1. Introduction
In the globalized economy, cross-border secured transactions are increasingly common. Foreign lenders, financial institutions, and investors often seek to establish or enforce security interests — such as mortgages, pledges, or guarantees — over assets located in Turkey. However, the enforcement of foreign security interests (“foreign collateral rights”) in Turkey raises complex legal issues involving private international law, enforcement procedure, recognition of foreign judgments, and property registration formalities.
This article provides an in-depth analysis of the recognition and enforcement of foreign collateral (pledge or mortgage) rights in Turkey, focusing on the interplay between Turkish Civil Code (TCC), Enforcement and Bankruptcy Law (EBL), Private International and Procedural Law (PIL), and related commercial regulations. The discussion includes both doctrinal and practical perspectives, as well as relevant Court of Cassation (Yargıtay) precedents.
2. Conceptual Framework: What Are Foreign Security Interests?
A security interest is a legal right granted by a debtor to a creditor over the debtor’s property, ensuring repayment of a debt or performance of an obligation. When such a security right is created under foreign law or involves assets or parties in multiple jurisdictions, it becomes a foreign security interest.
Typical examples include:
- A foreign law-governed mortgage on a vessel, aircraft, or real estate located abroad, which a foreign creditor wishes to enforce in Turkey.
- A foreign pledge agreement over Turkish company shares, receivables, or bank accounts.
- A cross-border guarantee or charge issued by a Turkish subsidiary to secure a foreign parent’s loan.
In essence, these arrangements raise the question: Can a foreign-created security be recognized and enforced in Turkey?
To answer this, one must examine choice of law, recognition mechanisms, and enforcement procedures under Turkish law.
3. Legal Sources Governing Foreign Security Rights in Turkey
3.1. The Turkish Civil Code (TCC)
The TCC (Law No. 4721) provides the substantive rules for the creation, perfection, and extinction of security rights such as pledges (rehin) and mortgages (ipotek).
Key provisions:
- Articles 850–940: Regulate pledges over movables and rights.
- Articles 881–940: Regulate real estate mortgages.
- Article 939: Defines the scope of mortgage enforcement through execution offices.
Under Turkish law, a security right is territorially bound — i.e., it must comply with the lex rei sitae (law of the place where the property is located). Thus, a foreign security right over assets situated in Turkey must conform to Turkish formalities to be valid and enforceable.
3.2. The Enforcement and Bankruptcy Law (EBL)
The EBL (Law No. 2004) governs how a creditor enforces a claim secured by collateral.
It sets forth:
- The procedure for foreclosure of pledges and real estate mortgages.
- The creditor’s right to initiate enforcement proceedings through the Bailiff Office (İcra Dairesi).
- Priority and ranking rules among multiple creditors.
3.3. The Private International Law (PIL) – Law No. 5718
This is the cornerstone for determining applicable law and recognition of foreign rights.
Key points:
- Article 20 PIL: The law applicable to real rights (e.g., mortgages, pledges) is the law of the country where the property is located (lex rei sitae).
- Articles 50–59 PIL: Regulate recognition (tanıma) and enforcement (tenfiz) of foreign judgments and arbitral awards.
Therefore, a foreign court decision or notarial act establishing a security interest can only be effective in Turkey if:
- It passes through a recognition (tanıma) or enforcement (tenfiz) process; and
- The underlying security right complies with Turkish property registration and public order rules.
4. Choice of Law and Jurisdiction in Foreign Security Agreements
4.1. Choice of Law (Lex Contractus vs. Lex Rei Sitae)
Under Article 24 PIL, parties to a contractual security agreement may choose a governing law. However, when the contract involves real or registered property (e.g., real estate, ship, or aircraft), the law of the property’s location (lex rei sitae) prevails.
Example:
A Swiss bank and a Turkish borrower sign a pledge agreement governed by Swiss law over a movable asset located in Istanbul. Even if the contract is valid under Swiss law, its perfection and enforcement must comply with Turkish law, including notarization and registration (if applicable).
4.2. Jurisdiction and Recognition of Foreign Judgments
Foreign courts may issue judgments confirming the validity or enforcement of a security right.
To have effect in Turkey, such judgments must be recognized or enforced under Articles 50–59 PIL, provided:
- The foreign court had jurisdiction under Turkish conflict rules,
- The judgment does not contradict Turkish public order,
- Reciprocity exists between Turkey and the foreign state.
The Yargıtay 11th Civil Chamber has consistently held that foreign court judgments granting enforcement rights over assets in Turkey cannot bypass Turkish enforcement authorities, as Turkish property law and public order must be respected.
5. Types of Foreign Collateral Commonly Enforced in Turkey
5.1. Foreign Mortgages on Ships and Aircraft
Vessels and aircraft registered abroad often serve as collateral for international financing.
Under Turkish Maritime Code (Law No. 6102) and Civil Aviation Law (Law No. 2920):
- A foreign ship mortgage may be recognized if duly registered in the flag state and if reciprocity exists.
- However, enforcement in Turkey requires compliance with Turkish procedural rules and local court involvement.
5.2. Pledges over Turkish Company Shares
Foreign lenders often take security over shares in a Turkish company.
According to Turkish Commercial Code (TCC) and Central Securities Depository (MKK) regulations:
- The pledge agreement must be in writing, and
- The pledge must be registered with the MKK (for dematerialized shares) or endorsed on share certificates.
Even if a foreign law governs the loan agreement, the perfection of the share pledge must follow Turkish law.
5.3. Bank Account Pledges
Foreign banks may take security over Turkish bank accounts. The law of the debtor’s (account holder’s) domicile may govern the contract, but enforcement against a Turkish bank requires compliance with Turkish Banking Law and Central Bank (CBRT) regulations.
5.4. Pledges over Receivables or Contract Rights
Under Article 954 of the Turkish Civil Code, receivables can be pledged, but the debtor must be notified.
Foreign creditors must ensure that the notification and registration formalities are completed in Turkey, otherwise, the pledge may not be enforceable against third parties.
6. Recognition and Enforcement of Foreign Security Interests
6.1. Recognition (Tanıma)
Recognition is necessary when the foreign judgment is declaratory — i.e., it establishes the existence or validity of a security right without ordering enforcement.
For example, if an English court declares a charge over assets in Turkey valid, the creditor must apply for recognition before Turkish courts.
6.2. Enforcement (Tenfiz)
If the foreign decision orders the realization of collateral or payment, the creditor must seek tenfiz (enforcement) under Articles 54–59 PIL.
Once granted, the creditor can proceed with Turkish execution offices (İcra Daireleri) to seize and sell the collateral.
6.3. Reciprocity Requirement
Reciprocity (mütekabiliyet) is crucial. The foreign state must grant Turkish judgments reciprocal recognition.
Yargıtay has repeatedly emphasized that if reciprocity is lacking, a foreign mortgage or pledge cannot be directly enforced in Turkey.
7. Enforcement Procedure in Turkey
7.1. Preliminary Step: Recognition or Registration
Before initiating enforcement, the creditor must:
- Obtain recognition/enforcement judgment (if based on a foreign court act); or
- Register the foreign security right in relevant Turkish registries (land, vessel, or company registries).
7.2. Application to Execution Office
The creditor files an enforcement request (takip talebi) under the EBL. Depending on the collateral type:
- For movable pledges → Pledge foreclosure procedure (Articles 145–150 EBL)
- For real estate mortgages → Mortgage foreclosure procedure (Articles 150/a–150/k EBL)
7.3. Auction and Distribution
The seized property is sold via public auction. The creditor receives payment according to priority ranking rules, often determined by the registration order in the relevant registry.
7.4. Common Obstacles
- Failure to comply with notarization or registration requirements under Turkish law;
- Absence of reciprocity between the countries;
- Public order objections (e.g., if the foreign security instrument conflicts with mandatory Turkish provisions);
- Valuation and currency control restrictions in foreign exchange-backed loans.
8. Yargıtay (Court of Cassation) Jurisprudence
8.1. Territoriality and Public Order
Yargıtay 11th Civil Chamber, E.2019/1764, K.2020/1243:
“The establishment and enforcement of real rights over property located in Turkey are subject exclusively to Turkish law. A foreign court’s decision on a security right concerning assets in Turkey cannot directly affect ownership or enforcement unless recognized under Turkish law.”
8.2. Reciprocity and Enforcement Limits
Yargıtay 12th Civil Chamber, E.2018/24132, K.2019/8145:
“Recognition of a foreign judgment is conditional upon reciprocity. In the absence of mutual recognition, foreign pledges or mortgages have no effect before Turkish enforcement offices.”
8.3. Share Pledge Enforcement
Yargıtay 19th Civil Chamber, E.2020/1329, K.2021/2647:
“Even where a foreign law governs the underlying debt, the perfection of a share pledge in a Turkish company must comply with domestic registration and endorsement requirements.”
These precedents underline that Turkish territorial sovereignty and lex rei sitae principles are strictly applied, even in international financing contexts.
9. Practical Considerations for Foreign Creditors
9.1. Drafting Security Agreements
Foreign lenders should:
- Ensure dual compliance: both governing law validity and Turkish perfection requirements;
- Use notarized translations for all foreign documents submitted in Turkey;
- Clearly define enforcement jurisdiction and arbitration clauses with reference to PIL Law No. 5718.
9.2. Registration and Notification
Security interests must often be registered or notified:
- Real estate: Land Registry
- Ships: Ship Registry (Maritime Code)
- Shares: MKK or trade registry
- Receivables: Debtor notification + Notary act
Failure to register or notify may render the right unenforceable against third parties.
9.3. Currency and Foreign Exchange Restrictions
Under Turkish Decree No. 32 and CBRT regulations, foreign currency loans and related securities must comply with exchange control provisions. Non-compliance may affect enforceability.
9.4. Arbitration Clauses
If the security agreement contains an arbitration clause, enforcement of the arbitral award in Turkey is governed by Articles 60–63 PIL and the New York Convention (1958).
Foreign arbitral awards are recognized unless they violate public policy.
10. Comparative Insight: Recognition of Turkish Collateral Abroad
Interestingly, while foreign creditors face procedural challenges in Turkey, Turkish lenders also encounter hurdles when enforcing their pledges abroad.
For instance:
- Turkish ship mortgages may not be automatically recognized in common law jurisdictions without local registration.
- Turkish judgments may require exequatur procedures under EU or U.S. recognition statutes.
This reciprocal complexity underscores the importance of harmonized international secured transaction frameworks, such as the UNCITRAL Model Law on Secured Transactions (2016), which Turkey has not yet adopted.
11. Future Outlook: Need for Reform
The enforcement of foreign security interests in Turkey remains fragmented and formalistic. Legal scholars advocate:
- A streamlined recognition process for foreign security rights;
- Digital interconnectivity between Turkish and foreign registries (e.g., ship, aircraft, land);
- Adoption of international conventions (e.g., Cape Town Convention on International Interests in Mobile Equipment).
Modernization in these areas would enhance foreign investment confidence and legal predictability in Turkey’s financial markets.
12. Conclusion
The recognition and enforcement of foreign security interests in Turkey are governed by a complex web of substantive and procedural rules.
While Turkish law respects the autonomy of parties in choosing governing law, territorial and public order principles limit the extraterritorial reach of foreign security instruments.
To summarize:
- Lex rei sitae governs the creation and enforcement of collateral over assets in Turkey.
- Recognition or enforcement procedures (tanıma/tenfiz) are mandatory for foreign judgments.
- Registration and formal compliance under Turkish law are indispensable for validity.
- Yargıtay jurisprudence consistently upholds the territoriality principle.
- Foreign lenders should ensure local compliance and legal representation in Turkey before extending cross-border secured credit.
Ultimately, Turkey’s system — though formalistic — provides a predictable and rule-based framework once properly navigated. With increasing cross-border financing, a more harmonized approach to the recognition of foreign security interests would significantly strengthen Turkey’s position as a secure and reliable jurisdiction for international investment.
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