which are quite separate from the assets of the Republic. There is no question of the Shares being available in order to satisfy the liabilities of the Republic. If the Shares were to be immune from enforcement in respect of the debts of Botaş because the Republic could establish state immunity, it would put the Shares in a situation where they were in effect an asset which the Republic was entitled to treat as its own but were an asset not available to creditors of the Republic.
125. This would appear to us to offend against the principle stated by Lord Mance and it suggests that an application of that principle is sufficient to determine the issue of sovereign immunity in favour of the respondent. But we do not go so far and now turn to deal with the determination of the Royal Court in order to identify whether there is any reason why, upon full consideration of the application of section 13(2)(b) against the background of the common law, the principle set out in Hemisphere should not apply.
126. The Royal Court dealt first with control. The Royal Court referred to the various legal and administrative documents which demonstrate that the Republic may take specific steps in relation to TPIC and BIL. In summary, we consider that it was reasonable to characterise what entitlements the Republic has as the same in character as those of a 100% shareholder. The Republic may control the disposal of the Shares and it may dictate the direction and who are to be directors of the companies. The fact that in the circumstances of the present these entitlements may come from legislative and administrative sources does not in our opinion make them different in character to those of a 100% shareholder.
127. In the specific case of the Shares, the position is not quite that of a 100% shareholder because if the Republic were to direct the sale of the shares to a third party, it would be Botaş, not the Republic, who would receive the proceeds. That would be different if the Republic directed that the Shares were to be transferred to the Republic itself, as it has the power to do, but that would create a new situation because the Shares would then become an asset of the Republic against which the liabilities of the Republic could be enforced, thus taking the Shares into a different category by reference to the principle expressed by Lord Mance. But the Republic has not exercised the power to require the Shares to be transferred to it; in the present circumstances it simply has the power to do so.
128. This brings one to what assistance may be derived from the common law cases and the Royal Court's consideration of them. In respect of The Cristina, the Royal Court referred to what had been said by Lord Wright and also to the observations of Earl Jowitt and Lord Radcliffe in Dollfus Mieg on the nature of control short of possession. The Royal Court found (at para 179) that "the level of control of the Republic over the Shares is of a very different nature and order from the sort of control envisaged in those cases." The Royal Court distinguished the situation where a ship has been requisitioned and which results in a form of temporary ownership. It contrasted the position of the Shares, where day-to-day control of the Shares rests with Botaş, their legal and beneficial owner, and the Royal Court noted that the level of control which the Republic can exercise over Botaş is not of a different order to that commonly exercised by States over their wholly-owned subsidiaries. Finally, the Royal Court found that the additional levels of control over the Shares which were relied upon, namely the law on privatisation and the principle of parallelism, the power of direction and appointment of directors vested in the Republic over TPIC and BIL, and the law on public procurement, were not sufficient to bring the situation within that dealt with in the common law cases.
129. In our judgment, the Royal Court was correct to reach the conclusions which it did. The common law cases fall into two categories. The first deals with the requisitioning of ships, and a distinction is drawn between a ship which has actually been requisitioned, which results in a State having the requisite degree of control in order to establish sovereign immunity, and a lesser situation in which a State may simply have directed that certain steps should be taken by those in control of the ship, which does not demonstrate the necessary level of control.
130. The other category of cases relates to assets held by banks, whether monies, or in the case of Dollfus Mieg, gold bars, in which the State would be entitled to bring about direct and immediate control of its asset simply by order to the bank. The critical distinction, in our judgment, is that in these cases the State could itself effect immediate recovery of what is its own direct property. The position of the Shares is different because they have never been the property of the Republic and the Republic could only obtain title to the Shares by requiring the directors of their beneficial owner, Botaş, to give up their ownership and transfer it to the Republic. As we have already observed, the Republic has taken no steps to achieve that result.
131. We consider that the Royal Court was correct to find that the present situation in relation to the Shares can be distinguished from the situations in the common law cases where a sufficient degree of control was demonstrated. There is no sense in which the Republic has taken control either of the Shares themselves, or of TPIC and BIL such that the power of those who actually control these assets, namely the directors of Botaş and the directors of TPIC and BIL, have been deprived of their ability to control these respective entities. This situation is comparable to one in which a ship may be directed by a State or may be requisitioned by that State, but unless and until the latter step has actually been taken, a sufficient degree of control to establish sovereign immunity does not exist. This means, in our judgment, that when the Royal Court said (at para 186) that the Republic was not in control of the Shares "in the sense of having absolute control on a day to day basis as in the requisition cases", the Royal Court was entitled to characterise the situation in that way and we reject the criticism that this was a novel test created by the Royal Court for itself.
132. Turning to the degree of interest which the Republic may be said to have in the Shares, once again we see no reason to disagree with the Royal Court. We consider that the Royal Court was correct to recognise (at para 193) that the Republic has no legal, equitable or contractual interest in the Shares and that such indirect interest that it has through its ownership of Botaş "is equally true of every other asset of Botaş and indeed every asset of every other Turkish State Enterprise". We have already said that the powers which the Republic has in respect of Botaş are no different in character to those of a 100% shareholder and that applies equally when considering whether there exists a sufficient interest to justify sovereign immunity.
133. Advocate Evans urged upon us the suggestion that the powers which the Republic possesses directly over TPIC and BIL are the equivalent of rights under a contract which would be sufficient to justify sovereign immunity. Once again, we do not accept this. A contract is something which gives to a party a right to seek enforcement if necessary through the courts directly against the other contracting party. In the present situation, the entitlements which the Republic has over TPIC and BIL relate to the activities and direction of these companies but not to the Shares. The entitlements in respect of the Shares derive from the level of control which the Republic has over Botaş and we have already agreed with the Royal Court that that is not sufficient engage sovereign immunity in the Shares.
134. We are therefore satisfied that in respect of both control and interest, and having regard to the common law background, the Royal Court did not err in its assessment of the evidence and its consequences. That is sufficient to justify the refusal of the appeal for the appellants but in doing so we refer to three further matters which were raised.
135. The first relates to the conclusions of the Royal Court on Decree Law 233, and in particular its conclusion that as overseas subsidiaries of a State Enterprise, TPIC and BIL are not subject to the Decree Law by reference to paragraph (3) of Article 58. The evidence and its conclusions were addressed by the Royal Court (at paragraphs 112-137) and it preferred the evidence of Professor Cerrahoğlu. We see no reason to disturb the conclusion of the Royal Court upon this topic. It heard evidence from legal experts which it was entitled to evaluate and it appears to us that the conclusion which it reached was entirely justified. Whilst we regard what is said in paragraph (3) as being self-evident, namely that it exempts from Decree Law 233 overseas subsidiaries, and we agree with the Royal Court (at para 133(ii)) that this is reasonable given that such subsidiaries are governed by the laws of their place of incorporation, that is not to the point. It is not for the courts of Jersey to reach and rely upon their own conclusions on a matter of foreign law. The meaning and effect of paragraph (3) of Article 58 of what is a Turkish Law was the subject of evidence upon which the Royal Court was entitled to reach a conclusion. Although this Court received no detailed submissions on the standard to be applied before we could interfere in a finding in fact, we are nevertheless conscious of the caution which should be exercised by a court of appeal when being asked to review findings which have been reached by a court of first instance based upon evidence led before it. The Royal Court reached a conclusion based upon the competing evidence which it had heard and it has given reasons which appear to us to provide a satisfactory explanation for that conclusion. It was not disputed that the Royal Court heard evidence which was sufficient to support its conclusion and this Court regards it as having been entirely permissible for the Royal Court to reach the finding which it did.
136. We have also been invited to consider the findings of the Royal Court on the principle of parallelism and in particularly its finding (at paragraph 144) that "the principle of parallelism has the result that, where the Council of Ministers consents to the incorporation of a subsidiary of a State Enterprise, the consent of the Council of Ministers is also required to any disposal, liquidation etc of that subsidiary", and the consequential finding that that applies to the Shares. This was a finding potentially favourable to the appellants and in the event was taken into account by the Royal Court in the conclusions which it reached on control and interest which were favourable to the respondent. In light of our own conclusions which are also in favour of the respondent notwithstanding the finding on parallelism in favour of the appellants, reconsideration of what was found in relation to parallelism cannot make any difference to the outcome. But, once again, conscious as we are of being a court of appeal, we cannot see that the finding of the Royal Court which was expressed after consideration of the competing evidence was not one which was impermissible and there is therefore no justification to disturb it.
137. Finally, Advocate Evans referred to the subject of attachment, and argued that the Shares could not be subject to attachment in Turkey as they are not in Turkey and, in any event, sovereign immunity issues could not arise in Turkey. The fact that a Turkish court might have power to order enforcement against particular assets does not affect the interference which would arise from a foreign court deciding to enforce against those assets. In addressing this aspect (at paras 155-164), the position of the Royal Court was that it was not relevant to the question of whether the Republic has sufficient interest in or control over the Shares so as to engage sovereign immunity. We agree. Nevertheless, the Royal Court did hear and consider evidence and it preferred that of Professor Cerrahoğlu which was that the assets of Botaş, including the Shares, would not be immune from attachment in Turkey. To the extent that that finding might be relevant, and for the same reasons as already explained, we regard that as a finding which the Royal Court was entitled to make on the evidence and we can see no basis for disturbing it. In any event, and as Advocate Evans said, it is not an aspect of sovereign immunity, although it may be said that if the Shares are subject to attachment in Turkey, that is at least consistent with their being assets of Botaş which are generally available to satisfy the liabilities of Botaş.
138. We are therefore satisfied that, looking at the matter by reference to what is the meaning and effect of section 13(2)(b) when judged against the background of the common law, the Royal Court did not err in the conclusions which it reached. The conclusion of the Royal Court that sovereign immunity does not attach to the Shares appears to be entirely consistent with the general approach of the Act which is that separate entities are not subject to sovereign immunity other than in particular circumstances. It is also consistent, as already discussed, with what the Privy Council decided in Hemisphere. This Court is satisfied that as the Privy Council has set out the approach to be applied in relation to sovereign immunity, it is appropriate that the Royal Court and this Court should reach a result which follows that approach in different circumstances but with the same background principles in mind.
139. Accordingly, and although we disagree with the Royal Court about the appropriate section of the Act which is to be applied, nevertheless we reach the same result and the appeal does not succeed.
140. Finally, we should observe that we have given serious consideration to the Ambassador's Certificate and the Minister's letter. These are significant documents which are worthy of respect by this Court but as we have said they cannot be determinative of the merits which required to be judged by the Royal Court against the relevant provisions of the Act. The Republic has chosen to set up TPIC and BIL as overseas subsidiaries of Botaş in the way that it has, all in accordance with the relevant parts of Decree Law 233 and the other legislative and administrative documents which were before the Royal Court. It is the nature of these arrangements which leads to our conclusion in support of the Royal Court that the Shares do not attract sovereign immunity. Despite the importance to the Republic of Botaş, TPIC and BIL which is demonstrated in the Ambassador's Certificate and the Minister's letter, that is the outcome which must prevail.
141. The Royal Court decided (at paras 205-207) that in view of its conclusion that the Republic was not entitled to sovereign immunity in respect of the Shares, it was not necessary to consider the potential exception arising in respect of use for commercial purposes pursuant to section 13(4) of the Act. The Royal Court noted that the respondent had argued that one had to have regard to the activity undertaken by the company whose shares were held and that the activities of both TPIC and BIL were clearly commercial. The appellants had argued that one has to have regard to the purpose for which the Shares were being held by the Republic. They were not being held for a commercial purpose but for a sovereign purpose because of the importance to the Republic of the activities undertaken by TPIC and BIL. The appellants referred to the Ambassador's Certificate as being sufficient unless the contrary were to be proved.
142. Before this Court, it was the position of the respondent that the application of the commercial use exception is a mixed question of law and fact and one which is primarily for the jurats. In the event that the Court found that the exception needed to be considered, the issue should be remitted to the Royal Court for further consideration. Notwithstanding, and before we decided on what ought to be the appropriate procedure, we permitted the Advocates to make submissions on this topic not least so that the respective positions could be noted.
143. For the respondent, it was the position of Advocate Moran that if section 13(2)(b) of the Act were found to apply, the respondent was entitled to rely on the commercial use exception in section 13(4). She drew a distinction between section 13(4), which refers to use for commercial purposes, and sections 3(1)(a) and (3) which refer to commercial transactions. The Republic can have no purpose for the Shares which it does not own. She referred to Alcom, SerVass and AIG. In Hemisphere, the Royal Court had seen Gécamines as effectively carrying out government policy and thus an emanation of the State, but that is the essence of many state controlled corporations and the existence of state immunity was not supported by the Privy Council. The appellants have argued that the Shares are not held for a commercial purpose but, if the activities of TPIC and BIL are entirely commercial or commercial save for de minimis purposes, the Court may hold that they are held for commercial purposes. The fact that the activities of a company indirectly assists some government purpose would be too wide a definition of that purpose. TPIC was established to assist TPAO with commercial activity. Botaş is now a commercial entity which operates in the economic sphere. By reference to its Memorandum, TPIC is an integrated energy company whose most recent accounts are audited in dollars and whose website suggests commercial activities in different countries. The evidence of Banu Ȕrȕn, who was the in-house legal adviser of TPIC, demonstrated that it is an entirely separate entity which is in a commercial relationship with Botaş, and not something which Botaş controls. In the case of BIL, it was to be a service company for Botaş and has a list of commercial purposes. It operates the Turkish section of the Baku-Tbilisi-Ceyhan pipeline and the marine terminal at Ceyhan. This is subject to a commercial contract under English law and BIL is paid per barrel for oil going through the pipeline.
144. In setting out the position for the appellants, Advocate Evans referred to the Ambassador's Certificate and to the fact that section 13(5) creates a presumption of non-use for commercial purposes, and the burden of proving otherwise rests on the respondent. The respondent says that the Republic has no purpose regarding the Shares since it does not own them but that is not sufficient to discharge the burden on the respondent. The respondent suggests that the use to which the Republic puts the Shares should be judged by reference to the current and intended activities of the company in which the Shares are held and those are commercial. But the test for the purpose in section 13(4) is different to testing the objective activities in the context of section 3(3). It is common to hold shares in a commercial company for a sovereign purpose, for example for stabilising energy supply. The Royal Court has misconstrued the decision in Hemisphere because the commercial purpose test is different from the commercial activity test which was considered in Hemisphere. It is subjective. TPIC is carrying out activities vital to the Turkish national interest by reference to the Minister's letter. The Shares are held at least in part for non-commercial purposes. When shares are held for a number of purposes, it is necessary only to show that one of them is a non-commercial purpose for the entitlement to sovereign immunity not to be displaced by section 13(4).
145. Notwithstanding these submissions, and as we have decided above that sovereign immunity has not been established in respect of the Shares by reference to section 13(2)(b), the applicability or otherwise of the commercial use exception does not arise and the situation is the same as it was in the Royal Court. As far as this Court is concerned, unless and until an appeal by the appellants is allowed to the effect that the sovereign immunity of the Republic in respect of the Shares has been established, this issue will remain academic and it would not be appropriate for this Court, having reached the conclusions which it has on issues (i) and (ii) above, to take up the time of the Royal Court in assessing matters of fact on an issue which is academic.
146. Having said that, there is one aspect of the appellants' contentions which we would wish to confirm in the event that this issue remains or becomes a live one. We have already observed that this Court has taken serious account of the Minister's letter and the Ambassador's Certificate but nevertheless has found that these do not determine the existence or otherwise of sovereign immunity in respect of the Shares. Were that to be determined otherwise, and whether or not the Shares were to be regarded as "property which is for the time being in use or intended for use for commercial purposes" in accordance with section 13(4), that would require consideration to be given to the effect of section 13(5). For convenience, we repeat that this provides, insofar as relevant in respect of a certificate given by the head of a State's diplomatic mission, that "his certificate to the effect that any property is not in use or intended for use by or on behalf of the State for commercial purposes shall be accepted as sufficient evidence of that fact unless the contrary is proved." What is stated at item 4 in the Ambassador's Certificate which we have quoted above is clearly to that effect.
147. What this means, and it is obvious, is that in the event that this issue were to become a live one in respect of which evidence was led, the position is that the non-commercial use of the Shares must be taken to have been established unless the respondent can prove the contrary. We say this simply to explain what would be the question of fact in any such situation and to emphasise that where a certificate has been given in accordance with section 13(5), the contents of the certificate are binding on the Royal Court to the extent which is relevant unless the Court can be satisfied as a result of evidence that the contrary has been proved.
148. This issue is the subject of the cross appeal by the respondent. It relates to the enforcement of the Awards and to the refusal of the Royal Court to confirm the arrêt in respect of the debts owed by BIL to Botaş. As noted above, the respondent does not maintain any appeal in relation to the equivalent decision of the Royal Court in respect of the debts owed by TPIC to Botaş.
149. In dealing with this issue, the Royal Court noted (commencing at paragraph 208) that no question of sovereign immunity arises in respect of these debts. Botaş accepted that they were choses in action which were assets of Botaş in the same way as other assets such as bank accounts. The position for Botaş was that the Royal Court should not confirm the arrêt because the debts owed by BIL (as well as by TPIC) were situated in Turkey and the Court had no jurisdiction to order an arrêt over foreign situated assets. Alternatively, were there to be such jurisdiction, it should not be exercised unless the Royal Court was satisfied that the Turkish court would regard the debts owed to Botaş as being discharged automatically by the arrêt. Tepe had failed to show that that was the case. In response, Tepe argued that the Royal Court had jurisdiction because BIL (and TPIC) are incorporated in Jersey and amenable to the Royal Court's jurisdiction. The Court could further be satisfied bearing in mind the relationship between BIL (and TPIC) and Botaş. These are not independent third parties but subsidiaries of Botaş and there was no realistic possibility of their being required to pay the debts in question twice if the arrêt were to be confirmed.
150. The Royal Court then considered (commencing at para 214) the nature of an arrêt. By reference to the decision of the Court of Appeal in Hemisphere, which was unanimous in this respect, "a third party debt order was not an in personam order against the third party but had proprietary consequences and took effect as an order in rem as against the debt owed by the third party to the judgment debtor". The Royal Court then considered when an arrêt might be granted over a debt situated outside the jurisdiction of the Court, and referred to the speeches of Lord Bingham and Lord Millett in the House of Lords in Eram. We do not repeat all of the passages quoted by the Royal Court, but we do refer to the following. First, Lord Bingham said:-
Secondly, Lord Millett said:-
The Royal Court then noted that although Dicey Morris and Collins, Volume 2, at para 24-084, appeared to suggest that Eram had laid down "an absolute rule that a third party debt order may not be made in respect of a debt situated abroad", but that did not take account of the possible exception referred to by Lords Bingham and Millett which is "that such an order may be made if the court is satisfied that the order will be recognised as discharging the liability of the third part debtor". The Royal Court observed by reference to all of the speeches in Eram that it was thought that satisfaction of the requirements for such an exception would be unusual or rare. The Royal Court then referred to the position in Hemisphere, which was that the debt had been found to be situated in Jersey, and which was therefore to be distinguished from the present situation.
151. The Royal Court then identified the test for ascertaining where a debt is situated, and considered the evidence which had been led. In the case of BIL, the services to Botaş were rendered in connection with the operation of pumping stations in the Turkish section of the Baku-Tbilisi-Cayhan pipeline which were powered by natural gas supplied by Botaş. The price of the gas was determined in Turkey under Turkish law and invoices were rendered and payments made in Turkey. (In the case of TPIC, the liabilities of TPIC to Botaş arose exclusively out of services rendered for the transporting of oil which were performed in Turkey under Turkish law and were invoiced and paid for in Turkey. The bank account in question was in Turkey and TPIC did not have a bank account in Jersey.) As a result, the Royal Court found (at paragraph 232) that the debts owed by BIL (as well as by TPIC) to Botaş were situated in Turkey rather than in Jersey.
152. The Royal Court found (at para 232) that as a consequence it was in the situation discussed in Eram and it rejected the argument on behalf of the respondent that that case could be distinguished. Although BIL (and TPIC) were fully amenable to the jurisdiction of the Royal Court because they are incorporated in Jersey and any arrêt could be enforced against them, nevertheless that does not distinguish the circumstances in this case because, as the Royal Court put it:-
The Royal Court then confirmed that the principles established in Eram were applicable to the facts of the present case and it concluded that "The Court should therefore not confirm the arrêt unless Tepe establishes that the arrêt would be recognised by a Turkish court as discharging pro tanto the liability of TPIC/BIL to Botaş."
153. The Royal Court then considered (commencing at para 236) the evidence as to Turkish law on this point. It referred to what had been said by Professor Cerrahoğlu both in a supplementary report and in his oral testimony. The Royal Court referred (at para 239) to his answer to the question "Is it the order or is it the actual payment which discharges the debt?", to which the Professor replied "Payment". The Royal Court then referred to further evidence where the Professor said that he did not consider that the Jersey order had the effect under Turkish law of discharging the debt obligations of TPIC and BIL. In his evidence, Dr Çal had not expressed an opinion on this particular issue although before enforcing a foreign judgment the Turkish court would need to be satisfied that the foreign judgment did not conflict with "Turkish public order".
154. The Royal Court continued:-
The Royal Court then acknowledged that "the importance of the order being recognised as extinguishing the liability of the third party debtor to the judgment debtor" is recognised in the passages from the speeches of Lord Bingham and Lord Millett which had been quoted earlier, and the Royal Court also referred to passages in the speech of Lord Hoffmann which was to like effect. The Royal Court then said (at para 244) that "It is clear from the speeches in Eram that the underlying principle is that it is not in general open to a court to make an order permitting enforcement against assets situated overseas."
155. In referring to Lord Hoffman's observation in Eram (at para 54) that "it is a general principle of international law that one sovereign state should not trespass upon the authority of another, by attempting to seize assets situated within the jurisdiction of the foreign state or compelling its citizens to do acts within its boundaries", the Royal Court concluded:-
156. The Royal Court therefore refused to confirm the interim arrêt in respect of the debts owed by BIL (and TPIC) to Botaş.
157. In support of the cross appeal for the respondent, Advocate Moran submitted that in order to succeed, it was only necessary for the respondent to establish that a foreign debt is extinguished by payment under an arrêt. Hemisphere demonstrated that Jersey law is on a par with English law in relation to third person debt orders. In the Rules of the Supreme Court (of England and Wales), it is payment by a third party debtor (or enforcement against him) in compliance with a third party debt order which results in the third party debtor being discharged from his debt to the judgment debtor: see rule 7.9(2). She submitted that what the House of Lords was saying was that it is payment pursuant to an order, not the order itself, which counts. The error of the Royal Court was to have taken literally the wording of paragraph 111 in the speech of Lord Millett in Eram in saying that it is the order which must discharge the debt. That is not how a third party debt order works under English or Jersey law, and not how an order in rem works.
158. The evidence of Professor Cerrahoğlu was sufficient to show that payment under the arrêt would extinguish the debt under Turkish law. If, after payment had been made, Botaş attempted to bring proceedings these would be disingenuous and in bad faith but the primary argument is that the debts would be extinguished so there would no cause of action. The Royal Court was wrong about what extinguished the debt and because it wrongly thought that the situation gave rise to unjust enrichment. By reference to the evidence of Professor Cerrahoğlu in his report, if an obligation is amenable to recognition in Turkey, there will be automatic discharge of the debt.
159. In reply, Advocate Evans submitted that by reference to Hemisphere the position is the same in Jersey as in England, and the same as it was in Eram. It is the order which is required to discharge the debt. He referred in support to passages in the speeches of Lord Bingham, Lord Hoffman and Lord Millett. By reference to paragraphs 62 to 64 in the speech of Lord Hoffman, the essence of a third party debt order is execution in rem against an asset within the jurisdiction. The matter is one of principle, not discretion, that a court should not make orders in relation to a foreign debt and it does not matter what evidence there may be about what the foreign court would do.
160. We have no hesitation in rejecting the cross appeal and in confirming the decision of the Royal Court that the arrêt should not be confirmed in respect of the debts owed by BIL to Botaş. The starting point is that by reference to Hemisphere, the law on foreign debts in Jersey is to be regarded as the same as that in England. This means that the persuasive authority of the decision of the House of Lords is overwhelming and this Court can find no reason to depart from it. It may also be noted that in this case the Royal Court found that the circumstances were the same as those in Eram and once again we agree. As an aside, we consider that rule 7.9(2) of the Rules of the Supreme Court which was relied upon by Advocate Moran is dealing with domestic debts and is not relevant to the English or Jersey law on foreign debts.
161. The circumstances in Eram were that a judgment creditor sought to enforce a judgment registered in England against judgment debtors who were resident in Hong Kong. Execution was sought against funds in an account of the judgment debtors held in Hong Kong with a bank incorporated there but with a registered branch in London. The credit balance constituting the debt payable by the bank to the judgment debtors was accordingly sited in Hong Kong and governed by local law. In third party proceedings, the judgment creditor obtained an interim order against the bank but, upon an application that the order be made absolute, the undisputed evidence was that Hong Kong law did not recognise such an order made in England in relation to a debt sited in Hong Kong. At first instance, the application was dismissed and the order discharged, but this was reversed in the Court of Appeal. An appeal by the bank was allowed by the House of Lords.
162. In our judgment, the principle described in the speeches of Lord Bingham (at para 26) and Lord Millett (at para 111) could not be clearer. Enforcement cannot be ordered in respect of a debt due by a third party which is situated abroad unless the making of the order by itself will have the effect of discharging the debt owed by the third party to the judgment debtor. Lord Millett described that as "not merely a normal consequence of the order but the critical feature which makes the process one of execution." We do not see how what was said by Lord Millett is capable of being read in any way as supporting the view that it is the making of payment which has the effect of discharging the obligation of the third party debtor to the judgment debtor, rather than the making of the order which has to have that effect. On the contrary, it is clear that his Lordship was stating in terms that what was necessary was that the order to be made by a court such as the Royal Court would require to have the effect of discharging the obligation of the third party debtor to the judgment debtor and not payment. The evidence of Professor Cerrahoğlu was that it was payment which had that effect and that cannot provide the "critical feature" described by Lord Millett.
163. Having decided that the cross appeal should be refused, there are two additional matters which were the subject of argument but which do not now strictly arise. The first concerns the possibility that an order of the Royal Court would not have been amenable to recognition by the Turkish courts if it was contrary to "public order". The evidence of Professor Cerrahoğlu was that an order in this case would not be so contrary; the evidence of Dr Çal was that it would. The Royal Court agreed with Professor Cerrahoğlu. In referring to the evidence of Dr Çal upon this point, the Royal Court said:-
164. The Royal Court therefore found that there was no reason why an order of the Royal Court would not be enforced by a Turkish court upon the basis that it was contrary to public order. As we have said, this issue does not now arise in light of our conclusion that the arrêt in relation to the debts due by BIL to Botaş should not be confirmed. Were it to become a live issue, however, it would appear to us that the conclusion reached by the Royal Court on the evidence before it was a permissible one and, as presently advised, we would see no basis for disturbing it.
165. The second additional matter relates to the second subsidiary matter discussed in the Royal Court judgment and which we have mentioned above. The Royal Court had found as a matter of fact that there was a potential right of set-off which could be exercised by BIL. The Royal Court referred to this matter obiter (at paras 274-280) and observed that under English law the fact that there is a right of set-off is a good reason to exercise its discretion not to make a third party debt order: see Fraser v Oystertec Plc [2004] EWHC 1582 (Ch), at paras 20 and 22, and Hale v Victoria Plumbing Limited [1966] 2 QB 746. The Royal Court continued:-
In the following paragraph, the Royal Court noted that it had not ignored the fact that BIL is a subsidiary of Botaş but nevertheless BIL is a separate legal entity and as a matter of principle it would not be right to confirm an interim arrêt over a debt where the effect of such confirmation would be to put the third party debtor in a worse position than it would have been were no such order to be made.
166. Before this Court, Advocate Moran maintained that the Royal Court was wrong to decide that it would not have confirmed the arrêt because BIL (as the third party debtor) has a right of set off against Botaş (as the judgment debtor). The only party which could be prejudiced in the present case is Botaş which owns BIL. The principle that one does not take into account money which is subject to a right of set-off is inappropriate because it would prejudice only the judgment debtor. In any event, although BIL had potentially an entitlement to exercise a right of set-off, it had chosen to pay debts whilst the arrêt was in place. When it became apparent that that had been in breach of the interim arrêt, the money had been repaid into a bank account operated by BIL and it was agreed that all future payments would be held in the same segregated account. In these practical circumstances, there was no question of exercising any equitable right of set off.
167. Although this matter equally does not arise for our determination in relation to the cross appeal, we nevertheless agree with the views of the Royal Court and endorse what was said in the Royal Court judgment at para 278. In a situation where there is a potential right of set-off, such that a judgment debt might or might not be enforced against a third party debtor, the decision is one which a court has a discretion to make and is one which is essentially equitable. In such a situation, it is clear that one party or another is potentially going to suffer a disadvantage which would otherwise not occur if there was not in effect a competition between the third party debtor, who may lose the possibility of extinguishing or reducing the debt which he owes, and the judgment creditor, who may lose the entitlement to enforce the judgment (or award) in his favour against assets which are reasonably accessible. One way or another, one of those parties is going to suffer a disadvantage and it appears to this Court that it is a reasonable expression of such an equitable approach that it is the third party debtor who is favoured rather than the judgment creditor. This is not least because the third party debtor is neither the creditor nor debtor in respect of the principal debt whereas the judgment creditor is a party to the circumstances which brought about that debt.
168. In summary, and although we have disagreed with the Royal Court about the section of the Act which applies, the appeal by the appellants against the confirmation by the Royal Court of the arrêt in respect of the Shares is refused. The cross appeal by the respondent against the refusal by the Royal Court to confirm the arrêt in respect of the debts due by BIL to Botaş is refused.
169. In terms of the Notices of appeal by the parties:-
(i) In respect of the Re-Amended Notice of Appeal for the appellants, the appeal is refused and the findings of the Royal Court which are referred to are not set aside;
(ii) In respect of the Notice & Cross Appeal for the respondent:-
(a) The appeal that the Royal Court failed to apply section 14 of the Act is refused;
(b) The appeal that the Royal Court was wrong to find that section 13(2)(b) only applies where there is a judgment against the State in question is allowed;
(c) The appeal in respect of the commercial exception in section 13(4) is not determined;
(d) The appeal that the Royal Court was wrong to find that section 6(4) applies, is allowed;
(e) The appeal that the Royal Court was wrong in relation to the application of parallelism in Turkish law is refused;
(f) The appeal that the Royal Court was wrong to find that the arrêt should not apply to the debts owed by BIL to Botaş is refused.