Docket: CACV2572 Huseyin Arslan v. Murad Al-Katib, 2014 SKCA 105

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2014 SKCA 105 Date: 2014-10-07 Between: Docket: CACV2572 Huseyin Arslan and Murad Al-Katib Prospective Appellants (Defendants) - and - Sekerbank T.A.S. Prospective Respondent (Plaintiff) Before: Ottenbreit J.A. (in Chambers) Counsel: Kevin Mellor for the prospective appellant, Huseyin Arslan Rod Rath, Q.C., for the prospective appellant, Murad Al-Katib Peter Bergbusch for the prospective respondent Application:

From: 2014 SKQB 215 Heard: August 27, 2014 Disposition: Leave granted Written Reasons: October 7, 2014 By: The Honourable Mr. Justice Ottenbreit Ottenbreit J.A. [ 1 ] Huseyin Arslan [Mr. Arslan] and Murad Al-Katib [Mr. Al-Katib] apply for leave to appeal the decision of the Chambers judge who dismissed their application to terminate a consent preservation order granted to Sekerbank T.A.S. [Sekerbank] pursuant to The Enforcement of Money Judgments Act , SS 2010, c E-9.22 [ EMJA ]. For the reasons hereinafter set forth, leave to appeal is granted. I.

Facts and Background [ 2 ] Sekerbank, a large national bank in Turkey, alleges that Mr. Arslan, a Turkish citizen, has defaulted on an obligation to pay to it approximately $13,813,544 pursuant to certain guarantees he has signed respecting the debts of certain Turkish companies which borrowed money from Sekerbank. Mr. Arslan denies the guarantees are binding and enforceable. Sekerbank has pursued legal actions in Turkey in an attempt to prove and enforce those guarantees. The Turkish court, however, decided to halt collection proceedings.

Sekerbank then commenced proceedings in another Turkish court respecting the guarantees. [ 3 ] Sekerbank was concerned that it would be unable to realize on any judgment which it may obtain in Turkey because it was unaware of substantial assets owned by Mr. Arslan in Turkey. It wanted to ensure that it would be able to enforce that judgment against shares in a Saskatchewan corporation that Mr. Arslan had transferred to Mr. Al-Katib in trust and so commenced an action in Saskatchewan in September 2013 and sought a preservation order pursuant to the EMJA for that same debt.

In the fall of 2013, a preservation order was granted and extended at various times with certain modifications to January 9, 2014. [ 4 ] In December of 2013, Sekerbank filed a second claim on the basis that Mr. Arslan’s transfer of shares in trust to Mr. Al-Katib was a fraudulent preference pursuant to The Fraudulent Preferences Act , RSS 1978, c F-21 or The Fraudulent Conveyances Act , 1571, 13 Eliz I, c 5 [ The Statute of Elizabeth ] and sought a declaration that the transfer was null and void to the extent of any indebtedness Mr. Arslan had to Sekerbank.

Those allegations created a different legal foundation for a preservation order. [ 5 ] On December 23, 2013, Sekerbank applied for a preservation order in the second action. The order was granted with the consent of Mr. Arslan and Mr. Al-Katib on January 9, 2014. There was no hearing on the merits of the application. The Order included the following paragraph: 3. Pursuant to section 7(1) (

c) and section 7(2) of The Enforcement of Money Judgments Act , this preservation order shall remain in effect until the Turkish Court has rendered a final decision on the merits of the Applicant’s claim against Hüseyin Mr. Arslan and until such time as the within action is concluded, or until further court order. Mr. Arslan and Mr. Al-Katib, in due course, then applied pursuant to s. 8 of the EMJA for an order terminating the January 9, 2014, consent order. [ 6 ] On that application, Mr. Arslan and Mr.

Al-Katib proffered (in addition to other affidavits) the affidavit of Akif Dogru, a retired Turkish judge, as an expert on Turkish law and the Turkish proceedings. Sekerbank, among other affidavits, proffered the affidavits of Nese Mutlugil and Dr. Özgün Öztunç, who are lawyers employed by the Turkish law firm representing Sekerbank in the Turkish proceedings against Mr. Arslan. [ 7 ] In concluding that the consent preservation order would not be terminated, the Chambers judge made a number of findings and determinations, which are germane to the proposed grounds of appeal of Mr. Arslan and Mr.

Al-Katib and to this application for leave to appeal: (

a) There were on-going proceedings against Mr. Arslan in one or another of the Turkish courts to prove and enforce Sekerbank’s claim against him; (

b) The affidavit sworn by the lawyers for Sekerbank were admissible only to determine, together with documents and evidence of other affiants, whether proceedings were commenced in Turkey, what those proceedings relate to, whether they have been determined or are on-going and whether the outcome in the Turkish proceedings turns on arguable legal questions; (

c) Sekerbank’s choice of forum to pursue enforcement against Mr. Arslan had delayed the final resolution of the Turkish proceedings to some extent. (

d) The test with respect to whether there is an action within the meaning of s. 5(1) (a)(ii) of the EMJA is that the court must be satisfied on the documentation presented, that the plaintiff’s action is a recognized cause of action, is not groundless, and that there is more than no or a slim possibility that the plaintiff would recover a money judgment against the defendants;

(

e) In an application under s. 8 of the EMJA , a consent order creates an issue estoppel with respect to the prerequisites for the granting of a preservation order under the EMJA ; (

f) In a s. 8 application, a complete rehearing of the merits is not appropriate. However, the court may, pursuant to s. 8 of the EMJA , terminate a preservation order granted by consent if the applicant shows grounds which would vitiate a contract or if the facts or law on which the consent order was based have changed to the extent that the plaintiff no longer meets the three conditions specified in s. 5 of the EMJA ; (

g) Mr. Arslan and Mr. Al-Katib by virtue of the consent order must be taken to have agreed that the evidence was sufficient to meet the three conditions specified in s. 5(5) (a)(ii), (

b) and (

c) of the EMJA ; and (

h) Mr. Arslan and Mr. Al-Katib had not shown a sufficient change in the facts after January 9, 2014, to justify a termination of the consent order since the merits of Sekerbank’s claim are still before a Turkish court. Moreover, the evidence did not satisfy him that Sekerbank’s Turkish claim is groundless or has less than a slim possibility of success. II. Proposed Notice of Appeal [ 8 ] Mr. Arslan and Mr. Al-Katib propose to appeal the decision of the Chambers judge on the following grounds: (

a) The Chambers judge erred in not terminating the preservation order; (

b) The Chambers judge erred by not properly interpreting the provisions of s. 5(5) of the EMJA and particularly the standard and evidence required for determining when a preservation order is granted and when an action is prosecuted without delay; (

c) The Chambers judge erred in that he ruled that the consent order filed was not subject to s. 8 of the EMJA and the words “until further court order”; (

d) The Chambers judge erred in ruling that the opinion of lawyers representing Sekerbank was admissible and could be considered as expert evidence pursuant to s. 4 of The Evidence Act , SS 2006, c E-11.2; and (

e) The Chambers judge erred in not ruling that the only qualified expert produced pursuant to the requirements of s. 4 of The Evidence Act was the expert of Mr. Arslan and Mr. Al-Katib. III. The Test for Leave [ 9 ] The criteria to be applied in determining whether leave to appeal ought to be granted is well known as set forth by this Court in Rothmans, Benson and Hedges Inc. v Saskatchewan , 2002 SKCA 119 at para 6 , 227 Sask R 121 [ Rothmans ].

Essentially the proposed appeal must be of sufficient merit to warrant the attention of the court and of sufficient importance to the proceedings before the court, or to the field of practice or the state of the law, or to the administration of justice generally. IV. Analysis [ 10 ] I turn now to the merit portion of the Rothmans test respecting the proposed grounds of appeal which I have summarized as follows. A.

The Chambers judge erred in employing a test for the granting of a preservation order under s. 5 of the EMJA that was too low. [ 11 ] Sekerbank argues that whether to grant or maintain a preservation order is a discretionary decision subject to a high level of appellate deference and that the appeal is destined to fail. Sekerbank argues that the approach taken by the Chambers judge with respect to the test to be employed under s. 5(1) (a)(ii) and s. 5(5) (a)(ii) of the EMJA is consistent with the existing jurisprudence and academic literature. Mr. Arslan and Mr.

Al-Katib submit the test should be that required for a Mareva injunction: i.e., a strong prima facie case with compelling and cogent evidence that the plaintiff will suffer irreparable harm if the order is not granted and the balance of convenience favours the grant. [ 12 ] The decisions of the Court of Queen’s Bench appear to have interpreted the test required by s. 5(1) (a)(ii) and s. 5(5) (a)(ii) in a relatively consistent manner and determined that the threshold for satisfying the test is a low one, i.e. a recognized cause of action that is not groundless and offers more than a slim possibility that the plaintiff will recover a money judgment.

However, the position taken by Mr. Arslan and Mr. Al-Katib on this issue may have substantial merit. Even the Chambers judge, when considering s. 8 of the EMJA , noted at para. 53 “that a preservation order serves essentially the same function as a Mareva injunction.” Due to this similarity, there may be sufficient merit for a determination by this Court of the test that is to be applied to determine whether, if successful, the action would result in an order declaring a transfer of property by the defendant void as a fraudulent conveyance. The Chambers judge’s

interpretation of this provision appears to raise a question of law to be reviewed on the standard of correctness. There is, therefore, sufficient merit to this ground. It is not destined to fail. B. The Chambers judge erred in interpreting s. 8 of the EMJA insofar as it relates to vacating the consent order. [ 13 ] Sekerbank argues this ground has no merit because the Chambers judge followed existing jurisprudence on consent orders, principles of res judicata in determining that a rehearing of the merits is not appropriate.

Sekerbank further argues that the Chambers judge properly exercised his discretion in dismissing the application to terminate the consent order. [ 14 ] Mr. Arslan and Mr. Al-Katib essentially argue that the Chambers judge misinterpreted s. 8 of the EMJA , which states that s. 5 of the EMJA applies to the termination of a preservation order and as well that the Chambers judge erred in not reviewing the merits of such an order de novo in the absence of the any previous hearing on the merits. As well, they argue that the Chambers judge’s

interpretation

contradicts the inclusion of the words “until further court order” in the consent preservation order. [ 15 ] It appears the Chambers judge interpreted s. 8 as follows. If the preservation order sought to be terminated is a consent preservation order, then the applicant must show “grounds that would vitiate a contract” or demonstrate a change on the facts or law such that the plaintiff “no longer meets the three conditions specified in s. 5 of the EMJA ” and that a de novo hearing under s. 5 is not appropriate based on the legislation. [ 16 ] Although the Chambers judge took s. 5 into account, it appears to be arguable that a different

interpretation of s. 8 may be correct.

For example, it appears to be arguable that the principles in s. 5 should always be considered on an application to terminate a consent preservation order, regardless of whether there has been a change in circumstance and that a de novo hearing is permissible under s. 8 especially where there has been prior hearing on the merits. [ 17 ] It does not appear that this ground of appeal would be “ prima facie destined to fail in any event.” Even though the decision appears to be discretionary, if the Chambers judge incorrectly interpreted how this decision was to be made, then his findings of fact, made in the context of determining whether there was evidence of a change in the facts that was sufficient to terminate the consent preservation order, may not be determinative of the result.

The question of how s. 8 should be interpreted raises a question of law that, in my view, has sufficient merit. C. The Chambers judge erred by admitting the opinion of the Sekerbank lawyers and by considering it expert evidence under s. 4 of The Evidence Act . [ 18 ] Sekerbank argues that in admitting the affidavits of its lawyers in Turkey, the Chambers judge did so for a limited purpose and exercised his discretion judicially in a way that does not offend s. 4 of The Evidence Act and therefore this ground has no merit. [ 19 ] Mr. Arslan and Mr.

Al-Katib argue that the Chambers judge had to consider Turkish law when evaluating s. 5 of the EMJA and whether Sekerbank’s action in Turkey, if successful, would result in a judgment. They argue that he erred by accepting the evidence of Sekerbank’s witnesses when they were not qualified legal experts as required by s. 4(3) of The Evidence Act . Mr. Arslan and Mr.

Al- Katib further argue that Sekerbank did not supply any expert witnesses regarding what the law was in respect of surety agreements or loan agreements and that the expert witness they have proffered and who was not contradicted by any expert evidence of Sekerbank concluded that the action in Turkey regarding the guarantees would not be successful.

They argue that the Chambers judge erred in not terminating the preservation order. [ 20 ] The Chambers judge acknowledged that questions of foreign law must be determined as questions of fact pursuant to s. 4 of The Evidence Act and that it was necessary to make certain findings of fact as to the law of Turkey.

The Chambers judge determined that any bias on the part of Sekerbank’s lawyers was properly considered in the context of relevance and not admissibility. [ 21 ] The Chambers judge determined the affidavits sworn by the lawyers for Sekerbank informed whether the outcome in the Turkish proceedings turned on arguable legal questions, whether the proceedings were commenced in Turkey, what those proceedings related to and whether they have been determined or were on-going.

With respect to whether or not the Turkish Execution Court had the authority to decide any contest in respect of debt actions, and whether such decision would be on the merits rather than on narrow jurisdictional grounds, he accepted neither the opinion of the parties lawyers or of the witness Öztunç but determined that it was an arguable issue. The decision of the Chambers judge does not appear to mention the affidavit of the expert of Mr. Arslan and Mr.

Al-Katib which stated that the surety agreements are null and void. [ 22 ] There is, in my view, an arguable and sufficiently meritorious issue whether the trial judge’s use of Sekerbank’s lawyers’ evidence came within the meaning of determining foreign law under s. 4(2) of The Evidence Act and whether they were experts under s. 4(3) for this purpose. [ 23 ] As well, whether the Turkish litigation involves an arguable legal question may itself be a question of Turkish law and there is a sufficiently meritorious question as to whether the Chambers judge erred by using the evidence of legal counsel for the purpose of determining that question.

On the whole, this ground of appeal has sufficient merit and is not destined to fail. D. Conclusion on Merit [ 24 ] One final aspect of the merit branch of the Rothmans test must be addressed. The appeal would not appear to unduly delay the proceedings or be overcome by the proceedings and rendered moot. Mr. Arslan and Mr.

Al-Katib submit that “the action in Turkey will take years to determine and there is no need to act on the Saskatchewan action until the Turkish action is final.” Sekerbank’s own evidence is that proceedings in Turkey will take at least to early 2015 to conclude. [ 25 ] I conclude on the merits branch of the Rothmans test that there is sufficient merit in the proposed grounds of appeal to grant leave. V.

Importance [ 26 ] Sekerbank argues that the issues do not bear heavily or potentially prejudicially on the course or outcome of the particular proceeding and that the inquiry was particular to the circumstances of this proceeding and did not raise new, controversial or unusual issues of practice or a new or uncertain point of law. [ 27 ] Mr. Arslan and Mr. Al-Katib argue that the issues respecting s. 5 of the EMJA are new and uncertain points of law. They point out that s. 5 and terms such as “satisfied” in s. 5(5) and “if successful” in s. 5(1) (

a) have never been interpreted by this Court. Moreover, they argue that this Court has never considered the nature of the test for the granting of a preservation order and when an action has not been prosecuted without delay in the context of preservation orders. They also argue that this Court has never considered whether a consent order forecloses application for termination based on a consideration of the merits. Lastly, they argue this Court has not judicially considered the issues with respect to s. 4 of The Evidence Act and whether a party’s litigation counsel can be an expert or whether they need to be independent and unbiased.

[ 28 ] The correct

interpretation of s. 8 would have an impact on the Chambers judge’s use of s. 5 and his

interpretation of the role it plays in a s. 8 application. If s. 8 is to be interpreted and applied differently from the approach taken by the trial judge, then the course of the proceedings may be affected. There does not appear to be any case law interpreting how a consent order should be treated under s. 8, or whether a de novo hearing plays a

part in the application. The implications of this decision may have an impact on future decisions by parties to consent or not consent to a preservation order. [ 29 ] A determination of the proper

interpretation and test to be employed under s. 5(5) would also have implications on future decisions of parties and courts. While not appearing to be unsettled, in the sense that the case law from the Court of Queen’s Bench seems to be consistent, the legislation is relatively new and has not yet been considered by this Court. The grounds of appeal dealing with the

interpretation of the EMJA appear to raise a new and potentially uncertain point of law. [ 30 ] The question of whether the purposes for which the Chambers judge admitted the affidavits of Sekerbank’s litigation counsel amounts to a determination of foreign law within s. 4 of The Evidence Act and requires expert evidence raises an uncertain or unsettled point of law relating to bias and expert witnesses. [ 31 ] On the whole, the proposed grounds of appeal are sufficiently important for leave to be granted. VI.

Conclusion [ 32 ] I conclude that there is sufficient merit and importance in relation to the proposed grounds of appeal. Accordingly, leave is granted to appeal based on the proposed grounds of appeal. Costs are reserved to the panel hearing the matter. DATED at the City of Regina, in the Province of Saskatchewan, this 7 th day of October, A.D. 2014. “Ottenbreit J.A.” _____________________ Ottenbreit J.A.