Can a vessel be deemed or treated as an immovable property? As strange as it may be, this was the case under Turkish law where all Turkish flagged vessels were deemed immovable properties.

As foreign lenders become more and more active in the Turkish shipping market, the unusual provisions under the Turkish Commercial Code and the Turkish Execution Code, which gave Turkish vessels the assumed “immovable property” status, caught the eye of both foreign lenders and their local counsels. These provisions constituted a serious problem as they gave rise to the argument that Turkish public order should intervene in the forced sales of Turkish vessels and that forced sales carried out outside of the Turkish jurisdiction should not be recognised in Turkey.

Foreign lenders and Turkish shipowners, who were keen on maintaining the newly-acquired access to international finance markets, lobbied extensively for the amendment of the said provisions. Whereas the lobbyists were eventually able to have the provisions of the Turkish Commercial Code amended, which followed the amendment allowed foreign auctions, the provisions under the Turkish Execution Code were overlooked.

Therefore, there existed an extraordinary situation where the provisions of different Codes were in contradiction with each other. This gave rise to a very ambiguous position where no one was sure what would have happened if a Turkish vessel had been arrested and subsequently auctioned off outside Turkish jurisdiction.

It was at that time one of the most infamous cases in the history of the Turkish Maritime Law commenced. Under the subject case, the shipowner argued that its vessels—all four arrested and sold via public auctions abroad—could not have been auctioned off abroad on the basis that they were Turkish immovable properties and that it was contrary to Turkish public order that Turkish immovable properties be sold by foreign courts. Not only was the shipowner able to procure the stay of the deletion of the vessels from the Turkish Registry at the initial stage, in the final outcome the shipowner was able to have his views and claims endorsed by Turkish courts, and the foreign lender was thus ordered to pay compensation to the shipowner.

It goes without saying that the continuing problems in the Turkish legislation and the abovementioned case resulted in foreign lenders shying away from extending loans to Turkish projects and, save for a very limited number of Turkish shipowners, access of the Turkish shipping community to international finance markets has been severely limited.

On the grounds of the problems arising from the outdated Turkish commercial law, including the shipping section, the lawmakers passed a New Turkish Commercial Code which came into force on July 1, 2012. Turkish lawyers watched with great interest how fundamental problems, such as the subject matter of this Article, were to be dealt with by the Parliament.

Therefore, it was a great relief when the New Commercial Code explicitly identified all vessels, regardless of their flags, as movable properties and also cured the problems arising from the Turkish Execution Code.

The New Commercial Code not only cured the problems; by adopting the principles under the International Convention on Maritime Liens and Mortgages 1993, it also provided a guideline as to the steps that need to be taken prior to an auction abroad. Accordingly, it refers to lex fori in terms of the procedural rules to be applied to auctions, and hence now no Turkish court is allowed to question the sale procedures adopted by the foreign court performing the auction. The only “Turkish” requirement is that the foreign auction must have been published once in a Turkish newspaper with nation-wide distribution and at least 50,000 readers, and at the latest 30 days prior to the auction.

It had been hotly debated among Turkish lawyers and academicians whether the new legislation would in fact be sufficient to cure the problems and whether a Turkish flagged vessel could now be deleted successfully from the Turkish Registry following a foreign auction. Needless to say, foreign lenders have been keeping a close eye on this question as well.

It is with great pleasure that the author advises that the team has been involved in the successful deletion of two Turkish vessels, one arrested in the UK and the other in India, following their arrests and court auctions in foreign jurisdictions.

Now that precedents have been established in accordance with the new legislation, it is expected that foreign lenders will be less reluctant to accept the Turkish flag which had been the case during most of the last ten years.