Category: Turkiye

Turunc has advised ELBA HR Insan Kaynaklari Egitim ve Danismanlik Anonim Sirketi (doing business as “Peoplise”) and its founding shareholders on the acquisition of 86.7% of the company from them and Revo Capital and 500 Startups by LOGO. Yazilim Sanayi ve Ticaret A.S. BTS & Partners and Aksan advised Revo Capital and 500 Startups, respectively, and Kolcuoglu Demirkan Kockali advised LOGO.

Peoplise is an integrated and video-enabled digital human resources management platform designed for the recruitment needs of corporate companies. 

LOGO acquired 255,377 shares of Peoplise, representing 86.7% of the company, for an average price of USD 6.46 per share. The transaction hasn’t yet closed.

According to Turunc, as a result of the transaction former shareholders Guclu Ozenci and Mehmet Ali Ozenci will completely exit the company, as will Revo Capital and 500 Startups, while founders Cagatay Guney and Doruk Molo will stay with the company, retaining 13.3% of its shares.

Turunc’s team included Managing Partner Kerem Turunc, Attorneys Gizem Gunel and Ecem Kutukculer, and Associates Beste Yildizili Ergul and Naz Esen.

BTS & Partners’ team included Senior Counsel Okan Arican and Associate Yeseren Sozuer.

Aksan’s team included Partner Melih Aksan and Associates Ozgur Aydin and Ilay Erarslan.

Kolcuoglu Demirkan Kockali’s team included Managing Associate Melis Oget Koc, Senior Associate Esra Kaptan, and Associate Basak Islim.

 

 

Former Klepierre Head of Legal Ceren Arslan has joined Bilgili Holding as its new Vice President Legal in Turkey.

Bilgili Holding is a privately-owned real estate development company. Its completed projects include Akaretler Siraevler, the W Istanbul, the A’jia Hotel, and the Radisson Blu Conference & Airport Hotel Istanbul.

Arslan was Head of Legal at Klepierre since July 2016. Her career has included several roles in private practice, as well as in-house positions with Carrefour, Marintek, and AvivaSA.

 

The COVID-19 pandemic is showing the effects all over the world and as for Turkey, has taken immense measures to prevent the spread of COVID-19. Various government bodies issued decrees to prevent the spread of COVID-19. As we mentioned in our previous articles, The Republic of Turkey and the Ministry of Internal Affairs decided to temporarily close workplaces. This process, which started with an additional circular sent to all governorates on March 15, 2020, has already halted the activities of more than 200,000 businesses. In addition, on 22.03.2020, it was decided to stop all enforcement and bankruptcy proceedings with the Presidency Decision No. 2279. Later on, with the Provisional Article 2 of the Law No. 7226 which dated on 26.03.2020, it was concluded that the rental fees that were not paid between 1.3.2020-30.6.2020 will not constitute the reason for the termination of the lease contracts and evacuation of the workplaces. Problems have arisen as to whether the measures introduced in terms of lease contracts will be paid in respect of rental fees. In this article an assessment will be made on this issue.

1. The Status of Lease Agreements for Workplaces Closed by the Republic of Turkey Ministry of Internal Affairs Decree

Republic of Turkey’s  Ministry of Internal Affairs has decided to stop the activities of some businesses across the country with a decree on the basis of COVID-19 measures. The probability of a problem is obvious in terms of the effect of the said circulars on debt relations. The question is based upon the businesses whose activities stopped for the prevention of spreading COVID-19 will be affected in relations with their current lease contracts and whether there is an obligation to pay the rental fees. Evaluations on the subject;

• Temporary impossibility,
• Defect,
• Hardship or
• Based on the provisions of default, may lead to certain conclusions such as, the lessee does not have to pay any rental fees if any subject stated above. However, as for the lessor it brings a burden in regard to the lessee who does not pays the rental fees and can cause unexpected situations. Furthermore, in this article it will be assessed whether the legal reasons to be relied on will eliminate the problems within the scope of the lease agreement in Turkey.

First of all, it should be noted that if there is a provision in the contract between the parties regarding an unpredictable situation and stated in the contract if an unpredictable event occurred the provision of freedom of contract will came in to force and both parties shall solve the situation in accordance with the contract provisions.  In this article, the evaluation will be valid if there is no regulation in the contract that can be applied to such an event.

Temporary Impossibility

With the decrees on the COVID-19 pandemic, The Republic of Turkey the Ministries of Internal Affairs has decided to uphold the activities of some businesses across the country and it has been stated that the firms whose activities have been stopped with the decree, will not have to pay the rental fees in this period on the basis of impossibility of performance. However, from a standing point the impossibility of performance would be only applicable to the lessor in which the lessor’s obligation is only to keep the lease at the intended use for the period stated in the contract. As it stated in Article 301 of Turkish Code of Obligations No. 6098 (‘’TCO’’); ‘’On the agreed date of the contract, the lessor is obliged to deliver it in a convenient condition and keep it in this condition for the duration of the contract. ’’ From the current problems occurring in Turkey, the prevention of spreading the pandemic further, the Ministry of Internal Affairs shut down all of the businesses. Therefore, the lessor could not fulfil his/her obligation to keep the chartered available for use. In the current situation, although the lessor would more likely to want to fulfil his/her debt, however unable to do so. If the decree is to be interpreted, it is considered that the impossibility of performance is temporary, considering that the restriction of activity is brought for a temporary period. It is expected that the current measures will end with the spread of COVID-19 pandemic. It should be noted that, if the existence of the impossibility is acknowledged, it would be not possible for the lessor, since the lessor would be faultless in the current measures.  Therefore, the impossibility to perform would only be possible if it is an objective impossibility. According to Article 136 of TCO;

‘’If the performance of the debt becomes impossible due to the reasons that the debtor cannot be held responsible, the debt ends. The debtor, who has recovered from debt due to impossibility in contracts with mutual debts, is obliged to return the performance he/she received from the other party in accordance with the provisions of the enrichment without reason, and loses his/her right to request the act that has not yet been performed. The cases in which the damage arising before the performance of the debt by the law or contract is imposed on the creditor are excluded from this provision. If the borrower does not report to the creditor without delay and does not take the necessary measures to prevent the loss, it is obliged to eliminate the losses arising from this.’’

If we evaluate the relevant provision with the decree, it may be considered that the debt becomes impossible within the scope of the lessor’s obligation to keep the renter suitable for the tenant’s use. It can be based on the second paragraph of the related article and accordingly saves the tenant to pay the rental fees. Therefore, even the lessee payed the rental fees accordingly to the contract; the lessor has to give it back to the lessee in regard that the lessor’s obligation is not possible due to the circumstances. It should be noted that; Article 136 of TCO defines the impossibility of permanent performance in terms of the rapid executional contracts. The debt will terminate with the impossibility. If current events are taken into account, it is clear that the extraordinary situations experienced within the scope of the COVID-19 pandemic may be at the expense of the parties in which in any reason the contracts are terminated. 

On the other hand, in cases where impossibility exists, this provision can only be applied in cases where impossibility is permanent. For this reason, in cases where the impossibility is accepted, it is necessary to determine whether this is temporary or permanent. In the event that the impossibility is consistent, the provisions of 112 and 136 of TCO will be in force depending on whether the debtor has any faults or not, while there no explicit provision in the law regarding these cases where the debt becomes temporarily impossible.  Therefore, various ideas have been proposed upon to which provisions that could apply. The opinion of the Supreme Court in cases of temporary impossibility – if it is also compatible with the consent of the parties – is to postpone until the date when the impossibility of performance has ended. When the current measures evaluated, an uncertainty occurred due to the fact that the decree in question closed businesses indefinitely and it is not known when the COVID-19 pandemic will end. An example can be given as to whether the impossibility is temporary or permanent. In China, where the virus originated, a 3-month quarantine application was carried out and the process of returning to normal was initiated after the period ended. The quarantine period was terminated on 07.04.2020 and this example can be interpreted as impossibility for a temporary period. However, due to the fact that the path followed by each country is different in any way, (for example Italy), it is not currently possible to determine for how long the parties should tolerate adhering to the existing lease agreements.

Defect

It has been stated that the Republic of Turkey’s Ministry of Internal Affairs has decided to uphold the activities of businesses across the country with the decree on the COVID-19 measures in which the tenantry could be defected. According to the article 305 of TOC; the lessee may request the reduction of the tenantry or may request to repair the defect tenantry from the lessor. 

‘’If the leased becomes defective afterwards, the lessee may ask the lessor to remedy the defects or to make a discount proportional to the defect or to remedy the loss. However, the request for remedying the defect does not prevent the exercise of other optional rights. In the event of material defect, the lessee reserves the right to terminate the contract.’’

The deduction of the rental value based on the defective provisions does not require the condition of the lessor’s fault to be exercised in order to exercise its elective right. Even if there is no defect, the tenant’s right to exercise his electoral rights is reserved if it becomes defective in any way. In addition, it will not be possible to call as defect when the lessor has no knowledge of the lessee’s activity or the activity not specified in the contract. For this reason, even in cases where the obligations cannot be performed, there will be no defect, even if the activity is unknown or not specified in the contract.

Hardship

If it is deemed that the leaseholder’s debt has not made it possible, with the closure of the workplaces within the scope of the coronavirus measures issued by the Ministry of Internal Affairs, the tenant will be obliged to pay the price even if he / she does not operate or have any profit. When the situations regarding COVID-19 measures are evaluated, in cases where there is no impossibility and the tenant is obliged to pay the rental price, Article 138 of TOC will come into force and an adaptation may be requested. Article 138 of TOC states that;

‘’An extraordinary situation which is not foreseen by the parties at the time of the contract and which is not expected to be anticipated, arises from a reason not due to the debtor and changes the existing facts at the time against the debtor in such a way as to violate the rules of honesty, If the debtor has not yet fulfilled his / her obligations arising from the excessive difficulty of the performance, the debtor shall have the right to request from the judge the adaptation of the contract to the new conditions and to revoke the contract if this is not possible. In contracts of continuing obligations, the debtor could terminate the contract. This provision also applies to foreign currency debts.’’

Our ‘’The Effects of COVID-19 Pandemic on Contract Law in Turkey’’ article dated 27.03.2020 also stated that, adaptation procedure is an application aimed at sustaining the contract in which ending the contract or rescission an agreement is a more severe result than the adaptation. The reason is that, the contract is no longer standing when the debtor revokes the agreement. For the adaptation of the contract, the debtor may request an adaptation from the judge in the first instance. It is believed that the legal basis for requesting the intervention of judges in all commercial contracts, lease contracts and other private law contracts throughout our country by reason of force majeure can only be evaluated within the scope of “Hardship” in Article 138 of the Turkish Code of Obligations. However, in cases where the lessor has to keep the tenantry in condition for the duration of the contract is not impossible, the lessee’s obligation to pay lease fees would still continue.  In this situation the lessor could base upon Article 331 of TOC and it states that;

“Each party may terminate the contract at any time by complying with the legal termination notice period if there are significant reasons that make the continuation of the tenancy unbearable. The judge may decide on the monetary consequences of the extraordinary termination notice, taking into account the situation and circumstances.’’

Even if the situation in question is obviously unfair, there is no action to be taken against it. Due to the temporary impossibility, the contractual obligations will be suspended during that period and the lessee will not be able to make any money during this duration. For this reason, in our opinion the path that needs to be followed will be that the lessor should accepts the request of the adaptation of the contract or to terminate it. Otherwise, there could be a major loss for both the parties.

2. The Effect of the Presidential Decree No. 2279 on the Payment of Rental Fees within the Scope of Provisional Article 2 of the Law No.7726

According to the “Provisional Article 2” clause of the Law on the Amendment of Certain Laws No. 7226 that entered into force on 26.03.2020;

“Failure to pay the rental fees between 1/3/2020 to 30/6/2020 does not constitute the reason for the termination of the contract and evacuation of the tenantry.”

The provision of the law is applicable only in terms of workplace rental prices. The aforementioned provision states that; Article 2 will find application in all workplace lease agreements. In the continuation of the article, an evaluation will be made regarding the termination of the contract and the reason for evacuation.

Termination of The Contract

The termination of the contract is regulated in Article 315 of the TOC. According to the related article; 

“If the lessee does not fulfil the obligation to pay the tenantry fee or a late payment of the current lease, the lessor may inform the lessee in accordance with the other that he/she will terminate the contract if the lessee does not perform his/her obligation accordingly.”

As principle, the lessee’s obligation is to pay the rent as it stated in the contract. The tenant’s delay in paying the lease amount, which is his primary debt, may reveal the termination of the lease by the lessor in a continuous debt relationship. With the decree of Provisional Article 2 of the Law No. 7226, the article 315 of TOC will become inapplicable in workplace rents between 01.03.2020 to 30.06.2020 and both parties will not be able to terminate lease agreement. 

Evacuation of The Tenantry

In accordance with Provisional Article 2 of the Law No. 7226, it would be more correct to interpret the situation as per the paragraph 2 of Article 352 of the TOC.  The lessor will have an opportunity to start the proceedings for the evacuation of the tenantry in relations with Article 352/2 of TOC, especially in long-term lease contracts without waiting for the end of the lease period if the lessee does not pay his/her debt on time. However, it has been stated that the evacuation of the workplace rents cannot be carried out between 01.03.2020 to 31.04.2020.

Evaluation of the Payment of Workplace Rental Fees

Provisional Article 2 of the Law No. 7226 and the Presidential Decree No. 2279 have emerged as an effect on whether the rental prices should be paid or not.  In accordance with Provisional Article 2 of the Law No. 7226, there is no statement for preventing the payment of workplace rental fees. On the contrary, precautions and issues to be taken in case of non-payment are specified. The lessee will continue to be the lease debtor, and the lessor as lease creditor and has the right to claim the delayed rental fees with an interest. On March 22nd, 2020; The Presidency of Republic of Turkey published 2279 No. decree in the 31076 No. Official Gazette and stated that; In accordance with the Article 330 of the Enforcement and Bankruptcy Law, enforcement proceedings were suspended until April 30, 2020. In additionally, The Union of Turkish Bar Association has announced that no new enforcement proceedings will be opened until 30.04.2020.

The period determined in the Execution and Bankruptcy Law and other laws related to the pursuance law and within this scope the periods determined by the judge or the Execution and Bankruptcy departments, all Execution and Bankruptcy pursuance, except for the execution pursuance for alimony receivables, party and pursuance transactions, the receipt of new execution and Bankruptcy  requests, transactions related to the execution and execution of injunction orders are suspended from 22 March 2020 until 30 April 2020.

It should be noted that; in cases where the rent is not paid, the lessor will not be able to perform any execution proceedings between the timeline of 01.03.2020 and 30.04.2020, will only be able to start a follow-up as of 01.05.2020. It should be added that the date of 01.05.2020 is the time specified currently. It is necessary to underline that this period may be extended if the measures are not enough. It can be concluded that; sending a protest letter to the lessee, other than a payment order, will not be beneficial to the lessor. The reason is that; as of the end of the period given with the protest letter, the lessor will not be able to terminate the contract.

After the specified timeline, the lessor will be in a position to request the payment of the rent by applying the periods specified in the TOC. In Article 315 of TOC; ” The period to be given to the lessee is at least ten days, and at least thirty days for the office rents. This period starts from the day following the date of written notification to the lessee.” If this is taken into consideration, the period of 30 days is for residential and roofed office rents and after the written notification of the lessee. If the lessee would like to pay the rental fees, firstly he/she has to pay the fee with an interest in 30-day period. In contrast with the 30-day period, the lessee has not paid the rent, the lessor may continue with enforcement proceedings. Furthermore, because of the provisional Article 2 of Law No.7226. the lessor cannot terminate the lease agreement based on Article 315 of TOC.

At the present time, the measures taken against to prevent COVID-19 pandemic caused many shopping malls to close down in which directly disabled income for many brands. The current problems relating to the payment of the rent fees should be subjected as hardship in which many brands do not have a profit during these difficult times.  In order to prevent the rapid spread of the epidemic disease in Turkey, closed shopping centres are economically disrupted, and workplaces are experiencing a great deal of performance difficulties. The reason for problem would be the inability to pay the rental fees in the context of an obligation for the lessee in regard to the brands that have multiple stores in multiple locations throughout the country is facing a huge impact on the cash flow.  The same difficulty may be in question in terms of the lessor. The lessor has difficulty in carrying out the closure of the tenantry because he/she has to keep the lessee conveniently within the lease term. In this process, the lessee will be able to avoid performing his / her debt because the lessor would not be able to perform his/her obligations. Considering these circumstances, it should not be ignored that such arrangements may produce unfair results. Even so, the end of the COVID-19 pandemic could not lead to the possibility of the economic revival that rapid. Therefore, the lessee may not be able to pay the rental fees with an interest immediately. This will be especially realisable for businesses of small or medium-sized companies. Given that large companies already have contingency plans for such situations, businesses of small or medium-sized companies may face a more unfair situation. For further detailed information, you can contact us via the following information.

By Ali Guden, Partner, and Dilara Nihal Tunc, Associate, Guden 

Former Kordsa in-house lawyers Cagla Yazdic Goncu and Elsen Ece Tokat have launched the Toya Law Firm in Istanbul.

Before joining Kordsa (an affiliate of Sabanci Holding) in 2015, Goncu, who specializes in general corporate matters, M&A, and intellectual property, spent over two years as an Associate with Elig Attorneys-at-Law and 5 months with the Gur Law Firm. Earlier still she worked for Sibel Ertekin Law Office.

Before joining Kordsa in 2018 Tokat, who specializes in corporate/commercial law and labor law, spent a year as an attorney with PwC Turkey, and she has previous experience with both Anil & Antonetti and Gun + Partners. 

As the coronavirus outbreak is increasing rapidly by day, more uncertainty and difficulty for enterprises and businesses are born particularly in regard to the performance of contractual obligations. Herewith, more and more businesses and organisations are now inevitably looking at their contracts to see what impact the coronavirus outbreak will have and how they can mitigate and navigate the challenges brought by the pandemic. Ultimately, businesses worldwide are considering whether they can or should rely on the force majeure clause, if there is one in the relevant contract, or the common law doctrine of frustration as legal mechanisms to manage the impact of the crisis on their business and see what possible remedies might be available at the end.

In English law, the doctrine of frustration and force majeure are two legal mechanisms that allow the contractual parties to be released from their obligations under the contract and neither party may sue for breach. Generally, force majeure can only be relied on if it is expressly incorporated into the contract and if there is no force majeure clause, the affected party may be able to rely on the doctrine of frustration which is implemented by the operation of law. This article aims to evaluate whether the ongoing global coronavirus outbreak can trigger the doctrine of frustration or force majeure under English law. In order to make a conclusive assessment, first the concept of frustration and force majeure under English law must be understood:

i. Doctrine of Frustration

Under English law, the doctrine of frustration allows both parties of a contract to be discharged from their contractual obligations when an unforeseeable event occurs and renders the performance of contract impossible. Frustration requires that an unforeseeable subsequent event outside of the capacity and autonomy of the parties has made the contract impossible to perform, or has transformed the performance of the obligations under the contract so significantly from that which the parties intended when entering the contract, that it would be unjust to expect the parties to continue with the contract and hold them to their obligations.

The test for frustration requires: a) the event occurring after the contract has been formed, b) the event is beyond what was envisaged by the parties when entering the contract and is fundamental, c) neither party if at fault and d) the event renders the contract performance impossible. Where a contract is found to be frustrated, both parties are released from their obligations under the contracts and neither party may sue for breach. It is important to also note that the frustrating event merely making the performance more difficult or costly is not enough to meet the frustration threshold. It is unlikely to be able to argue successfully that a contract is frustrated if it is only more difficult or expensive to perform; as demonstrated in the case Davis Contractors Ltd v Fareham Urban District Council where the House of Lords held that the fact that a contract becomes more difficult to perform or not so profitable is not sufficient to amount to frustration.

Although the purpose of this doctrine is to prevent unfairness where there has been an irrevocable change in circumstance and neither party is at fault in this manner, the test for frustration is very strict thus very difficult to prove. In practice, it is seen that very few cases where a contracting party has successfully claimed that a contract has been frustrated.

ii. Can the COVID-19 outbreak frustrate contracts under English law?

The key question in order to determine this is whether the coronavirus outbreak has resulted in making the performance of a contract impossible or merely more difficult. While the latter scenario will not constitute a frustrated contract, the first scenario may be sufficient to amount to frustration. For instance, if the coronavirus outbreak only delays performance of a contractual obligation or increases the cost of doing so it is highly unlikely that frustration will be found. Similarly, if the coronavirus outbreak results in a delay of shipping or delivery of goods, in contrast to a temporary blanket ban on importing and exporting goods implemented by the government, it is more likely to be held as a force majeure event rather than a frustrating one.

This is where the importance of distinguishing between arguing frustration or force majeure can be found: generally where a contract contains a force majeure clause that includes specifically issues such as global pandemic and epidemics, frustration will not apply on the basis that the parties have already failed to meet the “unforeseen event” requirement for the doctrine of frustration since they considered the issue and incorporated it into the contract. However, if the force majeure clause of a contract is not provided in full, complete or specific enough then it may still be possible to invoke frustration.

iii. Force Majeure

In contrast to civil law, English law does not define force majeure either in statute or under case law, therefore the legal concept of force majeure depends for its existence and effects on the contract itself. To define, force majeure clauses are contractual clauses which alter parties’ contractual obligations and liabilities when an extraordinary event or circumstance beyond their control prevents their performance.6 Importantly, the fact that force majeure clauses are contractual clauses mean that the parties can only rely on this concept if they have provided it expressly in the contract and it will not be implied into the contract. This also gives rise to the issue that whether a particular clause is triggered will depend entirely on the words that have been used by the parties when entering into contract, which is a reason why in practice, force majeure clauses are often carefully drafted and comprise of non- exhaustive lists. Failure to state what constitutes force majeure in the contract means that a supervening event which prevents performance will not be caught as a force majeure event so as to provide release from performance, simply because it was not named as a qualifying event in the contract.

Force majeure clauses are interpreted narrowly, and the burden of proof lies on the party invoking it, meaning that the party claiming the force majeure clause is triggered, must prove the event in question falls within the scope of the clause under the relevant contract. If successfully invoked, the affected party may be excused from performing its obligations under the contract thus avoiding a breach of contract which could result in damage and detrimental liability. Depending on their structure, these clauses may impose a variety of effects on the parties such as releasing the affected party from performing the contract in whole or in part; from delay in performance or giving them the right to terminate the contract. Due to the fact that force majeure is not a creature of common law, it differs from some other civil law legal systems where the courts may declare that a particular event such as the coronavirus outbreak constitute force majeure.

iv. Does the coronavirus outbreak constitute as force majeure?

Since the concept of force majeure only exist via contracts under English law, every force majeure clause should be interpreted separately and in accordance to the contract which it is incorporated in. Hereby, it is easy to see that where clauses that expressly include a pandemic, epidemic or communicable disease as an iterated example of events giving rise to force majeure, there is a higher chance of successfully arguing that COVID-19 outbreak is a force majeure event. On the other hand, where the clauses fail to include pandemic or communicable disease in the list as examples the affected party will have to firstly demonstrate that the COVID-19 outbreak falls within the scope of that clause and is force majeure within that provision.

In the event that COVID-19 falls within the scope of a force majeure clause of a contract, the affected party must show that:

a) The COVID-19 outbreak has rendered the contractual performance impossible; and

b) The COVID-19 outbreak and its consequences were beyond reasonable foresight and control of the parties when they entered into contract.

Since the COVID-19 outbreak is an unprecedented circumstance, it is fairly possible to argue that the parties could not have specifically foreseen it and incorporated it under the force majeure clause of the contract. It is also reasonably fair to argue that the World Health Organization’s recent classification of COVID-19 as a pandemic would result in this outbreak as being within the scope of those force majeure clauses that include pandemic or epidemic in its list. However, even if the courts acted generously when interpreting the wording of such clause, the affected party must still demonstrate that their non-performance was outside of their capacity and control and could not have been prevented or mitigated. Therefore, just because a force majeure event has occurred and falls within the scope of the clause does not necessarily mean that the parties will be released from liability for failing to perform or delay in performance.

v. Can frustration and force majeure work together?

Generally, if there is a force majeure clause within the contract and it covers all of the elements than the doctrine of frustration will not (and cannot) apply. Considering to the current case of COVID-19 outbreak, if a product is due to be shipped from a country to the UK but that country is in lockdown and not allowing flights or shipments to the UK, the performance of the contractual obligation that is shipment to the UK is rendered impossible. Therefore, in this case, the first step towards determining whether the contract will be affected by the COVID-19 outbreak is to consider the force majeure clause of that contract and interpret the force majeure events within the scope of that clause and from its wording. If the force majeure clause is incomplete, for example in regard to the cost allocations, the doctrine of frustration may be applied in addition to the contract. If there is no force majeure clause at all, the doctrine of frustration may apply and the provisions of the Law Reform (Frustrated Contracts) Act will assess and determine the position on recoverability.

Both force majeure and frustration allow parties relief from their obligations and liabilities but while force majeure event may not result in the contract being terminated and simply relieves the party from performing the obligation subject to force majeure, frustrating event results in automatic termination of the contract and both parties are released from all contractual obligations. However, it is crucial to emphasize the fact that the consequence of wrongfully arguing frustration may cause severe damage including a repudiatory or anticipatory breach of contract which may result in the counterparty terminating the contract and claiming damages. In the event that frustration is successfully argued, as a general matter, any rights accrued prior to frustration will remain enforceable however subject to certain exceptions, any rights which had not accrued as at the time of frustration will be unenforceable once the contract is discharged.

vi. Conclusion

Due to the COVID-19 spread developing from a local outbreak to a global pandemic, the impact it will have on businesses and particularly commercial contracts seems inevitable. As vital mechanisms to excuse a contractual party’s non-performance or justify termination of a contract, the question is whether one can rely on force majeure or the doctrine of frustration in English law. It is clear from the above that the impact of COVID-19 outbreak on contractual performances is inherently contract specific. While both are similar legal concepts under English law, they give rise to radically different outcomes: force majeure clause excuses a contractual party from not performing its obligations under the contract and do not hold them to any liability whereas the doctrine of frustration automatically discharges both parties from the contract if it is successfully argued.

Above all, an incorrect assertion of force majeure or frustration may result in a breach of contract which depending on the level of breach being anticipatory or repudiatory, allows the counterparty to be able to claim damages or even the termination of the contract. Therefore, we strongly advise that if you are in doubt of where your position stands in relation to your liability and obligation under a contract during the coronavirus pandemic, you should seek legal advisory before commencing any courses of action.

As Guden, we are happy to offer our services in this area to those who are seeking guidance in relation to their liabilities and obligations under a contract during the COVID-19 outbreak. For further information on coronavirus outbreak as force majeure and its impact on contractual performances under Turkish law, please see our related article here. 

By Ali Guden, Partner, and Doga Girinti, Legal Counsel, Guden 

Under Turkish Law, the main purpose of each contract is that the parties’ fulfilling their mutual obligations. One of the general principles of law and primary rule of contract law is the principle of pacta sunt servanda.

The principle intakes that the contract must be fulfilled in accordance with the first conditions as much as possible, even if the conditions existing at the time of its signing have changed in the future. In other words, the contract should be executed in accordance with the conditions in the timeframe and should not contain any changes afterwards. Therefore, the parties are obliged to fully comply with the terms of the contract between them. However, it has been taken into account that the conditions at the time of the establishment of the contract may change during the century in which we live and subsequently the parties may be significantly affected. In this context, a knew principle emerged from the Roman Law that the parties should not be bound by contract if any significant changes acquire in which it has been determined that it will be possible to adapt the contract in accordance with the “clausula rebus sic stantibus” principle.

With the spread of the COVID-19 pandemic, which is first seen in the city of Wuhan in China, to all continents and 127 countries, countries try to prevent by taking extraordinary measures such as curfew, closing of entrances and exits of their country. Within the measures taken as a result of the unexpected spread of the COVID- 19 pandemic, various sectors and commercial relations have been damaged by affecting the whole world economy. Although there are approaches regarding the current and future economic implications of the COVID-19 pandemic, the issue of whether this emerging pandemic can be considered as a force majeure in contract law is on the agenda. First of the issues to be mentioned in the related article is the concept and conditions of the principle of adaptation of the contract; subsequently, it will be discussed whether the COVID-19 pandemic can be evaluated within this scope.

i. Principle of Adaptation in Contract Law and Requirements

Article 138 of the Turkish Code of Obligations (‘’TCO’’) regulates the adaption of the contracts in the event of hardship. Preamble published by the Legislator for the Article 138 of the TCO explains how the obliteration of the basis of the transaction shall be evaluated. As stated by such, the subject matter shall be evaluated by the principle of the good faith in order to detect whether the basis of the transaction has collapsed or not. According to the related article;

‘’An extraordinary situation which is not foreseen by the parties at the time of the contract and which is not expected to be anticipated, arises from a reason not due to the debtor and changes the existing facts at the time against the debtor in such a way as to violate the rules of honesty, If the debtor has not yet fulfilled his / her obligations arising from the excessive difficulty of the performance, the debtor shall have the right to request from the judge the adaptation of the contract to the new conditions and to revoke the contract if this is not possible. In contracts of continuing obligations debtor shall terminate the contract. This provision also applies to foreign currency debts.’’

Adaptation procedure is an application aimed at sustaining the contract in which ending the contract or rescission an agreement is a more severe result than the adaptation. The reason is that, the contract is no longer standing when the obligor revoking the agreement. For the adaptation of the contract, the obligor may request an adaptation from the judge in the first instance.

There are two ways to intervene in an originally established contract. The first is adaptation, and the second is the rescission from the contract. These two options are integrated from the Turkish Civil Code by integrating them from the German Civil Code. As it stated in Article 138 of the TCO that there are three different requirements for the adaptation of the contract.

According to the article;
• An unexpected event, which was unforeseen and not expected to be foreseen by the Obligor, must occur after the contract was entered into,
• There must be no negligence on the Obligor’s side in the occurrence of the unexpected event,• Performance must have become excessively burdensome for the Obligor because of the unexpected event in light of the Principle of Good Faith,
• Obligor must perform his obligation by reserving the right of hardship or the Obligor must not yet perform the contract.

ii. The Definition of Force Majeure and Applicability

Although the force majeure is not fully explained in Turkish Law, it is expressed in two ways. One of them is “Subjective Theory (responsible and obligor-based theory)” and the other is the “Objective Theory”.

• Subjective Theory; it is a theory based on the responsibleness of the obligor. It is a theory that defines the force majeure according to the fact that it is not possible to prevent damage even if the utmost care is given according to the conditions.
• Objective Theory; This means events which the obligor is not obliged to take into account during the course of ordinary life, such as war, economic crisis, high devaluation. The essential criterion here is whether the parties can be expected to foresee the relevant event, considering all possible risk and assumptions or not. The change must have effect on the essential points of the contract and disturb the equilibrium of risks and benefits in the period between the date of the performance of the contract and when the contract was entered into.

Force majeure is often confused with contingency. There are some differences between them. First of all, force majeure refers to a situation with greater severity and intensity than the contingency. There is absolute inevitability. Force majeure, in an external event (foreign element) to the person and activity; The contingency, on the other hand, refers to an internal problem between the operation and activity procedures. Each case must be examined separately. It is expressed and perceived as one of the reasons that constitute the unthinkable result. Therefore, the force majeure appears as a reason with more obvious consequences in the context of liability law.

iii. COVID-19 as a Force Majeure and Impact on Contractual Performances Under Turkish Law

As mentioned above, the Turkish Code of Obligations No. 6098 does not contain a detailed analysis of force majeure implicitly due to take place in the form of commentaries so called interpretation of COVID-19 to be considered as force majeure. However, the fact that the events that will constitute a force majeure are not counted one by one is due to the fact that it is not known how the probable situations will be realised by law. Although the force majeure includes the unforeseen and unpredictable situations by the parties, the COVID-19 pandemic is an unpredictable event and by the World Health Organization’s decision dated 12.03.2020, stated that COVID-19 is a global pandemic.

On March 22nd, 2020; The Presidency of Republic of Turkey published 2279 No. decree in the 31076 No. Official Gazette and stated that; In accordance with the Article 330 of the Enforcement and Bankruptcy Law, enforcement proceedings were suspended until April 30, 2020. In additionally, The Union of Turkish Bar Association has announced that no new enforcement proceedings will be opened until 30.04.2020. The Ministry of Transport and Infrastructure, restricted and implemented couple of rules as well in which some of them are; preventing entrance clearance for foreign citizens, banning entrance and exit to and from Turkey. Given these considerations, taking extraordinary measures by the Republic of Turkey and countries of the world due to the global epidemic Covidien-19 is trying to prevent further increase. This supports force majeure cases.

Although there is an opinion of the International Chamber of Commerce (“ICC”) in the precedent decision of the SARS virus in the contracts that caused bilateral performance obligations in the past, there are different evaluations in terms of concrete situation.

In contrast, in China, where the epidemic disease first appeared; The Chinese government has started to issue force majeure certificates to companies that have failed to meet their contractual obligations in order to prevent some uncertainties and protect the contract parties from violating their terms. It should be considered that the mentioned COVID-19 pandemic will have many more economic effects due to the stagnation of the world economy by expressing the commercial relations in China, where the economic power is the highest. It is believed that the legal basis for requesting the intervention of judges in all commercial contracts, lease contracts and other private law contracts throughout our country by reason of force majeure can only be evaluated within the scope of “Hardship” in Article 138 of the Turkish Code of Obligations.

However, it can be thought that the provisions of the “Impossibility of Performance” in Article 136 of the Turkish Code of Obligations may find application in some cases. According to this provision, it is foreseen that if the performance of the debt becomes impossible due to the reasons that the debtor cannot be held responsible, the debt will end. As an example, a commodity that an importer company in our country undertakes to bring products from Italy in March cannot be obtained because the borders are closed. In this case, the debtor will be freed from his debt and will be obliged to return the action they received to the other party in accordance with the provisions of the enrichment without reason.

It is observed that in the case-law of the Supreme Court on this matter, every case investigated separately, and different judgments are given for each event related to force majeure. In the decision of the 13th Civil Chamber of the Supreme Court dated 26.11.1982 and numbered 1982/6186; “In order for the contract to be revised, the economic balance in the contract has been disrupted due to the changes caused by an event that has not been seen before, outside of the person and business of the debtor and the limit of danger that must be imposed on one of the parties of the contract must be exceeded objectively. The price of gold, which was decided as a lease money, collapsed from the basis of the transaction due to its extraordinary increase and the contract should be adapted to new situations.”

iv. Conclusion

As the COVID-19 pandemic is on the agenda of the whole world, it is a fairly new issue and there is no clear interpretation as to whether it can be considered as a force majeure in contracts law in the current situation, either in Turkish Law or in the world. However, it is possible to say that the course of the COVID-19 pandemic should be assessed in more broad and international aspects compared to other epidemic diseases that are the subject of previous judicial decisions. The Turkish Code of Obligations No. 6098 does not contain a detailed analysis of force majeure implicitly due to take place in the form of commentaries so called interpretation of COVID-19 to be considered as force majeure. However, the fact that the events that will constitute a force majeure are not counted one by one is due to the fact that it is not known how the probable situations will be realised by law.

In this context, one of the judgments in Turkish law accepted epidemic diseases as one of the force majeure conditions. The Supreme Court Assembly of Civil Chambers judgment in the relating case of 2017 /11-90 and 2018/1259 judgment number dated 27.06.2018 states; “Force majeure is an extraordinary incident that occurs outside the activity and operation of the responsible debtor, which leads to the violation of a general norm of behaviour or debt in an absolute and inevitable manner, which cannot be foreseen and resisted. Natural disasters such as earthquake, flood, fire and epidemic diseases are considered as force majeure.”

When we take into an account that the COVID-19 pandemic with its statement in the form of the World Health Organisation, as a global epidemic, it can be envisaged that it will be considered as a force majeure in the law of contracts. However, it should be noted that the content and statement of the force majeure provision included in the contract are important for possible disputes and the content of the dispute in the concrete event is important. For more detailed information, you can contact us via the following information.

By Dilara Nihal Tunc, Associate, Guden 

The Guden Law Firm has advised Turkish petroleum exporter BDY Group Yatirim A.S. on questions related to the impact of the growing COVID-19 crisis on their company’s master sale and purchase agreements.

According to the Guden Law Firm, “as petrol prices are falling,” Founding Partner Ali Guden and Associate Dilara Nihal Tunc, “examined whether price changes in petroleum due to the COVID-19 outbreak can be considered to be force majeure under [BDY’s] contracts.”

On March 23, 2020, The Union of Turkish Bar Association submitted a letter to the Ministry of Justice to address problems accruing in the judiciary due to the COVID-19 pandemic. Following this call, the deadlines for proceedings were temporarily suspended due to the COVID-19 pandemic by the judgment adopted on 25 March 2020. A number of regulations have been made to prevent the loss of rights in the judiciary.

According to the judgment taken by Ministry of Justice, all periods regarding to the originate, use or termination of a right, including litigation, execution proceedings, application, complaint, objection, notice, notification, submission and statute of limitations, reduction of rights and mandatory administrative application periods and the periods determined by the parties in the Code of Administrative Procedure, Code of Criminal Procedure Law and Code of Civil Procedure Law and other legislations regarding procedural provisions, and other periods determined by judgments as well as the periods regarding mediation and arbitration institutions are suspended from 13 March 2020 until 30 April 2020.

On March 22nd, 2020; The Presidency of Republic of Turkey published 2279 No. decree in the 31076 No. Official Gazette and stated that; In accordance with the Article 330 of the Enforcement and Bankruptcy Law, enforcement proceedings were suspended until April 30, 2020. In additionally, The Union of Turkish Bar Association has announced that no new enforcement proceedings will be opened until 30.04.2020.

The period determined in the Execution and Bankruptcy Law and other laws related to the pursuance law and within this scope the periods determined by the judge or the Execution and Bankruptcy departments, all Execution and Bankruptcy pursuance, except for the execution pursuance for alimony receivables, party and pursuance transactions, the receipt of new execution and Bankruptcy requests, transactions related to the execution and execution of injunction orders are suspended from 22 March 2020 until 30 April 2020.

Above mentioned periods will begin to run from the day following the expiration of the stoppage period. As of the beginning of the stop period, periods of 15 days and less will be considered to have been extended by 15 days starting from the day following the end of the stop period. If the outbreak continues and still poses a danger to the country, The Presidency of Republic of Turkey will be able to extend the stoppage period once, not more than six months, and can narrow the scope for that period.

It should be noted that;

• With the timeout periods set out in the laws for Crime and Punishment, Misdemeanours and Administrative Sanctions, Disciplinary Prison and Compulsion Prison

• The periods regarding the protection measures regulated in the Criminal Procedure Code and,

• The deadlines for the procedures that complete the precautionary measure regulated in the Code of Civil Procedure Law excluded by The Presidency of Republic of Turkey.

If the day of sale declared by the Execution and Bankruptcy offices under the Execution and Bankruptcy Law and other laws related to the pursuance law remains within the stop period, the day of sale shall be given by the Execution and Bankruptcy offices without seeking a new claim after the stop period for these goods or rights. In this case, the sales announcement will only be made electronically and there will be no charge for the announcement.

Payments made consensually during the stoppage period shall be accepted and one of the parties may request that transactions in favour of the other party be carried out. The consequences of the concordats respite in terms of creditor and debtor will continue for the duration of the stoppage. Other measures will be taken to ensure enforcement and insolvency services are not disrupted.

All other measures to be taken during the suspension, including the postponement of hearings and negotiations, as well as the procedures and principles related to this shall be determined by the board of presidents concerned with respect to the Supreme Court and the Council of State. The Board of Judges and Prosecutors will determine the measures and procedures and principles regarding the first-degree judicial and administrative judicial authorities and regional courts and regional administrative courts. The Ministry of justice will determine the necessary measures and arrangements for the Justice Services.

In addition to the suspension of legal periods, it was decided to switch to the seizure system in the courthouses and Regional Courts of Justice, in which judicial services would be carried out with a sufficient number of judges and prosecutors. The board of judges and prosecutors has put into effect the practice it has previously carried out on administrative leave and on holidays. Apart from detainees and rushed jobs, a flexible working period has been initiated until further notice.

By Ali Guden, Partner, and Sena Koc, Trainee Lawyer, Guden 

The General Directorate of Domestic Trade of the Ministry of Trade (the “General Directorate”) has issued an official statement on March 20, 2020 (“Statement”) in order to adopt certain measures to ease the process of holding general assembly meetings of joint stock and limited liability companies (together, the “Companies”) in the light of ongoing concerns about the novel coronavirus (COVID-19) outbreak across the country.

According to the Statement, the necessity to implement measures have arisen due to the fact that majority of the Companies prefer calendar year as their fiscal period and that they have to hold their ordinary general assembly of shareholders meeting until the end of March 2020, which can result in faster spread of the novel coronavirus (COVID-19).
In this respect, the General Directorate has allowed the Companies to cancel their general assembly meetings without convening the general assembly to resolve on postponing the meeting to an another date. According to the Statement, if the board of directors’ of the Companies have already invited the shareholders to the general assembly meeting in accordance with the provisions of the Turkish Commercial Code No.6102 (“TCC”) and their articles of association, they can cancel the meeting solely with a board of directors’ resolution.

The General Directorate has provided a sample announcement template for the Companies, which can be obtained from the official website of the Turkish Trade Registry Gazette (“TTSG”). In addition, the TTSG has announced that (i) any announcement document (e.g. general assembly meeting cancellation documents) can be submitted to the TTSG Directorate through post offices or cargo companies instead of delivery by hand and (ii) payments can be made online through the official website of the TTSG.

Secondly, the General Directorate advised the Companies to hold their general assembly meetings in an electronic environment in accordance with Article 1527 of the TCC if they do not prefer to cancel the meetings, stating that the general assembly meetings to be held in an electronic environment will minimize the risk of spreading novel coronavirus (COVID-19) to people.
Furthermore, contrary to Article 1527/1 of the TCC which requires articles of association of Companies to contain a certain provision to have electronic general assembly meetings and board of directors meetings, the General Directorate has permitted Companies that do not have any provision in their articles of association to hold such meetings electronically. The General Directorate has stated that Companies can hold meetings through “Electronic General Assembly Meeting System” and “Electronic Board of Directors System”, which are provided by the Central Securities Depository Institution (“MKK”).

The General Directorate has also underlined that the Companies should obtain support services from the MKK and should not prevent rightful parties from electronically participating in the meetings.

Finally, the General Directorate has stated that Companies can amend their articles of association to include a provision regarding electronic meetings in the first general assembly of shareholders meeting to be held following the electronic general assembly of shareholders meeting held in accordance with the Statement.

By Gonenc Gurkaynak, Partner, Nazli Nil Yukaruc, Partner, Defne Kahveci, Associate, and Selen Ermanli Sakar, Associate,  ELIG Gürkaynak Attorneys-at-Law

Former GKC Partners’ Partner Yalin Akmenek has joined Esin Attorney Partnership.

According to the Esin Attorney Partnership, Akmenek “joins the firm and our leadership team as a disputes partner with several years’ experience working on and leading various aspects of substantial disputes. His practice is mostly focused on commercial and capital markets disputes, with a specific focus on shareholder and M&A disputes, in Turkish courts and also arbitral tribunals. In addition, Yalin has solid experience concerning Turkish clients’ disputes outside of Turkey.”

Akmenek has also been appointed as the leader of the Esin Attorney Partnership COVID-19 Task Force.

Akmenek spent 16 and a half years with GKC Partners — the Turkish firm associated with White & Case. He holds an LL.B. from Istanbul University.

“I am thankful for the warm welcome and look forward to assisting our clients in these difficult and challenging times which unfortunately seem to generate various disputes on different levels or give rise to various legal questions,” Akmenek commented.

“I’m delighted to welcome Yaiın to the Esin family,” commented Managing Partner Ismail Esin. “With Yalin’s arrival, we stand out as the only law firm that has a dispute team consisting of three individually ranked partners and a very large and able team with unmatched credentials. We are certain that the legal market will continue to grow in the upcoming period and our dispute resolution experience will continue to gain prominence. I trust Yalin’s expertise and believe his contribution to our dispute resolution practice and to our office will be invaluable.”