Business Applications Made By Turkish Nationals And The Ankara Agreement - Recent Developments

 Notes prepared by John Walsh, Doughty Street Chambers, 4 April 2012


           1.       Article 41(1) of the Protocol to the Ankara Agreement provides:


                            “(1)  The Contracting Parties shall refrain from introducing between themselves any new restrictions on the freedom of establishment and the freedom to provides services”


The concept of standstill clause is not novel in EU law.  The Treaty of Rome contained one (article 53).  Such a clause has the effect of precluding a State from imposing greater restrictions within the relevant field than exists at the nominated time.


2.       The objective of the Agreement was to enable Turkey’s eventual accession to the EC.  The emphasis is, consequently, on the abolition of restrictions on freedom of establishment and freedom to provide services.  These rights fall to be interpreted by principles of Community Law.  Savas [2000] INLR 398 established that Art 41(1) had direct effect and Turkish business people could, therefore, rely directly on the rights it confers.  This clause has the effect of prohibiting the introduction of new national restrictions less favourable than those in force at the date of the UK’s accession to the EC on 1 January 1973.


                   Thus, an application by Savas, a Turkish national to ‘establish’, to set up in business in the UK had to be considered in light of the 1973 Rules since that measure had direct effect and all those falling within its scope are able to rely on it in national courts.  While Mr Savas had overstayed his visitor’s visa for several years and commenced his businesses while an overstayer, the Court concluded that his business application must be considered under the 1973 Rules.  In case C-16/05 Veli Tum the European Court of Justice confirmed that this is the proper approach.


3.       In UK the 1973 the ‘after entry’ business rules (HC510) that applied to Turkish nationals provided:


          General Considerations


          4.  The succeeding paragraphs set out the main categories of people who may be given limited leave to enter and who may seek variation of their leave, and the principles to be followed in dealing with their applications, or in initiating any variation of their leave.   In deciding these matters account is to be taken of all the relevant facts; the fact that the applicant satisfies the formal requirements of these rules for stay or further stay, in the proposed capacity is not conclusive in his favour.  It will, for example be relevant whether the person has observed the time limit and conditions subject to which he was admitted; whether in the light of his character, conduct or associations it is undesirable to permit him to remain; whether he represents a danger to national security; or whether, if allowed to remain for the period he wishes to stay, he might not be returnable to another country.”


            Business and self-employed persons


            21.  People admitted as visitors may apply for the consent of the Secretary of State to their establishing themselves here for the purpose of setting up in business, whether on their own account or as partners in a new or existing business.  Any such application is to be considered on merits.  Permission will depend on a number of factors, including evidence that the applicant will be devoting assets of his own to the business, proportional to his interest in it, that he will be able to bear his share of any liabilities the business may incur, and that his share of the profits will be sufficient to support him and any dependants.  The applicant’s part in the business must not amount to disguised employment, and it must be clear that he will not have to supplement his business activities by employment for which a work permit is required.  Where the applicatant intends to join an existing business, audited accounts should be produced to establish its financial position, together with a written statement of the terms on which he is to enter into it; evidence should be sought that he will be actively concerned with its running and that there is a genuine need for his services and investment.  Where the application is granted the applicant’s stay may be extended for a period of up to 12 months, on a condition restricting his freedom to take employment.  A person admitted as a businessman in the first instance may be granted an appropriate extension of stay if the conditions set out above are still satisfied at the end of the period for which he was admitted initially.”


4.       The ‘on entry’ rules in place at the time in respect of applicants to enter as businessmen provided:


          “31.  For an applicant to obtain an entry clearance for this purpose he will need to show, if joining an established business, that he will be bringing money of his own into the business, that he will be able to bear his share of the liabilities, that his share of the profits will be sufficient to support him and his dependants, that he will be actively engaged in the running of the business, and that there is a genuine need for his services and investment”.


The fraud exception


5.       Alive to the potential impact of the clause and the reliance on it by Turkish nationals in the UK on an irregular basis to make business applications, the UK government dragged their feet in implementation of the provision.  One way to avoid this was to rely on the concept of fraud and abuse of rights to argue that an applicant with irregular status in the UK, or one who had breached a condition of his stay there including one to commence running a business in the UK without permission could not come with in the scope of the clause.  Such a person fell within the scope of EU law only.   The domestic courts, up to the Court of Appeal in Sonmez and LF, were won over by this beguiling argument.  The principle ‘No one should benefit from his own wrongdoing’ was elevated to the position of a rule, with hard edges: see LF (Turkey) [2007] EWCA Civ 582 and Sonmez [2010] EWCA Civ 582.  In IY (Ankara Agreement) Turkey [2008] UKAIT 00081 the Tribunal went as far as holding that an applicant who had returned to Turkey from the UK where he had carried out his business in breach of conditions while in the UK could not benefit from the clause.  The exception was held to be so broad as to include all those who had breached any condition of their leave in the UK, all those who were on temporary admission in the UK on the basis of a false application for leave to enter (such a dishonest asylum claim), all those who acted honestly but strictly in breach of conditions of their stay set up in business.


6.       Shortly after judgment in Sonmez the Court of Appeal referred the whole matter to the Court of Justice (Case C-186/10 Oguz Tural) inviting the Court to respond to the questions: was the standstill clause fraud sensitive at all - could breach of a condition of leave to remain by setting up a business in breach preclude reliance on the clause to rely on the more favourable 1973 business Rules.  The Court responded that as Article 41(1) does not confer any substantive right and requires only that national legislation is applied, it is to be left to the national legislation to protect against fraud:


         “32.  The standstill clause must accordingly be understood as applying to a stage before the merits of the case are assessed and before an assessment is made as to whether there is any abuse of rights which may be imputed to the party concerned”.


7.       The court rejected reliance on C-239 Kondova [2001] ECR 1-6427 where the ECJ had held that a system of prior entry control precluded an irregular immigrant from Bulgaria relying on the establishment provision in the EEC-Association Agreement to remain in the UK was lawful was not applicable.  Its reasoning was not transferable to the wholly different situation in Oguz and due to the limited purpose of the standstill clause.


8.       The CJ ruled in another recent case (C-301/09 Toprak) that even the abolition of a more favourable rule of law which was introduced after the date indicated in a standstill clause infringes the prohibition on introducing ‘new restrictions’ under the standstill clause even if the new legal situation does not result in a less favourable position than applied on that date.


9.       The case of C-228/06 Soysal concerned Turkish lorry drivers working for a Turkish company required to have visas to enter Germany.  No such requirement was in place when the clause came into force.  They were providing services.  The CJ held that in view of the standstill clause this new restriction was unlawful.


10.     As a result of Oguz, it is likely that paragraph 4 of the immigration rules (HC 510) will be relied on by the SSHD to reject applications.  That paragraph affords her a broad judgment as to what applications to accept/reject.  It is likely that there will be a focus on the mode of entry into the UK of Turkish applicants who subsequently apply to set up in business. Similarly, in circumstances where there was overstaying or other breach of leave paragraph 4 is likely to be relied on.  Immigration Instructions provide almost a checklist of matters such as overstaying that merit refusal under paragraph 4.  A blanket approach is not likely to succeed before the Tribunal however.


11.     A review of the reported cases on paragraph 4 reveals one substantial case: Parekh v SSHD [1976] Imm AR 84 where the Tribunal considered that deception practised in collusion with another so as to hide the source of a substantial amount of money which was intended to be invested in a business could be properly refused under paragraph 4.  The wrongdoing by the Appellant in the instant case falls far short of the sort of impugned activity in Parekh.


12.     In assessing if such a person came within the 1973 Rules the Courts have given guidance.  In ex parte Joseph [1978] Imm AR 70 Goff J stated in respect of the 1973 Rules:


                            “These rules, which are intended to provide guidance as to the practice to be followed, are not in my judgment to be construed too rigidly.  Furthermore, the part of para.21 in question is preceded by a statement that the application is to be ‘considered on merits’.  When the paragraph goes on to provide that ‘permission will depend upon a number of factors including’ certain specified factors, the paragraph is not in my judgment specifying prerequisites for the grant of permission.  It is specifying factors which must be taken into account, but failure to comply with any of them will not necessarily be fatal to the application”.


13.     Goff J went on to state that ‘assets’ in the Rules must be given a wide meaning:


                   “The word ‘assets’ must not be given too narrow a meaning, but it must refer to assets having some economic value, assets in the sense of a financial contribution or something of that kind to the business itself”.


14.     Blake J in EK (Ankara Agreement-1972 Rules..) [2010] UKUT 425 (IAC) emphasised the flexible nature of HC 510.  In particular, attention is drawn to the fact that there was nothing in the 1972 Rules that founded a conclusion that an application is to be refused if it fails to satisfy one of factors provided in those Rules.  A rounded approach is required.  The same would apply to consideration of paragraph 4 of the 1973 Rules.


15.     Post Oguz, UKBA has taken to relying on paragraph 4 to reject applications it previously rejected under the fraud/abuse ground.  it is entitled to consider such applications under paragraph 4 but it is doubtful if working in breach of a condition of leave by setting up a business merits outright refusal under paragraph 4.  In the case of KA Turkey, the Court of Appeal will decide on this point (to be heard in the summer of this year) and other related points.