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X Bankası Uluslararası Teminat Mektupları Hakkında Hukuki Görüş (UNSC)

Ömer Yüksel

Dear All,

As you know, it was decided to implement some measures due to the events which took place in Libya via resolutions numbered 1970 and 1973 of the United Nations Security Council (“UNSC”). Financial precautions also took place among these measures. These financial measures caused legal issues with respect to the agreements between Turkish firms which operate in Libya and real and legal people resident in Libya and the letters of guarantee issued in the name of the Turkish Firms in favor of these real and legal people resident in Libya. You have asked for our legal opinion and view regarding the resolution of these issues. Our opinion and views as the result of the research conducted on this subject are set forth down below:

1-) Facts

A resolution by the Turkish Republic Council of Ministers dated 21.06.2011 and numbered 2011/2001 was obtained upon the resolutions of the UNSC dated 26.02.2011 and numbered 1970 and dated 17.03.2011 and numbered 1973. The resolution of the Council of Ministers refers to some measures. Paragraph 4 of article 5 of the resolution of the Council of Ministers states as follows:

“Until a new resolution is obtained by the UNSC which shall abolish the measures foreseen in its resolutions numbered 1970 and 1973, provisions of article 27 of the Resolution numbered 1973 shall be taken into consideration, and claims for compensation arising from letters of guarantee issued in the name of Turkish citizens or real or legal people subject to Turkish laws in favor of real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter shall not be taken into consideration.”

In this case, claims for compensation arising from the letters of guarantee which are issued by Turkish Banks in the name of Turkish firms operating in Libya within the framework of counter-guarantees of the letters of guarantee issued by X Bank (“X Bank”) in favor of  real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter shall not be taken into consideration by the issuer Turkish banks until a resolution which shall abolish the resolutions numbered 1970 and 1973 is obtained by UNSC.

So the parties to the case are:

  • Turkish firms operating in Libya,
  • Turkish banks operating in Turkey;
  • X Bank operating in England, and
  • Real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter.

In our case, the countries which are affected by the resolution of the UNSC are Turkey, England and Libya.


2-) Legal Situation With Respect to the Member Countries and Turkey

The United Nations Charter (the “Charter”) approved by Law numbered 4801 by the Turkish Grand National Assembly and resolutions obtained by UNSC within the context of this Charter are accepted as laws as per article 90 of the Constitution of the Republic of Turkey.

However, there is no clear regulation about how a resolution obtained by the UNSC shall be implemented. Article 25 of the Charter does not contain any regulation about the direct implementation of resolutions of UNSC by the governments of member countries, but in general, states that resolutions of UNSC shall be implemented by member countries.  Since this provision does not regulate the method of implementation of the UNSC resolutions, the method is left for domestic legislations to implement as an obligation. Also in practice, resolutions of UNSC are implemented in line with the regulations of the domestic law.

Member countries are not obliged to conduct a separate legal regulation in their domestic law in order to fulfill the obligation of implementation of the resolutions of the UNSC. The duty of the member states is to put into action and affect the resolutions pertaining to enforcement measure resolutions within the borders of the Republic of Turkey.

The resolution of the Council of Ministers in a way provides a domestic law transaction identity to the resolutions of the UNSC. This transaction can be defined as being composed of acceptance and announcement of a resolution obtained out of the area of sovereignty of a country in order for its implementation under the sovereignty of that country.

Both in the framework of the Charter and the regulations under the Turkish legislation; a resolution by the Turkish Republic Council of Ministers dated 21.06.2011 and numbered 2011/2001 was obtained upon the resolutions of the UNSC dated 26.02.2011 and numbered 1970 and dated 17.03.2011 and numbered 1973; and by stating that “claims for compensation arising from letters of guarantee issued in the name of Turkish citizens or real or legal people subject to Turkish laws in favor of real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter shall not be taken into consideration” the method of implementation is determined.

However, a problem emerges at this point: When the resolutions obtained by the UNSC dated 26.02.2011 and numbered 1970 and dated 17.03.2011 and numbered 1973 are observed, the Turkish Council of Ministers is found to have made a disposal on the resolution obtained by UNSC and this resolution was not conveyed as is into the resolution of the Council of Ministers.

Whereas article 27 of the resolution dated 17.03.2011 and numbered 1973 states as:

  1. “Decides that all States, including the Libyan Arab Jamahiriya, shall take the necessary measures to ensure that no claim shall lie at the instance of the Libyan authorities, or of any person or body in the Libyan Arab Jamahiriya, or of any person claiming through or for the benefit of any such person or body, in connection with any contract or other transaction where its performance was affected by reason of the measures taken by the Security Council in resolution 1970 (2011), this resolution and related resolutions;”

As observed the wording “no claim” is being used in article 27.

However, in the resolution of the Council of Ministers dated 21.06.2011 and numbered 2011/2001 published in the Official Gazette dated 02.07.2011 and numbered 27982; it was only stated as “claims for compensation arising from the letters of guarantee.”

This fact shall, because of necessity, cause a slightly different implementation of the resolution of the UNSC in terms of domestic law. Yet, as explained above, article 25 of the Charter does not entail a regulation for direct implementation of the resolutions of UNSC by the administration, and leaves the method of implementation of the resolutions to the discretion of domestic law.

The only regulatory transaction with respect to domestic law is the resolution of the Council of Ministers dated 21.06.2011 and numbered 2011/2001.

In this case, in terms of the domestic law, people and bodies subject to the Turkish Legal System shall not take into consideration the claims for compensation arising from letters of guarantee asserted by real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter. However, there shall be no restriction in terms of other claims.

In our case, as also mentioned in the resolution, real or legal people resident in Libya and real or legal people acting in the name or under the direction of the latter claim the compensation and extension of the terms of the letters of guarantee submitted to them in their favor. Article 27 of the resolution of UNSC numbered 1973 states clearly that “no claim” shall be taken into consideration and this statement automatically entails “automatic term extensions and term extension” claims.  However; when the resolution of the Board of Ministers is reviewed, this provision of the resolution is not applied and the provision is limited with “claims for compensation”.

In our opinion, this restriction is possible with one condition as per paragraph 7 of article 2 of section I of the Charter titled “Purposes and Principles”:

2/VII. Unless the implementation of the enforcement measures foreseen in the Section which are agreed to be taken by the UNSC is not prevented in any way, there is no restriction for the member country to implement the resolution of UNSC in any way it wants in domestic law.

In our case, the resolution of UNSC which rules “not taking into consideration of claims for compensation” does not abolish “the right of claim for compensation” and not deem the letter of guarantee invalid. The resolution of UNSC must be evaluated as a force majeure situation. Whereas the said resolution states clearly as:

“Until a new resolution is obtained by the UNSC which shall abolish the measures foreseen in its resolutions numbered 1970 and 1973….”

This reveals that this transaction is a precaution with a term. In this case, the term of the letter of guarantee shall not expire and stop. (This fact is valid for letters of guarantee the terms of which have not expired yet.) 

The non-expiry of the term of the letter of guarantee and the claim for extension of term based on the expiry of the term are similar transactions with regard to their results. The extension of the term shall not prevent the implementation of the enforcement measures which are agreed to be obtained by the UNSC in any way. If the Council of Ministers acted with sensitivity at this point and especially issued the resolution of the Council of Ministers in this framework, the UNSC resolution can be implemented in a way approved by the domestic legal body by not preventing the implementation of the enforcement measures.

3-) The Status of the Parties as per the Resolution of UNSC

We defined the parties of the case as:

  • Turkish firms operating in Libya,
  • Turkish banks operating in Turkey;
  • X Bank operating in England, and
  • Real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter.

Accordingly, as Turkish Banks operating in Libya shall be subject to the resolution of the Council of Ministers dated 21.06.2011 and numbered 2011/2001 published in the Official Gazette dated 02.07.2011 and numbered 27982, they shall not fulfill the claims for compensation asserted at them by X Bank in any way, but will accept claims for term extensions. The attitude of the Banking Regulation and Supervision Agency (the “Agency”) in this respect possesses importance, but as the resolution of the Council of Ministers has recently been published on 02.07.2011, the Agency has not rendered any decision in this respect yet.

In this respect, it is also important to clarify whether the Turkish banks have discretionary power or not. i.e. Can Turkish banks refuse the “auto-extended” notifications claimed from them based on the erroneous implementation of the UNSC by the Council of Ministers? In our opinion, this is not possible unless the Council of Ministers changes or corrects its resolution or the implementation is stopped by the Administrative Court. Turkish Banks are bound with the resolution of the Turkish Council of Ministers published in the Official Gazette, and they cannot implement the resolution of UNSC by interpreting it and over running the Council of Ministers.

The situation is different for X Bank. The type and method of the domestic law transaction pertaining to the implementation of the resolution of UNSC in England seems of importance here. Similarly, if the British government also does not reflect the resolution of UNSC strictly as is to its domestic law, and for example does not bring any restriction to extension of term, X Bank shall also be able to accept the term extension claims asserted at it. However, if the British Government reflects the said resolution with all its aspects and as is to its domestic law, then X Bank cannot take into consideration “any claims” asserted at it.

Therefore X Bank has to look through the domestic legal system of the British Government and find out how the resolution of the Council of Ministers is adopted. Since we can only provide advice as per the Turkish law, we recommend that the legal counsel of X Bank in Great Britain is contacted in this respect. Thus, if the resolution is reflected as is, then the acceptance of term extension claims shall form a breach of the resolution and the regulations of the domestic law.

If for one moment we assume that the British Government also conducts a domestic law regulation enabling claims for term extension, X Bank shall recourse to Turkish Banks due to the term extension claim, and ask for extension of the terms of the letters of guarantee. At this point the relations, protocols or agreements between X Bank and Turkish banks shall gain importance. If the counter-guarantees between X Bank and Turkish Banks are in the form of “auto-extended” –and we are informed that this is the case- then term extension shall take place in respect of X Bank within framework of the provisions of the relevant agreement.

4-) The Nature of Paragraph 4 of Article 5 of the Resolution of the Turkish Council of Ministers in Terms of Banking Law

Although the statement “claims for compensation of the letters of guarantee shall not be taken into consideration” is used in the resolution of the Council of Ministers, this statement does not abolish the right to claim for compensation, but rules that such a claim shall not be taken into consideration for a temporary period. Therefore X Bank should present the letters of guarantee issued to it by Turkish banks as counter-guarantee to the issuer Turkish Bank and start the procedure. In the contrary, it may face a claim that “it has not fulfilled its obligation to present the letters of guarantee before the expiry of their terms for compensation”. The same situation is valid for the letters of guarantee issued by X Bank in favor of real or legal people resident in Libya or real or legal people acting in the name or under the direction of the latter.

In case these letters of guarantee are not presented to X Bank at their due terms and the procedure is not initiated, X Bank, may claim that the obligation of submission for compensation had to be fulfilled notwithstanding the resolution of UNSC.

The payment obligation of the issuer bank is not born unless letters of guarantee are submitted for compensation. The beneficiary of the letter of guarantee has to present the letter to the bank in the due term, despite any precautionary resolution preventing the collection of the value of the letter. The non-compensation of the bank due to a precautionary resolution is a different situation and it does not abolish the obligation of submission by the beneficiary.

5-) The Results of Temporary Suspension of the Risk by the Resolution of the Council of Ministers on the Parties.

Turkish construction companies operating in Libya may claim that the risk is suspended temporarily via the resolution of the Council of Ministers and that there is no need for the bank to accrue commission for the letters of guarantee.

The civil commotion and security defects which are the cause of the resolution of the UNSC are facts which shall be accepted as force majeure reasons for business conducted by these construction firms with regard to all the parties. The non-compensation of the amounts of the letters of guarantee until the obtainment of a new resolution is also a security for the banks. Therefore, it is possible that credit clients may apply to court for the cease of commission accruals.

Our recommendation in this respect is to reach an agreement by reducing the commission rates when such demands are received from credit clients. Of course the force majeure clauses in the general credit agreements also possess importance. Moreover, it shall not be fair for the same commission rates to accrue despite the non-existence of a risk factor for the banks and the resolution of the UNSC. Such a dispute may require a litigation process to be resolved.

6-) In Which Ways Can X Bank Act With Respect to Compensation Claims Asserted at It?

It has to be initially mentioned that, as asked to me, it is not possible for X Bank to ask for compensation from Turkish banks upon compensation claims asserted at it from Libya, to collect the amounts of the letters of guarantee, keep these amounts at a frozen account and not to make any payment as per the resolution of the UNSC in terms of the commercial sense.

Of course it may come true if Turkish banks disregard the resolutions of UNSC or the Council of Ministers. However, such a situation may never be the case. X Bank cannot collect the amounts of the letters of guarantee despite the resolution of the Council of Ministers. Moreover, it shall lose the lawsuits it shall file in this respect.

The resolutions of UNSC or the Council of Ministers are clear. Claims for compensation issued being based on a contractual relationship which is directly or indirectly related to Libya shall not be taken into consideration.

7-) What Shall Be the Implementation With Respect to “Auto-Extended” Notifications Served before the Expiry of the Terms of the Letters of Guarantee Issued by X Bank to Libya?

The composition and method of the domestic law transaction pertaining to the implementation of the resolution of UNSC in England has to be known in order to answer this question.

If the British government reflects the resolution of UNSC as is and word for word, then X Bank shall not take into consideration “any claims” asserted at it. Acting on the contrary and accepting the claims for term extensions shall form a breach of the resolution and the regulations of the domestic law.

8-) Submission of the Letters of Guarantee Subsequent to the Expiry of Their Terms

In our opinion, if a letter of guarantee is not submitted within its due time, it shall lose its effect. However, although in our case, people resident in Libya may litigate against X Bank  stating that they could not submit their letters of guarantee on time due to the resolution of UNSC, it is our view that such cases cannot be won.

We are of the opinion that the most important issues relating to letters of guarantee are their preparation in line with the legislation and their submission before the expiry of their terms. Therefore if the due time has passed, and the beneficiary submits the letter of guarantee after the expiry of the term and makes an “auto-extended” warning or claims extension of the term, X Bank is right in refusing such claims and thus it shall not be obliged to pay the amounts in the letters of credit.

However, people residing in Libya may state that the delay was due from war and civil commotions, they could not submit their letters for compensation under the effect of these force majeure reasons, they could not find a body to address their claims or a correspondent bank, that the business was suspended and may rely on similar reasons for their delay in submission. They may want their claims for compensation to be recorded as the delay is based on a fair reason and may litigate against X Bank in case of refusal of their claims.

9-) Reactions Against the Resolution of the Turkish Council of Ministers

If it turns up that the Turkish Council of Ministers did not act with sensitivity but reflected the resolution of UNSC deficiently to the domestic law by mistake, as the resolutions of the Council of Ministers are administrative transactions and as they are subject to audit in respect of legal compatibility at the Administrative Courts, people or enterprises  who/which suffer losses due to the deficient or erroneous reflection of the resolutions of UNSC to domestic law, shall demand the execution of necessary corrections and/or the annulment of the resolution which is claimed to be erroneous.

Set forth above are our explanations in general and our answers to the questions you posed.

In case of further questions, please do not hesitate to contact us.

Yours Respectfully,

 

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