Important Decision from the Turkish Court of Cassation

Important Decision from The Turkish Court of Cassation: Foreclosure of Pledge and Specific Enforcement for Bills of Exchange Cannot Be Initiated Simultaneously for The Same Receivable

With its unification of judgments decision [“Decision”] dated 20.01.2023 and numbered  2021/2 E. 2023/1 K., published in the Official Gazette dated 16.07.2023 and numbered 32250, Turkish Court of Cassation General Assembly on the Unification of Judgments [“General Assembly”] ruled that in order to collect the receivable secured by a pledge and also attached to a bill of exchange, the debtor cannot be pursued simultaneously and regardless of the order, both enforcement by way of foreclosure of the pledge and by way of attachment for bills of exchange, even if there is no double payment. According to the decision, if two proceedings are initiated at the same time to collect the same receivable in violation of this rule, the debtor may request the cancellation of the second proceeding from the enforcement court. In the Decision, it is emphasized that initiating two different enforcement proceedings against the same debtor for the same receivable at the same time is contrary to the procedural (enforcement) economy and will violate the balance of interests between the debtor and the creditor.

Background of the Decision

The Decision was rendered with the aim of resolving the lack of jurisprudential unity between the Court of Cassation Civil Chambers and the Court of Cassation General Assembly and ending the different applications on whether, in enforcement proceedings initiated according to Articles 45 and 167 of the Enforcement and Bankruptcy Law No. 2004 [the “EBL”], where the creditor has secured their receivable both with a bill of exchange and a pledge, it is possible to initiate enforcement both by means of bills of exchange and enforcement by foreclosure of the pledge for the same receivable, even if there is no double collection.

Assessment and Reasoning of the General Assembly

The General Assembly made the following assessments regarding the legal issue subject to the Decision:

1. In enforcement and bankruptcy law, the general rule concerning receivables secured by a pledge is to pursue the enforcement by foreclosure of the pledge in the first place according to Article 45 of the EBL. An exception to this rule applies to receivables attached to a bill of exchange under Article 167 of the EBL, where the receivable is also secured by a pledge. In such cases, the creditor can choose to initiate either enforcement by foreclosure of the pledge or through a special seizure method for bills of exchange, regardless of the order of priority. However, it cannot be concluded that, even if there is no double collection, both enforcement methods can be simultaneously initiated against the same debtor for the same receivable.
2. The fundamental principle in enforcement and bankruptcy law is that the creditor should initiate a single enforcement against the same debtor for the same receivable. If there is an ongoing enforcement process for the same receivable against the same debtor, regardless of the type of enforcement, a second enforcement cannot be initiated, as this would create an issue of lis pendens.
3. The purpose of the enforcement and bankruptcy law is, on the one hand, to eliminate the difficulties that the debtor and third parties may cause to the creditor in order for the creditor to obtain its receivables, on the other hand, to protect the interests of the debtor and third parties against creditors acting in bad faith and to ensure the protection of human rights and freedoms during enforcement proceedings. Failure of the debtor to fulfil its obligation on time and in full does not give the creditor the right to interfere with the debtor's fundamental rights guaranteed by the Constitution and international conventions without measure and without limit. As a matter of fact, a balance must be observed between the interests of the creditor and the debtor. While the provisional pledge deficit certificate has not yet been issued, the seizure of the debtor's property other than the pledged property creates an excessive burden for the debtor, and in this respect, it is contrary to the balance of interests and the purpose of compulsory enforcement. Because the purpose of compulsory enforcement is to collect the receivable and not to punish the debtor.
4. The principle of procedural economy, as set forth in Article 30 of the Turkish Code of Civil Procedure No. 6100 and corresponding to Article 141 of the Constitution of the Republic of Türkiye [the “Constitution”], also applies in enforcement law. Accordingly, enforcement proceedings should be completed in a reasonable time and with minimal expenses, conducted in an organized manner. Pursuant to Article 59 of the EBL, enforcement costs, e., enforcement fees and expenses, are borne by the debtor. In line with this, at the end of the enforcement proceedings, the debtor, who will bear the enforcement costs in accordance with the principle of procedural economy, should be held liable with the least expense while protecting the balance of interests between the debtor and the creditor. Therefore, if the creditor initiates a second enforcement against the debtor for the same receivable, the debtor will incur additional enforcement costs and, if represented by an attorney, the attorney fees, which would unnecessarily burden the compulsory enforcement authorities in violation of procedural economy.

The General Assembly, while evaluating the issue in question from the perspective of creditor’s right to access to justice, as guaranteed by Article 36 of the Constitution, emphasized that the right to access to justice through enforcement proceedings is not unlimited and cannot be used contrary to the principle of good faith. In this context, it was stressed in the Decision that initiation of a second enforcement proceeding by the creditor against the same debtor while an existing enforcement proceeding is pending for the same receivable is contrary to the rule of good faith and that the creditor has no legal interest in initiating a second enforcement proceeding. In this regard, the decision of the Turkish Constitutional Court dated 22.04.2015 and numbered 2015/28 E. 2015/42 K., which states that compulsory execution causes extra expenses for the debtor and an unnecessary increase in the debt burden; therefore, thus, voluntary payment methods should be exhausted before resorting to compulsory enforcement, as much as possible, was also referred.

Conclusion

In terms of Turkish enforcement law, in the event that a receivable is secured by a pledge, the main principle is the foreclosure of the pledge first, and it is expressly prohibited to resort to alternative enforcement remedies before this remedy is exhausted. However, the exception to this prohibition applies to receivables secured by a bill of exchange. On the other hand, it has been debated for many years whether this exception provides the creditor with the right to choose between the two enforcement methods, or whether it allows the creditor to apply to both remedies simultaneously. In practice, specific enforcement for the bills of exchange and enforcement by foreclosure of pledge are often applied simultaneously for a single receivable, with the reservation that "there is no double collection". The difference of opinion among the chambers of the Court of Cassation, which has existed for many years, on whether this is possible in terms of the law of enforcement, has finally been conclusively ended.

In Turkish legal system, the unification of judgments decisions are binding on the Court of Cassation General Assemblies, chambers and courts in similar legal matters pursuant to Article 45, paragraph 5 of the Court of Cassation Law No. 5579. In other words, as long as a unification of judgments decision is not changed or revoked, it is legally impossible for the courts to rule in the opposition. In this context, the simultaneous initiation of both enforcement methods, i.e., through the foreclosure of the pledge and the specific seizure of bills of exchange for the collection of a receivable secured by a pledge as well as bills of exchange, has been definitively prohibited even if there is no double collection. If a second proceeding is initiated in this way, the debtor may apply to the enforcement court indefinitely by way of complaint and request the cancellation of the second proceeding initiated against him. In the scenario where the proceeding is cancelled, the creditor will be able to initiate the second proceeding only if it cannot collect its entire receivable in the first proceeding.