Muduroglu Ltd v T. C. Ziraat Bankasi
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUSTILL,LORD JUSTICE STOCKER,THE MASTER OF THE ROLLS |
| Judgment Date | 03 July 1986 |
| Judgment citation (vLex) | [1986] EWCA Civ J0703-1 |
| Docket Number | 86/0606 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 July 1986 |
[1986] EWCA Civ J0703-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(MR. JUSTICE HOBHOUSE)
Royal Courts of Justice.
The Master of the Rolls
(Sir John Donaldson)
Lord Justice Mustill
and
Lord Justice Stocker
86/0606
1985 M. No. 451
MR. S. BOYD, Q.C. and MR. GAVIN KEALEY (instructed by Messrs. Masons) appeared on behalf of the (Plaintiffs) Appellants.
MR. SIDNEY KENTRIDGE, Q.C. and MR. JONATHAN SUMPTION, Q.C. (instructed by Messrs. Coward Chance) appeared on behalf of the (Defendants) Respondents.
On the 1st February, 1985 Muduroglu Limited instituted proceedings in the High Court against T.C. Ziraat Rankasi. Soon afterwards the plaintiffs served the specially endorsed writ on the defendants at their representative office in London. No objection is now taken to the validity of this service. It was and is, however, contended by the defendants that the pursuit of this action in England is an abuse of the process of the court, and that the action should be stayed so that the dispute can be carried on in Turkey, its natural forum. The matter came before Mr. Justice Hobhouse, who acceded to the defendants' arguments and granted a stay. The plaintiffs now appeal.
I will begin by summarising in as uncontroversial manner as possible the origins of this dispute, and will then set out the curious history of the action and the present appeal.
The plaintiffs are a company incorporated in Nicosia, Cyprus. Their offices are a short distance from Nicosia in that territory which, to avoid injury to political susceptibilities, I will simply call Northern Cyprus. The share capital of the plaintiffs is held, via a Channel Islands company, by the family of Mr. Efruz Sami Muduroglu, who together with his wife and son constitute the board of directors. These three persons are British subjects resident in England. The business of the company is in the field of construction and civil engineering. Mr. Muduroglu is also concerned with a United Kingdom company named Muduroglu (London) Limited, which is said to have rendered ancillary services on some scale, in connection with the transaction out of which the dispute has arisen.
The defendants are the largest and oldest established banking institution in Turkey. The entire share capital is owned by the Turkish state, but it is an automomous legal entity, possessing its own board of directors. The function of the bank is to provide banking services for Turkish industry and agriculture. One such service is the facilitation of overseas trade by furnishing guarantees on behalf of Turkish exporters of goods and services.
During 1976 the plaintiffs entered into a contract with the Directorate of Military Contracting and Procurement (which I will call "the Libyan Directorate") for the construction of harbour works at the naval base at Homs. This was on a large scale. The contract price was approximately U.S. $220 million, payable as to 75 per cent in United States dollars and 25 per cent in Libyan dinars. The payment provisions were complicated, but essentially (so far as concerned the U.S. dollar portion of the price) the Libyan Directorate was to provide a letter of credit, permitting an advance payment of 25 per cent of the dollar portion, plus stage payments as the work progressed. In exchange, the plaintiffs were to furnish a performance bond for 10 per cent of the contract value, and a guarantee to secure the repayment in certain circumstances of the 25 per cent advance payment.
Article 22 of the contract stipulated that the Libyan Directorate should have the right to terminate the contract in certain circumstances. In such an event, the parties were to value the works, etc. and, in effect, strike a balance. Also, the Libyan Directorate were entitled to call upon the performance bond (not the advance payment guarantee) proportionately to the value of the works left unexecuted at the date of termination.
Pursuant to the contract, during January 1977 the plaintiffs procured Wahda Bank of Benghazi to issue a performance bond in favour of the Libyan Directorate. On the 27th April, 1977 Wahda Bank also issued a guarantee in respect of the advance payment. This was backed by a counter-guarantee given by Union Bank of Switzerland. In turn, the Swiss bank required the plaintiffs to provide security.
During November 19 77 the plaintiffs opened a branch office on the Turkish mainland, and obtained the consent of the government to be treated, for the purpose of various financial benefits, as if they were incorporated in Turkey. One such benefit was the possibility of obtaining a guarantee from the defendants to back the Wahda advance payment guarantee on terms (including terms as to security) much less onerous than those required by the Swiss bank. Accordingly, arrangements were made to replace the original documents with a new set.
Thus, on the 27th March, 19 78 Wahda Bank re-issued the advance payment guarantee to the Libyan Directorate. The material part read, in translation, as follows:
"Due to the request of Muduroglu Ltd. and after liquidating the counter guarantee by Turkive Cumhuriveti Ziraat Bankasi who issued that counter guarantee, we undertake to pay you upon your request and without interests the amount of 36,179,034.10 U.S. $ Thirty six million one hundred seventy nine thousand thirty four U.S. Dollars and 10/100) as a guarantee for the Foreign Advance Payment for Contract No. 142/126/1976 provided that the amount of the payments will be deducted automatically from the gross amount of the guarantee.
This Letter guarantees the Advance payment concerning the above-mentioned Tender No. 142/126/76 and should not be used for another purpose."
Meanwhile on the 22nd February, 19 78 a document (which I will call "the counter-guarantee") was issued by the defendants to Wahda Bank. This document was in the English language and read:
"On account and on behalf of Muduroglu Limited we give hereunder our guarantee in replacement and in substitution of the undertaking no. 301–8096 dated 22nd April 1977 and given by the Union Bank of Switzerland.
In consideration of your advance payment guarantee in favour of the directorate of military contracting and procurements Tripoli, on account of messrs. Muduroglu Limited, as per terms annex 2a of their contract no. pro/142/126/1976 in connection with the first and second substages of the second stage works for harbour construction at Homs, L.A.P.S.J. for the amount of US Dollars 36,179,034.11.—(United states Dollars Thirty six million, one hundred seventy nine thousand and thirty four dollar and ten cents) in all, which represents the external portion of the advance payment referred to therein we, T.C. ZIRAAT BANKASI ANKARA BRANCH TURKEY hereby undertake to pay to you on first demand, irrespective of the validity and the effects of the above-mentioned advance payment guarantee and waiving all rights and objections and defence arising from the said advance payment guarantee any amount up to US Dollars 36,179,034.11.—(Thirty six million, one hundred seventy nine thousand and thirty four dollar and ten cents) upon receipt of your request for payment and your confirmation in writing or by duly encoded telex or cable that you have requested messrs. Muduroglu Limited to repay the amount claimed by you hereunder and that the said amount remained unpaid by Messrs. Muduroglu Limited. This guarantee is valid until 31st December 1981 (eighty-one) and expires automatically in full should your claims, if any, not reach us on or before that date.
This guarantee is issued in accordance with current Turkish exchange control regulations. We confirm that this guarantee is unconditional and will be paid on first simple demand."
On the same day an internal memorandum of the defendants set out the terms on which their board had agreed to take part in the transaction. We were not referred to any contemporary document showing that the plaintiffs had agreed to these terms, but they must have done, otherwise the new arrangements would not have gone ahead. In essence, the plan was for the plaintiffs to transfer to the defendants in foreign currency the sum of $36,179,034 referred to in Wahda Bank's guarantee. This was to be divided into four parts. The first $10 million was to be held in an interest free foreign currency deposit account; the second $10 million was to be converted into Turkish currency and deposited with the defendants; the third $10 million was to be kept in a foreign currency deposit account as backing for a further guarantee to any Libyan bank so that the plaintiffs could obtain credit in Libya: the remainder was to be freely available to the plaintiffs. As security for the last two tranches, the defendants were to have a mortgage over the plaintiffs' real property in Cyprus, and their plant and machinery in Libya.
On the 10th April, 19 78 the arrangements were altered by a document in the Turkish language, this time addressed by the plaintiffs to the defendants. This consisted of a series of numbered paragraphs. The first dealt with the first tranche of $10 million, the second with the second tranche, and the third with the security for the Wahda Bank counter-guarantee. The second paragraph stipulated that the proceeds in Turkish lire of the second tranche should be dealt with. As to one-half, it was to be kept in a non interest bearing account and ultimately repaid in lire. The remainder was to be applied to the purchase of government bonds,...
To continue reading
Request your trial
-
Bundeszentralamt Für Steuern (being the Federal Central Tax Office of the Federal Republic of Germany) v Richard Heis
...non conveniens, as that doctrine is applied to stay applications based upon the jurisdictional rules of the common law. In Muduroglu Ltd v TC Ziraat Bankasi [1986] 3 All ER 682, Mustill LJ said, at 697: “There does however remain a residue of cases where foreign law is hotly in dispute. He......
-
National Iranian Oil Company v Ashland Overseas Trading Ltd
...Pons de Nemours & Co v AgnewUNK [1987] 2 Lloyds Rep. 585 MacShannon v Rockware GlassELR [1978] AC 795 Muduroglu Ltd TC Ziraat BankasiELR [1986] QB 1225 Stroble v CaliforniaUNK 72 S Ct 599 Civil procedure — Conflict of laws — Forum non conveniens — Appeal by plaintiff against stay — Plaintif......
- Bank Bumiputra Malaysia Bhd v Lorrain Esme Osman (1988) 1 MSCLC 90, 051;
-
FS Cairo (Nile Plaza) LLC v Brownlie (as Dependant and Executrix of Professor Sir Ian Brownlie CBE QC) (Respondent
...where international conventions aimed at harmonisation of laws have been adopted, mainly in areas of commercial law. In Muduroglu Ltd v TC Ziraat Bankasi [1986] QB 1225, 1246, Mustill LJ observed that “in so many practical respects there is insufficient difference between the commercial la......
-
The Conflict of Laws and Statutes: The International Operational of Legislation Dealing With Matters of Civil Law in the United Kingdom and Australia
...Law’ (1973) 59 Cornell Law Review 1, 2–3; and Fentiman,n 33 above, 150–153; for a curial view see Muduroglu Ltd vTC Ziraat Bankasi [1986] QB 1225,1246 per Mustill LJ.38 ibid.39 See Red Sea Insurance Co vBouygues SA [1995] 1 AC 190 (PC) and McKain vR.W. Miller & CoLtd (1991) 174 CLR 1.40 Her......