GILS Commercial contracts: Turkey
GENERAL CONTRACT LAW REGULATIONS
TURKEY
1. Is it mandatory for a commercial contract to be governed by local law?
No, it is not mandatory. However, for the legal security of the international commercial contracts, choosing the applicable law for resolving potential future disputes is important. Otherwise, in the absence of a choice of law, the Court hearing the case may need to determine the applicable law based on its conflict of laws rules, which could lead to undesirable outcomes. According to Article 24, Paragraph 4 of the Turkish International Private and Procedural Law No. 5718: “In the absence of a choice of law by the parties, the law most closely related to the contract shall apply to the relationship arising from the contract.”. Therefore, choosing an applicable law in accordance with the terms of the contract is not mandatory but may be crucial for resolving future disputes.
2. What language applies to commercial contracts on the territory of the Country? Is it possible to establish the prevailing language?
If both parties are Turkish, they are required to prepare all transactions, contracts, correspondence, accounts and records within the borders of Turkey in Turkish. This rule arises from the limitations imposed by Law No. 805 on Mandatory Use of Turkish Language by Economic Enterprises. If the counterparty is a foreign company, an additional foreign language can be used within an agreement but the Turkish text prevails by virtue of the Law No. 805. In practice, Turkish companies use dual language agreements, when needed.
3. Is it possible to use electronic signatures for the execution of commercial contracts between private entities?
Unless it is stated otherwise in a regulation about the specific type of contract and a handwritten signature is still required, handwritten signature is not necessarily required for a valid contract and contracts are valid if legally competent parties reach an agreement, whether they agree verbally, electronically or in a physical paper document. Articles 14(2) and 15(1) of the Turkish Code of Obligations specifically confirm that contracts executed with a secure electronic signature, will have the same level of enforceability as those that bear a handwritten signature. However, as stated above, there may be exceptions to these rules such as transactions requiring official form, family law and inheritance matters and real estate transactions.
4. Are there any requirements to the form of a commercial contract? Are there any standard forms of commercial contracts?
The legal validity requirements for commercial contracts are stipulated by the relevant laws. For some contracts, execution in an official form is a validity requirement, while for others, a written form or even an oral form is sufficient for their legal validity.
5. Are there any types of preliminary agreement or “gentleman’s agreement” in the Country?
Yes, preliminary agreements like Memorandum of Understanding or Letters of Intent exist under the principle of freedom of contract. These agreements are often used during negotiations before signing a binding contract. They may indicate an intention to enter into a future binding agreement but are generally not considered legally binding unless there is a clear intent for them to be binding.
A specific type of preliminary agreement for sale of real properties is regulated by the law. In order for a “real property sale promise contract” to be valid, it should be signed before a notary or the title deed office.
Gentleman’s Agreements are informal agreements based on mutual trust and are not legally binding. In Turkiye, such agreements are not enforceable in court and are seen as a statement of good faith between parties unless such agreements include binding clauses.
6. What currency is allowed to be used for commercial contracts in the Country?
The Presidential Decree dated September 12, 2018, on the Amendment of Decree No. 32 on the Protection of Value of the Turkish Lira, prohibits the use of foreign currencies in commercial contracts between residents of Turkiye. As a result, it is generally not allowed to set prices in foreign currencies for commercial agreements. However, there are exceptions for international commercial contracts. For instance, foreign currency can be used in agreements related to services to be performed abroad.
7. Are there options for the limitation of liability of a party under the commercial contract?
Turkish law only allows the limitation of liability for slight negligence except for the contracts which require expertise of a service, profession, or art and deems the previously made agreement having the effect that the contractor is not liable for gross negligence as null and void.
In this context, the limitation of liability regulated in a contract requires the priority determination of the nature of the contract in Turkish law in many disputes.
8. Is the concept of release from liability or indemnity enforceable in the Country?
Yes, the concept of release from liability or indemnity is enforceable in Turkey, but with limitations. According to Turkish Law, particularly Article 115 of the Turkish Code of Obligations, clauses releasing liability from gross negligence or intentional harm are not valid. However, for other situations, parties have the freedom to include liability release clauses in their contracts.
9. Is there the concept of “consequential damages” in the Country? Can it be excluded from liability?
Yes, the words “consequential damages” are frequently used and common in the contractual exclusion of liability clauses in Turkiye. Within the framework of the Turkish Code of Obligations, the parties may agree on the limitation or extension of their contractual liability at their own discretion. Consequently, as a general rule, parties can agree that each party may or may not be liable for consequential loss.
However, such exclusion clauses must not be invalid, unlawful or unenforceable under Turkish law, in particular article 115 of the Code of Obligations referred to in the previous section.
10. Is the concept of “force majeure” recognized by the legislation and courts on the territory of the Country?
Yes, the concept of “force majeure” is recognized by the courts and legislation in Turkiye. However, Turkish Law doesn’t provide a clear definition of “force majeure” or regulate its consequences as a separate concept. Instead, force majeure is generally understood as events that are beyond the control of the parties, unpredictable, unavoidable, and impossible to overcome, such as natural disasters, wars, or pandemics. In the absence of a specific force majeure clause in a contract, Article 136 of the Turkish Code of Obligations and other relevant provisions may apply to address situations where performance becomes impossible without the fault of the obligor.
11. Are export control provisions due to the economic sanctions specified by legislation and enforceable in the Country?
In Turkiye, export controls are regulated under multiple pieces of legislation. Goods subject to export are classified, and each classification requires specific regulations.
12. Is there a mandatory dispute resolution regime in the Country for commercial contracts?
Mandatory mediation was introduced for some types of disputes which constitute a significant portion of the court’s workload, especially labour disputes. Consumer law related disputes, some commercial disputes, some rent related disputes, etc. are subject to mandatory mediation. If the dispute requires mandatory mediation, such mediation procedure is a pre-condition to be able to file a case. If such a case is filed without following such procedure, the court will dismiss the case based on the fact that pre-condition to pursue a mediation process is not met.
Another exception to the ability of the parties to choose a dispute resolution method, such as mandatory mediation, is that there are rules in which the court in which certain cases will be heard is definitively determined and the parties cannot waive this jurisdiction. This is called absolute jurisdiction, and in such cases, a lawsuit cannot be filed in another court. In case of non-compliance with the rules of absolute jurisdiction, the court shall ex-officio issue a decision of lack of jurisdiction. For example, lawsuits related to rights in rem of immovable properties, bankruptcy cases must be heard in the court determined by the law and the parties cannot agree to resolve this dispute in any other way.
13. May the arbitration (local or foreign) be chosen by parties as a method of dispute resolution?
Arbitration can be performed both for local and international disputes, involving a party from Turkiye. The local disputes are solved according to the Code on Civil Procedure and the international disputes are conducted based on International Arbitration Law.
Regarding international arbitration, Turkiye is a part of the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) and of the Geneva Convention on International Commercial Arbitration (1961). Furthermore, Turkiye is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1992.
Authors: Ali Ceylan, Senior Partner
Gülendam Tüylüoğlu, Associate
