Category: Turkiye

In July, PwC-affiliated Turkish firm GSG Hukuk has promoted Yavuz Dayioglu to Partner in Istanbul.

Dayioglu has been with PwC since December 2008, when he joined the team as an Associate. In January 2013, he was promoted to Assistant Manager within PwC and to Director within GSG Hukuk, a role which he held until July 2021. In August 2013 he became a Manager within PwC. In 2016, he was appointed to Senior Manager and to Director in August 2018.

Last year, Dayioglu led the team advising the Senlen Family on the sale of the final 20% of Turkish chemical resellers Elton Marmara Kimya Sanayi ve Ticaret Anonim Sirketi.

The Board of Directors [“Board“] is the main management body of a joint stock corporation. Accordingly, the Board members have extensive management and representation duties. Given that such broad duties inherently carry the same level of liability risk, legal liability of the Board members has always been a critical topic. [For detailed information on the legal liability of Board members and the liability lawsuit you can refer to our article: “Legal Liability of Board of Directors Members”]. The Board, as the representative and administrative authority, must be able to support the corporation in reaching the intended goal, fulfill the management duties without hesitation, and take independent decisions. Therefore, considering the magnitude of the liability risk, a warranty mechanism –insurance– to balance the increasing liability of the Board has been discussed for many years as an indispensable element in liability cases. Today, the “Board of Directors’ Liability Insurance” [“Board Members Liability Insurance”] has already become as a widely used insurance type throughout the world, from United States to England and Continental Europe to Germany, Japan and Turkey. Issuance of this easily accessible insurance policy provides a significant assurance for the Board members.

This type of insurance, which is less known in our country’s practice, but has an equally important place, has been introduced by the Turkish Commercial Code [“TCC”] under Article 361. This provision stipulates that the damage suffered by the company due to the fault of Board members while performing their duties can be insured. Also, in publicly held companies, the insurance must be disclosed if the coverage amount exceeds 25% of the company’s share capital.

On the other hand, there is no regulation in the insurance legislation in relation to the policy terms and conditions of the Board Members Liability Insurance. Insurance companies generally issue special types of policies that insure against the specific types of risks faced by corporations. Precisely, due to that reason, it is very important how the policy terms, especially the recourse clauses, are determined in the policies.

Certain critical issues regarding the Board Members Liability Insurance will be discussed in this last article of our “Liabilities of Board Members” series.

Legal Nature of Board Members Liability Insurance

Board Members Liability Insurance policy examples, which are frequently used in practice, demonstrate that the policy is designed with special terms and conditions. Indeed, there is a wide range of circumstances which may lead the liability of Board members, who have an objective duty of care and therefore, can be held liable as a proxy. In other words, the Board members may face liability claims for many reasons. In this respect, each policy is designated specifically and provides insurance protection against the liability claims that may be brought forward due to the faulty decisions and/or negligence of the Board members.

As the significance of Board Members Liability Insurance increases throughout the world as well as in Turkey, the insurance coverage or policy exclusions are easily changeable depending on the circumstances set out in the policies. Although this may vary depending on the specifics of the policy, insurance companies generally accept to indemnify damages of the corporation, relevant official institutions, creditors, customers, competitors, employees, liquidators, and shareholders.

Policy Coverage

Before examining the scope of insurance coverage, several terms should be defined. Accordingly, the insurer is the party who enters into the policy with the insurance company and pays the premiums. The insured or the beneficiary means the person(s) protected under the policy in case of a loss or claim.

In the policies of Board Members Liability Insurance, the insurer is usually the corporation. Although rarely, the Board members may also be the insurer. In such cases, the Board member will become a policyholder, i.e., the insurer, and therefore, will have to pay the premiums. On the other hand, if the policyholder is the corporation, then the corporation will be liable for the premiums.

In liability insurance, it is of vital importance to designate the “insured” [beneficiary] party. In some cases, the insured is only the corporation itself against the losses incurred by the corporation as a result of acts or transactions of the Board members. Nonetheless, this type of policy would not provide required protection for a Board member. As such, should a Board member desire to eliminate his/her legal liability, then s/he should be designated as the insured party in the policy along with the corporation. Furthermore, directors, managers or officials, and employees can also be the insured party.

Again, subject to the specifics of each policy, the typical scope of policy coverage can be listed as follows:

• Indemnities covered by the policy and payments that the Board is legally obliged to make (such as company taxes or other public debts),
• Court expenses incurred due to a lawsuit initiated against the member,
• Expenses incurred due to investigations against the member,
• Compensation claims against the corporation in relation to securities,
• Administrative fines imposed on the member by official institutions,
• Legal assurance and official bailment expenses,
• All requests made directly or indirectly on behalf of the corporation by the bankruptcy officer or liquidator.

Recourse:

In policies where the Board member is the insurer, the insurance company will undoubtedly not be able to recourse to the Board member after making the insurance payment to aggrieved third parties or the corporation.

However, this situation may change in the policies where the insurer is only the corporation, and not the Board member. Hence, depending on the policy terms, the insurance company may take recourse towards the persons, organizations and Board members that have caused the damage. Having said that, it is possible to add clauses to the policy stating that the Board members cannot be subject to recourse in case of indemnifying the damages arising from their omission but not from willful misconduct. In this respect, in the policies where the Board members are not the insurer party, it is important to exclude the clauses which give rise to insurance company’s right of recourse from the policy.

Policy Exclusions

As in every type of insurance, Board Members Liability Insurance policies contain various exclusions as well. Although this may vary in practice, damages incurred due to the member’s willful breach of its duty owed to company is usually excluded from the insurance coverage.

Further, when we look at the application of this insurance in the world and in Turkey, claims for [i.] penal clauses agreed in the contracts, [ii.] liability for damages caused by products offered or works or other acts performed by the corporation, [iii.] environmental damages, [iv.] liability in a pending litigation or judicial procedure, [v.] physical injuries, and [vi.] penal fines imposed pursuant to the criminal laws are generally excluded from the scope the insurance.

By Zahide Altunbas Sancak, Partner, and Sevinc Jafarova, Associate, Guleryuz & Partners

Paksoy has advised General Atlantic on co-leading a USD 1.5 billion funding round for Trendyol, alongside SoftBank Vision Fund 2, Princeville Capital, and sovereign wealth funds ADQ and Qatar Investment Authority as well as Alibaba and Omega Oryx Limited. White & Case, and its Istanbul associated firm GKC Partners, advised Softbank Vision Fund 2, Kinstellar, and its Istanbul associated firm Gen Temizer Ozer, advised Princeville Capital, Herguner Bilgen Ozeke advised Alibaba, and Lexist advised Omega Oryx. Reportedly, Simpson Thacher & Bartlett and Verdi Law Firm advised Trendyol on the deal.

General Atlantic is a growth equity firm. Trendyol is a Turkish e-commerce platform. This funding round, according to Paksoy, results in Trendyol becoming a “decacorn” with a valuation of USD 16.5 billion.

Paksoy’s team included Partner Elvan Aziz, Senior Associate Hazak Korkmaz, and Associate Yeseren Sozuer.

White & Case’s team in London included Partners Dan Turgel, Jonah Anderson, Tim Hickman, and Marc Israel and Associates Helen Pantelides, Francis Brown, Joe Devine, Mhairi Fraser, and Luc Rosenberg. The GKC Partners team in Istanbul included Partner Emre Ozsar, Associates Tolga Tezel, Gokcen Durgut, and Selin Kaledelen, and Competition Advisor Sezin Elcin-Cengiz.

Kinstellar and Gen Temizer Ozer’s team in Istanbul included Partners Baran Gen and Edmund Emre Ozer and Associate Beliz Zorlu.

Herguner Bilgen Ozeke’s team included Senior Partner Umit Herguner, Partners Mert Oguzulgen and Zeynep Tor, Senior Associate Esra Canpulat, and Associate Basak Etik.

Lexist’s team included Partner Murat Erbilen, Counsel Mesut Kaya, and Associate Mertcan Sami Yilmaz.

Editorial Note: After this article was published, Akol Law Firm announced it acted as Qatar Investment Authority’s Turkish counsel on the investment. The firm’s team included Founding Partner Meltem Uslu-Akol, Partner Tugce Tatari, and Associates Ilay Erarslan, Tugce Incetan, Zeynep Kiris, and Yagmur Aker.

GKC Partners has advised Yemeksepeti on its acquisition of Turkish online shopping platform Marketyo Bilisim Teknoloji A.S. Bener Law Office advised the shareholders of Marketyo on the sale.

According to GKC Partners, Yemeksepeti is the “Turkish subsidiary of Delivery Hero, world’s leading local delivery platform operating in over 50 countries across Asia, Europe, Latin America, the Middle East, and North Africa.“

The GKC Partners team consisted of Partner Emre Ozsar, Advisors Sezin Elcin Cengiz and Hakan Eraslan, Associates Can Tolga Tezel, Gokcen Durgut, Irem Kurkcu, and Selin Kaledelen, and Legal Intern Atakan Arslan.

Bener’s team included Partner Bahar Ulgen Hasserbetci and Associate Kaan Bayat.

The relationship between a joint stock corporation and its board of directors [“Board“] is established by the acceptance of duty by the Board member, who is elected by the general assembly of shareholders or exceptionally by the Board. As a result, a contractual relationship is established between the corporation and the Board member.

Although the nature of the contractual relationship between the corporation and the Board member as well as the consequences connected to it is a controversial issue, there are basically two differing opinions in jurisprudence and among legal scholars regarding the type of contract between the parties: the employment contract view and the proxy contract view. Correct determination of the nature of the legal relationship is extremely important in terms of identifying the debts and rights arising from the relationship and the procedure for the termination of the relationship. It is even instrumental in terms of finding the competent court for the dispute. In this article of our series of articles on the Liability of Board of Directors Members, the debate on the nature of the legal relationship between the Board member and the corporation and the importance of these discussions in terms of practice will be elaborated. 

I. Type of Contract Between the Board Member and the Corporation

Employment Contract View

An employment contract is an agreement that establishes basic rights and responsibilities between an employee and an employer. In an employment contract, one of the parties [employee] undertakes to work as a dependent of the employer and the other one [employer] undertakes to pay a salary. Therefore, the three basic elements of this type of contract are salary, employment, and dependency.

The main argument behind the employment contract view is that the legal relationship between the Board member and the corporation is continuous in this way and the contract contains the benefits of an employment contract such as salary and leave. Critics of the view generally focus on the fact that contrary to an employment contract, salary is not included as an essential element in the contract of the Board member and that Board members are considered as employers due to the function of the Board as a body of the corporation. Another point is the element of dependency in an employment relationship. Dependency is the employer’s authority to give instructions and the worker’s responsibility to fulfill these. Nevertheless, due to the -limited- autonomy and authority they have in fulfilling their duties, the Board members do not receive direct instructions in this way.

This view is opposed on the grounds that the Board member, who is authorized to represent the corporation, is accepted as a “person-body” and the “actual employer” [1]. Moreover, the decision of the Court of Cassation Assembly of Civil Chambers dated 18.10.2021 and numbered E. 2017/3176, K. 2018/1470 emphasizes the fact that the legal characterization of each relationship should be evaluated according to the case in hand. In the decision, the court stated that it is acceptable to define the contract as an employment contract if the person does not represent the corporation or has no influence on the resolutions adopted on behalf of the corporation.

Proxy Contract View

A proxy contract is an agreement that allows and obliges the proxy to perform a duty of or act on behalf of the principal. Scholars in this view argue that the liability of Board members arises from a proxy contract and therefore, they can be held liable towards the corporation like a proxy.

According to this view, a proxy contract between the Board member and the corporation is established with the acceptance of duty. There are many decisions of the Court of Cassation favoring this view. For instance, the decision of the Court of Cassation Assembly of Civil Chambers dated T. 07.07.2010 and numbered E. 2010/9-328, K. 2010/370 clearly states that the relationship between the members of the Board and the corporation is based on a proxy contract, and thus, the members should be responsible to the corporation as a proxy.

II. Some Issues Regarding Determination of Contract Type

Competent Court in Case of Dispute

In Turkish law, the competent court for the dispute is determined by the legal nature of the relationship between the parties. Therefore, identifying the nature of the legal relationship between the Board member and the joint stock corporation also clarifies which court has jurisdiction on the dispute.

The Labor Courts Law No. 7036, which regulates the jurisdiction of labor courts, sets out that a dispute must arise from the law or contract “due to an employment relationship” for a dispute to be heard in labor courts [Art. 5/1-a]. Therefore, if the relationship between a Board member and the corporation is deemed as an employment contract, potential disputes will be under the jurisdiction of labor courts.

On the other hand, Art. 4/1-a of the Turkish Commercial Code [“TCC”] provides that the lawsuits arising from the issues regulated in the TCC are “absolute commercial lawsuits”. Given that the duties, authorities, rights, and responsibilities of the members of the Board of joint stock corporations, which have the title of body-person, are regulated in the TCC, commercial courts will have jurisdiction over the disputes, if the relationship between the two is accepted as a proxy contract. 

Can a Board Member Claim Employment Benefits Such as Seniority or Notice Pay and Salary?

Another matter of debate is whether a Board member has the right to ask for compensation for employment benefits such as severance and notice pay upon termination. If the legal relationship is deemed to be of employment nature, the Board member will be considered as an employee, and as a result, will be able to claim benefits arising from the employment relationship.

If the view of proxy contract is prevailed, the Board member will be held responsible as a proxy and will not have the rights and benefits arising from the employment relationship. In such case, although the Board member will not have the right to request employment benefits, it is possible to claim the rights set forth in the TCC and those arising from the proxy contract. For instance, the general assembly of shareholders has the authority to dismiss the members of the Board. However, if a Board member, for whom an attendance fee has been decided, is dismissed before the expiry of the term of office without a justified reason, the member can request attendance fee for the remaining term of service based on unfair dismissal.

III. In Conclusion

Determining the legal nature of the relationship between the Board member and the joint stock corporation is crucial in terms of defining the method of termination, the competent court as well as the debts and rights arising from the relationship. Even though there are opinions to the contrary, Turkish jurisprudence and legal scholars are inclined to describe the relationship between Board members and the corporation as a proxy contract. Yet, depending on the case, it is also possible to claim the relationship to be an employment contract, and sometimes it can even be argued that the individual possesses both the title of an employee and a Board member.

By M. Tarik Guleryuz, Partner, Guleryuz & Partners

BTS & Partners has advised 500 Startups and Qnbeyond Ventures on investment in Ango AI. Solo practitioner Furkan Karacam advised the founders of Ango AI on the deal.

The total investment amounted to USD 720,000.

Ango AI is a Turkish data labeling platform with offices in Ankara and Istanbul. 

BTS & Partners’ team included Partner Okan Arican, Associate Mine Hazal Senol, and Legal Intern Irmak Ulusinan.

 

Protection of the share capital is one of the fundamental principles of the Turkish Commercial Code [“TCC”]. In this respect, capital loss and negative equity [the so-called “technical insolvency”] are regulated under Article 376 of the TCC, and a Communiqué was enacted to set the rules regarding the application of this Article. As a result of the unpredictable fluctuations in foreign exchange rates in the economy as well as the negative impacts of the Covid-19 pandemic on the financials of the companies, Article 376 of the TCC gained a special popularity among the Turkish companies in recent years. Accordingly, this article explains the situations where capital loss and technical insolvency may emerge and the measures that should be taken in the given circumstances. The article further elaborates on the new rules adopted to reduce the negative effects arisen from the drop of Turkish Lira and the Covid-19 pandemic. The potential liability of the directors that may arise in case the necessary actions are not taken is also addressed.

From capital loss to technical insolvency: Phases of capital loss

First Stage, Loss of Half of the Capital: Loss of half of the share capital refers to the balance sheet loss which is equal to the 1/2 or more than 1/2 and less than 2/3 of the sum of the capital and legal reserves. Such amount of loss will be deemed as a warning with regard to the company’s financial situation. To prevent the deterioration of the loss, the board of directors/managers [“Board”] should immediately call a meeting of the general assembly and present remedial measures. At this level, the TCC does not require the company to take certain actions and leaves the issue to the discretion of the shareholders and the Board. In this respect, remedial measures on the operations of the company, such as shutting down a production unit or the change of market strategies, may be considered, as an alternative to the capital-related measures, such as increasing or topping up the share capital, as discussed below.

Second Stage, Loss of Two-Third of the Capital: Loss of 2/3 of the share capital refers to the balance sheet loss which is equal to or more than 2/3 of the sum of the capital and the legal reserves. Such amount of loss demonstrates that the alarm bells are ringing relating to the company’s financial situation. Hence, the TCC requires the bodies of the company to take certain actions. In this respect, the Board should call for a general assembly meeting, and the general assembly should decide on one of the measures explained below. Otherwise, the company would face the risk of dissolution.

Third Stage, Technical Insolvency: Negative equity, the so-called “technical insolvency”, occurs when the assets of a company are not sufficient to cover its liabilities. Unlike the first two stages, this time the Board must prepare an interim balance sheet if there are any signs regarding the negative equity. This interim balance needs to be based on both the going concern and the probable sale price of the assets. Previously, before the entry into force of the Communiqué, it was argued due to the unclear wording of the TCC that in case of technical insolvency, the Board had to apply to the court directly for bankruptcy. The Communiqué clarified the issue and now, those financially distressed companies are allowed to take any measures explained below, so as to survive. Nonetheless, should the Board prefer not to take the necessary actions and in case technical insolvency has become certain following relevant assessments, then the Board is obliged to apply to the commercial court for bankruptcy. On the other hand, the postponement of the bankruptcy may be possible, if the creditors agree to restructure their receivables or the creditors are also the company shareholders.

Items to be disregarded in the calculation of capital loss: Impacts of foreign exchange losses and Covid-19 pandemic

Serious increases in the foreign exchange rates starting in 2018 have caused crucial damages in the balance sheets of the Turkish companies which are heavily indebted in foreign currencies. Accordingly, the Communiqué allows companies to disregard the exchange difference losses incurred due to liabilities in foreign currencies that have not been fulfilled yet in the relevant calculations until 1 January 2023. In this way, it is aimed to keep companies out of the scope of the capital loss and technical insolvency situations regulated in Article 376 of the TCC. Furthermore, an amendment was introduced to the Communiqué at the end of the year 2020 to minimize the effects if the Covid-19 pandemic on the balance sheets of Turkish companies. Pursuant to the new rule, the sum of half of the expenses arising from leases, amortizations, as well as personnel expenses accrued in 2020 and 2021 will not be taken into account in the calculations, in addition to the above-mentioned exchange difference expenses.

Measures to be taken in cases of capital loss and technical insolvency

Operational measures: Companies that are exposed to capital loss, particularly those at the first stage, can take actions regarding their commercial operations. These measures can be downsizing the business volume by closing certain units of production or departments, sale of subsidiaries, and modifying marketing strategies. Even though it is possible to implement these measures at any level of capital losses, these actions may eventually fall short to remedy the financial condition of the company at the second stage of capital loss or in case of technical insolvency given the severity of the situation. Thus, those companies will further have to take capital-related measures discussed below.

Altering the capital: The TCC and the Communiqué introduce several measures concerning the capital which are discretionary at the first stage of capital loss, yet must be taken starting from the second stage of capital loss. Accordingly, decreasing, topping up and increasing the share capital may be on the agenda:

Capital decrease: The share capital can be decreased to offset the balance sheet losses. It is possible to decrease the total capital to the minimum capital amount, provided that at least half of the sum of the capital and legal reserves is preserved within equity. Minimum capital amounts foreseen by law correspond to 50,000.00 Turkish Liras for joint stock corporations, and 10,000.00 Turkish Liras for limited liability companies.

Topping up the capital: Topping up the share capital means injection of cash by the shareholders to cover balance sheet deficits. If the general assembly adopts a unanimous resolution, then all shareholders become liable to outrightly pay the necessary amount. Alternatively, only volunteer shareholders can top up the adverse balance. Payments that are made to cover the deficits will be collected in the “loss recovery fund” which will be solely dedicated to this objective. In other words, money that is deposited in this fund cannot be used for purposes other than the recovery of capital loss.

Capital increase: This method, in principle, requires increase of the registered share capital simultaneously after a capital decrease which is carried out by offsetting losses. The general rules of the TCC on share capital payments will apply to the payment of the increased amount. Accordingly, in joint stock corporations, 1/4 of the increased amount must be paid before the registration, while the remaining 3/4 can be paid within 24 months following the registration of the share capital increase. In limited liability companies, no payment of the increased share capital amount is required at registration, and the entire increased amount can be paid later. Also, capital market rules will need to be followed in publicly held corporations. Shareholders are also allowed to resolve on increasing the share capital, without a decrease. In this case, the amount which ensures at least half of the sum of the legal reserves and new registered capital to be retained within equity must be paid before the registration. Alternatively, the share capital can be increased to any amount and then decreased without following the condition of prepayment, provided however that, the share capital contributions are paid in full and at least half of the sum of the new share capital amount and legal reserves is retained in equity as a result of the transactions.

Merger: A merger is another method to recover from financial distress. The TCC and the Communiqué allows the companies suffering from capital loss or technical insolvency situation to merge with another company. In this case, the other merging company must have sufficient net assets to meet the capital loss of the financially distressed company.

Directors need to be cautious: Potential liabilities due to capital loss and technical insolvency situations

There is no doubt that being a Board member comes with liabilities. In cases of capital loss or technical insolvency, the Board members may be held liable for damages incurred by shareholders and creditors due to the given conditions [Art. 553 of TCC]. Furthermore, directors’ criminal liability may be at stake in case of omission of the obligation to notify the bankruptcy. Therefore, the Board members should be careful with regard to losses in the balance sheet not only for the purposes of survival of the company, but also in terms of their own liability. In this respect, notifying the court on the technical insolvency is an unassignable duty of the Board [Art. 375 of TCC], and failure to not apply to the commercial court may lead to criminal liability of the Board members, and even imprisonment up to 3 months. The Board of publicly held corporations are further required to establish a committee for early detection of risks which will be in charge of determining capital losses in advance and properly leading the company to take adequate steps. Closed companies may also establish a similar committee to enhance their capability of risk management.

Conclusion

The TCC attributes special importance to the financial conditions of the Turkish companies, especially, if the balance sheet losses exceed certain thresholds considering the sum of the share capital and the legal reserves and if the company assets are

not sufficient to cover the liabilities. Accordingly, the Communiqué was adopted for the purposes of providing concrete guidelines to such financially distressed companies. The Communiqué, on one hand, sets forth the measures that should be implemented for survival of the companies according to the principle of protection of the share capital, and on the other hand, aims to reduce the negative effects of both local and global contingencies including currency fluctuations and pandemics on the company’s balance sheets. Finally, with the appropriate guidance of the Board and measures to be resolved on by the shareholders, it seems possible for the companies to recover from distressed conditions.

By Zahide Altunbas Sancak, Partner, Guleryuz & Partners

GKC Partners has advised joint bookrunners Citi, Goldman Sachs, and JP Morgan on Aydem Renewables’ USD 750 million inaugural issuance of senior secured green bonds.

According to GKC Partners, “this transaction marks the largest Eurobond transaction ever by a Turkish corporate and the largest DCM transaction by a renewable company in the whole CEEMEA region.”

Aydem Renewables operates 20 hydroelectric, three wind, one geothermal, and one biogas power plants with over 1000 megawatts installed capacity. According to the company’s Chairman, Idris Kupeli, the proceeds will be used to “close the entire credit debt of Aydem Renewables to the banks; and we will utilize our remaining income to finance the hybrid investments to be realized in the next 3 years, in line with our target of doubling the installed power of our company.”

GKC Partners’ team included Partners Derin Altan and Ates Turnaoglu, Associates Elif Ece Kuregibuyuk, Ahmet Kaan Alkan, and Caglar Senol, and Legal Intern Sehriban Unlu.

GKC Partners did not reply to our inquiry on the matter.

From the outset, the Covid-19 Pandemic has significantly affected the usual rules of conduct and, as a natural consequence, commercial activities of businesses. How this “extraordinary” situation, which no one could foresee or could be expected to predict, would impact legal relationships has been the subject of numerous debates that are yet to be concluded.

One of these debates focuses on the balance of interests between the tenant and the lessor within a lease agreement during the Pandemic. While some liberal views argue that this disruption is solely the tenant’s problem, the more interventionist ideas argue that the courts should terminate the existing contractual relationship and create a new legal regime protecting the tenant. The debate is also focused on the timing of this intervention. As a matter of fact, while the Ministry of Justice designates a projected time of around 300 days for the courts of first instance to decide on a lawsuit on the adaptation of rent, this period may sometimes double in practice.

Considering the Pandemic conditions, is it possible for the businesses affected by this situation to endure this period of awaiting a decision? If not, can the court decide to reduce the rent as an interim injunction during the initial phases of the case? Following different and contradicting decisions by Regional Courts of Justice [“RCJ”] regarding these questions, the matter was brought to the Court of Cassation for a definitive and final judgment, which answered the question positively and ruled that the rent could be reduced as an interim injunction in cases regarding workplace leases.

At first, Ankara RCJ decided that it could not decide to reduce the rent through an interim injunction stating that the nature of the dispute required trial. In other words, according to Ankara RCJ, courts could intervene in workplace lease agreements affected by the Pandemic and reduce the rent, yet not as an interim injunction during the initial phases of the case. In order for the tenant to obtain the right to a rent reduction, they must wait for the judgment, which could be rendered approximately in 1.5-2 years. On the other hand, Bursa RCJ decided that if interim injunction is not ordered in adaptation cases, irreparable damages may occur till the end of the case, and accordingly, the interim injunction request should be accepted and be reviewed by the court every 6 months due to the volatility of the Pandemic. In order to eliminate this difference of opinion between RCJs and for a uniform application, the issue was brought before the Court of Cassation, and in its decision dated June 4, 2021, the Court of Cassation put an end to the discussion by ruling that an interim injunction could be granted in lawsuits for the adaptation of the rent due to the Pandemic.

The Court of Cassation first examined the philosophy behind the adaptation of a contract. In Turkish law, the principles of commitment to the contract and freedom of contract were underlined, and it was stated that the exact performance of the obligations in the contract was essential. On the other hand, it was noted that there are exceptions to the aforementioned principles, and that in the event the relationship is fundamentally damaged, the contract can be adapted in accordance with Art.138 of the Turkish Code of Obligations in light of the good faith principle.

As regards the acceptance of an interim injunction, the Court of Cassation stressed that in the adaptation cases filed during the Pandemic period, if the litigation process is prolonged, the effects could be aggravated, the tenant who could not pay the rent due to economic difficulties, thus could go into default, and as a result, the lease agreement could be terminated, but since the ultimate purpose of adaptation is to uphold the contract, a decision by the Court of Cassation for the adaptation could eventually prove to be ineffective. Accordingly, the Court of Cassation ruled that in adaptation cases, in order to provide temporary protection by eliminating the grievances caused by the prolongation of the case, an interim injunction can be issued, to be valid until the final judgment on the merits of the case.

With this decision of the Court of Cassation, there is no longer an obstacle for the acceptance of the interim injunction requests in the adaptation cases of the workplace tenants affected by the Pandemic. Thus, with the filing of the lawsuit, the courts will be able to decide to reduce the rental price as a precaution, depending on the characteristics of the present case, until the judgment. In our opinion, this decision of the Court of Cassation is very accurate both in terms of legal technique and sense of justice and in terms of ensuring social justice, that is, the fair distribution of benefits and burdens in the society.

By M. Tarik Guleryuz, Partner, and Baris Ulker, Senior Associate, Guleryuz & Partners

As a large country with a population of over 82 million and a comprehensive public and private healthcare system designed to provide an accessible and equitable medical service to each and every person living in Turkey, the potential for every life science-related sector in the country could easily be deemed as advanced.

The COVID-19 pandemic has caused an unexpected transformation of the Turkish and global life sciences sector – particularly in the methods employed to tackle waste management. The domestic production of medicine and medical equipment, personal protective equipment (PPE), and medical and hazardous waste has rocketed over the past year. In Turkey, even though the more settled life sciences sub-sectors such as the one related to the production of medicine and medical equipment have easily adapted to this new era, the management of medical and hazardous waste has faced challenges. Health-related concerns have taken precedence over environmental issues, and waste management has taken a back seat.

The amount of hazardous waste generated by infected persons, the extensive use of medical equipment for tests, vaccinations, treatments, etc., and the excessive use of PPE are significant challenges for the waste management sector. As the COVID-19 pandemic has boosted not only the volume of medical waste but also the amount of hazardous household and plastic waste, proper and efficient waste disposal and waste-management legislation has become crucial for maintaining global sustainability.

As a country which is still attempting to eliminate the irregular management of waste, Turkey faces a considerable threat. The Turkish government has not implemented any structural changes regarding the waste management system during the pandemic, yet, but instead has taken several steps with regard to the micro-management of COVID-related waste. The Ministry of Health published several informative posters, checklists, and brochures emphasizing the importance of separating waste at the source in order to raise awareness and (especially) to ease the handling of waste in waste collection centers. 

In April, 2020, the Ministry of Environment and Urbanization, General Directorate of Environmental Management published a “COVID-19 Measures on the Management of Personal Hygiene Waste such as Single Use Masks and Gloves” communiqué, emphasizing that the increased amount of personal hygiene waste must be managed in a more appropriate manner, with instructions given to institutions, establishments and entities, all citizens, municipalities, waste collectors, waste transporters, and waste depos, among others.

Accordingly, all institutions, establishments, and businesses are now obliged, among other things, to: place collection bins at entrances and exits of closed areas to separate waste at the source and collect such waste efficiently; not open the waste bags and/or mix the bags of waste with other waste bags; and ensure that waste bags are delivered to municipalities after they are kept in temporary storage areas for at least 72 hours. Every person who uses masks, gloves, tissues, etc., is instructed to place them, once used, inside untearable plastic bags, tie the bags, and put the bag in another plastic bag as a precaution against tearing.

Unfortunately, in the absence of more structural changes, the limited steps mentioned above are not expected to relieve the existing and potentially large-scale threats. Thus, possible enhancements to the waste management policies and potential investments which would improve the current status could be the main tools for a leap forward in Turkey.

The COVID-19 pandemic, in addition to posing a substantial danger to personal health, is a severe threat to the efforts made to establish an enhanced waste management system in Turkey. With sustainability and transitioning to a low-carbon economy firmly on the political agenda, developing countries could fall behind the waste management performance level they achieved pre-pandemic, particularly in the Life Sciences sector. The significantly increasing daily consumption of plastic and single-use equipment in developed countries is also a threat to accumulated efforts regarding the environment, unless such waste is managed in line with optimal standards. All major actors must take this aspect of the pandemic into consideration and establish a waste management structure with enhanced adaptability for any future health and environmental emergencies.

By Done Yalcin, Managing Partner, CMS Turkey

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.