Introduction to Turkish Business Law - Tuğrul Ansay - Eric C.schneider

Introduction to Turkish Business Law

Introduction to Turkish Business Law Second Edition

Edited by Tugrul Ansay Eric C. Schneider

r Law & Business

"This is a local edition of Introduction to Turkish Business Law, 2nd Edition, ISBN 978-90-4115248-0, by T. Ansay and Eric C. Schneider, published and sold by Seckin Yayincilik, by perffiission of Kluwer Law International, Alphen aan den Rijn, The Netherlands, the owner of all rights to publish and sell same. Distribution of this work is limited to sales in Turkey, and may not be sold or exported to any other territory." "T. Ansay and Eric C. Schneider tarafmdan hazrrlanan Introduction to Turkish Business Law (2nd Edition, ISBN 978-90-411-5248-0) isimli kitabm yaymlama ve satl§t ile ilgili ttim haklara sahip Kluwer Law International, Alphen aan den Rijn, The Netherlands, Se9kin Yaymc1hk A.$.'ye kitabm Tilrkiye'de bu lokal basktsm1 yaymlama ve satma iznini vermi§tir. Bu eserin satt§l Tiirkiye ile smtrhdtr ve herhangi ba§ka bir ulkeye sattlamaz veya ihra9 edilemez."

Introduction to Turkish Business Law Edited by: Tugrul Ansay - Eric C. Schneider Original Edition ISBN 978-90-411-5248-0 Local Edition ISBN: 978-975-02-3370-8

2°d Edition © 2014 Kluwer Law International BV, The Netherlands I Sei;kin Yaymctltk A.$. Tiirkiye All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher.

Bu kitabm Tiirkiye' deki her tilrlti yaym hakk1 Se9kin Yaymc1hk A.$. 'ye aittir. Yaymevinin yazth izni olmadan, tamtlm ama9h toplam bir sayfay1 ge9meyecek almttlar hari9 olmak tizere, hi9bir §ekilde kitabm ttimti veya bir ktsm1 herhangi bir ortamda.yay1mlanamaz ve 9ogalt1lamaz. Published by: ~

se~ki11

Se9kin YaymcthkA.$. I Sagltk Sok. No:21 06410 S1hhiye/Ankara Tel: (312) 435 30 30-Faks: (312) 435 24 72 www.seckin.com.tr I [email protected] Publisher Certificate No: 12416 Printed by: Si:izkesen Matbaas1, Tel: (0--312) 395 21 10 - Certificate No: 13268

l.1

To Roz Schneider E. C. Schneider To the memory of my parents T. Ansay

I I

L

List of Editors and Contributors

Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of Law, Istanbul. Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of Baltimore School of Law, Baltimore, Maryland. Dr. I~nk Onay: Asst. Prof. Ko<; University, School of Law, Istanbul. Prof. A. A. Lale Sirmen: Professor of Law, Ihsan Dogramac1 Bilkent University, Ankara. Prof. Dr. Firat Oztan: Emeritus Professor, University of Ankara. Assoc. Prof. Dr. Gill Okutan Nilsson: Associate Professor, Faculty of Law, Bilgi University, Istanbul. Asst. Prof. Dr. Kerem Cem Sanh, LL.M.: Assistant Professor, Istanbul Bilgi University, School of Law, Istanbul; Adjunct Professor, Bilkent University, Institute of Social Sciences, Ankara. Prof. Dr. Nurhan Stiral: Professor of Law; National correspondent to the European Network of Legal Experts in the Field of Gender Equality. The authors can be reached at [email protected]. Dr. Mustafa Klh<;oglu: Honorary Chamber Chief Judge of the Appeals Court; lecturer, Faculty of Law, Ba$kent University, Ankara. Prof. Dr. Ahmet Kumrulu: Faculty of Law, University of Ankara. Prof. Dr. BHlur Yalh: Faculty of Law, Ko<; University, Istanbul. Asst. Prof. Dr. Ba~ak ~it imamoglu: Assistant Professor of Law, University of Ankara. Prof. Dr. Bilgin Tiryakioglu: Professor of Private International Law, Faculty of Law, Bilkent University, Ankara. Assoc. Prof. Dr. Zeynep Derya Tarman LL.M.: Ka<; University, School of Law, Istanbul.

vii

I

_J

7 !

Summary of Contents

vii


xxv

List of Abbreviations Preface

xxvii

Acknowledgement

xxix

CHAPTER

1

General Introduction to Turkish Business Law 1

Tugrul Ansay & Eric Schneider CHAPTER

2

Sales of Personal Property

15

Tugml Ansay & I~ik Onay CHAPTER

3

Consumer Protection Law

29

A. Lille Sirmen CHAPTER

4

Agency Tugrul Ansay & I~ik Onay

47

5 Secured Transactions (Securities and Seuretyship)

CHAPTER

59

A. Lille Sirmen CHAPTER

6

Negotiable Instruments 77

Tugrul Ansay & Firat Oztan

ix

Summary of Contents CHAPTER 7

Business Associations Tugrul Ansay

89

CHAPTER 8 Unfair Trade Law

Giil Okutan Nilsson CHAPTER

111

9

Competition Law Kerem Cem Sanli CHAPTER

121

10

Intellectual Property Giil Okutan Nilsson

141

CHAPTER 11 Labor Law

Nurhan Siiral & Mustafa Kilu;oglu

161

CHAPTER 12 Tax Law

Ahmet Kumrulu & Billur Yalti CHAPTER

185

13

Banking Law BG.$ak $it jmamoglu

207

CHAPTER 14 Private International Law

Tugrul Ansay & Eric Schneider CHAPTER

221

15

Foreign Investment Bilgin Tiryakioglu

233

CHAPTER 16 International Commercial Arbitration in Turkey

Zeynep Derya Tarman

245

Index

257

x

Table of Contents

vii


xxv

List of Abbreviations Preface

xxvii

Acknowledgement

xxix

CHAPTER

1

General Introduction to Turkish Business Law 1

Tugml Ansay & Eric Schneider

§1.01 §1.02

§1.03

Overview Foundations of Turkish Business Law [AJ Statutory Sources [lJ The Constitution [2J Civil Law System [BJ Commercial Usage [CJ Court Decisions (Case Law) [DJ General Principles State Involvement in Business [AJ Direct State Involvement [lJ General [2J State Economic Enterprises (SEEs) and Public Economic Institutions (PEis) [BJ Indirect State Involvement in Business [CJ Regulation by the State [l] State Registration Requirements [a] The Commercial Registry (Ticaret Sicili) [b] Other Registries

xi

1 2 2 2 3

s 6 6 7 7 7

8 8 8 9 9 10

Table of Contents [2J State Permit Requirements [3J Regulatory Agencies §1.04 The Effect of Turkish Law on the Business Environment §1.05 Persons Conducting Business [AJ The Individual or Real Person Merchant [BJ Business Organizations [CJ Representatives of a Merchant [DJ Foreigners Selected Bibliography CHAPTER

10 10 10

11 11

12 12 12 13

2

Sales of Personal Property Tugml Ansay & I$ik 6nay

15

§2.01 §2.02

15

Definition and Sources Basic Elements of a Sales Contract [AJ Subject Matter [BJ Price [CJ Legal Nature [DJ Formal Requirements §2.03 Obligations of the Seller [AJ Transfer of Possession and Ownership [lJ Place of Delivery [2J Time of Delivery [3J Default (Temerriit) of the Seller in Delivery [BJ Cost of Shipment [CJ Warranty of Title· (Zapttan Sommluluk) [DJ Warranty Regarding Defects [lJ Express or Implied Warranties [2J Exercise of Warranty Rights [3J Buyer's Remedies for Defective Goods §2.04 The Obligations of the Buyer [AJ Taking Delivery [BJ Paying the Price [CJ Other Obligations [DJ Default of the Buyer §2.05 Benefits and Risks Selected Bibliography CHAPTER

16 16 16 17 18 18 18 19 19 19

20 21 21 21 22 23 24 24 24 25 25 25 27

3

Consumer Protection Law A. Lale Sirmen

29

§3.01 §3.02

29 30

Introduction Consumer Contracts

xii b

Table of Contents General Conditions of Consumer Contracts Prohibition of Failure to Supply Information for Consumers Liability for Defective Goods and Services Certificate of Guarantee Product Safety Consumer Contracts Governed by the LPC [AJ Installment Sales [BJ Timeshare Contracts [CJ Package Tour Contracts [DJ Sales through Campaigns and Other Prepaid Sales [EJ Doorstep Selling [FJ Distance Contracts [G] Subscriptions to Periodic Publications [HJ Consumer Credits [IJ Housing Finance Contracts §3.10 Advertising Penalties §3.11 Consumer Institutions §3.12 [AJ Council of Consumers [BJ Arbitration Committees for Consumer Problems §3.13 Consumer Courts Selected Bibliography

§3.03 §3.04 §3.0S §3.06 §3.07 §3.08 §3.09

CHAPTER 4 Agency Tugrul Ansay & I$ik Onay

§4.01 §4.02 §4.03 §4.04

§4.0S §4.06

31 32 32 33 34 34

35 35 36 36 37 37 38 38 38 39 40 41 41 41 41 42 4S

47

Agency Contract and Agency Relationship (Vekalet Sozle$1Tiesi ve Temsil jzi$kisi) Creating Agency Duties and Liabilities of the Agent and the Principal Relationships with Third Parties [AJ Agent and Third Persons [BJ Principal and Third Parties Termination of the Agency Contract and Agency Relationship Different Types of Agents [AJ Commercial Representative (General Manager, Ticari Temsilci, C.O. Articles S47-SSO) [BJ General and Special Agents [CJ "Acente" [lJ Acentelik [2J The Contractual Relationship between the Acente and the Principal [3J Termination

xiii

47 49

so Sl Sl S2 S3 S4 S4 SS SS SS S6 56

Table of Contents 57 58

[DJ Sole Distributor Selected Bibliography CHAP-TER 5 Secured Transactions (Securities and Seuretyship) A. Lale Sirrnen

59

§5.01

59 59 60 60 60 60 61 61 62 62 62 62 62 63 63 64 64

§5.02

Personal Securities ($ahsi Teminatlar) [AJ Suretyships (Kefalet) [lJ Introduction [2l Requisites for a Valid Suretyship [aJ A Principal Obligation [bJ Capacity of the Surety [3J Kinds of Suretyship [al Ordinary Suretyships (Adi Kefalet) [bl Joint Suretyships (Miiteselsil Kefalet) [cJ Co-suretyships (Birlikte Kefalet) [dJ Secondary Suretyships (Kefile Kefalet) [eJ Counter Suretyships (Riicua Kefalet) [4J Liability of the Surety [SJ Defenses for the Surety against the Creditor [6l Proceedings against the Surety [7l Duties of the Creditor [SJ Right to Demand Acceptance of Payment [9J Relationship between the Surety and the Principal Debtor [lOJ Surety's Right of Recourse [lll Surety's Duty to Notify [12J Termination of the Contract of Surety [Bl Revocation [BJ Joint and Several Liability (Miiteselsil Bon;luluk) [CJ Guarantees (Garanti) [ll Pure Guarantees [2l Collateral Guarantees [DJ Avals (Bill of Exchange Guarantees) Real Securities (Ayni Teminatlar) [AJ Securities on Immovable Property [lJ Kinds of Securities on Immovable Property [2J Mortgage (jpotek) [aJ Mortgage Burden [bl Subject Matter [cl Creation of Mortgages [dl Extent of Security [el Order of Priority between Mortgages

xiv

65 65 65 65. 66 66 67 67 67 68 68 69 69 69 69 70 70 71 71

Table of Contents [fJ Alienation of the Mortgaged Property [gJ Foreclosure of Mortgages [BJ Securities on Movable Property [lJ Pledges [aJ Pledges on Movables (Ta~mr Rehni) [b J Pledges on Claims and Other Rights [cJ Pledges on Negotiable Instruments [dJ Pledges on Commercial Enterprises [eJ Pledges on Mines [2J Mortgages on Ships and Aircraft [3J Liens Selected Bibliography

72 72 72 73 73 73 74 74 74 75 75 75

CHAPTER 6

Negotiable Instruments Tugrul Ansay & Firat 6ztan

77

§6.01

77 77 78 78 78 78 78 79 79 79 80 80 82 82 83 83 84 84 84 85 85 86 86 87 87 87 87 88

Introductory Remarks [AJ General [BJ Classification of Negotiable Instruments [lJ According to the Right Represented by the Document [2J According to Transferability [CJ Commercial Papers (Ticari Senetler or Kambiyo Senetleri) [DJ Sources §6.02 Types of Commercial Papers [AJ General [BJ General Characteristics of Commercial Papers §6.03 Bills of Exchange [AJ The Required Form [BJ Consequences of Omissions (Comm. C. Article 672) [CJ Endorsement (Indorsement, Ciro) [DJ Aval [EJ Maturity (Vade) [FJ Presentment [GJ Payment (Odeme) [HJ Protest and Notice of Dishonor (Protesto ve jhbar) §6.04 Checks [AJ General Characteristics [BJ Formalities §6.05 Promissory Notes (Bonolar) §6.06 Documents of Title (Emtia Senetleri) [AJ Bill of Lading [BJ Warehouse Receipts (Makbuz Senetleri) [CJ Function of Documents of Title and Negotiation Selected Bibliography xv

Table of Contents CHAPTER

7

Business Associations Tugrol Ansay

89

§7.0i §7.02

Overview Ordinary Partnership (Adi $irket) [AJ General [BJ Characteristics [CJ Partners [DJ Internal Relations among Partners [EJ External Relations [FJ Changing Partners [GJ Dissolution and Winding-Up §7.03 General Partnership (Kolektif $irket) [AJ Definition and Characteristics [BJ Formation [CJ Relations between Partners [DJ External Relations [EJ Change of Partners §7.04 Limited Partnership §7.05 Corporations (Joint Stock Companies) [AJ Overview [lJ In General [2J Sources of Law [3J State Supervision [BJ Incorporation [CJ The Operational Structure of Turkish Corporations [lJ Board of Administration (Board of Directors) [2J Auditors (Controllers) [3J General Assembly of Shareholder [DJ Shareholder Rights [EJ Capital Structure [FJ Share Certificates [GJ Liability of Persons Participating in the Administration §7.06 Partnership with Limited Liability Selected Bibliography

CHAPTER

92 93 93 93 94 94 94 95 95 95 96 96

97 97 97 98 98 99 101 101 103 104 105 107 108 109 109 110

8

Unfair Trade Law Giil Okutan Nilsson §8.01

89 91 91 91

111

Prohibition of Competition [AJ General Service Contract [BJ Commercial Representatives or Agents [CJ Directors of Business Corporations and Partnerships

xvi

111 111 112 112

Table of Contents §8.02

Unfair Competition Law (HakslZ Rekabet) [A] Definition and Scope of Protection [B] Types of Legal Actions and Claims [C] Persons with a Right of Legal Action [D] Liability of Third Persons [E] Special Liability of Employers [Fl Special Liability of Press, Broadcasting, Communication and Information Technology Enterprises [G] Criminal Liability Selected Bibliography CHAPTER

112 113 116 117 118 118 118 119 119

9

Competition Law Kerem Cem Sanli

121

Background and the Sources of Competition Law Main Concepts [AJ The Relevant Market [BJ Territorial Reach [CJ Undertakings and the Associations of Undertakings §9.03 Overview of the Substantive Provisions [A] Restrictive Agreements [lJ Collusion [2J Test of Illegality: Restriction of Competition [3J Exemption [BJ Abuse of Dominant Position [l] Dominant Position [2] The Concept of Abuse [aJ Exploitative Abuses [b] Anti-competitive Abuses [CJ Concentrations [lJ The Concept of Concentration [2] Duty to Notify [3] Illegality Test: Creating or Strengthening Dominance and Thereby Lessening Competition Selected Bibliography

121 122 123 124 125 127 127 127 129

§9.01 §9.02

130 132 132 133 134 135 136 136 137 138 139

CHAPTER 10 Intellectual Property

Giil Okutan Nilsson

141

§10.01 General Background §10. 02 Administrative Bodies and Courts §10.03 Patents and Utility Models [A] Types of Patents and Patentable Subject Matter

141

xvii

142

142 143

Table of Contents Conditions for Patentability [l] Novelty [2] Inventive Step [3] Industrial Applicability [C] The Right to Apply for a Patent [DJ Rights Granted by a Patent [E] Infringement of Rights [F] Registration and Period of Protection [G] Termination of Patent Rights §10.04 Industrial Designs [A] Scope of Protection [BJ Criteria for Protection [l] Novelty [2] Individual Character [CJ The Right to Apply for Design Registration [DJ Rights Granted by a Design [E] Exceptions to Design Rights [F] Infringement of Rights [G] Registration and Term of Protection [H] Termination of Design Rights §10.05 Trademarks [A] Concept [BJ Criteria for Protection [CJ Rights Granted [DJ Exceptions to Trademark Rights [E] Infringement of Trademark Rights [F] Registration and Period of Protection [G] Termination §10.06 Copyright [A] Protected Works [BJ Ownership of Copyright [CJ Rights Granted [DJ Collective Rights Management [E] Exceptions and Limitations to Copyright [F] Infringement [G] Protection Period §10.07 Exhaustion of Intellectual Property Rights Selected Bibliography [BJ

143 143 144 144 144 145 145 146 147 147 147 148 148 148 149 149 149 150 150 150 151 151 151 152 153 153 153 154 154 154 155 156 156 157 158 159 159 159

CHAPTER 11 Labor Law

Nurhan Siiral & Mustafa Kilu;oglu

161

§11.01 General Introductory Remarks §11.02 Scope and Branches of Labor Law

161 162

xviii

Table of Contents §11.03 Individual Labor Law [AJ Basic Concepts and Coverage [BJ Labor Contract [lJ The Types of Labor Contracts [2J Working Time [3J Termination of the Labor Contract (Termination of Employment) §11.04 Collective Labor Law [AJ Formation of Unions [BJ Structure of Unions [CJ Union Membership [DJ The Scope and Level of Collective Labor Agreements [EJ Competence and Authorization [FJ Collective Bargaining [GJ Mediation [HJ Industrial Action and Its Consequences [IJ The Duration, Effect and Termination of Collective Labor Agreements Selected Bibliography

163 163 164 164 167 168 173 173 175 175 177 178 179 180 180 182 184

12 Tax Law CHAPTER

Ahmet Kumrulu & Billur Yalti

185

§12.01 Introduction §12.02 A Survey of General Principles and Institutions [AJ Tax Law Classification [BJ Sources of Law [lJ Binding Sources [aJ Primary Legislation [bJ Secondary Legislation [cJ Judicial Source of Law: Unifying Decisions of Courts [CJ Non-binding Secondary Sources of Law [lJ Administrative Decisions [2] Court Decisions and Jurisprudence [DJ Parties to the Tax Relationship [1] Taxpayer (Yiikiimlii) [2J Tax Claimant (Vergi Alacaklisi) [3J Tax Responsibility (Vergi Sorumlulugu) [4] Third Parties §12.03 The Turkish Tax System in General [AJ Classification of Major Taxes

185 186 186 187 187 187 188

i

L c

xix

188 188 188 189 189 189 189 190 190 190 190

Table of Contents [BJ

§12.04

§12.05

§12.06

§12.07 Selected

Taxation of Individual Income: Income Tax (lJ Taxable Matters (2J Taxable Event (Vergiyi Doguran Olay) [3J Taxpa, 2r (4J Tax Base (SJ Tax Rate (6J Methods for Determining the Tax Base [7J Techniques of Assessment (Verginin Tarhi) (8J Tax Advantages (CJ Taxation of Corporate Income: Corporate Tax [lJ Taxable Matters (Konu) [2J Taxable Event (Vergiyi Doguran Olay) [3J Taxpayer (Yiikiimlii) [4J Tax Base (Matrah) [SJ Tax Rate [6J Methods to Determine the Tax Base [7J Techniques of Assessment [8J Tax Advantages Taxation of Expenditure: Value Added Tax (Katma Deger Vergisi) [AJ Taxable Matters (Konu) [BJ Taxable Event (Vergiyi Doguran Olay) [CJ Taxpayer (Yiikiimlii) [DJ Tax Base [EJ Tax Rate [FJ Techniques of Assessment (Verginin Tarhi) [GJ Tax Advantages . Process of Taxation [AJ Prerequisites [BJ Preparatory Stage: Determination of the Tax Base [CJ Stage of Administrative Actions [DJ Time Limits (Statutes of Limitation, Zaman A~mi) Conflict Solving in Tax Disputes [A] Administrative Procedures [l] Correction of Errors (Diizeltme) [2] Conciliation Agreement (Uzla$Tlla) [BJ Judicial Procedures Penal Law of Taxation Bibliography

191 191 191 192 192 192 193 193 194 194 195 195 195 196 197 197 198 198 199 199 199 199 200 200 200 201 201 201 202 202 203 203 203 204 204 204 205 206

CHAPTER 13 Banking Law

BG.$ak $it jmamoglu

207

§13.01 Sources [A] Banking Law (BL)

207 207 xx

Table of Contents [BJ Secondary Legislation [CJ Form Contracts Term and Conditions §13.02 Types of Banks [AJ Credit Institutions [lJ Deposit Banks (Mevduat Bankalan) [2J Participation Banks (Katilim Bankalan) [3J Development and Investment Banks (Kalkmma ve Yatinm Bankalan)

§13.03 Banking Institution (Bank as a Corporation) [AJ Formation and Termination [lJ Permissions for Formation and Operation [2J Formation Conditions [3J Requirements for the Opening of a Branch in Turkey by Banks Headquartered Abroad [4J Termination [BJ Scope of Activity [CJ Shares and Shareholders [DJ Board of Directors and Corporate Governance (Committees) [EJ Independent Auditing and Supervision §13.04 The Regulation of Some Important Banking Transactions [AJ Deposit Transactions [BJ Loan Transactions §13.05 Electronic Banking §13.06 Confidentiality Selected Bibliography 1

210 210 211 211 211 211

212 213 213 213 214 215 216 216 217 218 218 218

CHAPTER 14 Private International Law

221

Tugml Ansay & Eric Schneider

§14.01 §14.02 §14.03 §14.04

Overview General Characteristics of Turkish Private International Law General Provisions Specific Rules of Conflicts of Law [AJ Personal Status [BJ Capacity [CJ Property [DJ Contracts (and Unilateral Declarations) [EJ Torts [FJ Unjust Enrichment §14.05 International Law of Procedure [AJ Jurisdiction [lJ Agreements on Jurisdiction [2J Pending Process (lis pendis, derdestlik) [BJ Lex Fori

i .

L

208 208 209 209 209

xxi

221

221 222 224 224 225 225 226 227 227 227 228 228 229 230

Table of Contents [CJ [DJ

Proof of Foreign Law Enforcement and Recognition of Foreign Court Decisions [lJ Enforcement Hearing [2J Reciprocity (Kar$iliklilik) [3J Ordre Public [4J National Treatment Selected Bibliography

230 230 231 231 232 232 232

CHAPTER 15 Foreign Investment

Bilgin Tiryakioglu

233

§15.01 Foreign Investment: History and Legislative Framework §15.02 Definition of Investment and Investor under the New Turkish Foreign Investment Regime [AJ Foreign Direct Investment [BJ Foreign (Direct) Investor §15.03 The Governing Principles in the New Foreign Investment Regime [AJ Freedom to Invest [BJ National Treatment Principle [CJ Freedom to Transfer §15.04 Other Principles Applicable to Foreign Direct Investments within the New Foreign Investment Regime [AJ Standards of Expropriation and Nationalization [BJ Resorting to Arbitration and Other Dispute Resolution Mechanisms in the Resolution of Disputes [CJ Valuation of Non~cash Capital §15.05 Forms of Investment [AJ Incorporation of a Company [BJ Establishing a Branch Office [CJ Share Acquisition and Portfolio Investment [DJ Establishing a Liaison Office [EJ Merging with a Turkish Company or Acquiring a Turkish Company [FJ Participating in a Joint Venture §15.06 Work Permits of Foreign Personnel Selected Bibliography

233 235 235 236 236 236 236 237 237 237 23 7 238 238 238 239 239 240 241 241 241 243

16 International Commercial Arbitration in Turkey

CHAPTER

Zeynep Derya Tarman

245

§16.01 Legislative Framework (Sources) §16.02 Turkish International Arbitration Law [AJ Scope of Application

245 247 247

xxii

Table of Contents The Arbitration Agreement Governing Law [lJ Procedural Law [2J Substantive Law [DJ Intervention of the State Courts [EJ Setting Aside Procedure of the Arbitral Award §16.03 Recognition and Enforcement of Arbitral Awards § 16.04 Conclusion Selected Bibliography

248 249 249 250 250 251 253 254 255

Index

257

[BJ [CJ

xxiii

List of Abbreviations

BDDK BOT BRSA C. Civ. Pr.

Bankacilik Diizenleme ve Denetleme Kumlu

Build, Operate and Transfer Banking Regulation and Supervision Agency Turkish Code of Civil Procedure

c.c.

Turkish Civil Code

C.O.

Turkish Code of Obligations Code on the Collection of Public Claims Capital Market Administration

CCPC CMA Comm. C. Cons. CPAA

Turkish Commercial Code Turkish Constitution Code on the Procedures of Administrative Adjudication

CTA CTP DISK

Corporate Tax Act Code of Tax Procedures

EEC EFTA

European Economic Community European Free Trade Agreement

EPL ETC

Employment Protection Legislation

EU

FDI

Tiirkiye Devrimci j~i;i Sendikalan Konfederasyonu

Energy Charter Treaty European Union Foreign Direct Investment

FTZ GDFI GDFZ

Free on Board Free Trade Zones General Directorate of Foreign Investment General Directorate of Free Zones

HAK-I$ ICCPR

International Covenant on Civil and Political Rights

FOB

Tiirkiye Hak j~i;i Sendikalan Konfederasyonu

xxv

List of Abbreviations ICESCR ILO IMF ITA LA LIA LPC MIGA OECD OG OJ PA PatKHK

International Covenant on Economic, Social and Cultural Rights International Labor Organization International Monetary Fund Income Tax Act Labor Act Law on Intellectual and Artistic Works Nr. 5846 Law on the Protection of the Consumer Multilateral Investment Guarantee Agency of the World Bank Organisation of Economic Co-operation and Development Official Gazette Official Journal Privatization Administration Patent Haklanmn Komnmasi Hakkmda Kanun Hiikmiinde Karamame

PEI PHC SDIF SEE SIF (CIF) SME SMEs SPA TL TMSF TPI TRIPS

Public Economic Institutions Privatization High Council Savings Deposit Insurance Fund State Economic Institutions Cost, Insurance and Freight Small and Medium Size Enterprises Small and medium sized business State Planning Administration Turkish Lira·

TURK-i$ UCLAA UDHR U.S. UA UN UT VAT(A) WIPO WTO YKD YPK

Tiirkiye j~i;i Sendikalan Konfederasyonu

Tasarruf Mevduati Sigorta Fonu

Turkish Patent Institute Treaty on the Trade Related Aspects of Intellectual Property Rights Unions and Collective Labor Agreements Act Universal Declaration of Human Rights United States Unions Act United Nations Undersecretariat of the Treasury Value Added Tax World Intellectual Property Organisation World Trade Organization Yargitay Kararlar1 Dergisi Supreme Planning Council xxvi

Preface

The need for a book on Turkish business law occurred to Professors Ansay and Schneider in 1988 when they were collaborating on an article about a new Turkish conflicts of law statute. At the time, Professor Schneider was on a sabbatical in Ankara, and Professor Ansay was teaching Commercial Law at the University of Ankara Law School. Their mutual interest in commercial law led them to discuss the free market reforms that were taking place in the Turkish economy in the 1980s, the increasing importance of Turkish business law, and the inaccessibility of that law to non-Turkish students, business persons and lawyers. These discussions continued over a number of years until the spring of 1998 when Professor Schneider was a Fulbright Lecturer at the Middle East Technical University (METU) and Professor Ansay was teaching at Bilkent University in Ankara. By then the Turkish economy and its commercial connections with the rest of the world had grown dramatically, prompting Professors Ansay and Schneider to use their time together in Ankara to begin this book. This book follows a similar format and is, to some extent, the continuation of a previous book, An Introduction to Turkish Law, which was prepared by Professor Ansay and Professor Wallace, Jr. The book is intended to give the reader an overview, with a fair amount of detail, of the major topics concerning business law in Turkey. The authors hope it will be of help to Turkish and non-Turkish students, businesspersons, lawyers and others interested in the subject. Since the publication of the first edition of this book in 2001, important substantive changes have occurred in various areas of Turkish business law. These changes include, among others, the enactment of two statutes basic to Turkish business law: The Code of Obligations and the Commercial Code. Also revised are the law of private international law (conflict of laws rules) and the Code of Civil Procedure. Additionally. Turkey participated in several international conventions affecting international business. This new edition of Introduction to Turkish Business Law reflects these changes and adds additional chapters on Banking Law, Commercial Arbitration Law and Intellectual Property Law. Thanks are extended to the contributing authors, without whose efforts this book would not have been possible.

xxvii

Preface We would like to thank to those persons assisted us in preparing this new edition, particularly to Mr. I~1k bnay and Ms. Zeynep Elibol. Prof. Dr. T. Ansay, MCL, LL.M. (Columbia University) Prof. E. Schneider, JD, LL.M. (N.Y.U.)

xxviii

Acknowledgement

The generous help of many friends have made this book possible. Although I cannot thank all who have helped, I would like to mention Ahmet Acar, Vice President of the Middle East Technical University for inviting me to teach and conduct research during my Fulbright year at METU. His wife Professor Feride Acar and son Aybar Acar have also made my wife and me feel welcome in Ankara. Toni Cross, director of the American Research Institute in Turkey and her husband Ihsan Cetin have been close friends whose advice and encouragement have made researching and writing this book a pleasure. I also want to acknowledge the hospitality of Dr. Marie-Henriette Gates and Dr. Charles Gates and the other members of the Bikent University Kinet Project for their hospitality and encouragement. I particularly thank Mimi Carre for her patient editing effort. In addition, I acknowledge with appreciation the University of Baltimore Educational Foundation and the Fulbright Council for the International Exchange of Scholars for their financial support of this project. Eric C. Schneider Dean and Professor of Law University of Baltimore School of Law

xxix

CHAPTER

1

General Introduction to Turkish Business Law Tugrul Ansay & Eric Schneider*

§1.01

OVERVIEW

Business law is that branch of law which deals with all legal problems of business activities. Transactions or acts might cause such problems. There might be contractual relations, like sales or agency, transportation, insurance, banking and many others, where primarily goods are involved or services are performed. Persons may also cause damage to other persons in the course of doing business. The term business in Turkish law generally indicates transactions or acts which are not done by ordinary persons but by those who are professionally involved in commerce. These persons may be called business people (businessmen/ businesswomen) or merchants. The latter has a more specific meaning. Since the founding of the Turkish Republic more than 90 years ago the Turkish economy has gone through different stages. During the early years of the Republic, the State was involved heavily as an entrepreneur in business partly because some enterprises were taken over as a legacy from the former Ottoman Empire. Additionally, new factories were established and operated by the State and the State founded several banks for financing emerging industries and established insurance companies. The world economic crises of 1929 also forced the direct involvement of the State in the economy. Various laws allowed State interference in business. Among the laws from

• Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Kai;: University, School of Law, Istanbul. Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of Baltimore School of Law, Baltimore, Maryland.

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Tugrul Ansay & Eric Schneider

that time perhaps the most significant is the 1930 Law on the Protection of the Value of Turkish Money 1 , which is still in force today. After World War II, during the period of the separation of the world politically and _economically as capitalist and communist blocks, Turkey took the side of the so-called free market economies, giving more emphasis and encouragement to Turkish entrepreneurs and passing various new laws making foreign investment in Turkey attractive. Many mixed enterprises (between the State and private internal or external investors) were created. Furthermore, Turkey participated in many international institutions and organizations and ratified contemporary international treaties having political, social or economic content. Turkey has recognized the jurisdiction of the European Court of Human Rights and the European Commission on Human Rights. Turkey has an association agreement with the European Community (now European Union) and has been working toward full membership. It is a member of the WTO. It adheres to the OECD Code of Liberalization of Capital Movements, and in 1987 Turkey signed and ratified the Convention for the International Center for Settlement of Investment Disputes, and the Multinational Investment Guarantee Agency. Protection and Promotion of Investment Agreements have been signed with many countries. During the 1980s and thereafter the Turkish economy has experienced a liberalization. Foreign investors started to choose Turkey as a country of investment and Turkish businessmen became active in other countries, either by exporting goods and services or by establishing joint ventures, participating in large foreign construction projects and other commercial activity. Parallel to this development the State followed a policy of decreasing its traditionally heavy involvement in business activities. Recently privatization has become a common policy of most political parties in Turkey. Many State enterprises have already been sold and transferred to private investors, of native or foreign origin. §1.02

FOUNDATIONS OF TURKISH BUSINESS LAW

[A]

Statutory Sources

(1)

The Constitution

The political and economic foundations of business are contained in the Turkish Constitution of 1982. Article 2 of the Constitution states that, "the Republic of Turkey is a democratic, secular and social State governed by the rule of law." Various articles mention the free enterprise system and indicate the liberal character of the economy. Under Article 48, "Everyone has the freedom to work and conclude contracts in the field of his choice, - and to establish private enterprises -. The State shall take measures to ensure that private enterprises operate in conformity with national economic requirements and social objectives and in conditions of security and stability."

1. Law Nr. 1567, OG Feb. 25, 1930.

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The Constitution guarantees the right of ownership by listing it among its basic rights and by establishing conditions for expropriation of private property. Under Article 46, "The State and public legal persons shall be entitled, where the public interest requires it, to expropriate privately owned real estate, wholly or in part or impose administrative servitude on it, in accordance with the principles and procedures prescribed by law, provided that compensation is paid in advance." Fundamental rights are also safeguarded under the provisions of the European Human Rights Convention. [2]

Civil Law System

Like most European countries, Turkey belongs to the Civil Law system. In this system, legislation is the primary source of law and is binding on courts. Legislation can take the form of separate statutes that deal with specific issues, or be grouped by general subject matter into codifications such as the Civil Code, the Code of Obligations, and the Commercial Code. 2 The present Turkish Civil Code of January 1, 2001 is basically the continuation of the Civil Code of 1926, which was taken from the Civil Code of Switzerland. It regulates, among other matters, issues of business having to do with personal property (ta~imr mal, menkul mal) and, through a land registry, the ownership and transfer of real property (immovable, ta~mmaz mal, gayrimenkul mal). It also regulates transactions, which create particular in rem rights in property, such as mortgages, liens and rights of enjoyment of property, which one does not own (usufruct). The Civil Code also regulates the legal capacity of persons to enter commercial transactions. The Turkish Code of Obligations of July 1, 2012 is a Turkish version of the Swiss Code of Obligations of 1911. It regulates general contract formation and the fulfillment and non-fulfillment of obligations as well as various special types of common business contracts such as contracts of sale, construction, agency, guarantee, tenancy and others. In addition to the regulation of contracts, the Code of Obligations also regulates obligations arising out of torts and obligations based on unjust enrichment. Another basic statutory source of business law is the Commercial Code. This Code, in force since July 1, 2012, is Turkish in origin, but has taken a considerable number of provisions from the laws of other countries, primarily Switzerland and Germany. To some extent the legislation of the European Union is made a part of this Code. It regulates business associations, negotiable instruments, insurance and admiralty law as well as some special types of contract. This Code also regulates the Commercial Registry, Commercial Books, Trade Names and other issues such as Unfair Competition. Although it seems inefficient to have two or three Codes possibly covering a particular business transaction, this development in Turkish law results from the historical development of the codes out of European practice. Following the German and French traditions, Turkey originally had two different sets of code provisions: one

2. See Introduction to Turkish Law, Ansay and Wallace (eds.), 6th ed., Kluwer 2011.

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for commercial transactions by merchants and one for ordinary transactions by non-merchants. Today the provisions of the codes are generally applicable to all persons and transactions, but some provisions apply only to merchants or only to commercial transactions. For example, the provisions on offer and acceptance (contract formation) or agency contract in the Code of Obligations (Articles 3-11, 502-514) and the provisions of the Commercial Code on negotiable instruments (Articles 645-849) are applicable to all persons, Some provisions of the Code of Obligations on sales contracts (Article 212 II) are directed only to transactions of a commercial nature while some provisions of the Commercial Code are only applicable to merchants (Article 19) and some apply only if both parties are merchants (Article 23). In order to determine when and to whom these codes apply, the Commercial Code takes the commercial enterprise as the basic institution. A merchant is defined as a person who wholly or partly operates a commercial enterprise in his own name (Comm. C. Article 12). Under the Commercial Code, the obligations of a merchant are considered commercial obligations (Comm. C. Article 19). That is, all transactions, acts and affairs related to a commercial enterprise are characterized as commercial (Comm. C. Article 3). Unfortunately, the Commercial Code does not contain a clear definition of commercial enterprise but, an independent enterprise is considered a commercial enterprise, if, among other attributes, "the volume and importance of its business necessitates commercial accounting" (Comm. C. Article 15). Volume of business and therefore yearly income are becoming important factors for determining whether a business is a commercial enterprise for purposes of applying the Code (Comm. C. Article 15; Article 11 II) . The distinction between civil or commercial activities has lost much of its significance over the years. The Commercial Code differentiates court cases as being either civil or commercial and characterizes some issues as being within the jurisdiction of commercial courts (Comm. C. Article 4). Nevertheless, although there are special chambers in the High Court of Appeal (Court of Cassation, Yargitay) to hear commercial conflicts, there are only a few special commercial courts of first instance in Turkey. There are today only few provisions which provide rules specifically for merchants, and those that do mention merchants have lost their original significance. Among those worth mention is the duty of a higher degree of diligence from merchants. A merchant must act as a prudent businessperson in all business activities (Comm. C. Article 18 II). The standard of care is that which is expected from a merchant who is active in the same type of trade. 3 Although merchants are obliged to register in the Commercial Registry (Ticaret Sicili) for merchants, the status of merchant is independent of this registration, in the sense that a person might be considered a merchant without having registered. Only business associations cannot acquire legal personality and become merchants unless they register. Another requirement of the Commercial Code is that merchants must keep commercial books. But such books, if they are kept properly, may primarily be used as

3. Arkan, p. 137 et seq.

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§l.02[B]

evidence in court. Similar books, even without the code requirement, must nevertheless be kept for tax purposes. Many provisions of the Commercial Code regarding negotiable instruments, which were enacted for merchants, have lost their relevance. Today non-merchants commonly use checks or other types of negotiable instruments. New types of contracts are emerging among merchants in areas such as franchising, licensing, leasing, and factoring. Many business related issues have developed since the enactment of the Code, such as consumer protection and environmental protection. These areas are not covered by the existing general codes, but regulated by special laws in Turkey. There are other statutes, regulations and decrees applicable to business transactions and activities. Some of the most significant are the Banking Law, Capital Market Law, Law on Competition, Law on Consumer Protection, Trade Mark Law, Law on Patents, Law on Copyrights, Law on the Control and Inspection of Insurance Companies, Bankruptcy Code, and the Law on Foreign Direct Investment. However, statutory law does not keep pace with changes in business practice. For example, code provisions on the formation of contracts do not take account of modem electronic technology and new modes of communication increasingly being used to do business in Turkey. Nevertheless, there have been some revisions in recent years of the Commercial Code and a few reforms made in the Code of Obligations. Work on revisions to bring the Commercial Code in line with modem business developments in recent years to meet Turkey's commitments for its possible membership in the European Community is progressing. Turkey became member to several international conventions during the recent years. Some of them became a part of the Commercial Code. Since 2012 the United Nations Convention on Contracts for the International Sale of Goods of 1980 became a part of Turkish internal law. [B]

Commercial Usage

If there is no statutory provision applicable to a commercial transaction, commercial

usage (teamiiller) and custom govern (Comm. C. Article 1 II). Commercial usage among merchants is considered a custom when it lasts for a long time and when a general feeling exists among merchants that they should follow the usage. Commercial usage is not a legal rule as such, but is mainly referred to in the interpretation of declarations or other expressions of intentions of the parties (Comm. C. Article 2 I). Commercial usage as a source of law is not only mentioned in a general provision of the Commercial Code, but also referred to in some articles of the Code of Obligations. For commercial sales, the Code of Obligations provides that special trade usage regarding the calculation of the weight of goods sold must be taken into consideration (C.O. Article 233 III). According to the Ankara Chamber of Commerce and Industry, for example, it is a usage among merchants to sell sterile cotton in gross weight. Local usage or usage specific to a certain type of business is preferred over general usage. A usage among carpet merchants might be different than a usage established for the sale of clothes. If parties are not in the same locality, the usage at the

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place of performance governs, as long as the parties have not otherwise agreed (Comm. C. Article 2 II). [Cl

Court Decisions (Case Law)

Court decisions are, as a rule, binding only on the parties to that particular case. They do not create law that binds other courts in later cases. Nevertheless, court decisions in Turkey play an important role in the development and administration of business law. Since legislators cannot react promptly to new business developments, courts are often faced with the problem of creating solutions to unregulated issues by the interpretation of laws. In this way the Turkish High Court of Appeals (Yargitay) contributes to the development of law by its decisions. The decisions of the Yargitay and the Council of State (Dam~tay), Turkey's highest administrative court, are not binding on other courts in later cases in the strict legal sense, but courts of first instance, practicing lawyers and, of course, the high-courts normally follow these decisions. Judgments of the Chambers of the Yargitay, which are held at plenary meetings of the Court to unify contradictory application of law by different chambers of this court, are like parliamentary enactments in that they have legally binding effect upon courts in future cases. [D]

General Principles

(1) The Turkish Constitution guarantees freedom of contract. Generally the

provisions of the Commercial Code and the Code of Obligations are not mandatory and apply only to the extent that the matter has not been covered by the agreement of the parties. The parties to a contract can agree that certain code provisions or commercial usage will not govern their contract. There are, however, certain code provisions that contain general principles that are mandatory law and will govern a contract even if the parties agree that they should not apply. To this extent, freedom of contract is limited in the interest of public policy. For example, a contract, which is contrary to "good morals and public order", is not enforceable (C. 0. Article 2 7 I). The Code of Obligations also contains a mandatory general principle, which protects the inexperienced party, if there is an evident disproportion between the obligations of the parties and one of the parties takes advantage of the distress, the inexperience or the improvidence of the other party (C. 0. Article 28). As a defense to the enforcement of a contract consumers normally use this general protection. It is unlikely that a merchant could successfully use this defense. (2) General principles found in the introductory part of the Civil Code are also applicable to business transactions by cross references made in the Code of Obligations (C. 0. Article 646} and the Commercial Code (Comm. C. Article 1).

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Article 1 of the Civil Code states: "The law must be applied in all cases which come within the letter or the spirit of any of its provisions. Where no provision is applicable, the judge shall decide according to existing customary law, and, if there is not any, according to the rules which he would lay down if he had himself to act as legislator." Article 2 of the Civil Code states: "Every person is bound to exercise his rights and fulfill his obligations according to the principles of good faith. The law does not favor the evident abuse of rights. "4 Another principle is stated in Article 3 of the Civil Code is on good faith: "Good faith is presumed to exist whenever the existence of a right has been made to depend on the observance of good faith. A person can, however, not plead of good faith in cases where he has failed to exercise the degree of care expected by the circumstances."

§1.03

STATE INVOLVEMENT IN BUSINESS

The Turkish State is involved directly and indirectly in business in Turkey. It acts directly by establishing businesses and conducting commercial transactions. It also acts indirectly as a regulator of private business. The role played by the State as entrepreneur in business is diminishing, but the State is still involved in many businesses in different ways.

[A]

Direct State Involvement

[1]

General

The State acquired some businesses during the early years of the Republic, which it inherited from the disappearing Ottoman Empire. Some of these businesses, which the State no longer owns, were monopolies, such as the monopoly to produce matches and cigarettes. For example, the State is still involved in the operation of the nation's railroads, which are run by directorates, attached directly to the State. The State is also involved directly as an actor in business in the development of infrastructure projects such as darns, highways, bridges and public buildings. The activities of the State in this capacity, and contracts between the State and individuals, may be subject to different laws than other business contracts. Disputes arising out of these contractual relations may be under the jurisdiction of the administrative rather than the civil courts. 5

4. See, bzsunay, "Abuse of Rights under Turkish Civil Law", Aequitas and Equity: Equity in Civil Law and Mixed Jurisdictions (ed. Rabello) Jerusalem 1997, p. 645 et seq. 5. See Ansay and Wallace (eds.), Chapter 3 on Administrative Law.

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[2]


State Economic Enterprises (SEEs) and Public Economic Institutions (PEis)

The State operates businesses through business associations, such as corporations, recognized by private law. These businesses are founded according to the rules laid down by general provisions of Turkish law or through special legislation. They are called State Economic Enterprises and are subject to the general provisions of the Civil Code, Code of Obligations and Commercial Code when they are involved in business. They are considered merchants. When the State or an administrative unit of it conducts business in a joint venture with Turkish or foreign private investors, the business organization is called a mixed enterprise and the governmental entity, whether it operates a commercial enterprise directly or through another legal entity, is not considered a merchant (Comm. C. Article 16 II).

In recent years, the policy of the governments in power has been to limit the involvement of the State in business to certain vital areas. Many of the State-owned or operated enterprises have been privatized; a process which continues. [BJ

Indirect State Involvement in Business

(1) The Constitution places a duty on the State to accomplish economic, social

and cultural planning. The State Planning Administration (SP A, Devlet Planlama Te~kilati) was created within the Prime Ministry to carry out this duty. 6 Initially the SP A found considerable approval among the political parties and in public opinion. Presently, the SP A is mainly a research institution, which collects information and proposes long-term programs and five-year plans for the government. It also supplies public information and data regarding the development and expectations of the economy. Thus it plays a guiding role on business in general. (2) State Aid and Protection of Business: The State may take measures to protect and assist certain types of small traders, craftsmen and cooperative associations (Cons. Articles 171 and 173} through tax cuts, tax exemptions, cost minimization through infrastructure construction by the State; low-interest credit and guaranteed loans. Certain areas in the country are receiving direct or indirect financial advantages from the State.

[CJ

Regulation by the State

The State is authorized by the Constitution to regulate and supervise business in order to establish a regular and stable business environment so that business runs free of 6. Constitution, Art. 166.

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chapter 1: General Introduction to Turkish Business Law

§ 1.03 [CJ

disturbances and conflicts. Direct regulation is accomplished by registration and permit requirements and by governmental agencies.

[1]

State Registration Requirements

[a]

The Commercial Registry (Ticaret Sicili)

The State maintains commercial registers. All merchants and their branch offices are obliged to register in a commercial registry. Changes in the nature or financial condition of a business must also be registered. For example, the bankruptcy of a merchant or the dissolution of a corporation must be registered in the commercial registry. 7 The registry is a "public record." All persons may examine the contents of the commercial register and all documents and certificates kept in the registry office, and demand certified copies (Comm. C. Article 35 II). The purpose of registration is to inform the public and to provide evidence of, among other facts, the existence of a business association, the names of the persons who are authorized to represent a merchant, and the manner of representation. In situations where registration is legally required, registration and publication are duties of the persons concerned (Comm. C. Article 27). The law may allow non-compulsory data to be included in the register. There is, however, no serious sanction if the obligation to register or publish is not fulfilled on time or if it is inaccurate. A real person merchant, as opposed to a legal person such as a corporation, who meets the conditions of being a merchant, assumes the status of merchant even without registration. For a real person, registration has only a declaratory effect. It makes certain facts public, as in the case of registration and publication of a trade name. In some situations, however, registration has a creative effect. It becomes the basis for the validity of certain transactions. For example, a corporation acquires its existence only upon registration. If a fact, which should be registered, has been properly registered and, if required, the registration has been published, third persons are presumed to have notice of such fact. For example, with regard to business associations, without registration (and publication, if required) third persons will not be presumed, when dealing with a representative of the association, to have knowledge of the existence of the association and will not be bound by contract to the association unless it is proven that they had actual knowledge of the facts (Comm. C. Article 36). Commercial Registries are kept on behalf of the State by Chambers of Commerce and Industry. The persons authorized to maintain the registries are generally nonlawyers. If a registry is negligently kept and the negligence results in damages to a party, that party may have a remedy against the Chamber.

7. See Chapter 4 on Agency and Chapter 7 on Business Associations.

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§1.04 [b]

Other Registries

A Land Registry (Tapu Sicili) is also kept by the State for the purpose of creating ownership and other rights such as mortgages in immovable property. 8 A registration is also kept for vessels (Comm. C., Article 954 et seq.) Patent and Trade Mark Registries are also kept by the State and are regulated by statute. [2]

State Permit Requirements

Certain activities, such as the monopolistic operation of mines and electricity producing plants, require concessions from the State. In order to be binding, the Council of State must examine the conditions of a concession contract. 9 The formation of a business association with limited liability requires not only registration and publication but some of them must also have the permission of the State. Additional permits are also required for specific businesses if numerous persons are involved and there is a public interest aspect to the business, such as in banking, insurance or stock exchange trading. [3]

Regulatory Agencies

The Capital Market Administration (CMA) is one of a number of autonomous institutions established by the State to monitor business activities. The CMA is empowered, primarily, to regulate publicly held corporations (listed companies) and those corporations which act as intermediaries in stock exchange transactions or operate investment funds. Other autonomous institutions are the Competition Board, which regulates monopolistic and unfair trade practices (See Chapter 8 below), and the Board on Consumer Protection (See Chapter 3 below), which deals with consumer problems. An autonomous institution for Bank Regulation is also formed. In each of these institutions, the power of the State to control business is theoretically delegated to a semi-independent, autonomous institution. §1.04

THE EFFECT OF TURKISH LAW ON THE BUSINESS ENVIRONMENT

In general, business transactions in any country require speed, minimal formality and trust among merchants. Turkish law has not always helped to achieve these results. Some provisions in the Turkish Commercial Code conflict with the goal of creating a business environment without complicated formal requirements. Although

8. See Ansay and Wallace, Chapter 8 on Property. 9. Constitution, Art. 155. In August, 1999 the Turkish Parliament amended the Constitution to limit the role of the Turkish High Administrative Court to a non-binding review of concession contracts.

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§l.05[A]

Turkish law recognizes freedom of contract, which includes the freedom of parties to agree on form, it contains exceptions to this rule. Between merchants, as well as non-merchants, procedural rules require that the agreements should be proven by written document if the value of the contract exceeds TRY 2,500 (Appr. USD 1,250 C. Civ. Pr., Article 200). A written letter of confirmation sent after an oral agreement is a normal practice among merchants. A merchant, who receives a letter confirming (teyit mektubu) the terms of an oral contract or statements made verbally, is deemed to have accepted that the oral agreement was consistent with the confirmation if he does not object within eight days after the day of its receipt (Comm. C. Article 21 III). Contracts concerning certain types of transactions must be in writing to be enforceable. For example, suretyship (kefalet) contracts must be in writing to be valid (See Chapter 3 on Consumer Protection). Similarly, if negotiable instruments do not include specific language required by the Commercial Code, they lose their validity as negotiable instruments. · The formality in Turkish law that is perhaps most inconsistent with efficient business practices is the legal requirement for giving notice of a legal act. In order to be valid, "all notices and warnings" between merchants to put another party "in default or to dissolve or rescind a contract" must be made through a notary, by return registered letter, by telegram or secured electronic signature (Comm. C. Article 18 III). Although there was a tendency in doctrinal writings and court decisions to limit this rule and to interpret its formal requirements not as a rule, which deprives a non-compliance notice of validity, but rather as evidence of having given notice, the new Commercial Code kept this rule. §1.05

PERSONS CONDUCTING BUSINESS

Individuals known as real persons or business organizations with legal personality transact business. They may act as either merchants or non-merchants. [A]

The Individual or Real Person Merchant

As stated above, a merchant (tacir) is a person who operates a commercial enterprise, wholly or partly under his own name. 10 The owner of a commercial enterprise is a merchant, even if he does not operate it personally, because transactions are done in his name. General managers and directors of business enterprises are not merchants. since they are not operating such organizations in their own names, but in the name of the owner. Similarly, parents who operate a commercial enterprise belonging to a minor are not merchants. Such representatives are, however, liable for damages caused by their administration, as if they were merchants (Comm. C. Article 13).

10. See above at section §l.02[A)[2] for discussion of merchant.

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§1.0S[D] [B]

Tugrul Ansay & Eric Schneider Business Organizations

A sole proprietorship is not usually suitable for conducting major business undertakings. There are various business entities that can be formed by groups of individuals to pool their talents and capital or to limit their liability. The simplest way of working together is to establish a partnership without legal personality, which is called ordinary or simple partnership. In this type of partnership, partners act together, or they authorize a partner to do business in their names. When a partner acts on behalf of the partnership, he acts not only in his own name, but also for other partners. The law, therefore, considers all partners to be merchants. A business enterprise may also be operated by an organization formed by many persons with separate legal personality. Turkish law recognizes two main types of organizations with legal personality. They are called societies or business associations, depending on the purpose for which they were formed. Societies (demekler) are created for non-profit making purposes (C. C. Article 56). However, if a society operates as a commercial enterprise, it is considered a merchant even if its main purpose is charitable. Public benefit societies do not acquire the status of merchant, even when they operate a commercial enterprise (Comm. C. Article 16 II). Business associations (ticaret ~irketleri) of various types are recognized by the Commercial Code as having legal personality. These business associations are merchants (Comm. C. Article 16 I), but their partners or shareholders are not. Organizations or institutions founded by public bodies, such as the State, a province or a municipality, to be operated as commercial enterprises or operated according to the provisions of private law, are also considered merchants (Comm. C. Article 16 I). Legal personality may also be created in the form of a foundation (vakif) by establishing a fund dedicated to a specific purpose. The issue of whether foundations can be established to operate commercial enterprises is not yet resolved in Turkey. There are many private universities and schools, which are operated by foundations. 11 [CJ

. Representatives of a Merchant

A merchant may authorize persons to operate his business. They may be dependent or independent. Persons who have power to represent a merchant are generally called "agents." A merchant may also create a branch office in a different locality than the business center and appoint a person to manage it. Branch offices are not wholly independent of the merchant and they are, therefore, not separate merchants. [D]

Foreigners

Foreigners may do business in Turkey if they acquire a work permit, but some activities are prohibited to foreigners. International Agreements may bring exemptions to this rule. Foreigners may, with certain restrictions, own real property. 11. Arkan, 122.

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§1.0S[D]

Selected Bibliography Adal, E., Fundamentals of Turkish Private Law, istanbul 2012. Ansay, T. & Don Wallace Jr. (eds.), Introduction to Turkish Law, 6th edn, Kluwer 2011. Arkan, S., Ticari j~letme Hukuku, 18th ed., Ankara 2013. Bazer, A. & Gi:ile, C., Ticari j~letme Hukuku, 2nd ed., Ankara 2013. Poroy, R. & Yasaman, H., Ticari j~letme Hukuku, 14th ed., iistanbul 2012. Si:izer, B., Legal Environment of Business, istanbul 2001. Ulgen, H., et al., Ticari j~letme Hukuku, istanbul 2006.

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CHAPTER

2

Sales of Personal Property Tugrnl Ansay & I$Lk Ona/

§2.01

DEFINITION AND SOURCES

One of the most common commercial transactions is the contract for the sale of personal (movable) property (or chattle, ta$imr). When we buy a newspaper or a bottle of wine or medicine we enter into a contract for the sale of personal property. Retailers buy their goods from wholesalers and manufacturers. These are supplied by other manufacturers or from the owners of raw materials, such as farmers or miners. Goods are exported and imported between persons in different countries. All of these transactions are based on contracts of sale. A contract of sale is a contract in which the seller is obliged to transfer the possession and ownership (title) of the property sold to the buyer in exchange for payment of the agreed price (C.O. Article 207). The party who transfers ownership is the seller (or vendor, satici) and the transferee is the buyer (or vendee, purchaser, alici).

Sales contracts are primarily regulated by the Turkish Code of Obligations. Following a couple of general provisions on contracts of sale, the C.O. extensively deals with the sales of personal property. These provisions on sales of personal property can also be considered as general provisions for sales contracts, since they are (albeit sometimes by analogy) mostly applicable to all types of sales contracts. There are, in addition, special provisions for some particular types of sale contract, such as sales of real (immovable) property, installment sales, sales on approval, sales by sample and sales by auction. Although commercial sales are mainly subject to provisions of the C.O.; The Comm. C. Article 23 contains few rules applicable only to commercial sales. * Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Koy University, School of Law, Istanbul. Asst. Prof. Dr. I$1k Onay: Research assistant, Koy University, School of Law, istanbul.

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Tugrul Ansay & Is,1k Onay

§2.02[B]

Another source pertaining to contracts of sale of personal property under Turkish law is the United Nations Convention on International Sale of Goods (CISG). Under Turkish law, contracts falling under CISG' s scope of application (See CISG Articles 1-6) are governed by its provisions since August 1, 2011. Contracts of sale concluded between a consumer and a seller are subject to a special regime, set up by the Law on Consumer Protection (See the chapter on Consumer Protection). Because the main purpose of this law is to protect the interests of consumers in an age of mass production and mass consumption, most of its provisions are mandatory and cannot be waived by agreement of the parties. The provisions of the other laws regulating sales contracts are, for the most part, not mandatory, and apply only if the parties have not otherwise agreed. §2.02 [A]

BASIC ELEMENTS OF A SALES CONTRACT

Subject Matter

The subject matter of a sales contract may be personal or real property. Personal property can include every tangible thing that has economic value, including things produced from real property such as crops, fruits and minerals. However, the property in crops, minerals and quarry materials can only be transferred separately once they have been extracted from the land (C.O. Article 209). Goods need not be in existence at the time of the formation of a sales contract. For example, crops not yet grown and which will exist in the future or do not belong to the seller at the time of contract formation may be the subject of a sales contract. By analogy, the Code's provisions on the sale of personal property also apply to contracts for the sale of rights in legal claims, the transfer of a commercial enterprise in its entirety (asset deal) or transfer of its shares (share deal), the sale of goodwill or a share in a corporation, or copyright and other industrial property rights. Even contracts to sell energy produced by electricity or gas are treated as sales contracts. However, human beings may not be the subject of a sales contract. The sale of football players from one club to another normally indicates a transfer of contractual rights and obligations from one club to another. Sales of real property are subject to a number of special provisions (C.O. Articles 243-245) concerning conditional sales, title retention clause, warranty regarding defects, benefits and risks. In the absence of special provisions for sales of real property, provisions governing sales of personal property step in. In other words, provisions on sales of personal property are by analogy applicable for sales of real property (C.O. Article 246). [B]

Price

In exchange for receiving property the buyer agrees to pay a price. This exchange is the basic feature that distinguishes a sales contract or barter (exchange, trampa, mal deffe_$im sozle$mesi) from a gift (donation, baffe$lama). A barter is an exchange of the

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Chapter 2: Sales of Personal Property

§2.02[C)

property of a good for the property of another (C.O. Article 282 et seq.), whereas a gift is a gratuitous transfer of property (C.O. Article 285 et seq.) The price in a contract of sale is always a certain amount of money. This feature distinguishes the contract of sale from barter. Price is an essential term (essentialia negotii) of the sales contract. It must be stated with reasonable certainty in terms of money for the contract to be legally binding. However, it does not need to be fixed as a precise amount during the formation of the contract. 1 It is sufficient if it is objectively determinable at the maturity date without any need for an extra agreement (C.O. Article 207 paragraph 3). For example, in the case of a sale of shares at the Stock Exchange, parties may set the price as the market price at a later date. Although debated by some authors, it is also deemed possible for parties to let a third person decide on the price at a later date. If a buyer places an order for an item, which has a "market price" (ortalama piyasa fiyati), expressing his/her definite intention to buy without stating a price, it is implied that the item is to be sold at the market price at the time and place of the order (C.O. Article 233). The price may be in Turkish or foreign currency. If parties agree on a foreign currency, the price is also payable in Turkish Lira. 2 Parties may prevent the buyer from paying in Turkish Lira by explicitly stating their intention that the price is only payable in the agreed currency (actual currency clause) in the contract (C.O. Article 99 paragraph 2). The parties to a sales contract are free to agree on any price unless the goods are in a limited category of goods whose prices are fixed by the Turkish authorities, such as gasoline, fuel oil or bread. [C]

Legal Nature

The contract for sale is of an obligatory nature. With its conclusion the seller undertakes to transfer possession and ownership of the goods to the buyer, whereas the buyer is obliged to pay the price. The conclusion of the sales contract per se does not lead to a transfer of ownership under Turkish law. Due to the obligatory nature of a sales contract, the seller does not need to be the owner of sold goods at the time of contract formation. A person can sell goods belonging to another, and thus oblige himself/herself to transfer possession and ownership of these. If the seller fails to fulfill this obligation at the maturity date, he/she will be liable to pay damages to the buyer.

1. The Law on Consumer Protection, on the other hand requires the price to be clearly displayed for sale of retail goods (Art. 54). Note that references to the Law on Consumer Protection in this article refer to the Law nr. 6502, which comes into force as of 281h May 2014, replacing the former Law nr. 4077 on Consumer Protection (Also see Annex to the chapter on Consumer Protection). 2. In this case, the price is determined according to the exchange rate applied at the date of payment.

17

§2.03[A]

[D]


Formal Requirements

b

Unlike contracts for the sale of real (immovable) property such as land, which need to be done as a public deed to be valid, contracts for the sale of personal (moveable) property are not generally subject to any formal requirements for their validity. However, certain types of sales contracts are subject to special formal requirements, such as the sale of motor vehicles, shares of stock, claims, trademarks or copyrights. Furthermore installment sales are subject to strict formal requirements (C.O. Article 253), unless the buyer is a merchant or buys the goods for purposes related to his/her business, craft or profession (C.O. Article 263 V). §2.03

[A]

c

OBLIGATIONS OF THE SELLER

Transfer of Possession and Ownership

In order to transfer the ownership in goods they must normally be delivered to the buyer. Transfer of ownership can be accomplished by either the actual (physical) delivery of the subject matter or, more frequently, the delivery of a document of title or ownership. For example, proper delivery of the document of title, such as a warehouse receipt or bill of lading, has the effect of the delivery of ownership of the goods. However, ownership can exceptionally be transferred without delivery of the goods or of title instruments. For example, parties of a sales contract may simultaneously conclude a contract of bailment, whereby the seller undertakes to keep the goods safe. In this case, the seller keeps hold of the goods but the ownership of the goods is transferred to the buyer without delivery. 3 The delivery is deemed to take place fictitiously (hiikmen teslim) and the buyer acquires ownership and indirect possession (dolayli zilyetlik). Similarly in case of the sale of a pledged (pawned) movable, the pledgee retains direct possession, whereas the buyer acquires ownership with indirect possession, i.e., without delivery (zilyetli@n havalesi). It is also possible that the buyer was already in direct possession of the goods prior to the sale (e.g., due to a rental agreement), which obviously makes delivery redundant and the ownership is acquired without need for delivery (kisa elden teslim). There are, however, sales situations where delivery of goods does not transfer title, such as when, under a contract to sell, the seller wishes to retain ownership of the property until the fulfillment of certain conditions (title retention clause, miilkiyeti muhafaza sakll tutma kaydi). Here the seller continues to remain the owner, despite the delivery of goods and the acquisition of possession by the buyer. A sale in which the goods must be delivered over a great distance may require several interim deliveries. The passing of the goods or the document of title at each stage of delivery is not considered a final delivery to the buyer because the goods will be handed over to a trucker, then to the captain of a ship and other carriers until the 3. In a case where the parties concluding this agreement intend to harm third parties or circumvent provisions governing pledging of movables, the transfer of ownership is considered null and void against third parties (C.C. Art. 766}.

18

c ii

1

a v c c g (


§2.03[A]

buyer takes actual delivery of the goods at the place of destination. Some legal consequences of delivery do occur on final delivery, such as the buyer having a right to inspect the goods and to send a notice to seller regarding defects (C.O. Article 226). {1]

Place of Delivery

The parties are free to determine the place of delivery in the contract. In the absence of a particular provision in a contract regarding the place of delivery, commercial usage will determine where seller must deliver the goods (Comm. C. Article 1II). If there is no clear commercial usage, the law contains the following solution: if the subject matter of the contract to sell consists of specific goods which are known by the parties, the goods shall be delivered at the place of their location at the time of contract formation (C.O. Article 89 Nr. 2). Otherwise delivery must be made at the domicile of the seller at the time when the contract was formed (C.O. Article 89 Nr. 3). {2]

Time of Delivery

If parties did not specify a time for delivery, it must be accomplished within a reasonable time given the nature of the sales contract. Where a time for delivery is stated in the contract, delivery on that date may be demanded by the buyer (C.O. Article 90 et seq.) Since the legal consequences (particularly with regard to default) of non-performance on the agreed date vary depending on the type of date specified, it is useful to make a distinction between two types of maturity dates: specified date and fixed date. If parties merely specified a time for performance without attaching any particular importance to it, the date is called a specified date (belirli vade). Where parties fix a time for performance and explicitly state that this deadline is vital (Time-is-of-theessence clause), the agreed time of delivery is called a fixed date (kesin vade). In the absence of an explicit Time-is-of-the-essence clause, the parties' intention of agreeing on a fixed date may also be derived from the nature of the contract, as is the case with the delivery of a tuxedo for a marriage ceremony.

{3]

Default (Temerrtit) of the Seller in Delivery

The consequences of failure to deliver goods at the agreed place and time are regulated differently for ordinary and commercial sales. In the case of an ordinary sales contract, if parties did not specify a date for performance, the buyer puts the seller in default by sending him a notice of default. The notice requirement for default does not apply if parties have agreed on a specific or fixed date. In this instance the seller defaults automatically upon the expiry of the deadline. Once the seller defaults, the buyer may continue to demand performance and, in addition, damages caused by delay. He/she has also two additional options, provided that the seller is given a reasonable time to complete performance after default and the

19

§2.03[B]


seller does not do so (C.O. Article 125). The first option for the buyer is to demand damages for non-performance (i.e., damages he/she would not have incurred, had the seller performed in time) rather than the performance itself. Finally, the buyer may terminate the contract and demand compensation for his damages due to the termination of the contract (i.e., damages that he/she would not have incurred, had he/she not entered into contractual relationship with the seller in the first place). If the buyer intends to use one of the additional options, he/she must notify the seller of his intention immediately after the expiry of the reasonable time given. In cases where a fixed date was agreed on by the parties; it is evident that giving additional time to the seller would serve no purpose or performance has become pointless upon the seller's default, the buyer does not need to give the seller extra time to fulfill in order to make use of these additional rights. If a sales contract is commercial in nature (See Introduction), the buyer has the same remedies as a buyer in an ordinary contract as explained above. However, there are two particularities of commercial sales with specified dates pertaining to seller's default and buyer's rights resulting thereof. Firstly, if a specified delivery date is provided this date is considered to be a fixed date, which gives the buyer the possibility to make use of his/her three options without giving the seller an additional time to fulfill. Secondly, there is a statutory presumption that the buyer rejects late delivery and claims damages for non-performance. Therefore, the buyer must notify the seller immediately after the expiration of the agreed date if a late delivery or termination is desired (C.O. Article 212 paragraphs 2-3). In a case where the buyer decides to give up on performance and claim damages instead, the amount of damages he/she is entitled to claim are regulated in paragraphs 2 and 3 of Article 213 of the C.O. The buyer is entitled to claim the difference between the contract price and the price at which he replaced, in good faith, the goods in respect of which default in delivery was made. If there is a market price or a commodities or stock exchange price for the sold goods, the buyer is entitled to claim damages for the difference between that price and the contract price at the contractual date for delivery, whether or not he has bought substitute goods. If the subject matter of a commercial sale between merchants is divisible so that each part is separately performable, or if the buyer has accepted partial delivery without any reservation, a default in delivery of one part will only enable the buyer to use his/her rights with regard to that part, unless the failure to deliver that part significantly harms buyer's interests, defeats the purpose of the contract or it is clear that the other part will not be delivered either (Comm. C. Article 23 Nr. 1 a).

[B]

Cost of Shipment

Buyer must pay for the cost of shipment of goods if the contract does not state who should bear this cost and if there is no contrary commercial custom. Buyer must pay for the costs of shipment if the goods are to be shipped to a place different than the required place of delivery. If free delivery is stipulated, it is presumed that the seller has

20

J ]"

(!

[i


§2.03[D]

agreed to pay the cost of shipping. Where the agreement provides for delivery without harbor expenses or customs duties, it is presumed that the seller is to pay export-import duties and duties in transit (C.O. Article 211). [C]

Warranty of Title (Zapttan Sorumluluk)

The seller is obliged to deliver goods which are neither totally nor partially encumbered by prevailing third-party claims which were already in existence at the time when the contract was formed (C.O. Articles 214-218). For example, a perfect delivery of shirts does not occur if trademarks on labels attached to the delivered shirts are not legal. If the goods are totally encumbered, namely if the goods belong to a third party and this person asserts his right, the contract is deemed null and void retroactively. The seller has to return the sale price with interest, reimburse costs incurred by the buyer and buyer's damages directly caused by assertion of the prevailing right. The buyer may claim these, regardless of the seller's fault or knowledge of the encumbrance. Other damages caused indirectly by the assertion of the prevailing right can only be claimed, unless the seller can prove that he/she is not at fault. In case of partial encumbrance of goods by prevailing rights (e.g., usufruct, or partial ownership) the contract remains valid. The buyer may only claim damages incurred due to the assertion of right. However, if circumstances indicate that the buyer would not have entered into the contract, if he/she had known the encumbrance, the judge may terminate the contract upon buyer's request. In this case, provisions governing total encumbrance apply.

[D]

Warranty Regarding Defects

The seller is also obliged to deliver goods free from defects. This is called the warranty regarding defects (ayiptan sommluluk) of the goods sold. It is different than sending the wrong goods (aliud). If the seller delivers rice instead of wheat, there is no performance at all; therefore warranty provisions do not apply. A partial performance does not trigger warranty provisions either. If the buyer accepts partial performance, default provisions are applicable for the non-performed part, unless lack of quantity affects quality. [1]

Express or Implied Warranties

Warranties may be express or implied (C.O. Article 219 I). An express warranty takes the form of a promise or undertaking on the part of the seller regarding the subject of the sale. For example, if the seller explicitly promises to deliver tables made of walnut but delivers tables made of pine, the goods are considered defective. The promise need not necessarily be explicit. If a gallery owner sells a painting for an astronomical price, he is considered to warrant the originality of the painting, even if he did not explicitly promise that it is original.

21

§2.03[D]


If there is no express warranty, the seller impliedly warrants the necessary qualities of the goods sold (Merchantable quality, average quality). The article is considered defective, if it does not serve the ordinary purpose for which it will be used. It must be noted that the P"rpose for which the article is bought plays a crucial role in determining the necessary qualities. For example, if the subject of sale is an automobile, a functioning motor would normally be considered a necessary quality. However, this is not the case if the automobile is bought as salvage. The seller is liable, regardless of his/her fault or knowledge with regard to the defect (C.O. Article 219 II). In consumer sales the producer and the importer of defective goods are jointly liable with the seller, if the buyer chooses to make us of his/her rights to demand the defective goods to be repaired free of charge or the replacement of defective goods by perfect goods of the same kind (Law on Consumer Protection, Art. 11 III). The parties, by agreement, may exclude or limit warranties. 4 Such exclusion or limitation may sometimes be implied, if, for example, the goods are sold for an extremely low price or in a second hand shop. Agreements to exclude warranties will not be valid if the seller has fraudulently concealed defects from the buyer (C.O. Article 221). The seller is not liable for defects known to the buyer at the time of contract formation (C.O. Article 222). Defects that the buyer could have ascertained by the exercise of reasonable care are deemed known by the buyer, and the seller will not be liable for such defects, unless the seller additionally warranted the absence of such defects. (2)

Exercise of Warranty Rights

(a) Inspection and Notice. To exercise his warranty rights a buyer must comply with certain formalities. When goods that have not previously been examined by the buyer are delivered, the buyer is not deemed to have accepted them unless he has had a reasonable opportunity to inspect. According to the Code the buyer shall inspect the goods as soon as feasible in the normal course of business (C.O. Article 223). The buyer in reality gets the opportunity to inspect only when the goods are actually delivered to him at the place of destination. Upon discovering any defect the buyer must send notice to the seller within a reasonable period of time. Failure to do so results in the loss of buyer's remedies for defective performance. In the case of willful fraud by the seller however, failure of timely notice by the buyer does not end the liability of the seller (C.O. Article 225). In the second paragraph of the same article, the Code bars the seller from asserting failure of notice in cases where the seller carries out the sale as part of his/her profession. For commercial sales, the reasonable period of time to send notice is set by Comm. C. Accordingly, the buyer shall examine the goods and send a notice within two days for obvious defects at the time of delivery, and within eight 4. Such exclusion would be invalid for consumer sales, since provisions of Law on Consumer Protection are mandatory and cannot be altered in a way to limit consumer rights.

22


§2.03[D]

days if the defects are not obvious (Comm. C. Article 23 I c). In con§umer sales, Art. 10 of the Law on Consumer protection presumes that any defect revealed within six months after delivery was present during the delivery, unless proven otherwise by the seller. Delivered goods may have hidden defects that are not reasonably discoverable by the buyer. A buyer has a duty to try to discover such defects by examination within a reasonable time and to give immediate notice to the seller upon the discovery of such defects. If the defect is discoverable by taking reasonable care in examination and the buyer does not react, the buyer is deemed to have accepted the goods and loses remedies for defective performance. Some hidden defects however may only be discovered after the goods are used by the buyer. In these cases the buyer, provided that he/she notifies the seller immediately after the discovery of defect, may make use of his/her rights (C.O. Article 223/II). (b) Limitation periods. In the case of ordinary sales, defects may not be subject of a claim after two years from the date of delivery (C.O. Article 231). If the buyer sends a notice within the limitation period, he/she may raise his objection to defective delivery as a defense against claim by the seller even after the expiry of the limitation period. This is for example the case when the buyer asks for a reduction in price upon the seller's claim for the sales price after the expiry of the limitation period (For consumer contracts see, Law on Consumer Protection, Article 12). In a case of willful fraud on his/her part, the seller may not make use of these shorter limitation periods (C.O. Art. 231 II, Law on Consumer Protection Art. 12 III), so that the claims resulting from the defect are subject to the ordinary limitation period of ten years.

(3)

Buyer's Remedies for Defective Goods

When defective goods are delivered the buyer has the following options: (a) The buyer may accept or keep the goods and demand a reduction in the purchase price because of the diminution in value of the goods (C.O. Article 227 I Nr. 2). (b) If the goods are fungible goods, the buyer has the option to demand that the delivered goods be replaced by perfect goods of the same kind (C.O. Article 227 I Nr. 4). The seller may immediately offer to replace defective fungible goods with proper ones provided that the seller pays the additional losses of the buyer resulting from the defective delivery; thus preventing the buyer from making use of other options (C. 0. Article 22 7 III). (c) The buyer also has the option to terminate the contract and refuse to receive the goods (C.O. Article 227 I Nr. 1). If he has already received the goods, he may return them to the seller together with the benefits, if there are any, derived by buyer. The buyer is, of course, entitled to get back the purchase 23

§2.04[B]


price he has paid for the goods with interest and the seller shall also reimburse litigation expenses and any other costs incurred by the buyer for the sold goods (C.O. Article 229 I, Nr. 1-2). This right of the buyer to terminate the contract because of defect is not available if the goods are destroyed due to the negligence of the buyer or if the buyer has transferred the goods to another person or has altered the form of the goods (C.0. Article 228 II). A judge may not recognize the termination of the contract and may decide that the buyer is only entitled to a price reduction or free repair, if the circumstances do not justify termination of the contract (C.O. Article 227 IV). But, if the loss of value of the goods due to a defect is equal to the price of the goods, the buyer may simply demand the termination of the contract (C.O. Article 227 V). (d) The buyer may also ask the seller to repair the defective goods for free. This option cannot be exercised if repairing the goods would be extremely costly (C.O. Article 227 I Nr. 3). (e) Regardless of the buyer's choice with regard to foregoing options, the seller is additionally liable for damages caused by the defect. Damages directly caused by the defect may be claimed, even if the seller is not at fault, whereas damages indirectly caused by the defect can only be claimed unless the seller can prove that he is not at fault. The buyer is also protected under the provisions on bad performance, (C.O. Article 112, see Article 227 II) and the provisions on mistake or fraud (C.O. Article 30 et seq.), if relevant conditions are fulfilled. These demands compete with the demands resulting from defective performance, and are of particular importance if the buyer failed to comply with necessary formalities to make use of provisions governing defective performance.

§2.04 [A]

THE OBLIGATIONS OF THE BUYER

Taking Delivery

It is the both a duty and a right of the buyer to take physical delivery of the goods.

Unless there is an agreement or commercial custom to the contrary, immediate acceptance is necessary (C.O. Article 232). This might be the case when the goods are bought in a supermarket or department store. When the buyer delays or refuses to accept the goods without any reason he is deemed to be in default.

[B]

Paying the Price

The buyer is also obliged to pay the price. 5 In the absence of an agreement to the contrary, this obligation of the buyer is not due until the goods come into his possession (C.O. Article 234 I). 5. See section §2.02[B].

24

c

1

a i

[C]

Other Obligations

The buyer also has other obligations, which are of accessory nature. Examples are the obligation to pay cost of transportation if there is no contrary custom or agreement (C.0. Article 211 I) and the duty to take necessary precautions in distance sales involving perishable goods (C.O. Article 226). [D]

Default of the Buyer

General rules on default, laid down in the general contract rules of the C.O., are applicable in a case where the buyer defaults in paying the price. If parties have agreed on a specified date for the payment of the price, upon expiry of the deadline the buyer is automatically in default and interest on the amount due starts to run against the buyer without any notice being given by the seller (C.O. Articles 234 II, 120). This interest is called interest of default (temerriit faizi). The seller may accept late payment and demand recovery of damages caused by late payment, if these exceed the interest of default. A particularity in the default of the buyer in a sales contract, when compared to general provisions on default, is that the seller may rescind the contract by notifying the buyer forthwith of his intention without allowing an additional period of time for payment (C.O. Article 235 I-II). This rule is only applicable for cash sales and prepaid sales. In credit sales, where goods are delivered prior to the payment of the price the seller may not terminate the contract, unless such a right is explicitly reserved in the agreement (C.O. Article 235 III). The right to terminate is deemed to be' explicitly reserved if parties included a reservation of title clause in the contract. §2.05

BENEFITS AND RISKS

The point of time, at which benefits and risks of sold goods pass from the seller to the buyer is set by C.O. Article 208 as the moment when the possession is transferred6 for personal property, and the moment of registration for real property. Rules on impossibility are of particular importance with regard to risks of sold goods. If a specific good is sold and the performance is impossible due to non-existence of this good at the time of contract formation, this impossibility renders the contract void (C.O. Article 27). This occurs when, for example, a particular painting by a famous artist was destroyed by a fire before the date of the contract. If the painting is destroyed after the contract formation but before the transfer of possession, this causes an impossibility of performance not attributable to the debtor (seller) and C.O. Article 136 is applicable. Accordingly the obligation of the seller ceases to exist. Since the contract

6. The transfer of possession can either be carried out by actual (physical) delivery or exceptionally without it (See section §2.03[A]). The latter cases require an agreement by the parties for the transfer to take place.

25

§2.05

Tugrul Ansay & Is,1k bnay

of sale is bilateral in nature, the buyer's obligation to pay the price extinguishes as well (C.O. Article 136 paragraph 2). If the buyer had already paid the price, he is entitled to restitution for unjust enrichment. The impossibility in both cases is due to the fact that the subject of sale is a specific good. In other words in both cases the obligation of the seller is a specific obligation (pan;a borcu). Different legal consequences occur when fungible goods are purchased (indeterminate obligation, cins borcu). In the sale of 100 kg. apples, theseller's performance does not become impossible, even if the apples, the seller already had, were destroyed before or after the formation of the contract. The seller, bearing the risk of loss or damage prior to the transfer of possession, is still obliged to deliver 100 kg. apples. If the damage or loss occurs after the transfer of possession, the buyer bears the consequences, be it a purchase of specific or fungible goods. In other words, in both cases he/she still has to pay the price and cannot claim restitution if he/she already did so. The rule in C.O. Article 208 is also applicable in the case of a sale made subject to a condition precedent (geciktirici ~art). Even if the condition is not fulfilled at the time of delivery, the buyer bears risks and gains benefits during the time period between the delivery and the fulfillment of the condition, once the condition is fulfilled (C. 0. Article 172). 7 It must be noted that there are some exceptions to the rule laid out in C.O. Article

208. In other words, in certain cases the passing of benefit and risks to the buyer can take place before the transfer of possession (or registration), and sometimes it does not take place despite the transfer of possession: - C.O. Article 208 is not mandatory. The parties may agree on the date of the transfer of risks and benefits from the seller to the buyer. This agreement can be concluded both explicitly and implicitly. - If the buyer defaults in taking delivery, benefits and risks are deemed to have passed to the buyer. This rule is not applicable to sales of real property (C.O. Article 208 paragraph 2). For sales of fungible goods, an extra condition for risks and benefits to pass is required. Risks and benefits pass to the buyer, once goods to be delivered are selected and separated. - If the seller sends the goods to another place than the place of performance upon the buyer's request, risks and benefits pass with the delivery of the goods to the carrier (C.O. Article 208 paragraph 3}. For sales of fungible goods, risks and benefits pass to the buyer, once goods to be delivered are selected and separated.

7. This general contract rule pertaining to conditions regulates the issue only with regard to benefits, but by analogy it is also applicable for risks.

26 6

§2.05


Selected Bibliography Aral, F. & Ayranc1, H., Bon;lar Hukuku, Ozel Bon; jli~kileri, 9th ed., Ankara 2012. GU.mu~, M.A., Bon;lar Hukuku, Ozel Hiikiimler, vol. 1, istanbul 2012. Namer, H. & Engin, B.i ., Tiirk Bon;lar Kanunu 2. Kisim: Ozel Bon; jli~kileri, 1. Fasikiil, 1st ed., Ankara 2013. Tandogan, H., Bon;lar Hukuku, Ozel Bon; jli~kileri, vol. I/1, 6th ed., istanbul 2008. Yavuz, C. & Acar, F. & bzen, B., Bon;lar Hukuku Dersleri, Ozel Hiikiimler, istanbul 2014. Zevkliler, A. & Gi:ikyayla, K.E., Bon;lar Hukuku Ozel Borr; jli~kileri, 12th ed., Ankara 2013.

27

CHAPTER

3

Consumer Protection Law A. Lale Sinnen

§3.01

INTRODUCTION

Concurrent with and resulting from the industrialization of the country, the protection of consumers became an important issue in Turkey. However, until the adoption of the Law on the Protection of the Consumer 1 (LPC) (Tiiketicinin Komnmasi Hakkmda Kanun), there was no single la'Y dealing with all aspects of consumer protection. Numerous rules of both private and public law were in many different statutes and decrees, making their application difficult. Although many of these laws were passed to protect consumers, they did not specifically address consumer protection nor provide sufficient protection. Consumer protection as a public policy was first introduced by a provision of the 1982 Constitution. Article 172 of the Constitution grants the State the authority to take all measures necessary for the protection of consumers. The culmination of measures taken was the adoption of the LPC, which became enforceable in 1995. With the LPC, a special body of law, characterized by a consistent policy and aimed at the protection of consumers' interests was established. The rules introduced by the LPC can be divided into two groups: the first group of rules concern mostly public law and are applicable to commercial activities preceding the delivery of a product or the supply of a service to the consumer, and administrative sanctions that are applicable in case of failure to comply with such provisions. Among these rules are those regulating advertising or establishing obligations to provide information to consumers, in particular with respect to the origin, quality and price of goods on sale. The second group of rules concern primarily private law and are intended to protect consumers after the delivery of products or the supply of services, or after damage has occurred. In this 1. Law Nr. 4077, OG Mar. 8, 1995, Nr. 22221. Law Nr. 4077 was amended by the Law Nr. 4822 in 2003, see OG Mar. 14, 2003, Nr. 25048.

29

§3.02

A. Lale Sirmen

respect, reference is made to provisions that provide compensation for damages caused by defective goods and/or services sold to consumers. There continues to be other legislation in addition to the LPC that affects consumer protection. Every consumer contract is based on the law of contracts. Therefore, the Turkish Code of Obligations (C.O.) and the Turkish Commercial Code (Comm. C.) continue to have importance in consumer protection. Article 30 of the LPC states that if none of its provisions are applicable to a matter, general provisions of law shall be applied. Additionally, laws that protect public order and general Code laws also provide consumer protection. In fact, the renewed Turkish Code of Obligations which entered into force in 2012, contains more advantageous provisions for consumers than the LPC. Additionally, the LPC being adopted 18 years ago seems unable to cope with the problems that arise under some new legal relationships consumers face in today's marketplace. Therefore, a draft for a new Law On the Protection of Consumers have been prepared and sent to the Parliament by the Government in 2013. The new Law was adopted on November 7, 2013, but it will enter into force six months after its publication in the Official Gazette. 2 §3.02

CONSUMER CONTRACTS

The main task of the LPC is to strengthen the contractual rights of consumers. It applies to contracts related to the supply of goods and services in the market, where one party is the consumer and the other is either the seller or the supplier. The term "consumer" (tiiketici) is defined in the LPC as any natural or legal person who acquires, uses or makes use of goods or services for purposes which can be regarded as outside of his trade and profession (Article 3 e). According to the LPC, a "seller" is any natural or legal person, including public legal persons, who supplies goods to consumers in his commercial and professional capacity (Article 3 f), a "supplier" is any natural or legal person, including public legal persons, who supplies services to the consumers in his commercial and professional capacity (Article 3 g). The LPC defines the term "goods" as movable things that can be subject to trade, immovable property used for residential or holiday purposes, software, audio, video and similar intangible goods (Article 3 c). The term "services" is defined as all activities done in exchange for a price or an interest, excluding the supply of goods (Article 3 d). Consequently, the LPC governs contracts concluded between consumers and sellers or suppliers in markets for goods and services which are considered consumer transactions (Article 3 h). As long as one party is a "consumer" and the other party is a "seller" or a "supplier" as defined by the LPC, the LPC governs their contract. If both parties conclude the contract in the course of a business or trade, or if neither of the contracting parties act in the course of a business or trade, the LPC is not applicable.

2. Law Nr. 6502, Official Gazette dated 28.11.2013, numbered 28835. For a brief description of the new LPC' see the Annex.

30

.I

§3.03

Chapter 3: Consumer Protection Law

Some consumer contracts, such as installment sales, timeshare contracts, package tour contracts, sales through campaigns and other prepaid sales, doorstep selling, distance contracts, consumer credit contracts, housing finance contracts and subscriptions to periodical publications are governed by special provisions of the LPC. It should be pointed out that the Court of Cassation has been reluctant to treat contracts for work and insurance contracts as consumer contracts because they were not mentioned in the LPC. 3 However, the new LPC states that contracts concluded between consumers and sellers or suppliers in markets or goods and services are consumer contracts even when they are not mentioned in the LPC (Articles 31 and 83/2) §3.03

GENERAL CONDITIONS OF CONSUMER CONTRACTS

Contracts, particularly those set out in printed standard forms, commonly contain unfair terms giving the seller or the supplier the control on the terms of the contract or the performance of the contract, or seeking to exclude or limit their liability. Consumers are often unaware of these terms or even when they are aware of them, they may not have the bargaining power to refuse them. Therefore, to provide adequate protection for consumers, there must be an efficient statutory control of these terms. The amendment of the LPC in 2003 was therefore specially aimed at ensuring protection in an area where consumers are particularly vulnerable and are subject to exploitation, e.g., unfair terms in the contracts. According to Article 6 I of the LPC, a term which has not been negotiated for is unfair if contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer. Unfair terms used in a contract concluded with a consumer by a seller or a supplier are not binding on the consumer (LPC Article 6 II). The remainder of the contract continues to bind on the parties if it is capable of continuing in existence without the unfair terms. Article 6 III of the LPC introduces an irrebuttable presumption of non-negotiation in the cases where the term has been drafted in advance and gives as a typical example the case of standard form contracts. It should be pointed out that the negotiation of a specific term individually would not exclude the application of these provisions if an overall assessment of the contract indicates that it is nevertheless in advance drafted standard contract (LPC Article 6 IV). The Implementing Regulation on Unfair Terms issued in accordance with Article 6 of the LPC contains an indicative and non-exhaustive list of terms that may be

3. Therefore, when disputes arising from these contracts are heard in Consumer Courts, the Court of Cassation considers this to be grounds for reversal, even when one party is a consumer and the other party is a seller or a supplier as they are defined in the LPC.For contracts for work, see the following decisions of the 11th Civil Chamber of the Court of Cassation, dated 9.4.2002, Nr. 5915/1689; dated 23.9.2002, Nr. 3627 /4107: Zevkliler & Aydogdu, pp. 978-979; also decision of the General Assembly of Civil Chambers, dated 26.2.2003, Nr.15-27 /102: http://www. kazanci.com; for insurance contracts see the decision of the 11th Civil Chamber of the Court of Cassation, dated 18.1.2001, Nr. 106562/197: Yarg1tay Kararlan Dergisi, Vol. 27 /6, June 2001.

31

§3.05

A. Lale Sirmen

considered unfair. 4 The court may only use it as an interpretative aid. The Implementing Regulation provides that unfairness shall be assessed taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of the conclusion of the contract, to all circumstances surrounding the conclusion of the contract (Article 6 II}.

§3.04

PROHIBITION OF FAILURE TO SUPPLY

According to the Turkish Code of Obligations, unless the contrary is clearly and easily understood, the display of goods with a price-quotation is considered an offer (Article 8 II). Upon the acceptance of this offer by the customer, the seller cannot prevent the conclusion of the sales contract. If goods are displayed without a price-quotation, the LPC goes a step further and prescribes a duty on the seller to accept the offer of the consumer. Accordingly, the display of goods in a shop window, on a shelf or in any other easily noticeable place in a commercial enterprise means that they are available for sale. If goods are not meant for sale they should be marked with an expression like "sample only" or "not for sale." The seller cannot refuse to sell displayed goods nor designate items as sold when the goods are not in fact sold (LPC Article 5 I). Likewise, a seller cannot refuse to supply a service unless there is a justified ground for doing so (Article 5 II). These provisions have two aspects. First, they give the consumer the right to sue for the formation of a contract and for damages that may result from the seller's delay in selling. In addition, they allow a fine to be imposed on the seller (LPC Article 25 II). Moreover, the seller cannot make the sale of goods or services conditional upon the consumer buying such goods or services in quantities, numbers or sizes or some other goods or services determined by him unless this is a commercial usage or custom (Article 5 III).

§3.05

INFORMATION FOR CONSUMERS

The LPC has accorded an important role to consumer information. Consumer contracts which are governed by the LPC, such as doorstep selling, installment sales, sales through campaigns and other prepaid sales, timeshare contracts, package tour contracts, distance contracts, consumer credit contracts and housing finance contracts must be concluded in written form typed in bold black letters of at least 12 point size (LPC Article 6 VI) and contain particular terms required by law. Observance of this requirement is a condition for the validity of a sales contract under the general provisions of the C.O. (Article 12 II}. However, a claim of invalidity that is to the detriment of the consumer would be contrary to good faith and regarded as inadmissible.

4. The Implementing Regulation on Unfair Terms is modeled on the Council Directive (EEC) 93/13 on unfair terms in consumer contracts ([1993] OJ L95/29).

32


§3.06

The LPC requires sellers to display the origin, quality and price of retail goods subject to trade. Labels on which the place of production, distinctive characteristics of the product and price including all taxes, must be attached to goods, packages, or on lids, and when this is not possible, lists must be made available on which the same information is stated (Article 12 I). Those who import or manufacture industrial products are required to issue guarantee certificates that inform consumers of their rights should there be a breach of warranty (Article 13). Industrial goods which are manufactured in Turkey or imported into Turkey must be sold with a user's guide written in Turkish. The user's guide must include instructions for the use, maintenance and repair of the goods (Article 14). §3.06

LIABILITY FOR DEFECTIVE GOODS AND SERVICES

The LPC and the C.O. regulate warranties arising from the sale of defective goods differently, because unlike the C.O., the LPC seeks unilaterally to protect consumers. Under Article 4 of the LPC, goods are considered to be defective if their quality, or quantity which affects quality, is not in compliance with the standards or technical specifications, information on their packaging or labels, instructions written in the user's guides, warranties given by the seller, or advertisements or commercial announcements of the item. In the same manner services are considered defective if their quality, or quantity which affects the quality, does not conform to the standards or technical norms prescribed for them in the advertisements or commercial announcements or to the warranties given by the supplier (Article 4/ A). Additionally, goods or services are defective if they have physical, economic or legal deficiencies which destroy or substantially prejudice their value for the purpose for which they are intended or totally, or partially, prevent the benefits which a consumer would reasonably expect to receive from them. The LPC regulates the legal consequences of consumers purchasing defective goods. When goods are sold there is either an express or implied warranty by the seller in favor of the consumer. Accordingly, when the purchased goods are defective the consumer can, by notifying the seller within 30 days starting from the date of their delivery, withdraw from the contract, return the defective goods and recover his money, or demand a reduction in the purchase price or demand repair of defective goods free of charge, or the replacement of the defective goods with new goods. If the defects could not be discovered with the exercise of reasonable care, or if there is willful fraud by the seller, buyer's failure to give notice does not limit the warranty. However, the seller has no liability for defects known to the consumer at the time of the contract (Article 4 V). In this context, the LPC obliges the seller of used, repaired or defective goods to label them with the expression "defective" in a manner easily noticeable by the consumer. The same information must also be provided in the invoice, receipt or sales voucher furnished to the consumer. These rules do not apply to sellers selling only defective goods, or who permanently provide a section of their business premises, such as a floor or a shelf, for the sale of defective goods (Article 4 VI).

33

L

§3.08

A. Lale Sirmen

The seller, the dealer, the agent, the manufacturer (or the producer),the person who has imported defective goods, the creditors and the housing finance institutions which grant house financing loans shall be jointly and severally liable for any damage caused to the consumer by the delivery of defective goods. The liability of the housing finance institutions shall be limited to the amount of the credit. The time limit for actions based on warranty is two years from the date of delivery to the consumer. For defective goods, the LPC imposes a duty on manufacturers and importers to establish service stations, to keep spare parts in stock and to employ qualified technicians for the maintenance and reparations of the goods they sell for a period of time specified in the relevant Implementing Regulation (Article 15). The LPC also regulates the legal consequences of consumers purchasing defective services. In the case of a defective service, the consumer can, by notifying the supplier within 30 days following the date of performance, rescind the contract or demand either the performance of the service or a reduction in the price in proportion to defect (LPC Article 4/ A II). §3.07

CERTIFICATE OF GUARANTEE

Importers or manufacturers are obliged to issue and furnish guarantee certificates for industrial goods imported or manufactured (LPC Article 13). The period of warranty starts from the date of delivery of the goods and covers at least a period of two years. The certificate of guarantee must contain the number and the date of the invoice of the goods sold, as well as their label (bandrol) and serial number. In case goods fail to perform their functions within the period of warranty due to faults in either material or of assembly, the seller is under an obligation to repair the items. If, due to frequent failures in the performance of goods within the period of warranty, the consumer is permanently prevented from using them, or when the maximum period of time allowed for their repair has expired, the consumer is entitled to demand from the seller the replacement of goods. For any violation of this obligation, the seller, the dealer, the agent, the manufacturer (or the producer) and the person who imports the goods sold are jointly and severally liable. §3.08

PRODUCT SAFETY

In order to ensure a high level of protection, safety and health for consumers, the Law on the Preparation and Implementation of the Technical Regulations Concerning the Products 5 was adopted in 2001. This Law imposes a general obligation that manufacturers and distributors shall place only safe products on the market. Products which are in compliance with the requirements prescribed in their technical regulations are regarded as safe products. Conformity with the requirements of the technical regulations however, does not prevent competent authorities from imposing restrictions or requiring the withdrawal or recall of unsafe products. Under the LPC, the Ministry of 5. Law Nr. 4703, Official Gazette dated Jul. 11, 2001, numbered 24459.

34 I

§3.09[A]


Customs and Trade and consumer organizations are authorized to bring an action for the cessation or prohibition of the production and th~ sale of defective goods which are mass-produced (Article 24 I). It should be noted that there is also a regulation in Turkey similar to the European Directive 85/374 of July 25, 1985 on the liability of producers for defective goods under which an injured party may have a claim for damages based on non-contractual grounds. According to Article 6 of The Implementing Regulation on the Liability Arising from Defective Goods issued in accordance with Article 4 of the LPC, the producer of a defective product or the person who has imported it must compensate any damage caused by it to the physical well-being or property of individuals, whether or not there is any fault on the part of the producer or the person importing it. A product is to be regarded as defective when it does not provide the safety which a person is entitled to expect, taking into account all the circumstances, including its presentation, the use to which it could reasonably be expected to be put, and the time at which it was put into circulation. §3.09 [A]

CONSUMER CONTRACTS GOVERNED BY THE LPC

Installment Sales

An installment sale is a type of sale in which the seller is under an obligation to deliver

goods or render services before receiving the purchase price and the buyer promises to pay the purchase price in portions at successive periods. Installment sales are used primarily by persons of lower income to secure the ownership of goods without having to pay the full purchase price immediately. As the successive installments usually represent a relatively small amount, it is hard for the consumer to estimate the real amount of his commitment. Installment sales are extensively governed by the C.O., but the LPC also has provisions related to the sale of the goods and services under which the price is paid in successive installments. Both the C.O. and the LPC have introduced a set of conditions that are essential for the validity of an installment contract. First, a written form is required. Second, the contract must include specific terms that are essential for it to take effect, such as the price of the goods or services on a cash basis, the price increase resulting from the payment by installments, the amount and the annual ratio of interest, the amount of interest for delay, the amount of the initial payment and the payment plan which covers the number of installments and their due dates (C.O. Article 253, LPC Article 6/ A). Any increase in the agreed price after the formation of the contract will not be effective (LPC Article 6/ A VI). The seller must give a copy of the contract to the consumer (LPC Article 6/ A III). If the seller fails to act accordingly, he will be fined as prescribed in the LPC (Article 25 II). In case of default by the buyer in the payment of one or more installments, the seller may demand the total amount owed only if the consumer is in default with the payment of at least two consecutive installments the sum of which must not be less than one tenth of the purchase price provided that, the seller has reserved such right in

35

§3.09[C]

A. Lfile Sirmen

the contract and performed all his obligations under the contract (LPC Article 6/AV). In addition, the seller must give the buyer a period of grace to pay of not less than a week. This period of grace is however 15 days in Article 259 III of the C.O., and 30 days in Article 19 of the new LPC. If the buyer is in default with the payment of an installment, the seller may also rescind the contract only if he has reserved such right (C.O. Article 259 II). The buyer may at any time pay the balance of his debt in a single payment or discharge part of his debt in more than one installment payment in advance. In both cases, the consumer is entitled to a reduction in the sum of the interest in proportion to the amount of his payment (LPC Article 6/ A IV). The C.O. goes one step further and grants the buyer the right of withdrawal from the contract without being required to give any reason within seven days after a copy of the contract reaches him (C.O. Article 255).

[B]

Timeshare Contracts

A time share contract is any contract or a group of contracts concluded for at least three years under which the rights relating to the use of one or more immovable properties for a specified or specifiable period of the year which may not be less than one week, is purchased (LPC Article 6/B). The Implementing Regulation Concerning Timeshare Contracts sets out minimum requirements to be included in the contract which shall be in writing (Article 5). Specified items which must be included in the contract cover matters such as the identities and domiciles of the parties, the exact nature of the right to be purchased, an accurate description of the property and its locations as well as the supporting services such as gas, electricity, and water connections. The consumer may withdraw from the contract within 10 days after the parties have signed the contract (IR Article 6. I).

[CJ

Package Tour Contracts

The LPC concerns not all travel, but only package travel. According to Article 6/C of the LPC "package" is a holiday covering a period of more than 24 hours or including overnight accommodation and which must be a combination of at least two of three components when sold or offered for sale at an inclusive price. These three components are transport, accommodation, or other tourist services. The contract must be in writing. Article 12 of the Implementing Regulation on Package Tour Contracts issued in accordance with Article 6/C states that a brochure must be made available to the consumer which shall indicate both the price and adequate information concerning a list of matters including destination, transport, type of accommodation and itinerary. The consumer is entitled to be compensated for non-performance of the contract (IR Article 9). If the organizer finds before departure that he has to alter the price due to a change in respect of dues, taxes or exchange rate, he must notify the consumer as quickly as possible. The consumer may either withdraw from the contract or be entitled to a substitute package of equivalent value (IR Article 6 II).

36 i

·'


[D]

§3.09[E]

Sales through Campaigns and Other Prepaid Sales

The LPC refers to sales through campaigns where consumers are invited to participate in campaigns organized by informing the public through announcements made in the press, on radio, television or by other means of communication, and by which the goods are promised to be delivered or services to be rendered after payment (Article 7 I). With regard to sales through campaigns, not only the seller, but also the manufacturer (or the producer), the person who imports the goods sold, the creditors and the housing finance institutions which grant house financing loans are jointly and severally liable for failure to deliver the goods and render the services announced in the prescribed time and for breach of contract in respect to the price, quality and quantity of the goods and services (Article 7 III). However, the liability of the housing finance institutions shall be limited to the amount of credit. In sales through campaigns, the seller is required to give the consumer in writing information concerning the date on which the campaign will be over and the date and manner of delivery of the goods and performance of the services. In addition the seller must give the information specified for sales by installments (Article 7 V). In sales through campaigns, where the purchase price is paid in installments, provisions concerning sales by installments will also apply (Article 7 IX).

[E]

Doorstep Selling

Doorstep selling is defined in the LPC, as sales that are carried out in places other than a seller's business place or a fair or an exhibition (Article 8 I). In such sales, the consumer has the right to reject the goods without being required to give any reason until the end of a seven-day period which begins to run after the goods are delivered. Until the expiration of this period, the seller is required not to receive any payment, as well as any document which imposes a liability upon the consumer. In addition, the seller is under an obligation to take back the goods within 20 days after he receives the notice of withdrawal (LPC Article 8 III). These contracts must be made in writing and in addition to the other terms required to be included in the contract, the seller is also obliged to insert in it a phrase typed in bold black letters of at least 16 point size, in which the consumer is informed of his right to withdraw from the contract and of the seller's obligation to take back the goods sold (LPC Article 9). The consumer should sign the contract in which the rights conferred to him have been inscribed and write down the date in his own hand writing. If the seller, in case of a dispute, fails to prove that a contract has been drawn up in accordance with the said provisions and the goods sold have been delivered to the consumer, the consumer would not be bound with the seven-day period to exercise his right of withdrawal.

37

§3.09[H]

[F]

A. Lale Sinnen

Distance Contracts

A distance contract is any contract where the delivery of goods or performance of services take place iIDIDediately after the conclusion of the contract or later. It should be concluded using written, audiovisual, telephonic and electronic means or other means of distance communication without physically meeting the customer. The consumer must be furnished with certain information indicated in the Implementing Regulation on Distance Contracts, and the contract may not be concluded before the consumer confirms in writing that he or she has received such information (IR Article 6). The seller or the supplier must execute the order within a period of 30 days following the date on which the consumer's order reaches the seller or the supplier. However, the said period may be extended for a maximum of 10 days by notifying the consumer in writing (IR Article 9 I).

[G]

Subscriptions to Periodic Publications

According to the LPC, consumers who have subscribed to a periodic publication, may cancel the contract at any time provided they notify the seller in writing (Article 11 /A I). The publisher must carry out the cancellation within 7 days after he received the notification (LPC Article 11 /A II) and refund the rest of the subscription fee within 15 days following the termination of the contract (Article 11/A IV). A notice of the termination begins to run when it is received by the publisher. It is effective after 15 days for daily publications, after one month for weekly publications and after three months for monthly publications. For publications of a longer period, the notice of termination takes effect following the date of the first publication after the notice is communicated (Article 11/A III). Unfortunately, the regulation of the LPC as it regards to periodic subscriptions has not been successful, particularly when buyers have agreed to a certain period of time for a notice of termination to take effect. The LPC regulates the incentives that can be offered by publishers of periodical publications in their organized campaigns. Because incentives may include only cultural products such as books, reviews, magazines, encyclopedias, flags, posters, magnetic bands, or optical discs (LPC Article 11) the constitutionality of this Article was challenged in the Constitutional Court. The Court held that the Article is not contrary to provisions of the Constitution regarding freedom of the press, freedom of contract and the principle of equality before the laws. 6

[H]

Consumer Credits

The only statutory provision that covers consumer credit contracts in Turkish law is in the LPC (Article 10). However, it covers only consumer credit contracts made between consumers and banks or other similar financial institutions. 6. Decision of the Constitutional Court, dated 29 .9 .1998, Nr. 1998/25 /56: Official Gazette dated Mar. 18, 1999, numbered 23643.

38


§3.09[1}

The LPC has prescribed a number of conditions that are necessary for the validity of such contracts (Article 10 II). The credit contract must be made in written form and include the annual interest rate and a payment plan in which the date of the payments, the amount of the capital, the amount of interest and other charges are expressly indicated. The total amount of credit, total cost of credit with interest and other charges, the guaranties required, the rate of interest for default, and the legal consequences of debtor's default in payment must be also stated in the contract. Furthermore, the contract must contain clauses regarding the payment of the total credit before the time fixed. A consumer may discharge part or all of the obligation in a single payment before the time fixed and is entitled to a reduction in the sum of the interest and commission fee in proportion to the amount of payment (Article LPC 10 IV). However, an amendment of the terms of the contract, after its formation, to the detriment of the consumer is prohibited (LPC Article 10 I). Where credit is made available exclusively for the purchase of specific goods and services or for the purchase of goods and services from a certain seller or supplier, and if the seller or supplier fails to perform his obligation or does not fulfill it properly, the consumer has the right to a remedy for loss against the grantor of the credit, who is jointly and severally liable with the seller and supplier (Article 10 V). Credits provided to consumers by the use of cretlit cards are also regarded as consumer credits (LPC Article 10 /A).

[I]

Housing Finance Contracts

Housing finance is an extension. of loans that are made to consumers in order to acquire, lease, or secure a house. Loans extended to refinance loans are also included in the housing finance context. "Housing finance institutions:' are banks that lend or lease directly to consumers for the purposes of housing finance and leasing companies and consumer finance companies which are found eligible to operate in housing finance by the Banking Regulation and Supervision Agency. According to Article 10/B, housing finance institutions are obliged to provide consumers general information about loans or leasing transactions and deliver "precontractual information sheet" that contains the conditions of the loan or leasing agreements offered to the consumer before making the contract. Consumers have the right to accept or reject the offer. A housing finance contract is not considered signed and will be considered invalid unless one day passes after the issuance of the pre-contractual information sheet provided to the consumer (LPC Article 10/B II). A housing finance contract must be written and a copy of the contract must be submitted to the consumer. The conditions of the contract cannot be amended to the detriment of the consumer (LPC Article 10/B III). In case the consumer falls in default with a payment, the housing finance institution is obliged to notify the consumer within five working days (LPC Article 10/B IV). If the consumer is in default for at least two consecutive payments, the housing finance institution has the right to demand the remaining payments by giving a grace period to pay of at least one month (LPC Article 10/B V).

39

§3.10

A. Lale Sirmen

In financial leasing transactions, if the contract is cancelled by the housing finance institution due to a default of the consumer, the housing finance institution is under the obligation to sell the house. The housing finance institution shall sell the house acting in a prudent way, regarding the value of the house. Where the housing finance institution cannot recover its loss from the sale of the house, it can demand it from the consumer. If the amount obtained from the sale of the house is above the remaining debt, then the amount exceeding the debt will be paid to the consumer (LPC Article 10/B VI) . However, if the loan has been granted on condition that a sales contract is concluded with a specified seller, or for the purchase of a specified house, and the seller fails or delays to deliver the house, the consumer has the right to a remedy for his loss against the grantor of the credit, who is jointly and severally liable with the seller up to the credit amount(LPC Article 10/B IX). §3.10

ADVERTISING

There are a number of legislative provisions that seek to protect consumers against dangerous advertising in some specific areas. For instance, pursuant to Article 11 of the Law on the Establishment and the Broadcasting of Radios and Televisions, advertising for alcohol, tobacco and pharmaceuticals that are available only with a medical prescription is prohibited on radio and television. 7 Erroneous or misleading advertising is considered to be unfair competition and customers who are injured in their economic interest by such advertising are given the right to bring proceedings to obtain an acknowledgement of the illicit nature of the advertising or the cessation, prohibition or correction thereof. They may also bring proceedings to claim compensation for damages (Comm.C. Articles 56, 57). The content of advertising must also comply with the provisions of the LPC that require that commercial advertisements and announcements to be in compliance with the law and public morality and be accurate and true. Advertisements and announcements are prohibited if they are misleading, unfair, exploit the lack of experience, endanger the safety of the consumer in health and property, promote violence and crime, injure public health, or exploit children, the elderly or handicapped persons (Article 16 II). The LPC provides for the establishment of the Advertising Council, which is made up of representatives of several public institutes, the advertising industry, the media and consumers (Article 17). The Advertising Council issues principles which commercial advertisements and announcements must observe and impose monetary penalties and order the cessation or correction of advertisements or announcements which do not comply with the provisions of the LPC.

7. Law Nr. 6112, Official Gazette dated Mar. 3, 2011, numbered 27863.

40

Chapter 3: Consumer Protection Law §3.11

§3.12[B]

PENALTIES

The legislature has introduced a system of administrative penalties which is codified in the LPC (Articles 25 and 26) to assure compliance with the obligation to provide information to consumers, to protect the economic interests and safety of consumers, and the formal provisions mandating the contents of consumer contracts. The system allows competent public authorities to impose fines on the perpetrator of infringements up to a certain amount. §3.12

CONSUMER INSTITUTIONS

The two consumer institutions established under the LPC to protect the interests of consumers are the Council of Consumers and the Arbitration Committees for Consumer Problems.

[A]

Council of Consumers

The Council of Consumers is an advisory body, operating under the coordination of the Ministry of Customs and Trade. It deals with measures to be taken to meet the needs and to protect the interests of consumers and may issue recommendations regarding the implementation of the LPC. The Council of Consumers consists of representatives of several ministries, state bodies, public institutions, the Bar Association and representatives of consumer organizatipns, such as consumer associations and foundations (LPC Article 21). The president of the Council is the Minister of Customs and Trade. However, the Minister may appoint a ministry official as president.

[B]

Arbitration Committees for Consumer Problems

The Arbitration Committees provide a quick and inexpensive mechanism for the resolution of consumer disputes (LPC Article 22). There is at least one arbitration committee in each province or district. The Director of Trade of the province or an officer appointed by him is the president of the committee. The committee is composed of five members including the president. The LPC sets a monetary limit and grants judicial power to Arbitration Committees for Consumer Problems only where a dispute involves a value below the relevant limit (Article 22/V). Accordingly, Arbitration Committees for Consumer Problems have exclusive power to deal with disputes valued at an amount below the monetary limit as indicated in the LPC. The said monetary limit is determined each year at the end of October, based on the increase in the wholesale price index of the State Statistics Institute, and is announced in the Official Gazette in December by the Ministry of Customs and Trade (LPC Article 22/VI). However, in the case where a province is governed by a Metropolitan Municipality, the Arbitration Committee of the capital of the province can only deal with disputes where the value of the claim is not below a value which is determined and announced by the Ministry of Customs and Trade every

41

t §3.13

A. Lale Sirmen

year in December. Disputes involving an amount below this limit must be brought before the Arbitration Committees of the districts within the boundaries of that Metropolitan Municipality. 8 If a consumer's claim is valued at an amount equal to or more than the monetary limit established in accordance with the LPC, 9 the claimant is not required to bring the dispute before the Arbitration Committee for Consumer Problems, and if he desires to obtain an enforceable decision, the claimant must bring the dispute in a Consumer Court. However, if such a dispute is brought before an Arbitration Committee, the decision of the Committee constitutes a source of evidence that can be presented in Consumer Courts (LPC Article 22/VI). §3.13

CONSUMER COURTS

The establishment of consumer courts was a major reform in the area of consumer protection brought about by the LPC which states that all disputes arising from the implementation of the LPC will be within the jurisdiction of consumer courts (Article 23). Consumers are entitled to initiate proceedings to protect their personal rights in the consumer courts. In addition, the Ministry of Customs and Trade and consumer organizations are able to bring an action for cessation or prohibition of the production and sale of defective goods that are mass-produced (Article 24). The Ministry of Customs and Trade may also bring an action for the cessation and correction of unfair commercial advertisements and announcements in the consumer courts (Article 25 VII).

Consumer courts are special lower courts in which lawsuits are heard in accordance with the procedure prescribed in the Code of Civil Procedure for a simple trial. However, the decisions of consumer courts can be reviewed by the Court of Cassation. It should be noted that litigation brought before the consumer courts by consumers or consumer organizations are exempt from all fees and duties (court costs) (LPC Article 23 II).

8. For the year 2014, the claims for which the district Arbitration Committees have exclusive power, are required to involve an amount less than TRY 1,272.19; the value of the claims which the provincial Arbitration Committees are to deal with is required to be not less than TRY 3,321.17: Official Gazette dated Dec. 25, 2013, numbered 28862. 9. See the previous note.

42 b


§3.13

ANNEX The latest Law on the Protection of the Consumer ("LPC") will enter into force on 28 May 2014. It aims to keep pace with consumer protection legislation of the European Union. However, it contains some provisions which are not modeled on EU Law. The notable differences between the former and the new LPC can be summarized as follows: I. Definitions

The core definition of "goods" remains untouched. However, the new LPC defines the term "consumer" as any natural or legal person who acts for purposes outside a business and trade (Art. 3k). According to the new LPC, a "seller" is any natural or legal person, including public legal persons, who offers goods to consumers with a commercial or professional purpose or who acts in the name or on behalf of the seller (Art. 3i), a "supplier" is any natural or legal person, including public legal persons, who offers goods to consumers with a commercial or professional purpose or who acts in the name or on behalf of the supplier (Art. 31). II. Consumer Contracts According to the new LPC, a consumer transaction is any contract made between a consumer and natural or legal pe.rsons, including public authorities and institutions, who act with a commercial or professional purpose or those who act in the name, or on behalf of them, in the market of goods and services. The new LPC rejects the argument supported by the Court of Cassation10 that only contracts which have been covered by the former LPC are consumer contracts by explicitly stating that contracts, such as contracts for work, agency contracts, brokerage contracts, insurance contracts, contracts for transportation, and all contracts regarding banking and similar transactions can also be consumer contracts (Art. 31}. Moreover, consumer contracts, such as installment sales, timeshare and long term holiday product contracts, package tour contracts, doorstep selling, distance contracts, distance contracts of financial services, consumer credit contracts, housing finance contracts, prepaid sale of houses, and subscription contracts, are governed by the provisions of the new LPC. Since, the new LPC seeks to adopt the legislation of the European Union on consumer contracts, the provisions regarding timeshares and long term holiday product contracts, package tour contracts, doorstep selling, distance contracts, distance contracts of financial services and consumer credit contracts are predominantly inspired by the provisions of the current directives of the European Union covering

10. See above, §3.02.

43

A. Lale Sirmen

§3.13

these contracts 11 . The significant consequence of this innovation is that the new LPC aims to ensure consumer choice by imposing information duties on the seller and the supplier and prescribing cooling-off periods in favor of the consumer. Consumers have the right to withdraw in the case of installment sales within seven days; in the case of consumer credit contracts, prepaid sale of houses, doorstep selling, distance contracts, distance contracts of financial services timeshare and long term holiday product contracts, consumers have the right to withdraw within fourteen days of the conclusion of the contract. However, most of the provisions of the former LPC regarding installment sales, package tour contracts, and doorstep selling and distance contracts remain untouched. Like the former LPC, the new LPC leaves the determination of the particular terms of the contracts to implementing regulations. III. Liability for Defective Goods and Services In the new LPC there are two definitions made for defective goods. Firstly, the goods are regarded as defective if they do not comply with the mutually agreed model or sample or are not in conformity with the contract, because they do not objectively have the required quality (Art. 8/1). The second definition of defective goods in Article 8/2 is similar to the definition made in the former LPC. According to the new LPC, the seller is liable for any defect in the goods becoming apparent within six months of delivery and will be presumed to have existed at the time delivery unless the contrary is proved by the seller. This presumption will not apply where it is incompatible with the nature of the goods or the defect in the goods (Art. 10). The seller is liable for any defect in the goods appearing within two years of delivery. This time limit is five years in the case of immovable property used for residential or holiday purposes. The rights to which the consumer is entitled in the former LPC have remained the same. Likewise, a defective service has two definitions in the new LPC. Any service which is not rendered on the date fixed by the parties to the contract or is not in conformity with the contract, because it does not objectively have the required quality is regarded as a defective service (Art. 13 /1). The second definition of a defective service is about the same as the definition in the former LPC. In the case of a defective service, the consumer can rescind the contract or demand the performance of the service or the repair of the work free of charge or a reduction in the price in proportion to the defect (Art. 1S).

11. Parliament and Council Directive (EC) 2008/122 of Jan. 14, 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts ([2009] OJ 133/10); Council Directive (EC) 90/314 ofJun. 13, 1990 on package travel, package holidays and package tours ([1990] OJ 1158/59); Council Directive (EEC) 85/577 of Dec. 20, 1985 to protect the consumer in respect of contracts negotiated away from business premises ([1985] OJ 1372/31); Council and Parliament Directive (EC) 97 /7 on the protection of consumers in respect of distance contracts ([1997] OJ 1144/19); Parliament and Council Directive (EC) 2002/65 of Sept. 23, 2002 concening the distance marketing of consumer financial services ([2002] OJ 1271/16); Parliament and Council Directieve (EC) 2008/48 of Apr. 23, 2008 on credit agreements for consumers ([2008] OJ 1133/66).

44


§3.13

IV. Unfair Commercial Practices The new LPC contains a provision on unfair commercial practices 12 . According to Article 62, a commercial practice is unfair when it is contrary to the requirements of professional diligence and materially distorts, or is likely to materially distort average consumers' behavior. Where a specific group is targeted, the behavior of the average member will be taken into consideration in determining the impact of the practice. Practices that are misleading or aggressive are regarded as unfair. Unfair practices are forbidden.

V. Access to Justice Under the new LPC, a consumer can no longer bring the dispute before the Arbitration Committee for Consumers if his claim is valued at an amount equal to or more than the monetary limit established in accordance with Article 68. Consequently, Arbitration Committees for Consumer Problems are no longer empowered to give decisions which constitute a source of evidence in accordance with Article 22 of former LPC. The monetary limit which is set to determine the area of the judicial power of Arbitration Committees for Consumer Problems and Consumer Courts will be fixed every year according to Article 298 of the Code of Tax Procedures, which is based on the increase in the wholesale price index of the State Statistics Institute. The provisions regarding the structure and functioning of the Arbitration Committees for Consumer Problem~ and Consumer Courts remain to a large extent unchanged.

Selected Bibliography Arslan, i. Y., Tiiketici Hukuku, 2nd ed., istanbul 2004. Yavuz, N., bgretinin ve Uygulamamn I~1gmda Tiiketicinin Korunmas1 Hakkmda Kanun ~rhi, 2nd ed., Ankara 2010. Zevkliler, A. & Aydogdu, M., Tiiketicinin Korunmas1 Hukuku, 3rd ed., Ankara 2004, pp. 158-159. Sirmen, A. L., "Consumer Redress in Civil Proceedings in Turkish Law". Ankara Law Review 3, no. 2 (Winter 2006): 83-97.

12. The regulation of the unfair commercial practices in the new LPC is inspired by the Parliament and Council Directive (EC} 2005/29 of May 11, 2005 concerning unfair business-to-consumer commercial practices in the internal market ([2005] OJ Ll49/22}.

45

CHAPTER

4

Agency Tugrul Ansay & I$ik Onay *

§4.01

AGENCY CONTRACT AND AGENCY RELATIONSHIP (VEKALET SOZLE$MESi VE TEMSIL iLi$KiSi)

The conduct of business is often so complicated that a single person as a merchant may not be able to administer all his affairs by himself. Agency (temsil, vekalet) makes it possible for a merchant to act' through intermediaries. These intermediaries are different than those persons such as workers or employees, who have no power of representation. It must also be noted that administrative bodies (e.g., the board of directors), who administer the business of legal persons, such as general partnerships or corporations, are not agents. They are the so-called "organs" of the legal person, and any act on their part concerning the legal person's business is attributed to the legal person (C.C. Article SO). The term agency denotes two different, yet connected concepts, which should be differentiated: agency relationship (C.O. Article 40 et seq.) and agency contract1 (C.O. Article 502 et seq.) The agency relationship (temsil ili$kisi) between an agent and a principal pertains to the former' s representation2 of the latter, when dealing with third parties. The agency contract (vekalet sozle$mesi), however, is a contractual relationship between the agent and the principal, regulating their rights and obligations towards each other.

* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of

Law, Istanbul. Asst. Prof. Dr. l~tk bnay: Ko<; University, School of Law, Istanbul. 1. The term agency may also be used to indicate a specific type of agency contract (acente). See

below, section §4.06[C]. 2. The term representation is used in the sense of voluntary representation (iradi temsil), i.e. power of representation given by an act in law. It must be distinguished from statutory representation (kanuni temsil), an example of which is the power of representation given to the parents of a minor, who lacks the lack legal capacity to administer his own affairs.

47

Tugrul Ansay & I~1k Onay

§4.01

The agency relationship is formed through a unilateral act (authorization) by the principal, giving the agent power of representation (temsil yetkisi). However, both parties need to consent for the agency contract to be formed. This discrepancy is due to the fact that the agency contract imposes obligations on the agent, whereas the agency relationship per se does not create an obligation for the agent. The authorization to represent is directed to third parties and is separate from the contractual relationship between the principal and agent and, therefore, does not create any rights or liabilities between the principal and agent. In an agency relationship it is up to the agent to make use of his power of representation or not. This difference between the agency contract and the agency relationship becomes apparent in cases where minors with capacity to consent are involved. A minor with capacity to consent may represent a principal in an agency relationship, but cannot enter into an agency contract without the consent of his guardian. In an agency relationship the agent (temsilci) is a person who enters into transactions in the name of or on behalf of another person, who is called the principal (temsil olunan). In other words, here the term "agency" refers to the power of the agent to represent the principal as to third persons. If the agent acts in the name of the principal, the principal is a party to the transaction, but the agent is not (C.O. Article 40 I). Thus a triangular relationship is created between the principal, the agent and the third party. The power of representation mostly results from a contractual relationship between the agent and the principal. This contractual relationship may be an agency contract, but is not necessarily one. An employee in a service contract or a partner in a partnership agreement may also be granted a power of representation. In an agency contract, the agent undertakes to carry out, in accordance with the agreement, the business or services with which he is entrusted (C.O. Article 502 I). Rules on agency contracts are by analogy applicable to other contracts not regulated under the C.O. when the subject of the contract is the provision of a service (C.O. Article 502 II). An agent in an agency contract is usually granted power of representation; however, this is not a necessity for agency contracts. A brokerage agreement, for example, does not create a power of representation in the broker, despite being a type of agency contract. The broker only brings parties together to enter into a business transaction (C.O. Article 520 et seq.). There are a variety of agency contracts, with or without the power of representation. Some are regulated in the Code of Obligations and others in the Commercial Code or in various other statutes. In practice, people generally give a power of attorney (vekaletname) prepared by a notary. Such documents are valid without the concurrence of the person who will be authorized to be the representative, that is, without any contractual relationship between the principal and agent. Usually, however, when there is an agency contract between a principal and agent, the principal also authorizes the agent to represent him. As a result, agents may be classified as those having the power of representation and those not having this power. The commercial representative is an agent with representative powers, whereas the commissioner (komisyoncu) 3 or broker is only an 3. A commissioner is a representative who acts in his own name, but on behalfof the principal (C.O. Art. 532}.

48

L,

Chapter 4: Agency

§4.02

intermediary who, without entering into contracts in the name of any person, tries to bring the parties together to do business. The agency contract shall be distinguished from other contracts concerning the provision of services. An agency contract is different from the relationship of employer and employee, which is based on an employment contract. In an agency contract, the agent may or may not receive a fee for his services, whereas in employment contracts the employee always receives remuneration. In an employment contract the duration of the employment is the most fundamental term, whereas in an agency contract the fulfillment of the service is decisive. A lawyer, for example, represents his client in a court case under an agency contract. But the same lawyer is a servant when he works as a legal consultant for a bank. In the latter case, he gives his services for a definite or indefinite period of time during which he is an employee. Agency is also different from an independent contractor's contract in that the contractor undertakes to produce a work (eser sozle~mesi). In such contracts, the contractor promises to achieve a particular result (e.g., to complete a construction) in exchange for remuneration, but in an agency contract, the agent merely undertakes to work towards a result. If the agent works towards that result observing his duty of care and loyalty, he is deemed to have fulfilled his obligation, irrespective of whether the result was achieved or not. Simply put, in agency contracts the labor or work is more important than the result, when compared to the contract to produce a work. A doctor treating a patient would be considered as an agent in an agency contract, whereas a dentist who undertakes to make a denture for his patient would be considered as a contractor. §4.02

CR.EATING AGENCY

An agency contract may be entered into by agreement of the principal and the agent, based on an explicit offer and acceptance. An exception to general contract rules on formation, particular to the agency contract, is found under C.O. Article 503. According to C.O. Article 6, silence of the offeree does not constitute an acceptance of the offer, unless the particular nature of the transaction or the circumstances are such that express acceptance cannot reasonably be expected. C.O. Article 503 provides an example for circumstances where express acceptance cannot be reasonably expected: "An agency contract is deemed to have been accepted where it has not been declined immediately and relates to business which is conducted by the agent by official appointment or on a professional basis or for which he has publicly offered his services." As noted before, the consent of the agent is not required for the formation of an agency relationship. The principal may grant the agent power of representation in various ways. 4 The power of representation may be given by a declaration addressed to the agent, which might be done by giving a letter of authorization to the agent or to

4. The authorization may also come subsequent to the agent's action in the principal's name. In this case the agent's action binds the principal as if the agent was authorized at the outset.

49

Tugrul Ansay & I~1k bnay

§4.03

third persons or by public announcement. In exceptional cases, the principal may also be held responsible for the agent's actions, despite the absence of a declaration on the principal's part. For example, the principal's intention to authorize the agent may be derived merely by his acts or conduct (implicit authorization). When, for example, the owner of a hotel allows a person to occupy the position and assume the duties of a clerk, authority to represent may be inferred from his actions. Even if the principal does not actually have the intention to authorize the agent, his conduct may be such that it creates a legal appearance, which leads third persons to believe that "the agent" has actual authority (apparent authority, agency by estoppel). That is for example the case if the principal sees a person dealing with third persons in his name without his authorization and does not interfere. The Code of Obligations does not require a special form either for the agency relationship or for the agency contract. Even an oral agency contract or an oral declaration giving power of representation is valid. However, agency contracts (or relationships) authorizing the agent to dispose of immovable property registered in the Land Registry should be notarized (Regulation on Land Registry Article 13 IV). Moreover, agency contracts (or relationships) authorizing the agent to sign a suretyship contract (kefalet sozle~mesi) in the name of the principal, are subject to the strict formal requirements of suretyship contracts (C.O. Article 583 II). It should also be noted that some statutes require the appointment of the agent to be in writing. The power of representation of an insurance agent and its· scope, for example, must be in written form and it must be registered and publicized. 5 The authority given to a lawyer to represent a party in court must also be made before or approved by a notary (C. Civ. Pr. Article 76 I). §4.03

DUTIES AND LIABILITIES OF THE AGENT AND THE PRINCIPAL

There is a fiduciary relationship based on confidence between the principal and agent. It is expected that the agent will exercise reasonable care, skill and diligence in the

performance of his tasks. He is responsible for damages that he willfully or negligently causes to the principal. Negligence is measured by the conduct of the ordinary prudent person in doing a similar service (C.O. Article 506 III). In some cases, however, a higher degree of skill may be required. This is so if the agent is also a merchant. An agent is required to carry out his duties in person, unless he is authorized or it is customary or he is compelled by circumstances to act through another person. If an agent improperly appoints a substitute, he is responsible for the acts of the substitute (C.O. Article 507 I). The agent must obey all lawful and express instructions of his principal (C.O. Article 505 I). He must give an account to his principal for all property or money belonging to his principal, which comes into his possession (C.O. Article 508). An agent may serve gratuitously, although he is usually entitled to compensation. Sometimes this compensation is called an "honorarium". Whether the agent is entitled

5. Law Nr. 5684, Art. 23 II.

50

§4.04[A]

Chapter 4: Agency

to remuneration from the principal depends upon their agreement, which may be express or implied. That an agent is to be compensated is implied when one requests another to perform services connected with the latter's commercial enterprise, or under circumstances which reasonably justify the expectation of being paid. For example, when one asks a commissioner (Komisyoncu) or an attorney to act in his professional capacity, such person may demand an appropriate fee (Comm. C. Article 20). The amount of compensation, in the absence of agreement, is determined by usage or customary rates, or by what the services are reasonably worth at the time and place where they were performed. The principal must also reimburse the agent for all disbursements and for all expenses incurred in the lawful discharge of the agency for the benefit of the principal (C.O. Article 510 I, Comm. C. Article 20). The principal must, furthermore, indemnify the agent for any loss or damages sustained in the course of carrying out his duties, unless he can prove that damages have occurred without his fault (C. 0. Article 510 II). However, even if the principal can prove that he is not at fault, he must share the loss of the agent in cases where the latter acts gratuitously. §4.04 [A]

RELATIONSHIPS WITH THIRD PARTIES

Agent and Third Persons

The extent of the power of representation may vary. The scope of agency may be freely determined by the agreement of the parties in agency contacts, and by the principal in case of an agency relationship. Unless parties agree otherwise, the scope of agency is determined by the nature of the business to which it relates (C.O. Article 504 I). An agent may be appointed as a general or specific agent. A specific agent is one who is empowered to transact definite affairs or to do a certain service. He has limited power, like purchasing only a particular painting or signing a contract of employment. An agent, however, may also be empowered to do all kinds or some kinds of transactions in connection with a particular enterprise. Examples are the commercial representative, commercial agent, general agent, salesman, traveling salesman or agents who transact certain business at a particular location (acente) or act as an intermediary only (like broker, commissioner). In such cases, one may speak of a standardization of representative authority. The specific title given to the agent also expresses the particular content of representative power defined by law. A commercial representative, for example, has the power to do everything within the scope of business of the enterprise (The exceptions are stated in the C.O. Article 548). In the case of corporations, the stated scope of business of the corporation creates the limits of the power of representation (See chapter on Business Associations). The head of a branch office is authorized to do everything within the scope of the business of the main office at the locality of the branch office. In order to protect third parties acting in good faith, the law has given in such cases a specific content to the power of representation. The interests of third parties, relying on the published powers of the agent are protected. If third parties are notified of a power of representation, the scope,

51


§4.04[B]

with regard to notified parties, will be determined by the content of the notification (C.O. Article 41 II). In spite of being appointed as a general agent, the agent additionally needs specific authorization to bring a law suit, to declare settlement, to enter into an arbitration agreement, to declare or postpone bankruptcy, to ask for a bankruptcy arrangement, to sign a negotiable instrument, to give a gift, to sign a suretyship contract, to transfer real property or to create other real rights in real property in the name of the principal (C.O. Article 504 III). If an agent is given a general power, a subsequent limitation of the power of representation cannot be asserted against third parties unless the third party has knowledge of the limitation. One method to insure this knowledge of limitation by third parties is to send them circular letters. A method of limiting the power of representation is to create joint representation (elbirliifi ile temsil). In joint representation, the signature of one representative alone is not sufficient to establish a binding relationship between the third party and the principal. Another way of limiting a power is to establish a branch office. This limits the power of the representative to that locality. Those who may not have a power of so-called positive representation may have a negative power of representation. Certain employees of a merchant, for example, have statutory power to receive notices in the name of the principal (See below, section §4.06). [B]

Principal and Third Parties

When an agent enters into a contract for his principal within the scope of his authority, he usually incurs no liability. The effect of agency is that all legal declarations made by an agent in the name of a principal bind the principal. Only the principal, not the agent, is a party to the transaction (direct representation, dogmdan dogmya temsil). There are, however, other instances where the agent may become liable. A person may enter a transaction as an agent without having authority (falsus procurator, false representation) or by exceeding the limits of the given authority (yetkisiz temsil). In such instances the false agent becomes personally liable for damages incurred by a third party, unless the transaction is ratified by the principal or the false agent can prove the third party's knowledge of his lack of authority (C.O. Article 47). This ratification (approval, icazet) may be express or implied. The third party is entitled to call upon the alleged principal to make his choice within a reasonable period of time (C.O. Article 46 II). If the transaction is subsequently ratified by the principal, the transaction binds the principal as if the agent was authorized at the outset. 6

6. These statements pertain to the principal's relationship with third parties. The internal relationship between the "false agent" and the principal is governed by different rules in different scenarios: If the transaction is subsequently ratified, the rules on agency contracts are applicable. This is also the case even if no contractual relationship has existed between the parties prior to the "false representation" (C.O. Art. 531).

52

b

Chapter 4: Agency

§4.05

An agent who fails to disclose the existence of his agency or the identity of his principal becomes liable as though he were acting for himself (undisclosed principal). If the principal is undisclosed and the agent acts in his own name but on behalf of the principal there is an indirect representation (dolayli temsil). 7 In this case, there is no privity of contract between the principal and the third party, and the principal is not liable to the third party. In order to create a legal relationship between the principal and the third party, the rights and obligations derived from the transaction must be assigned and transferred to the principal (C. 0. Article 40 III). 8 Such an assignment or transfer is not necessary when, under the circumstances, the other party had implied notice of the agency, or the identity of the contracting party was not a matter of difference to the third party (C.O. Article 40 II).

§4.05

TERMINATION OF THE AGENCY CONTRACT AND AGENCY RELATIONSHIP

Here again the distinction between the agency contract and the agency relationship should be emphasized. An agency contract may be terminated but the relationship may continue, if, for example, the notice of termination or withdrawal of the power of representation has not reached the third party. The power of representation may, however, be fully or partly revoked, although the contract does not lose its validity. Usually the termination of the power of representation also causes the termination of the agency contract. Therefore, when an agent is dismissed or has resigned, died, became insane or bankrupt, the agency relationship and the contract will terminate (C.O. Article 513 I). An agency contract may be terminated in the way a contract is generally terminated: by fulfillment of the contractual obligations, by mutual agreement, upon the happening of a particular event, etc. However, since the agency relationship is based on mutual confidence, the principal may dismiss the agent or limit his power of representation at any time. Similarly, the agent may also refuse to represent the principal (resignation, abandonment, istifa) at any time. The principal's waiver (feragat) of his right to limit or revoke power of representation in advance is not binding (C.O. Article 42 II). If the dismissal or resignation is done at an unreasonable time the principal or agent must compensate the other party for damages caused by such termination (C. 0. Article 512) .

If the transaction is not ratified and no contractual relationship exists between the parties, rules on agency without authority (C.O. Art. 526 et seq} are applicable and the principal may claim damages. If conditions are fulfilled the principal's claim may also be based on

tort or unjust enrichment. If the transaction is not ratified but a contractual relationship (e.g. an agency contract}

exists between the parties, the agent's act without (or exceeding} authority is considered a breach of contract, and the principal's claim of damages are based on this contract. 7. For example, a commissioner acts in his own name, but on behalf of the principal (C.O. Art. 532}. 8. In the case of an agency contract, if an agent has acquired claims from third parties acting in his name but on the principal's behalf, these claims are deemed to be transferred to the principal by law, once the principal fulfils all his obligations against the agent (C.O. Art. 509 I}.

53


§4.06[A]

The termination of the power of representation has widespread effects on third persons. If the principal had given notice to third persons of the power of representation he should also inform them in the same manner when the power is terminated (C.0. Article 42 III); other 'se he will be bound by transactions entered into by his agent with bona fide third persons. Even if a commercial representative is not registered, the dismissal of a commercial representative shall not be effective as to bona fide third persons if it .is not registered in the commercial registry (C.O. Article 550). This also applies to the dismissal of a partner by a general partnership (kollektif ~irket). The partner leaving the partnership continues to bind the partnership with his legal transactions against third parties acting in good faith if the termination of his representative power is not registered in the comrnercial registry (Comm. C. Article 259). Similarly, the principal will be liable to third parties acting in good faith if the instrument of authorization is not handed back to the principal after the termination of the power of representation (C.O. Article 44). §4.06 [A]

DIFFERENT TYPES OF AGENTS Comme11cial Rep11esentative (Gene11al Manage11, Tica11i Temsilci, C.O. Articles 547-550)

A comrnercial representative is an agent who is expressly or impliedly authorized by the owner of an enterprise to conduct the business and to sign "per curation" (C.O. Article 547). If the enterprise is non-comrnercial, the authority given to a commercial representative is effective as to third persons only if registered in the commercial registry (creative effect). If the enterprise is a comrnercial enterprise, the representative might be authorized to represent the enterprise before registration. In this situation, registration is still necessary, but it has only declaratory effect (C.O. Article 547 II). The discharge of a comrnercial representative must also be entered into the comrnercial registry. An unregistered termination is not effective against third persons acting in good faith (C.O. Article 550). A conunercial representative is a kind of general agent. He is an alter ego of the principal. He has the power, as far as bona fide third parties are concerned, to enter into all kinds of transactions within the scope of the enterprise, including signing negotiable instruments (C.O. Article 548 I). But, he is not entitled to transfer real property or to create other rights in real property without the specific authorization of the principal (C.O. Article 548 II). The extent of the powers of the commercial representative derives from the title given to him by the principal, and it may not be subject to any limitation unless third persons have received notice or have actual knowledge of such a limitation or have acted in bad faith (C.O. Article 549) .Nevertheless, the power of representation may be limited to the business of a branch office or only requiring joint representation. In such cases, the limitation must be registered in the commercial registry (C.O. Article 549).

54

b

§4.06[C]

Chapter 4: Agency [B]

General and Special Agents

A general agent is generally empowered to administer an estate belonging to the principal, who is normally not a merchant. Such a general agent can do everything within the ordinary scope of administration of an estate. Nevertheless, as mentioned earlier, he is not entitled to commence a lawsuit, declare a settlement, consent to arbitration, sign negotiable instruments (kambiyo taahhiidii), to declare or postpone bankruptcy, to ask for a bankruptcy arrangement, to sign a suretyship contract (kefalet sozle~mesi), to make gifts or transfer real property or create other rights in real property (C.0. Article 504 III) in the name of the principal. A commercial agent (ticari vekil) is another type of general agent acting in the name of a merchant to operate a commercial enterprise. He/she is similar to the commercial representative, but with fewer powers. He is not authorized to make loan agreements, to sign negotiable instruments, to file a law suit or represent the principal in a law suit, unless he has additional specific authorization to do such acts (C.O. Article 551 II). [C]

"Acente"

[1]

Acentelik

"Acentelik" is a separate institution under Turkish law. An "acente" is an agent who contractually obliges himself to act as an intermediary for the conclusion of contracts for a commercial enterprise or to' form such contracts in the name of such enterprises on a continuous basis in a determined place or area without having a dependent position like commercial representatives or commercial agents (Comm. C. Article 102 I). "Acente" is subject to the special provisions of the Commercial Code on "acentelik" (Comm. C. Articles 102-123). These provisions are taken partly from the Swiss Code of Obligations (Article 418 a-418 v) and also from the German Commercial Code (Article 84 et seq.) There are also special provisions regarding some particular type of acentes, such as insurance agents. There are two main types of acentes: The first type is those who act as intermediaries to help parties by negotiating transactions and concluding contracts relevant to a commercial enterprise (broker agent). Normally an acente makes contracts in the name of a commercial enterprise. The broker agent has a limited power of representation derived from statute. He is authorized to make or receive all kinds of notices or protests in the name of the principal to protect the interest of the principal. Suits deriving out of broker transactions may be brought against and in the name of the principal or the broker and the broker can initiate suits in the name of principal. A contrary agreement between the principal and the acente is not permitted (Comm. C. Article 105). The agent may receive payments only for goods he personally has delivered and can accept delivery only of goods for which he personally has paid (Comm. C. Article 106).

55


§4.06[C]

A second type of acente has, in addition to the above stated representative powers of the broker acente, authority to enter into contracts in the name of the principal. The acente may, as a rule, enter into contracts in the name of an enterprise only if such an authority is given to him in written form and this authorization is entered in the Commercial Registry (Comm. C. Article 107). However, even if there is no written authorization, the principal is still bound by contracts made in his name by an agent acting beyond his authority, if subsequently approves the contract (Comm. C. Article 108).

The provisions of the Turkish Commercial Code on acente are also applicable to those persons who are permanently authorized to conclude contracts in their own names but on behalf of foreign enterprises (commissioner agent). The same rules are furthermore applicable to those persons who carry on transactions in Turkey in the name of and on behalf of foreign commercial enterprises having no business center or branch office within the country (Comm. C. Article 103). Because of this agency assumption stated in the Code, Turkish courts will assume jurisdiction against foreign persons entering into transactions through an acente within Turkey. Agreements to exclude such a jurisdiction are not binding (Comm. C. Article 105 I and II). [2]

The Contractual Relationship between the Acente and the Principal

Although the acente is an independent person, a confidential relationship involving a certain degree of trust exists between the acente and the principal. An acente is obliged to act as a prudent businessman in order to protect the interests of the principal. Unless there is an agreement to the contrary, the principal may not appoint at the same time more than one acente in the same locality or area for the same branch of business, and the acente may not act as intermediary on behalf of several commercial enterprises in competition with each other in the same locality or area (Comm. C. Article 104). Since the agency contract gives exclusive power to the acente within a certain area, the principal is no longer entitled to enter into the same kind of transactions with third persons, personally or through other agents. If he does, he must pay a commission to the exclusive agent as if those transactions were transacted by the agent (Comm. C. Article 113 II). The parties usually agree on the manner of the payment to be made to the agent for his work. Normally an agent gets a commission on a percentage basis. If there is no mention in the agreement, the amount of the commission is determined according to the prevailing usage at the place of the agent (Comm. C. Article llS). [3]

Termination

An agency contract is terminated when the time period stated in the contract expires. When the contract is entered for an indefinite period of time (in contrast to the normal agency relation) the acente contract may be terminated by giving a notice of three

56

Chapter 4: Agency

§4.06[D]

months. If there are justifiable grounds the contract may be terminated at any time by sending a notice (Comm. C. Article 121). When the contract is terminated third persons also must be informed that the power of representation is ended (C.O. Article 42). If the parties continue to work after the end of the agreed fixed term, it is assumed that the relation is prolonged for an indefinite time (Comm. C. Article 121 II). The principal is obliged to compensate the agent for losses due to the termination of the contract without giving the required notice or without any justifiable ground (Comm. C. Article 121 IV). Furthermore, the acente may demand payment for transactions concluded after the termination of the contract (Comm. C. Article 113). If the agency contract is terminated without a justifiable ground or without giving a three months notice, the party who terminates the contract is obliged to pay compensation for damages caused to the other party for unfinished work (Comm. C. Article 121 IV). The acente may also demand, if it is equitable, a reasonable amount of compensation, if the principal gets considerable benefits out of clientele gained by the acente ("goodwill compensation"), if the acente has not acted negligently (Comm. C. Article 122). The amount of this compensation should not exceed the average commission received during the last five years. Waiving this right beforehand is not binding (Comm.C. Article 122).

[D]

Sole Distributor

A distributor is another type of business arrangement whereby the distributor makes efforts, as an independent intermediary, to market the products of the manufacturer continuously and within a certain'territory as an exclusive distributor. There are two main types of distributorship. The distributor may sell products in the name of the manufacturer in which case he is acting as an acente. The distributor may also sell in his own name but on behalf of the manufacturer. It is, however, common practice in import trade that the distributor buys products himself and re-sells them to customers. In this situation, the distributor is subject to the code provisions governing sales contracts. He has no representative power that might cause the application of the code provisions governing agency contracts. But, since the peculiarities of the exclusive distributor (sole distributor) relationship are not regulated by special provisions in Turkish law and since the continuous relationship between the manufacturer and the exclusive distributor resembles the exclusive acente, it has been suggested that the code provisions on acente should also be applied to the exclusive distributor. One of the problems which most frequently arises on the termination of an exclusive distribution relationship is the payment of compensation due to the loss of expectations arising out of the established network of customers. This "clientele indemnity" or "goodwill compensation" may be demanded under conditions similar to the acente relationship (Comm.C. Article 122 V).

,1


§4.06[D] Selected Bibliography

Aral, F. & Ayranc1, H., Bon;lar Hukuku, Ozel Bon; jli$kileri, 9th ed., Ankara 2012. Arkan, S., Ticari j$Zetme Hukuku, 17th ed., Ankara 2012. Kocayusufpa~aoglu, N., Bon;lar Hukukuna Giri$, Hukuki hlem, Sozle$me, 4th ed., istanbul 2008. Tandogan, H., Bor9lar Hukuku, Ozel Bor9 jzi$kileri, vol. II, 5th ed., istanbul 2010.

58

CHAPTER

5

Secured Transactions (Securities and Seuretyship) A. Lale Sirmen *

A security is an instrument furnished to a creditor to resort to if a debtor fails to fulfill his obligation. Securities (teminatlar) can be classified in terms of the rights created thereby as personal securities and real securities. Personal securities create rights in personam. Therefore, such rights can be asserted only against persons who have given the securities. Unlike personal securities, real securities create rights in rem~ which can be asserted against any third person. If the debtor fails to fulfill his obligation, the creditor whose debt has been assured by a real security can request from the appropriate Execution Office a foreclosure whereby the mortgaged property is sold in satisfaction of mortgaged debt. In this procedure, the mortgagee creditor takes priority over other creditors and exercises his right to the exclusion of other ordinary claims. A personal security can be given in the form of suretyship, guarantee or simply by assuming the obligation as a co-debtor. On the other hand, real security is provided for by mortgages or pledges. §5.01 [A]

PERSONAL SECURITIES (~AHSI TEMINA TLAR)

Suretyships (Kefalet)

Suretyships are governed by special provisions set out in Articles 581-603 of the Turkish Code of Obligations (C.O.).

* Professor of Law, ihsan Dogramac1 Bilkent University, Ankara.

59

§5.0l[A] {l]

A. Lale Sirmen

Introduction

A suretyship is a contract in which the surety assumes the obligation to the creditor of the principal debtor for the payment of the latter's debt (C.O. Article 581). It is a unilateral contract, in which only the surety promises to perform without receiving any promise of performance from the other party. The principal debtor does not take part in the contract; his consent is not even required for the validity of the contract. Although a contract of suretyship is a surety's own separate contract, its validity depends upon the existence of a valid principal obligation. Because the obligation arising from a suretyship is an accessory obligation, (incidental to the principal obligation) its performance cannot be requested unless the principal obligation has become mature and enforceable. For the same reason, the creditor can assign his accessory claim in question only with the principal claim and the assignment of the principal claim includes also the transfer of this accessory claim (C.O. Article 189 I).

{2]

Requisites for a Valid Suretyship

[a]

A Principal Obligation

A legally valid suretyship requires the existence of a' principal obligation. However, it is not essential that the principal obligation should exist when the contract is formed. Thus, payment of a future or conditional debt may be assumed by the surety, provided that it becomes effective at the time the creditor asserts his rights against the surety (C.O. Article 582 I). Contracts containing provisions that are impossible, illegal or contra bonos mores are void (C.0. Article 27 I), and they cannot create enforceable obligations. Therefore, if the principal obligation is void by reason of incapacity of the principal debtor, the contract made to secure such a debt is unenforceable. The same rule applies when the debtor rescinds the contract that created the principal obligation due to mistake, fraud or duress. However, if the surety assumes an obligation knowing it arises from a contract which is void as against the principal debtor due to mistake or incapacity, the surety becomes liable for the obligation (C.O. Article 582 II). [b]

Capacity of the Surety

Only persons who have full contractual capacity are able to give securities by entering into contracts of suretyship. The appointed representative of a person without legal capacity cannot bind the person without capacity to a suretyship contract. Likewise, an agent requires special authority to establish a suretyship in the name of the principal. However, a commercial representative who is authorized to conduct business by the owner of a commercial enterprise may establish a suretyship that obligates the principal as surety for the debt of another (C.O. 548).

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chapter 5: Secured Transactions (Securities and Seuretyship)

§5.0l[A]

A married person may validly become a surety in favor of third persons only with the written consent of the other spouse given in advance, or simultaneously, unless the spouses are separated by a court decision or the joint household is suspended (C.O. 584 I). However, the consent of the other spouse is not required in exceptional cases mentioned in the third paragraph of Article 584 of the Code of Obligations. For example, if the suretyship is provided by the owner of a commercial enterprise or the partner of a business association in connection with the business activities of the commercial enterprise or the business association, there is no need for the consent of the other spouse. To be valid, a contract of suretyship must be in writing and contain a declaration of intent to create a suretyship, the maximum amount of suretyship liability, the date of the suretyship and the identity of the creditor, the principal debtor and the principal obligation (C.O. Article 583 I). It is essential that the principal obligation be either identified or formulated in such a way that it is capable of being identified. If a surety assumes a number of debts arising from a single contract, they must be sufficiently defined by means of a statement about their origin. The surety must indicate the amount for which he is liable, the date of the suretyship and the existence of joint and several liability, if any, in his own handwriting in the surety document itself. The formal requirements applicable to the contract of surety also apply to subsequent amendments where the total liability of the surety is increased (C.O. Article 583 III). {3]

Kinds of Suretyship

[a]

Ordinary Suretyships (Adi Kefalet)

In an ordinary suretyship, the promise of the surety is entirely collateral to the principal obligation and does not impose primary liability on him. Therefore, the creditor must first sue the principal debtor. He cannot demand payment from the surety unless he has made a reasonable effort to exhaust proper remedies against the principal debtor. Otherwise, the surety is entitled to plead as a defense against the creditor that the security agreement is not enforceable. However, there are four cases in which the surety cannot plead this defense. The creditor can demand payment from the surety first if after the date of formation of the suretyship the debtor is the object of debt enforcement proceedings initiated with due diligence by the creditor which have resulted in the issue of a definitive certificate of loss. This is also true when the debtor has become bankrupted, obtained a debt restructuring moratorium or litigation in Turkey has become impossible or significantly difficult as a consequence of the debtor moving his residence abroad (C.O Article 585 I). If a real security which secures an obligation was created before the date of or concurrently with the suretyship, the surety may require that the creditor satisfy his claim first from such real security, provided the debtor has not been declared bankrupt or obtained a debt restructuring moratorium (C.O. Article 585 II).

61

A. Lale Sirmen

§5.0l[A] [b]

Joint Surety ships (Miiteselsil Kefalet) 0

If a surety promises as a joint surety or as a co-debtor or by similar expressio ns, the creditor may have recourse against the surety before the principal debtor and before realizing the mortgaged property provided that the principal debtor has defaulted or is manifestly insolvent. The creditor may resort to the surety before realizing pledged chattels and claims only to the extent that these are deemed by the court unlikely to cover the debt or where such sequence was agreed or where the debtor has been declared bankrupt or obtained a debt restructuring moratorium (C.O. Article 586). [c]

Co-suretyships (Birlikte Kefalet)

Several sureties who jointly ensured the payment of the same divisible claim are liable for their part as ordinary sureties and for the parts of the others as secondary sureties. If they have, together with the principal debtor or among themselves, assumed liability as joint sureties, each of them is liable for the whole debt and may han:: recourse against the others up to the amount of their share for payment made to the creditor (C.O. Article 587). [d]

Secondary Suretyships (Kefile Kefalet)

A secondary surety guarantees to the creditor the performance of the obligation assumed by a primary surety and has, therefore, the same liability for the obligation of the primary surety as the ordinary surety has for the principal debtor (C.O. Article 588 I). [e]

Counter Suretyships (Rucua Kefalet)

The counter surety is responsible to the surety who paid the debt, and may have recourse for payment against the principal debtor (TCO Article 588 II). [4]

Liability of the Surety

The surety is liable only to the extent of the maximum amount stated in the surety document (C.O. Article 589 I). Unless otherwise agreed, the surety is liable up to the limit of this maximum amount, including the legal consequences of any fault and default on the part of the principal debtor. The surety is also liable for costs of debt enforcement proceedings and legal action brought against the principal debtor, provided that the surety was given timely opportunity to avoid them by satisfying the creditor. In addition, where it is applicable, the following costs fall on the account of the surety: delivering pledges and transferring liens, interest at the contractually agreed rate up to a maximum of the interest payable for the current year and the previous year,

62

Chapter 5: Secured Transactions (Securities and Seuretyship)

§5.0l[A]

and annual payments due for the current year and the previous year (C.O. Article 589 II). The surety is not liable for damage resulting from the extinction of the contract and

any contractual penalty. Unless otherwise provided by the contract or dictated by the circumstances, the surety is liable only for the principal debtor's obligations that are created after the conclusion of the surety contract (C.O. Article 589 III).

[5]

Defenses for the Surety against the Creditor

The surety is entitled and obliged to plead against the creditor the defenses to which principal debtor or his heirs are entitled to (C.O. Article 591 I). The surety can allege that the principal debt is not binding on account of incompetency of the principal debtor, or that the collection of the principal debt is barred by lapse of time, or that the principal debt has been discharged. In an ordinary suretyship, the surety can demand that the creditor ask for payment first from the principal debtor or first have recourse to the pledge. Where the principal debtor waives a defense that is open to him, the surety may still invoke it (C.O. Article 591 II). Where the surety fails to plead defenses open to the principal debtor, he forfeits his right of recourse to the extent that such defenses would have released him from liability, unless he can prove that he was unaware of them through no fault of his own (C.O. Article 591 III). A person who stands surety for an obligation that is not actionable because it stems from gambling or betting may plead the same defenses as are open to the principal debtor even if he was aware of that defect (C.O. Article 591 IV). A surety cannot use the insolvency of the principal debtor as a defense against creditors.

[6]

Proceedings against the Surety

Proceedings to collect on the principal debt cannot be instituted against the surety before the date fixed for its payment, even if the principal debtor has become bankrupt, which would otherwise cause the principal debt to become actionable before its due date (C.O. Article 590 I). Under a contract of surety of any type, in exchange for furnishing real security, the surety may request that the court suspend the debt enforcement proceedings against him until all pledges have been realized and a definitive certificate of loss has been issued against the principal debtor or a composition agreement has been concluded with the creditors (C.O. Article 590 II). If notice from the creditor is required for the maturity of the principal debt, the surety must be given notice. The notice period begins to run against the surety on the day he receives notice (C.O. Article 590 Ill). Where the obligation of a principal debtor residing abroad is annulled or restricted by foreign legislation, such as by provisions relating to clearing systems or a ban on currency transfers, a surety resident in Turkey may also rely on such legislation unless he has waived this defense (C.O. Article 590 IV).

63

§5.0l[A] [7]

A. Lale Sirmen Duties of the Creditor

Where liens, preferential rights and other securities are furnished when the contract of surety is concluded or subsequently obtained from the principal debtor for the specific purpose of securing the claim under surety are reduced by the creditor to the detriment of the surety, the latter's liability is decreased by an equal amount unless it can be proven that the damage is less. Claims for restitution of the over-paid amount are unaffected (C.O. Article 592 I). On being satisfied by the surety, the creditor is required to furnish him with such documents and information as are required to exercise his rights. The creditor must also release liens and other securities furnished when the contract of surety was concluded or subsequently obtained from the principal debtor for the specific purpose of securing the claim under surety, or must take the requisite measures to facilitate their transfer. This does not apply to liens and rights of pledge held by the creditor in relation to other claims where they take precedence over those of the surety (C.O. Article 592 III). Where the creditor refuses without just cause to take such measures or has alienated the available evidence or the pledges and other securities for which he is responsible in bad faith or through gross negligence, the surety is released from his liability. In this case, he may demand the return of sums already paid and seek compensation for any further damage incurred (C.O. Article 592 IV). In the case of bankruptcy or composition proc~edings concerning the principal debtor, the creditor must register his claim and do everything to safeguard his rights. He must inform the surety of the bankruptcy or debt restructuring moratorium as soon as he himself learns of it. Should the creditor fail to take any of these actions, he forfeits his claims against the surety to the extent of any damage to the latter resulting from such failure (C.O. Article 594 II). [BJ

Right to Demand Acceptance of Payment

As soon as the principal obligation becomes due, even as a result of bankruptcy of the principal debtor, the surety may at any time demand that the creditor accept payment. Where several persons stand surety for an obligation, the creditor is obliged to accept even a part payment, provided it at least equals the share of the surety offering payment (C.O. Article 593 I). Where the creditor refuses without just cause to accept payment, the surety is released from his liability. In this case, the liability of all other jointly and severally liable sureties is decreased by the amount of his share (C.O. Article 593 II). If the creditor is prepared to accept satisfaction, the surety may pay him even before the principal obligation is due. However, the surety has no right of recourse against the principal debtor until the obligation becomes due (C.O. Article 593 III).

64

Chapter 5: Secured Transactions (Securities and Seuretyship) [9]

§5.0l[A]

Relationship between the Surety and the Principal Debtor

The surety may require that the principal debtor furnish security and demand his release from liability once the principal obligation becomes due where the principal debtor breaches the agreements made with the surety, and in particular his promise to release the surety by a certain date, or the principal debtor is in default or has relocated his domicile abroad and legal action against him in foreign courts has been made substantially difficult, or the surety faces substantially greater risks than when he agreed to offer the surety because of a deterioration in the principal debtor's financial situation, a decrease in the value of the security furnished or the fault of the principal debtor (C.O. Article 595). [10]

Surety's Right of Recourse

The surety is subrogated to the creditor's rights to the extent that he has satisfied him. The surety may exercise these as soon as the obligation becomes due (C.O. Article 596 I). Secondly, the surety may also exercise the right of recourse that results from his relationship with the principal debtor (C.O. Article 596 III). However, unless otherwise agreed, he is subrogated only to those liens and other securities which had been furnished when the contract of surety was concluded or were subsequently obtained from the principal debtor for the specific purpose of securing the claim. Where a pledge securing a claim under surety is realized or the owner of the pledge pays voluntarily, he may only have recourse against the surety for such payment where an agreement to this effect was reached between the pledgor and the surety or the pledge was given subsequently by a third party (C.O. Article 596 IV). The limitation period for the surety's right of recourse commences on satisfaction of the creditor by the surety. The surety has no right of recourse against the principal debtor for payment of any obligation that is not actionable or not binding on the principal debtor as a result of mistake or incapacity to make a contract (C.O. Article 596 VI). [11]

Surety's Duty to Notify

Where the surety pays the principal obligation in full or in part, he must notify the principal debtor. If he fails to do so and the principal debtor pays it again because he was not and could not be expected to be aware of the surety's payment, the surety forfeits his right of recourse against the principal debtor (C.O. Article 597 II). In this case, the surety may bring an action for unjust enrichment against the creditor (C.O. Article 597 III). [12]

Termination of the Contract of Surety

The surety is released by the extinction of the principal debt in whatever way it occurs (C.O. Article 598 I). There are also other grounds for the termination of a contract of

65

_J

§5.0l[B]

A. Lale Sirmen

suretyship, which originate from the contract itself. Any surety given by a natural person is extinguished once 10 years have elapsed from the date on which the contract was entered into. At the end of this period, the creditor may not resort to the surety even when a longer duration was agreed for the contract of surety, unless the surety has previously extended the contract or replaced it with a new one. The contract of surety may be extended by means of a written declaration by the surety for an additional period of no more than 10 years. However, the written declaration is valid only if done no earlier than one year before the contract expires (C.O. Article 598 V). Where a contract of surety is concluded for a definite period, the surety's liability is extinguished at the end of such period (C.O. Article 600). In a suretyship for an indefinite period, the surety is entitled to demand that the creditor enforce the claim against the principal debtor within a month after the date of maturity of the principal debt, start proceedings to realize any existing pledges and pursue his action without a substantial delay (C.O. Article 601 I). If the maturity of the debt depends on notice given by the creditor, the surety is entitled to a period of one year after the conclusion of the contract of surety to demand that the creditor give notice. After the debt becomes mature, he must enforce his right within a month and pursue his cause of action without a substantial delay (C.O. Article 601 II). If the creditor fails to give notice the surety is discharged (C.O. Article 601 III). [13)

Revocation

A contract of surety for a future obligation may be revoked by the surety at any time by means of a written declaration to the creditor, provided that the obligation has not yet arisen, where the principal debtor's financial situation has substantially deteriorated since the contract was conclud_ed or where it subsequently transpires that his financial situation is substantially worse than the surety had in good faith assumed (C.O. Article 599 I). The surety is liable to compensate the creditor for any damage resulting from the fact that he relied in good faith on the contract of surety (C.O. Article 599 II).

[B]

Joint and Several Liability (Miiteselsil Bon;luluk)

Another way of creating a personal security is to have a third person assume the debt as a co-debtor, making him jointly and severally liable with the debtor. The main difference between a joint suretyship and joint and several liability is that the legal basis of joint and several liability is the same for all the debtors, whereas the legal basis of the joint surety is only to provide security. Unless it is stipulated in the contract, joint and several liability may only arise by law. However, according to a principle prescribed in the Turkish Commercial Code (Comm. C.) as a "presumption of solidarity," signatories of a contract regarding an obligation of a commercial nature are presumed to be jointly liable to the creditor (Comm. C. Article 7).

66


[C]

§5.0l[C]

Guarantees (Garanti)

A guarantee is another form of creating personal security. It is a contract that some particular thing will be done as agreed, whether or not there is a prior or principal obligation. In practice a distinction is made between pure guarantees and other contracts which are also known as guarantee contracts. [1]

Pure Guarantees

A pure guarantee is used essentially to guarantee against the losses of an investor or to assure a fixed ratio of profit in the course of his business regarding his enterprise. Pure guarantees do not benefit from special legal provisions and are governed by the general conditions applicable to all contracts. [2]

Collateral Guarantees

The second type of guarantee is a contract that requires the existence of a primary obligation and by which the guarantor undertakes, in case the primary debtor fails to do what he has promised to do, to pay damages for such failure. It is widely accepted that this type of guarantee is covered by Article 128, paragraph 1 of the TCO, which reads as follows: "A party who promises to the other party performance by a third person becomes liable for damages resulting from non-performance of the obligation by the third person." It is not always easy to make· a distinction between a suretyship and a collateral guarantee. The main difference is that the obligation of a surety is an accessory undertaking, and it is therefore not binding where the principal obligation is not valid. A contract of guarantee is an independent contract creating a principal obligation. Furthermore, contracts of surety must be made in writing, whereas there is not any form that must be observed for the validity of a guarantee contract. Collateral guarantees are usually given by banks in the form of letters of guarantee. The Unified Chambers of the Court of Cassation, in its decision for the unification of contradictory precedents 1 set out criteria to distinguish between suretyship and contract of guarantee regarding bank guarantees as follows: a contract of guarantee exists if the bank: (a) assumes totally or partially the risk that the beneficiary may face, and the contract; (b) contains clauses stipulating that it is an independent undertaking whereby the bank is the principal debtor; and (c) includes clauses regarding:

1. Dated Jun. 11, 1969, 69/4-6: OG Oct. 3, 1969, Nr. 13317.

67

§5.02

A. Lfile Sirmen

(1) the acceptance of the punctual payment of a due debt without any prior notice or action against the main debtor whose performance is guaranteed, and (2) the waiver of the guarantor to raise a defense that the main debtor may have under the contract from which the guaranteed claim has arisen.

Because contracts of guarantee create principal obligations for guarantors, a guarantor, unlike a surety, cannot plead against the creditor defenses to which the principal debtor is entitled. However, the guarantor may assert that the guaranteed obligation has already been fulfilled. He can also plead defenses arising from the contract of guarantee itself. Unlike a contract of suretyship, an indication of the maximum amount of the guarantor's liability is not required for the validity of a contract of guarantee. In addition, unless there is a contract of counter-guarantee, a guarantor is not entitled to a right of recourse against the debtor whose performance was guaranteed. A contract of guarantee can be made for a definite or indefinite time period. If it is made for a definite period, according to the C.O., it is valid if the parties agree that the promise of the guarantor shall become null and void if there is no written demand from the guarantor before the expiration of the period specified (Article 128 II).

[DJ

Avals (Bill of Exchange Guarantees)

An aval guarantees, wholly or partly, the payment of the amount of a Bill of Exchange. This type of guarantee can be given not only by a third person, but also by a person whose signature already appears on the bill. The Turkish Commercial Code prescribes the form required for avals (Article 701). Accordingly, an aval must be written on or attached to the Bill of Exchange and expressed by the words "it is for aval" or equivalent words and signed by the guarantor. Any signature on the face of the bill operates as a valid aval, unless it is the signature of the drawer or the drawee. If there is no statement about the person on whose behalf it is given, it is presumed to be given on behalf of the drawer. The extent of the liability of the guarantor is the same as that of the person for whom he has guaranteed (Comm.C. Article 702 I). His assumption of liability is binding even if the obligation that he has guaranteed is void for any reason other than a defect in regard to form (Comm.C. Article 702 II). When the guarantor pays the bill, he acquires all rights attaching to the bill against the person guaranteed and against others who are liable on the bill to that person (Comm. C. Article 702 III). §5.02

REAL SECURITIES (A YNI TEMINA TLAR)

The Civil Code classifies real securities according to the nature of the property charged as real security over immovable and real security over movable property.

68

Chapter 5: Secured Transactions (Securities and Seuretyship) [A]

Securities on Immovable Property

{1]

Kinds of Securities on Immovable Property

§5.02[A]

The Turkish Civil Code (C.C.) provides for three types of real securities that may be created over immovable property; the mortgage, the mortgage certificate and the land charge note. Unlike the mortgage, mortgage certificates and land charge notes are freely transferable negotiable instruments issued to the order of the creditor or to the bearer without specifying the basis of liability. However, the mortgagor remains liable for the secured debt for both mortgages and mortgage certificates. This is significant when realization does not lead to full recovery of the debt because the land charge note does not create any personal liability in the debtor. Among these three types of securities, only the mortgage is used frequently. [2]

Mortgage (ipotek)

Upon the creation of a mortgage, the mortgagor acquires a real right in the mortgaged property which is accessory (incidental) to the debt secured thereby. Therefore, the validity of a mortgage requires the existence of a valid debt. However, it is not essential that the debt should exist at the time of the formation of the contract. A mortgage can be created as security for a present, future or conditional debt provided it becomes effective at the time of the enforcement of the right of the creditor against the mortgagor. [a]

Mortgage Burden

According to the, C.C., a mortgage can only be created to secure a liquidated debt, and the amount must be stated in the Land Register in Turkish currency (Lira, Article 851 I). However, the C.C. makes it possible for parties to create a foreign currency mortgage in order to secure only a credit which is granted in foreign currency or a loan which is linked with to a convertible foreign currency (Article 851 II). When the sum of a debt to be secured is not certain at the time of the creation of the mortgage, the parties must fix a sum to represent the maximum amount for which the property in question will be subject to mortgage debt. A mortgage can be created for a single debt or for several debts on the same property, provided it does not impose any unlawful restriction on the prospective economic activity of the mortgagor.

69

§5.02[A] [b]

A. Lale Sirmen Subject Matter

A mortgage can be created on immovable property only if it is entered in the Land Register. Immovable property includes land, independent and permanent rights,2 and independent parts of a building subject to flat ownership. In addition, a mortgage can be created on the shares of co-owners of land. Mortgaged property may belong to the debtor or a third person who secures the debt in favor of the debtor. A mortgage does not create personal liability in the owner of the real property unless he is also the principal debtor. He is liable only to the extent of the mortgaged property. Moreover, he can redeem the mortgage under the same conditions as the debtor. If he pays the debt in full, he acquires all the rights of the mortgagee against the debtor (C.C. Article 884). Several properties can be mortgaged for the same debt. When the properties belong to the same owner or to debtors who are jointly and severally liable, each property would be charged with the whole debt. In all other situations where several properties are given as security for the same debt, each property is charged with a specified part of the debt (C.C. Article 855). A mortgage is a burden on the property and all its integral parts and accessories. Thus, if a mortgage is created on a piece of land, it covers all buildings and trees on the ground which are considered as integral parts of the mortgaged land. When at the time of the creation of a mortgage certain things such as machines and hotel furniture are expressly mentioned as accessories and this is declared in the Land Register, they are held to be accessories unless it is shown that they cannot legally be considered as such (C.C. Article 862 II). [c]

Creation of Mortgag?s

Subject to special exceptions provided by law, mortgages become operative only when entered in the Land Register. The prerequisite for the registration of a mortgage is a contract between the creditor and mortgagor that constitutes the underlying legal basis for acquisition of rights in rem. This contract does not create the mortgage, but conveys the right (and obligation) to enter the mortgage in the register. Contracts which convey the right (and obligation) to create a mortgage must meet formal requirements as a prerequisite to their validity. In principle, public authentication must be undertaken, that is the contract must be drawn up and signed by the land registrar in the appropriate Land Registry. However, when the lender is a bank, a public institution or a credit and guarantee cooperative for craftsmen and artisans, the conclusion of a credit agreement alone is sufficient for the mortgage to be entered in the Land Register. On the other hand, in some cases the creditor is entitled to the creation of a mortgage even without an agreement. Thus, for example, workmen or contractors who are employed in the construction of buildings and supply material and/or labor 2. Permanent and independent rights are alienable personal servitudes that can be entered in the Land Register as immovable property. Thus, if a right in a building is created for at least twenty years, it can be entered as an immovable in the Land Register.

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chapter 5: Secured Transactions (Securities and Seuretyship)

§5.02[A]

are entitled by law to the creation of a mortgage if entered in the Land Register (C.C. Articles 893, 895). There are also some exceptional cases where a mortgage is created by law without being entered in the Land Register. For example, when the creditor has paid insurance premiums that were to be paid by the owner of the property, he can include such expenditure with the debt under the same security without an additional entry in the Land Register (C.C. Article 876). The assignment of a debt secured by a mortgage includes also the transfer of the mortgage (C.O. Article 189). The assignment of the debt and the transfer of the mortgage are valid without being entered in the Land Register.

[d]

Extent of Security

When the sum of the debt to be secured is certain at the time of the creation of the mortgage and this sum is entered in the register as the amount of security, the creditor is secured to the extent of the primary debt and secondary claims, including the cost of realizing the security, the interest due for delay in payment, and for interest for three years preceding the institution of proceedings in bankruptcy. If for instance, A mortgages his land to B to secure a loan which amounts to TRY 500 million and has the sum of the debt recorded as TRY 500 million. in the register, B has the right to be paid in full out of the proceeds of the property even though secondary claims exceed the primary debt. However, if a mortgage is entered for a maximum amount, the mortgage will secure secondary claims only within the maximum amount. Therefore, if A mortgages his land to B for a maximum of TRY 500 million B can be paid only up to this amount even if his primary debt and secondary claims exceed this amount.

[e]

Order of Priority between Mortgages

The owner of mortgaged property cannot deprive himself of the right to create further mortgages on the same property. However, the amount realized on the sale of the mortgaged property will be paid to creditors in the order of priority. The order of priority among mortgages on the same property will be determined in accordance with the principles of the "fixed ranks" system, which ensures that mortgages on the same property will acquire an order of priority according to the rank of the place in which they are entered in the Land Register. According to the fixed ranks system, the mortgagor may divide the value of the property into fractional portions, each of which is represented by a place. The right furnished by the mortgage is permanently assigned to the place in the Land Register in which it is entered and further mortgages in the second or any other place may be created provided that a fixed amount is expressly reserved for the preceding vacant place (C.C. Article 870 II). Even if a loan secured by a first place mortgage is paid off, the next in order of priority will not automatically move up to that vacant place (C.C Article 871 I). The owner of the property is entitled to create another mortgage in the place of the one that is paid off (C.C. Article 871 II). Thus, if A mortgages his land in

71

§5.02[B]

A. Lale Sirmen

favor of B in the first place and in favor of C in the second place, and later B's mortgage is repaid, C cannot move up to the first place. He will always retain the second place. A can mortgage the land to D and give him the first place. D then has priority over C even though his mortgage was created at a later date. However, parties may agree that a creditor may move up to a vacant place. When such an agreement is noted in the Land Register, the right to move up can be asserted against every new owner of the property and other creditors (CC Article 871 III).

[fJ

Alienation of the Mortgaged Property

The alienation of mortgaged property does not affect the personal liability of the debtor unless otherwise agreed. However, if the new owner takes over the liability for the mortgage debt, the former debtor is discharged unless the mortgagee creditor gives the former debtor written notice of his intention to maintain rights against him within one year from alienation (C.C. Article 888). If property that is acquired is mortgaged beyond its value by a person who is not personally liable for the debts secured by mortgages, the new owner is entitled to redeem the mortgage by paying over to the creditors either the purchase money or, if he acquired the property gratuitously, the amount of money at which "he values it." However, the creditors may demand the sale of the mortgaged property by public auction provided that they pay the cost of the sale in advance. If a larger sum is obtained in this sale, the mortgage is redeemed at that higher price (C.C. Articles 885-886). [g]

Foreclosure of Mortgages

Where the debt is paid off, the owner of the mortgaged property is entitled to demand from the creditor that he consent to remove the mortgage from the Land Register. On the other hand, if the debtor fails to pay his debt, the creditor may demand the sale of the property. There is no statute of limitations for an action on a debt secured by a mortgage. Any agreement made before the maturity of the mortgage debt and providing that the creditor will become the owner of the mortgaged property is null and void (C.C. Article 873 II). Foreclosure proceedings begin upon the request of the creditor. The Execution Office will sell the property in accordance with the provisions of the Code on Execution and Bankruptcy and distribute the proceeds of the sale among the secured creditors in their order of priority without regard to the vacant places.

[B]

Securities on Movable Property

The C.C. provides for the creation of the pledge as a contractual security in rem over movable property, claims and other assignable rights. There are also special legal provisions regulating the creation of real securities regarding valuable movables, such

72

1I


§5.02[B]

as ships and aircraft that are subject to mortgage. Pledges on commercial enterprises and rights in mines are regulated by special laws. In addition, the C.C. regulates liens as a statutory security in rem over movables and negotiable instruments. [1]

Pledges

[a]

Pledges on Movables (Ta~mir Rehni)

With certain exceptions provided by law, movable property can be given in pledge only by delivery of possession of the property to the pledgee (C.C. Article 939). In practice, this makes pledges unattractive. Additional pledges can be created to take effect upon the same property by a written notice to the prior pledgee notifying him of the subsequent pledge and demanding that he pass the property to the second pledgee when his own rights in it have been satisfied (C.C. Article 941). Pledgees, whose claims have not been fully satisfied, have a right to be paid out of the proceeds of the sale of the property pledged according to their order of priority. The main difference between the principles governing mortgages and pledges is that the order of priority of pledges created on the same property is determined by the date of their creation (C.C. Article 948 II). But, unlike mortgages, the creation of a pledge does not require a statement of the amount of the claim to be secured if the amount can be otherwise determined. Another difference between mortgages and pledges as to their legal effects is that the statute of limitation does apply to claims that are secured by a pledge. A creditor may enforce rights under a pledge even though he can no longer bring an action to enforce his original claim (C.O. Article 159). According to the Civil Code, cattle can be pledged without delivery of possession by means of an entry in a public register and a notice lodged at the Execution Office for debt (C.C. Article 940 I). This is allowed in order to secure advances and a supply of credit by public institutions or by cooperative societies which have been empowered for this purpose by the competent authorities. Furthermore, movable property which is required to be entered in a register can be given in pledge without delivery of possession by means of an entry in its own register. This is important especially for the pledge of motor vehicles entered in the traffic register. [b]

Pledges on Claims and Other Rights

A pledge on assignable claims and other rights is created by way of a wri'.tten agreement and if there is any deed or document evidencing the claim, transfer of the possession thereof (C.C. Article 955 I). In the event of failure of payment by the debtor, the creditor may request the Execution Office to initiate foreclosure. If the debtor of the claim pledged is notified of the pledge, he cannot make any payments to either party without the consent of the other. In the absence of such consent, he must deposit his payment in accordance with

73

§5.02[B]

A. Lale Sirmen

the decision of a judge. However, the parties may agree that only the creditor may collect the claim. This is considered as another way to "realize" a pledge. [c]

Pledges on Negotiable Instruments

Negotiable instruments made out to bearer are treated as movable property, and therefore, can be given in pledge by transfer of the possession of the instrument (C.C. Article 956 I). Both the Civil Code and the Commercial Code have provisions allowing the creation of pledges on negotiable instruments in specific names and negotiable instruments to order (C.C. Article 956 II; Comm. C. Articles 647 and 689). Accordingly, the creation of a pledge on any negotiable instrument requires the delivery of the possession of the instrument and, in addition, instruments to order require pledge endorsement. Those in specific names need a written declaration of pledge that may not appear on the instrument itself. [d]

Pledges on Commercial Enterprises 3

Pledges on commercial enterprises are created in accordance with the Law of Pledges On Commercial Enterprises. In order to pledge a .commercial enterprise, the Law requires a notarized contract between the parties and the entry in the Commercial Register where the enterprise is registered (Articles 4-5). The pledge covers all material assets other than immovable property and supplies, including intangible assets, such as firm-names, trade names, trade marks, patents and licenses (Article 3). However, according to the third paragraph of Article 11 of the Commercial Code, it seems possible to pledge the assets of a commercial enterprise including immovable property by a written contract between the parties and entry in the Commercial Register where the enterprise is registered. It is also possible to pledge assets of a commercial enterprise separately in accordance with relevant code provisions, i.e., movables by delivery, rights by a written contract. [e]

Pledges on Mines 4

In accordance with the Law on Mining, 5 extracted mine ores can be pledged without the pledgor transferring possession, by a written request of the licensee who has been granted the privilege to search for and extract the ores, followed by a registration in the Mining Register (Article 39).

3. Law Nr. 1447, OG Jul. 28, 1971, Nr. 13909. 4. Mines are not subject to private ownership due to a constitutional principle (Art. 169) that declares that they are public property. 5. Law Nr. 3213, OG Jun. 15, 1985, Nr. 18785.

74

I Chapter 5: Secured Transactions (Securities and Seuretyship) [2]

§5.02[B]

Mortgages on Ships and Aircra~

Although ships and aircraft are considered as movable property under the provisions of the Civil Code, they are subject to mortgage. A ship may be mortgaged by an agreement of the parties for the creation of a mortgage and the entry thereof in the Ship Register (Comm. C. Articles 1014-1016). Under the provisions of the Law on Turkish Civil Aviation 6 (Article 70), mortgages on aircraft can be created in the same way, by registration of the relevant agreement of mortgage in the Civil Aviation Register. {3]

Liens

A creditor who is in possession of movable property or negotiable instruments can, with the consent of the debtor, retain possession of them until his claim is satisfied, provided that the claim in question is enforceable and by its nature closely connected with the movable or negotiable instrument retained (C.C. Article 950 I). Such connection is always held to exist when the parties are in trade and possession and the claims arise out of their business relations (C.C. Article 950 II). When the debtor fails to fulfill his obligation, the creditor, if he is not sufficiently secured, can, after notice to the debtor, demand the sale of the property retained by the Execution Office, just as if the property had been pledged to him (C.C. Article 953).

Selected Bibliography Oguzman, M.K., Selic;i, b. & Oktay-Ozdemir, S., E~ya Hukuku, 15th ed., istanbul 2012. Reisoglu, S., Garanti Mukavelesi, Ankara 1963. Reisoglu, S., Banka Teminat Mektuplan ve Kontrgarantiler, Ankara 2003. Sirmen, A. L., E~ya Hukuku, Ankara 2013. Tandogan, H., Bon;lar Hukuku, Ozel Boni; jzi~kileri (Akdin Muhtelif Nev'ileri), vol. 2, 4th ed., Ankara 1989.

6. Law Nr. 2920, OG Oct. 19, 1983, Nr. 18196.

75

CHAPTER

6

Negotiable Instruments Tugrul Ansay & Firat Oztan *

§6.01 [A]

INTRODUCTORY REMARKS

General

As a rule, rights, such as creditors' rights, are transferred by way of assignment of rights and duties, by delivery of the goods transferred or by accomplishing detailed formalities for transferring shareholder rights in a corporation. Practical needs and legal creativity have led to the introduction of a device under which rights have been replaced by documents. That is, if negotiable instruments are issued, those original rights are embodied in the instrument and thereafter those rights may be used, transferred and disposed of by way of such instruments. In our age of electronic commerce negotiable instruments may also exist without any written instrument. The term "negotiable instrument" (kiymetli evrak) is not the counterpart of Turkish "kiymetli evrak" (nowadays, klymetli [email protected]) which covers all types of documents or instruments representing rights and where these rights are embodied in these instruments. The closest term for "kiymetli evrak" is "securities". Negotiable instruments describe only some securities in which rights are easily transferable through the transfer of documents. The Turkish Commercial Code gives the following definition of negotiable instruments: A negotiable instrument is a document through which a right is embodied in such a manner that it may not be exercised or transferred to another without the document (Comm. C. Art. 645).

* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of Law, Istanbul. Prof. Dr. Ftrat Oztan: Emeritus Professor, University of Ankara. We would like to express our gratitude to Dr. Cumhur Boyac10glu for his valuable comments.

77

§6.01 [D]

Tugrul Ansay & Firat bztan

[B]

Classification of Negotiable Instruments

[1}

According to the Right Represented by the Document

Some documents represent a debt. Such documents are called commercial papers, like promissory notes, bills of exchange or checks, as well as bonds, convertible bonds and others. Papers representing rights in goods are called documents of title (emtea senetleri), like bills of lading (Koni~mentolar, Comm. C. Article 1228 et seq. and Nakliye senetleri, Comm. C. Article 850 et seq.), warehouse receipts (makbuz senetleri) and warrants (rehin senetleri, Comm. C. Articles 832-849). Furthermore, there are papers, which represent shareholder rights. These are share certificates in a business corporation (See chapter on Business Associations).

[2]

According to Transferability

There are instruments issued to a named person (nama, isme yazzli senetler), which might also be registered certificates, and carry the name of the holder of rights. Some papers may not be issued to a named person. Certificates to order (emre yazzlz senetler) include the name of the right' s owner, but additional words like "to the order of" make the instrument negotiable, that is, easily transferabl~. A promissory note is an order paper due to a statutory provision. There are also "bearer certificates" (hamiline senetler), where the rights represented by such instruments may be transferred only by the simple delivery of the instrument. Bonds and bills of exchange may not be issued as bearer certificates (But see blank endorsement below at section §6.03 [CJ). [C]

Commercial Papers (Ticari Senetler or Kambiyo Senetleri)

Commercial papers are those which represent a claim in a specified amount of money and are used as a means of credit (bills of exchange and promissory notes) or provide a means of exchange that can be used in lieu of money (checks).

[D]

Sources

Commercial papers are regulated by the Commercial Code (Articles 645-831). These provisions are almost word for word adaptations of the rules approved by the 1930-31 Geneva Conventions. Therefore, they are basically similar to the laws of the Continental European countries and especially of Switzerland. The Commercial Code regulates bills of exchange in greater detail than promissory notes and checks and the rules on bills of exchange are applied to a great extent to promissory notes and checks. There are also provisions in various chapters of the Commercial Code on other types of negotiable instruments. Other special laws also have provisions regarding negotiable instruments. The Civil Code regulates debt certificates secured with mortgages (hypothek).The Capital Market Law regulates various types of securities.

78

§6.02[B] TYPES OF COMMERCIAL PAPERS

[A]

General

(1) Bills of Exchange (Draft, poli<;e]: A bill of exchange is an unconditional order in writing addressed by one person (drawer, diizenleyen, ke~ideci) to another (drawee, muhatap) for paying a third person (payee, lehdar) a sum of money. There are at least three persons involved in a bill of exchange: The drawer is the one who issues the instrument and therefore orders payment. The drawee is the person to whom the instrument is addressed, and therefore it is to be paid by him. The payee is the person to whom the instrument is made payable. The payee and the drawer might be the same persons. (2) Check (Cheque, <;ek) is basically similar to a bill of exchange in which the drawee is a bank or a financial institution. It is payable and may be drawn to the bearer too. Normally it is not an instrument of credit, but of payment. A check presupposes a provision, that is, a fund in the form of a deposit in the bank or as a bank credit for the purpose of complying with the order to pay. (3) Promissory Note (Emre yazill senet, bona): A promissory note is an unconditional promise in writing which is made by one person to another and signed by the maker to pay a certain sum of money. Unlike to a bill of exchange or a check, there are basically two persons involved, namely the one who makes the promise to pay (maker, bor<;lu, senedi diizenleyen) and the one who is entitled to the payment (payee, lehdar). There are special types of promissory notes, such as those issued by the Treasury, which are called bonds (Dev let tahvili, bonosu). Business corporations may also issue bonds (tahviller. Also mortgage notes are regulated in the Civil Code, Articles 819-912). They are, however, not commercial papers in the strict sense.

[B]

General Characteristics of Commercial Papers

(1) Presumptive Consideration or Causa: An abstract nature is recognized for commercial papers. If the instrument is properly issued, the law presumes that it is given for a consideration. In other words, unlike the procedure in an action for an ordinary money claim, the holder of the instrument is not required to allege and prove that a consideration has been given, since every negotiable instrument is deemed prima facie to have been issued for a valuable causa. Nevertheless, the bills issued without a cause are also valid (C.O. Article 18).

(2) Negotiability: As a rule, when a person transfers his rights, the assignee gets almost the same rights as those held by his predecessor. Therefore, the assignee is ordinarily subject to all the defenses that might have been set up

79

§6.03(A]

(3) (4)

(5)

(6)

§6.03 [A]

Tugrul Ansay & Firat Oztan against his assignor. Under the law of commercial paper, the one to whom a commercial paper is transferred acquires a title free from legal defenses which were good against the previous holder. This increases its credibility and therefore its negotiability. It is this quality of the document which permits a right to pass freely from hand to hand as a credit instrument or substitute for money. Strictly required form: If the instrument is not prepared in the legally required form, it loses validity as a negotiable instrument. Joint liability: All persons who have signed a commercial paper are jointly and severally liable to the holder in due course (Comm. C. Article 724). This is not a separate, but a sequential liability. Independence of signatures: There might be various signatures on the face or on the back of an instrument. Each may carry a different meaning, according to their location. The invalidity of a signature does not affect the validity of other signatures and does not free the others from the liability. The Code of Execution and Bankruptcy allows an accelerated execution process for commercial paper. 1

BILLS OF EXCHANGE

The Required Form

In order to be a valid instrument, a bill of exchange must be issued in accordance with the formal requirements described in the Commercial Code: (1) It must be in written form: There is no oral bill of exchange under the Commercial Code. The instrument need not be any particular kind of material. Any convenient substitute for paper will suffice (a cigarette package was held as a proper material). The text must be hand-written or mechanically written, it may be printed or engraved. The document must also be signed and the signature must be in hand-written form. The hand-written signature cannot be rendered by mechanical device or marks by hand, even if legalized or officially attested (Comm. C. Article 668). Electronic signatures are not allowed (Comm.C. Article 1526). (2) It must include the Turkish word "poli<;e" in the text of the instrument, or if it is written in a foreign language an equivalent of this word in that language. (3) The sum to be paid must be a definite amount of money: (a) If the order is not for the payment of a certain amount of money, there will be no valid bill of exchange. A clear-cut definition of "money", however, does not exist. The negotiable character of an instrument will not be affected by the fact that it designates a particular kind of currency in l. Code of Execution and Bankruptcy, Arts 168-170 b.

80

§6.03[A]

Chapter 6: Negotiable Instruments

(4)

(5)

(6)

(7)

(8)

L

which payment is to be made. An instrument which is payable in specific foreign currency is also negotiable. "Where a bill of exchange is made payable in a currency which is not legal tender in the place of payment, the amount to be paid will be calculated according to the rate of exchange on the date of maturity" (If there is no rate of exchange, see Article 711 II, currency clause, Article 711 III, also see Article 711 IV). (b) The amount due at maturity must be definite and the sum to be paid must be determined from the face of the instrument. A statement such as, "pay the amount you owe me" is considered as an uncertain amount of money. Where the sum payable on a bill of exchange is stated both in letters and numbers, the sum expressed by letters will be accredited. If there is discrepancy between letters and numbers, then the smaller sum is the amount payable (Comm. C. Article 676). A provision on the document in respect to interest is deemed not to be written. However, where a bill is payable at sight or at a fixed time after sight, a stipulation of interest may be added by the drawer. The rate of interest must be stated definitely on the bill; otherwise the stipulation is considered not to be written. Where no other date is stated, interest starts to run from the date of issue of the bill (Comm. C. Article 675). An unconditional order to pay a certain sum of money: The bill of exchange must contain an order upon a third person to pay. The word "pay" or another word indicating the same is necessary. By giving an order the drawer authorizes the drawee to pay the stated amount to the bearer. The name of the drawee (Comm. C. Article 583/3): The name and family name of the drawee must be stated on the bill. This will be the trade name in cases when the drawee is a legal person. The bill may be addressed to two or more drawees jointly; it may, however, not be addressed to two or more drawees as alternatives or in succession. This is to enable the holder to make only one presentation for acceptance or payment. A drawee may be a fictitious person or the drawee may be the drawer himself. The name of the person to whom or to whose order payment is to be made (Comm. C. Article 671): As a rule, bearer bills of exchange are not recognized by Turkish law. The instrument must include the name of the payee or may be drawn to his order. A bill of exchange, however, becomes payable to the bearer when there is a blank endorsement, that is, where the holder merely puts his signature on the back of the instrument (Comm. C. Article 683 II). The instrument may be drawn to the order of two or more payees jointly, or on one or several payees alternatively. The date of issue (Comm. C. Article 671/7): The date of issue should be stated in order to enable determination of the maturity date in some cases. The legal capacity of the drawer must exist at that moment. The signature of the drawer: The signature of the drawer must be on the face of the paper. An agent may also sign a bill of exchange in the name of his principal, if he is authorized.

81

§6.03[C]

Tugrul Ansay & FITat Oztan

(9) The place where the payment is to be made (Comm. C. Article 671 I e): If this place is not stated on the bill, then the address of the drawee is deemed as the place of payment (Comm. C. Article 672 III). (10) Additional non-compulsory information may only exceptionally be stated on the document.

[B]

Consequences of Omissions (Comm. C. Article 672)

Generally speaking, omissions of the required information make the bill of exchange null and void. Some missing parts are not decisive because the Code will presume that information. If only the word "poli<;e" is missing, then the instrument is legally considered an order paper (emre yazili havale), to which some provisions of the bill of exchange are applicable (Comm. C. Article 826).

[CJ

Endorsement (Indorsement, Ciro)

(1) Endorsement is the transfer of rights represented by a negotiable instrument

issued to the order of the payee, to a third person by declaring the intention to transfer, signing the document and by delivery. An instrument may be endorsed for the purpose of collecting money or for the purpose of a mortgage. It may also be endorsed for the purpose of transferring the title represented by the instrument. This transfer is called negotiation. An instrument is negotiated every time it passes from one person to another. A mere surrender of the instrument is not negotiation (See below at 2, blank endorsement). Delivery is only the operative fact which signifies the intention of transfer. By endorsing, the endorser acts like a new drawer of a bill of exchange, as he orders the payment to a new person. The endorser gives power to the endorsee to demand the right and authorizes the drawee to pay the amount stated on the instrument. The endorsement is generally written on the back of the instrument; but this is not essential. It may also appear anywhere on the instrument. A person is deemed an endorser, when his intention while signing is not clear. If he signs in the place where the drawer customarily signs, this will be considered a guaranty (aval) to the drawer and he will be bound as a drawer. An endorsement may also be written on a paper attached to the instrument, if there is no room on the instrument itself (This paper is called allonge, alonj, Comm. C. Article 682). (2) Kinds of endorsement: In addition to the ordinary endorsement, which is described above, there are other types: Where solely the signature of the endorser, without anything more, appears on the back the an instrument it is a blank endorsement (beyaz ciro,

82

Instruments

§6.03

if it is on the face, then it is aval). The bill may then be negotiated as if it is a bearer instrument; that is, by delivery only. Conditional endorsements shall be disregarded. Partial endorsements are null and void (Comm. C. Article 682). Nevertheless, a qualified endorsement is possible. As a rule, the endorsement has a guaranty function (Comm. C. Article 685 I), which means that all persons who have signed the instrument as indorsers impliedly warrant the payment of the amount stated on the instrument. By a qualified endorsement the endorser may limit his liability by adding the words "without recourse" (bila mesuliyet) or equivalent wording. Or he may as well prohibit new endorsements (Comm. C. Article 685 II). Endorsements to allow the endorsee only to collect the money (endorsement of collection, tahsil cirosu) or endorsement to establish a mortgage (rehin cirosu) are also possible. (3) There are three functions of an ordinary endorsement in a negotiable instrument: First of all, it shows the true right owner. If all endorsements are proper and there is no break in the chain of endorsers, the last holder is the right owner. Furthermore, with the endorsement all rights and powers deriving from the instrument are transferred to the endorsee. The endorsement additionally has a security function. The endorser guarantees the payment of the stated amount to the endorsee, if the drawee does not pay.

[D]

Aval

A guaranty given on a commercial paper is called an aval. If a person gives an aval to

a person whose name is stated on the instrument, he guarantees payment. If the aval clause does not specify for whose account it is given, it is assumed that it is given for the drawer (Comm. C. 700 et seq.) [E]

Maturity (Vade)

The date of maturity is the day when the payment should be made by the drawee. Interest starts to run from this moment on (Comm. C. Article 725 I b); a period of limitation of three years from the maturity date also starts to run (Comm. C. Article 749). The bill must be presented for payment within two working days following the date of maturity (Comm. C. Article 708 I). There are different dates of maturity recognized for bills of exchange (Comm. C. Article 703). Any of them may be stated on the instrument. It may be a fixed date, like June 15, 2016 or at a fixed period after the issue of the bill, like 30 days after issuance. The bill may be mature "at sight". This is expressed with words like "on demand" or "on presentation". Such a bill must be presented for payment within one year after the date of issue (Comm. C. Article 704). When no time of payment is specified on the bill

83

§6.03[H]

Tugrul Ansay & FITat Oztan

of exchange, it is payable "at sight" (Comm. C. Article 672 II). Finally, the bill may be mature at a fixed period after sight (30 days after sight).

[F]

Presentment

A bill of exchange may be presented for acceptance (kabule arz) and/or presented for payment (tediye i<;in ibraz): Presentment for acceptance must be made in order to establish the liability of the drawee as a primary obligor. The mere drawing of a bill of exchange and its delivery to the payee puts the drawee under no obligation to the payee to pay the amount stated on the bill. Upon the acceptance the drawee becomes the primary obligor. When the acceptance is refused, then the payee is entitled to apply to the other signatories of the bill before the maturity date.In some cases presentment for acceptance is necessary. When a bill of exchange is payable within a certain period after sight, it must be presented within one year after it is issued (Comm. C. Art. 693 I). The bill may also expressly stipulate that it shall be presented for acceptance or it may completely prohibit presentment for acceptance. Where a bill is drawn payable at the address of a third party or somewhere other than the residence of the drawee, the bill must be presented for acceptance (Comm. C. Art. 692 II). As a rule, presentment for acceptance must be .made to the drawee. If another person is also authorized to accept, the holder must present the bill to such persons when acceptance is refused by the original drawee (Comm. C. Art. 735). The holder or any person having mere physical possession of the bill of exchange may also present the bill for acceptance (Comm. C. Art. 691). The acceptance must be in writing and it must be signed by the drawee. Even the mere signature of the drawee on the face of the bill is a valid acceptance (Comm. C. Art. 695 II). Acceptance must be unconditional; it may, however, be limited to a part of the full am.aunt for which the bill is drawn. Otherwise all statements operate as a refusal of acceptance. The acceptor is nevertheless bound according to the wording of his acceptance (Comm. C. Art. 696 II).

[G]

Payment (Odeme)

By accepting the bill, the drawee binds himself to pay the amount stated on the bill at maturity. Before the acceptance he is only a person authorized to pay. Yet, in order to charge a person secondarily liable in the event that the bill is not paid, it must be presented for payment. If the acceptance is refused there is no further obligation of presentment for payment.

[H]

Protest and Notice of Dishonor (Pmtesto ve jhbar)

When a bill which is presented for acceptance or payment is dishonored a formal protest should be issued, except those which should be paid within a specified period after sight or those which should be presented for acceptance. 84

Chapter 6: Negotiable Instruments

§6.04[A]

In order to turn to the other obliges stated on the bill, when the drawee refuses payment, the last holder must have issued a protest of non-payment. The protest must be issued within two workdays following the day of payment (Comm. C. Article 714). For such a purpose, the bill will be delivered to the notary public. The notary officially presents the bill for acceptance of payment. A certificate or protest must be issued by notary if necessary (Comm. C. Article 715 et seq.) Upon the issuance of the certificate of protest by the notary, a notice of dishonor should be given to the parties secondarily liable for payment. A bill need not be presented for payment when it has been dishonored by non-acceptance. An accepted bill, however, must be presented to the primary obligor for payment and a notice of dishonor must be given to persons who are secondarily liable when the payment is refused. The object of giving notice of dishonor is twofold: On the one hand, it informs the persons secondarily liable that the maker or acceptor, as the case may be, has failed to meet his engagement; on the other hand, it advises such persons that they will be required to make payment. The holder must notify his immediate predecessor and the drawer of the non-acceptance or non-payment, within four working days following the date of protest. And each indorser must, within two working d.ays after receipt of such notice inform his immediate predecessor. The notice may be given only through a notary or by return of the bill (Comm. C. Article 723). A person failing to give proper notice does nevertheless not lose his right against other endorsers or the drawer; yet he is liable for damage caused by his negligence up to the limit stated in the bill of exchange (Comm. C. Article 723).

§6.04 [A]

CHECKS General Characteristics

A check, as mentioned earlier, is a kind of bill of exchange drawn on a bank and payable on demand. New varieties of checks, such as bank checks or travelers checks are being used in practice and increasingly even non-merchants have checking accounts in Turkey. Due to the misuse of checks, however, check criminality has became an important issue. This caused the development of special legislation in addition to the provisions of the Commercial Code (Check Law, Law No. 5941 Official Gazette, dated December 20, 2009. Amended with the Law Nr. 6273, Official Gazette, dated February 3, 2012, Mtikerrer). Because of the similarities of bills of exchange and checks the rules applicable to bills are also applicable to checks (Comm. C. Article 818). However, certain differences exist between these two types of commercial paper. Checks are payable at sight (Comm. C. Article 795). The time within which checks must be presented for payment is shorter than for bills. A check which is payable at the same place where it is drawn must be presented for payment within 10 days. This period is one month within Turkey and longer for interstate checks (Comm. C. Article 796).

85

§6.05


Besides being drawn on a bank (Comm. C. Article 782), checks are not presented for acceptance (Comm. C. Article 784). Instead of acceptance, checks may be certified by the Bank. They should be certified before delivery to the holder. Certification is legally not as strong as ace "•tance. It does not make the drawee bank primarily liable to the holder. It merely warrants that funds on deposit are sufficient to pay the check and are being set aside for such purpose. It is not necessary that the drawer of a bill of exchange have funds in the hands of the drawee; but in order to issue a check a fund in the bank is required. For such a purpose the drawer and the bank make a checking agreement. If there is not a sufficient amount of money in the bank, then the check is not covered. Consequently the drawer is bound to pay the holder 5 % of the stated amount and all other damages caused by issuing such a check (Comm. C. Article 783 III). The Check Law contains additional provisions and imposes other sanctions to discourage the issuing of uncovered checks. The drawer of a check may stop payment, but only after the expiration of the time limit for presentment. Liability for damage caused by paying a forged or falsified check falls upon the drawee, unless the drawer named on the check has acted negligently, such as not keeping the check book properly (Comm. C. Article 812). Checks payable to bearer may be issued (Comm. C. Article 785 I c). A stipulation for interest written on the check is disregarded. [B]

Formalities

Like other commercial papers, checks are subject to strict formalities. A valid check must contain the term "r:;ek" in the language in which it is drawn; the name of the bank; the date and place of issue and the signature of the drawer. The amount to be paid must be unconditional (Comm. C. Article 780). In practice, the drawee bank issues printed checks prepared according to the requirements of the law. §6.05

PROMISSORY NOTES (BONOLAR)

In contrast to a bill of exchange and a check, there are only two main persons on a promissory note. These are the maker (ke~ideci) and the payee (lehdar). With the promissory note the maker or issuer promises to pay to the payee or to his order the amount stated on the instrument. Generally the provisions on bills of exchange are also applicable to promissory notes (Comm. C. Article 776). A promissory note is also subject to strict form requirements. It must contain the term "emre muharrer (yazili) senet" or "bona" or its equivalent in the language of issue; the name of the person to whom or to whose order payment is to be made; and the signature of the drawer. The date of maturity must also be stated. A promissory note without the date of maturity is deemed to be payable at sight (Comm. C. Article 777 II).

86

§6.06[C]

Chapter 6: Negotiable Instruments §6.06

DOCUMENTS OF TITLE (EMTIA SENETLERl)

A document of title is one which confers upon the holder the right of ownership (or mortgage rights) in respect to merchandise therein specified. It entitles the holder to demand the delivery of the stated goods on the document. Two common examples of documents of title are bills of lading and warehouse receipts. These are regulated in the Commercial Code. Documents of title for air carriage or carriage by railroad are regulated separately.

[A]

Bill of Lading

A bill of lading is a receipt issued by a carrier for merchandise shipped (t(l.$ima senedi). Bills of lading which are given to represent merchandise on land transportation must be in accordance with the requirements of the Commercial Code. Koni$mento (sea bill of lading) is a bill of lading given by the carrier to the shipper to describe the goods received (Comm. C. Article 1228). It must contain certain information required by the Code (Comm. C. Article 1229). [B]

Warehouse Receipts (Makbuz Senetleri)

A warehouse receipt is an instrument issued by a warehouseman against goods accepted for storage. It represents the goods. The instrument may be indorsed for the purpose of transferring the ownership only or for the purpose of recognizing mortgage rights on the merchandise (this is called varant]. A warehouse receipt must comply with the strict form prescribed by the law (Comm. C. Article 832 et seq.) [C]

Function of Documents of Title and Negotiation

Documents of title operate in such a manner that the owners of goods are enabled to retain control of them while they are in possession of a carrier or warehouseman. When a sea bill of lading is issued to the bearer,.it may be negotiated by delivery alone. An order bill of lading and an order warehouse receipt may be negotiated by indorsement and delivery. However, there are functional differences between indorsement ofa bill of exchange (check and promissory note) and a document of title. In general, the law of negotiable instruments imposes the duty upon the indorser of a bill to pay the instrument, if, on certain conditions, the primary person failed to do so. The same is not true of an indorser of a document of title. The indorser of a document of title does not guarantee performance. Therefore, the indorser will not be liable if the bailee fails to perform. The only remedy which the holder of a document of title has is to bring an action against the bailee, which is the transporter or the warehouseman. Furthermore, the document of title does not guarantee the truth of the content stated in the document.

87

§6.06[C]


Selected Bibliography Bazer, A. & GOle, C., Kiymetli Evrak Hukuku, 3rd ed., Ankara 2013. Oztan, F., Kiymetli Evrak Hukuku, 17th ed., Ankara 2012. Paray, R. & Tekinalp, U., Kiymetli Evrak Hukuku Esaslan, 21st ed., Istanbul 2013.

88

CHAPTER

7

Business Associations Tugrul Ansay *

§7.01

OVERVIEW

The simplest form of business enterprise is the single proprietorship. However, for numerous reasons, including the complexity of business transactions, demands of competition, need for capital and skill, and the desire for limitation of liability, persons cooperate in the form of associatii:ms. When two or more persons combine their capital and skills to achieve a common economic purpose, there exists a business association. Nevertheless, new legislations allow the formation of one-man companies. Business associations are of various types and can be classified by differing characteristics. They either have or do not have legal personality. An ordinary partnership (simple partnership, adi $irket) has no separate legal personality, whereas general partnerships (kollektif $irketler), limited partnerships (komandit $irketler), limited partnerships in which capital is divided into shares (sermayesi paylara boliinmii$ komandit $irketler), business corporations (joint stock companies, anonim $irketler), partnerships with limited liability (limited liability company, limited $irketler) have separate legal personality (Comm. C. Article 125). Another type of business association with legal personality is the cooperative (kooperatif) (Comm. C. Article 124). As legal persons, business associations have rights and obligations similar to real persons, except for legal rights which real persons hold because of their gender, age or family relations. Thus, as a legal person, a business association has legal capacity to be a party to a contract or may issue negotiable instruments, commit torts, own property, and sue or be sued in a court of law. The legal capacity of a business association to do business is limited by the purpose clause contained in its formation agreement.

* Emeritus Professor, Krn;: University, School of Law, Istanbul.

89

§7.01

Tugrul Ansay

Business associations are merchants and are subject to legal provisions applicable to merchants (Comm. C. Articles 16, 18). They must, therefore, have a trade name registered in the commercial registry, and they must keep commercial books required by the law. Although ordinary partnerships do not have separate legal personality, they may carry a name and conduct business in the partnership name. Under certain circumstances, an ordinary partnership may have legally recognized rights of its own. For example, a partnership operating a ship (donatma i~tiraki) is allowed to enter certain contracts in the name of the partnership (Comm. C. Article 1064 I et seq. Article 17) . Foundations and associations (clubs) have legal personality, but because they are not allowed to operate a business enterprise as their main purpose, they are not suitable for most businesses. Business associations may also be differentiated according to the extent of liability of the partners. In ordinary partnerships and general partnerships, the partners have unlimited liability for the debts of the partnership, although the liability of partners in a general partnership is secondary. These risks may be acceptable to individual partners if the number of partners is small and the partners know and have confidence in each other. All partners normally participate in the administration of the partnership personally and the transfer of partnership rights to outsiders is difficult. The death of a partner causes, as a rule, the termination of the partnership. In other business associations, such as corporations, the liability of the shareholders or partners is limited and not personal. Only the assets of the business association are subject to liability to third persons and the shareholders are personally liable to the extent of the unpaid portion of their capital undertakings. For third persons dealing with a corporation, the financial strength of the corporation, rather than of its shareholders, is therefore .important. In publicly held corporations, there are many shareholders that may not know each other. Shareholders usually do not participate directly in the administration of the corporation so there is no need to restrict the number of shareholders. Shareholder rights are easily transferred. The bankruptcy or death of a shareholder has no significant effect on the existence of the corporation. From a practical point of view, business associations can also be classified according to the degree the government regulates their formation formalities, business activities and, through taxation its revenues. Some types of business associations can be created with less formality than others. General partnerships are formed when a written agreement is signed by the partners, a notary notarizes their signatures and the partnership is registered in the commercial registry. The formation of an ordinary partnership requires no written agreement. To form a corporation, on the other hand, may necessitate, among other formalities, the approval of a government ministry. Establishing a publicly held corporation requires more formalities than to form a closely held corporation. Unlike other business associations, corporations, partnerships with limited liability, partnerships in which capital is divided into shares and cooperatives are subject to the Corporate Tax Law (Kurumlar Vergisi Kanunu). This can result in profits being taxed once when earned by the business association and again when distributed to owners.

90

Chapter 7: Business Associations

§7.02[B]

Businesspersons take into account the advantages and disadvantages of establishing and operating different types of business associations in choosing the most suitable form for their purposes. For example, a small group of persons may choose to form a closely held family corporation rather than a publicly held one. Or, they might prefer to create an undisclosed (secret, silent) ordinary partnership. For those business associations in which the partners or share holders have limited liability, the provisions on auditing are stricter than for those in which partners have unlimited liability. More transparency is required in the case of corporations. For some businesses, the law prescribes a particular form of business association. For example, banking may only be done by corporations. §7.02 [A]

ORDINARY PARTNERSHIP (ADi $iRKE1J

General

The simplest type of business association is the ordinary partnership. It is regulated by the Code of Obligations (C.O. Articles 620-645). It is a basic type of association which fits business and non-business purposes. Legal provisions that govern ordinary partnerships can also be applied to other business associations in situations where there is no particular code provision applicable to them (Comm. C. Articles 126, 214). Similarly, if a business association does not have the characteristic elements of one of the associations described in the Commercial Code, it will be subject to the provisions governing ordinary partnerships (C.O. Article 620 II). Also, if a business association or society does not acquire legal personality for any reason, the provisions on ordinary partnerships will be applied to them (Comm. C. Article 214 I). Silent partnerships (gizli $irketler), in which the partners are not known to third persons, do not have any external existence but are subject to the provisions on ordinary partnerships for relations between the disclosed and undisclosed partners (gizli ortaklar). An ordinary partnership is defined in the Code of Obligations as an association in which two or more persons unclertake by contract to bring their capital or labor together to attain a common goal (C.O. Article 620). Any business which may be operated by an individual may be carried on in the form of an ordinary partnership. Thus an ordinary partnership can be created to conduct manufacturing, transportation, farming or commerce. Because of its simplicity of formation, an ordinary partnership is a suitable form of association for temporary activities including joint ventures. [BJ

Characteristics

The purpose of an ordinary partnership is to achieve a common purpose, which is usually the economic gain of the partners. The creation of an ordinary partnership requires at least two persons who may be either real or legal persons. Each partner must contribute money, credit, property or labor to the partnership. Unless otherwise agreed, contributions shall be equal and of the kind and amount necessitated by the object of the partnership (C.O. Article 621).

91

§7.02[C]

Tugrul Ansay

There are generally no formal requirements for the creation an ordinary partnership. The partnership agreement may be written or oral or it can be implied from the circumstances. Exceptionally, when for example real property is contributed by a partner, there must be a special written partnership agreement. The liability of partners of an ordinary partnership to third persons is unlimited. An ordinary partnership has no legal personality recognized by law. The liability of partners is, therefore, direct, primary, joint and unlimited. Creditors of a partnership may sue each of the partners directly for payment of the entire amount of partnership debt.

[C]

Partners

Partners are co-owners of the capital they contributed to, and of assets acquired by, the ordinary partnership (C.O. Article 638 I). Each partner has a proportional right to all assets, but each share is subject to the ownership rights of other partners. Therefore, no partner is entitled to assign his rights in partnership property without the consent of other partners. Neither is partnership property subject to attachment or execution for non-partnership debts of partners. The creditors of individual partners must force the dissolution of a partnership in order to be paid from partnership assets (C.O. Article 638 II).

Ordinary partnerships are run by transactions conducted by partners. Each partner acts as an agent of other partners. When a partner enters transactions within the scope of the partnership business, he generally has apparent authority to bind all of the partners. However, for extra-ordinary transactions, such as for the appointment of a general agent or the sale of the enterprise, unanimous action of the partners is necessary. In meetings of the partners each partner has only one vote regardless of the amount of capital he holds in the partnership. Partners are equal to each other in conducting the business of the partnership, and there is no subordination among them. Because the Code of Obligations does not confer legal personality on an ordinary partnership, lawsuits must be brought in the name of all partners and real property contributed to the partnership must be registered in the land registry in the name of all partners as co-owners. However, the law may recognize that when partners act under a common name, the partnership has, to a limited degree, legal capacity which makes it and the partners the subject of legal rights and obligations. Nevertheless, the partners are not the "organs" of the partnership. Consequently, partners are not liable for tortuous acts of other partners. A special legal provision, however, makes the partners individually liable in tort if the partnership enters into a transaction under a common name and damage is caused to third persons by a tortuous act of a partner (Comm. C. Article 216 II).

92


[D]

§7.02[F]

Internal Relations among Partners

If they have not otherwise agreed, all partners are entitled to administer the partnership together but usually one or several partners are entrusted with administration of the business. Partners have a fiduciary relationship to each other. A partner, in the discharge of his partnership duties, must exercise the degree of care, skill and diligence which he exercises in his own business. He should not compete with the partnership. Those partners not empowered with management of the partnership may nevertheless have a voice in the control of the business of the partnership. All partners are entitled to an accounting from those partners who have administrative powers (C.O. Articles 630, 631). In the absence of an agreement to the contrary, profits and losses are shared by partners equally, without regard to the amount of capital contribution. A partner cannot be excluded from sharing in profits and/or losses, except those partners contributing only their labor may be exempted from participating in losses.

[E]

External Relations

Since an ordinary partnership has no legal personality, partners must act on behalf of other partners. To third persons, an ordinary partnership appears to be several partners rather than a single entity. The existence of a partnership is an indication that partners are entitled to represent each other in ordinary transactions within the scope of purpose of the partnership. A partner who enters into· transactions with third persons on behalf of the partnership does so in his own name and may do so without disclosing the names of other partners. The other unnamed partners are considered silent partners and are not legally part of the transaction unless rights and obligations deriving out of the transactions are transferred to them (C.O. Article 637 I). Usually, however, an authorized partner acts in the name of the partnership by stating the name of the partnership or in the names of other partners. In this situation, the law states that the other partners are parties to the transaction with joint and several liability, if the transaction remains within the scope of the partnership's purpose (C.O. Articles 637, 40 et seq.) Nevertheless, for important transactions the power to act should be granted with the unanimous consent of the partners (C.O. Article 637 III).

[F]

Changing Partners

It is difficult to change partners in an ordinary partnership. A person may be admitted

into a partnership or retire from it with the unanimous consent of all partners. Under certain conditions a partner is entitled to retire or he may be dismissed from the partnership (C.O. Article 633). A retiring partner remains jointly liable to creditors of the partnership for two years after the date of announcement of his retirement (C.O. Article 201).

93

§7.03[A]

[G]

Tugrul Ansay

Dissolution and Winding-Up

An ordinary partnership comes to an end when the term for which the partnership was created expires or if the object for which the partnership was created has been attained or has become unattainable. The death of a partner dissolves the partnership unless the partnership agreement specifically provides to the contrary. A partnership is also dissolved when the liquidated share of a partner is subjected to execution, or if a partner becomes bankrupt. A partnership may be terminated upon notice of the partners where the partnership agreement has been entered into for an indefinite period of time or for the lifetime of one of the partners (C.O. Article 640). If there are justifiable grounds, any partner may demand the dissolution of the partnership (C.O. Article 639 Nr. 7). Upon dissolution of a partnership, debts of the partnership are paid first. If assets remain, credit extended to the partnership and expenses paid on behalf of the partnership by the partners will be reimbursed. Lastly, partners will be reimbursed for their capital contributions. A partner may not, however, demand the return of the same property contributed as capital (C.O. Article 642). Losses of the partnershir -"e divided among the partners. Even after dissolution, partners continue to be liable to third persons for breach of contract until the expiration of the statute of limitations applicable to those contracts (C.O. Article 645). §7.03 [A]

GENERAL PARTNERSHIP (KOLEKTjF $jRKET)

Definition and Characteristics

A general partnership is, in a way, an advanced form of the ordinary partnership. It is regulated in the Commercial Code. Like an ordinary partnership, it is formed between two or more persons who undertake to contribute capital or labor to achieve a common purpose. But, unlike an ordinary partnership, a general partnership has legal personality under Turkish law. Transactions of a general partnership are conducted in the name of the partnership, not in the name of partners. Assets belong directly to the partnership and are not co-owned by the partners. Immovable property is registered in the Land Registry in the name of the partnership. Lawsuits can be brought against the partnership without including the names of the partners. A general partnership is a merchant, but its partners are not. General partnerships must, as a merchant, have a trade name and are subject to bankruptcy laws (Comm. C. Article 239). Although a general partnership has legal personality and has its own separate :1ssets, the partners are also liable for partnership debts. This liability is unlimited and joint dmong the partners, but it is secondary to the partnership assets. The creditors of the partnership must first demand what they are owed from the partnership. They can turn to the partners when partnership assets are not sufficient to cover the debts of the partnership (Comm. C. Article 237).

94

I Chapter 7: Business Associations

[B]

§7.03[D]

Formation

Only real persons may create a general partnership (Comm. C. Article 211). Legal persons, such as other general partnerships or corporations, may not be founders or become partners in a general partnership. The law requires that general partnerships be formed only to operate a commercial enterprise (Comm. C. Article 211, and see "Commercial enterprise" above). To form a general partnership, partners must prepare and sign a written and notarized partnership agreement. The Commercial Code states that a partnership agreement should contain the following: The names and family names, addresses and nationalities of the partners; trade name, business center and subject matter of the partnership; names and family names of persons entitled to represent the partnership, whether they are authorized to sign individually or jointly; the amount of capital to be brought by each partner; the value of capital in-kind and its method of evaluation; and, if the capital contributed is the personal work of a partner, the nature and scope of such work (Comm. C. Article 213).

The partnership agreement must be registered in the commercial registry in the locality that is stated as the business center in the partnership agreement (Comm. C. Article 219). On registration the partnership acquires legal personality (Comm. C. Article 232).

[C]

Relations between Partners

If there is no contrary agreement, partners are treated equally, without regard to their capital contribution to the partnership. Each partner has the right and duty of separately administering the partnership, but the administration of the partnership may be entrusted to a majority or one or several partners. However, for extra-ordinary transactions the unanimous consent of all partners is required.

[D]

External Relations

A general partnership is represented by partners whose names are designated in the partnership agreement and registered in the commercial registry. Representatives are individually entitled to represent the partnership for ordinary transactions which are within the scope of the partnership purpose as stated in the partnership agreement (Comm. C. Articles 233 and 223). The partnership agreement may provide for joint representation of the partnership in transactions by, for example, requiring the signatures of two partners to bind the partnership. This limitation, if written in the registered partnership agreement, is effective against third persons (Comm. C. Article 233 II). Other limitations on the power of representation are not effective to limit the liability of the partnership as to third persons unless the third person knows of the

95

§7.04

Tugrul Ansay

limitation of authority. The partnership is liable for damages caused by a partner while he was performing his duties regarding the partnership (Comm. C. Article 234 II}.

[E]

Change of Partners

New partners may join a partnership only with the unanimous approval of the other partners. New partners will, however, be liable to third parties for all previous debts of the partnership (Comm. C. Article 236}. Retirement of a partner is possible only with the unanimous approval of the remaining partners if the partnership is to continue. However, a retiring partner may demand the dissolution of the partnership. The partnership may also end on the death of a partner (Comm. C. Articles 256, 253}. A partner may be expelled from the partnership for cause, such as the partner being declared bankrupt or a partner demanding the dissolution of the partnership. The remaining partners may expel him and keep the partnership running (Comm. C. Article 256 et seq.} The retirement or expulsion of a partner does not necessarily affect the existence of the partnership, but if the name of the outgoing partner is part of the partnership name, the partnership name must be changed and the change must be registered. Otherwise, the liability of the outgoing partner to third persons continues. After the change is registered in the commercial registry, the outgoing partner's liability for future transactions of the partnership ceases, but he remains liable for transactions which were started before his departure. He cannot demand the termination of such previous contracts, but he has the right to obtain information from the partnership regarding them (Comm. C. Article 263}. §7.04

LIMITED PARTNERSHIP

A limited partnership is composed of general partners and limited partners. General partners (komandite ortaklar) administer and represent the limited partnership and have unlimited liability. The liability of limited partners (komanditer ortaklar) is, as a rule, limited to the amount of capital they promise to contribute to the partnership under the partnership agreement. However, if their names are included in the trade name of the partnership or they enter into transactions in the name of the partnership, they may incur unlimited liability. Normally limited partners are not entitled to represent the partnership and their participation in the administration of the partnership is restricted. They have, however, the right to review the affairs of the partnership. Provisions of law which apply to general partnerships are, generally, also applicable to the general partners of a limited partnership (Comm. C. Articles 305, 308, 311, 317 and 328}.

96

§7.0S[A]

Chapter 7: Business Associations §7.05

CORPORATIONS (JOINT STOCK COMPANIES)

[A]

Overview

[1]

In General

The term corporation in the general sense indicates legal personality. When a business corporation is incorporated, it has a legal personality of its own, separate from the participants. The term corporation indicates also a certain type of legal person, in which the liability of the participants is limited by the amount they undertake to bring to the organization. In a corporation the amount of capital or assets of the association is important, not the personal financial resources of the participants, who are called shareholders. The agreement to incorporate, which is the articles of incorporation, must state a legally required minimum capital. The amount of this stated capital reflects the initial financial strength of the corporation in its external affairs with third persons. The stated capital of a corporation is divided into shares for which share (stock) certificates are issued. Persons, either real or legal, contribute or promise to contribute a certain amount of capital to the corporation in return for shares. Those who own shares are called shareholders. Shares in a corporation are easily transferred through the transfer of stock certificates. The liability of shareholders for obligations of the corporation is terminated when the amount represented in the shares is paid in. There may be different types of corporations. Accordingly, they can be grouped under different headings. Depending on the number of shareholders they can be called publicly held or closely held corporations. A subdivision of corporations is the partnership with limited liability. This type of business association is suitable for investments of limited number of persons. It may not have more than SO partners. Under the new law, a corporation or partnership with limited liability may however be founded only by one person. Corporations in Turkey tend to be closely held corporations with a small number of incorporators. Founders of corporations are often family members or a small number of business enterprises wanting to enter into a joint venture with limited liability. This tendency has been changing recently as more Turkish corporations are offering their shares on the stock exchange; increasing their number of share owners by going to the public in order to raise operating capital. Corporations may be incorporators of other corporations. By establishing a corporation, already existing business institutions may combine their financial capacities, experience and efforts for a new joint enterprise for a long or short period of time. Corporations can also form subsidiaries (yavru ~irketler) which are separate corporations. The founding corporation is called the parent corporation (ana ~irket) with separate legal personality and limited liability for the activities of its subsidiary. A parent-subsidiary relationship may expand into a holding company, with a horizontal or vertical structure. For holding (group) companies there are special provisions in the Commercial Code (Articles 195-209) as well as provisions in different places in the Code.

97

§7.05[A] [2]

Tugrul Ansay Sources of Law

Corporations are regulated by the Commercial Code (Articles 329-563). The same rules of the Commercial Code are basically applicable both to closely and publicly held corporations. However, in 1981 the Capital Market Law (CML,), which was completely renewed in 2012 (Law Nr. 6362, dated December 6, 2012) with the Law establishing Capital Market Board and imposed provisions applicable to those corporations which are registered in the Stock Exchange (CML, Article 16). Apart from the provisions in the Commercial Code and the CML, there are provisions regarding corporations in other special laws, such as the Banking Law or various privatization laws. The provisions on corporations in the new Commercial Code dated July 1, 2012, have their roots in the previous Commercial Codes of 1926 and 1957. The revisions of 1957 brought Turkish commercial law generally closer to Swiss law as found in the Swiss Code of Obligations of 1936. The present law introduced new provisions to deal with issues which have arisen during recent decades in domestic and international business, particularly having to do with holding companies and mergers or partitions as well as take-overs. The legislation of the European Union regarding corporations was also taken into consideration during the preparation of the new Commercial Code. Although the new Commercial Code basically protects the freedom of parties to make agreements on their own terms, many of its provisions on corporations are mandatory. According to the Code, the incorporators are allowed to regulate in the articles of incorporation only those issues which are expressly allowed by the Law (Comm.C. Article 340). There are many mandatory code provisions, which cannot be avoided by the articles of incorporation. Mandatory rules apply to the vested rights of shareholders such as voting rights. The incorporators may, nevertheless, choose to regulate certain corporate matters in an agreement which is separate from the articles of incorporation. Such an agreement is generally considered enforceable, although the remedy of specific performance may not easily be obtained. {3]

State Supervision

Because corporations play a significant role in the Turkish economy and may have many shareholders with only limited liability, they are subject to closer state supervision and are regulated by more detailed legal provisions than other types of business associations in which the partners have unlimited liability. Turkish law requires that certain types of business activity, such as banking or leasing, be conducted through a corporation. which need additional permission of the State. Regardless of its type, whether closely or publicly held, and regardless of the amount of capital involved, a corporation is subject to State intervention, starting from the moment of formation until it ceases to exist. In some cases, the incorporators must receive permission from the State to form a corporation, and in such corporations a State official attends general meetings of shareholders.

98

§7.05[B]


[BJ

Incorporation

The formation process of a corporation differs according to whether there is full or partial subscription of capital by the incorporators and according to the nature of contributed capital and the terms of the articles of incorporation (es as mukavele, ana sozle$me). In a corporation with a limited number of founders, when the incorporators themselves subscribe for all of the capital stock, simultaneous incorporation (ani kurulu$) will occur. This is a simple process when compared to incorporation where public subscription is used through the participation of intermediary financial institutions. The details of this special type of incorporation are laid down in the CML. Simultaneous incorporation occurs in two main stages. If the permission of the Ministry is obligatory, the first stage is completed when permission of formation is granted by the Ministry of Customs and Trade. In order to get this permission, the incorporators (kurucular) prepare the articles of incorporation, sign it, and have their signatures authenticated by a notary. Under the old law, there had to be at least five incorporators who take part in the preparation of the articles of incorporation, sign it and contribute capital (Comm. C. Article 278). Today, one incorporator is sufficient (Comm.C. Article 338, one-man company). The articles of incorporation must comply with the requirements of the provisions of the Commercial Code (Comm. C. Article 340). On non-mandatory matters, the Commercial Code provisions are applicable to the extent that the incorporators have not stated otherwise in the articles of incorporation. Articles of incorporation must include the following basic information in addition to that which may be stated by the incorporators: (1) The object, type, nature and kind of transactions constituting the subject matter (scope of business) of the corporation. The extent of the scope of business must be specified (Comm. C. Article 339 II). The internal legal capacity of a corporation is determined according to its stated scope of business, which indicates the extent of the power of representation of corporate administrators (Comm. C. Article 125). External limitations on power of representation will not be effective against third persons acting in good faith (ultra-vires). (2) The amount of the basic capital, the value of each share, and the means and conditions of payment for shares. The minimum amount of stock capital must be TRY 50,000 (appr. USD 25,000 as of September 2013). The required capital is much higher for corporations which are active in certain businesses, such as banking or insurance. Capital stock is divided into shares with at minimum value of TRY 0,01 each. In a simultaneous incorporation all stock must be subscribed at the time of formation. If a capital contribution is to be money, at least one fourth of the value of each share must be paid in cash before the formation is completed and the rest should be paid-in within 24 months after the registration of the corporation. If capital in-kind is to be contributed, the entire asset must be provided. The articles of incorporation must, furthermore, state the nature of capital in-kind and the amount of shares to be given

99

Tugrul Ansay

§7.05[B)

in consideration of capital in-kind (Comm. C. Article 339 II). Experts must evaluate the worth of the capital in-kind (Comm. C. Article 343). (3) The central location of the business must be given (Comm. C. Article 339 II). This can be any location within Turkey. The corporation must be registered in the commercial registry at its stated center of business. Courts in that location basically have jurisdiction over legal conflicts involving the corporation. (4) A trade name which indicates the purpose of the corporation and which includes the Turkish equivalent of the word "corporation" (anonim $irket, A.$) (Comm. C. Article 339 II). (5) The number of directors, the names of the first directors and those who will be entitled to sign in the name of the corporation (Comm. C. Article 339 II and III). Basically there is no restriction on foreigners becoming incorporators or shareholders in a Turkish corporation. In the case of a one-man company, the domicile and nationality of the sole shareholder should, however, be registered in the commercial registry (Comm.C. Article 338 II). How shareholders should be invited to the general assembly meetings and among others, the voting rights of shareholders, how the announcements should be made, the type and amount of shares should be stated in the articles of incorporation. The accuracy of the founding formalities will be checked by person or persons designated for such purpose (Comm. C. Article 351): For those corporations which need the permission of the Ministry of Customs and Trade, an application must be made by the incorporators to the Ministry. This Ministry may refuse permission if there are provisions in the articles of incorporation against the mandatory provisions of the Commercial Code (Comm. C. Article 333). The formation process is completed with the registration in the commercial register and publication of a certain part of it. This is initiated by the incorporators making application to the commercial registrar at the stated central location of the business. Those parts of the articles of incorporation which primarily affect third persons, such as the purpose and subject matter of the corporation, the trade name, business location and the amount of capital stock of the corporation, must be included in the registration. How the corporation will be represented and the names of the Board of Directors those who will be entitled to represent the corporation, their domicile and nationality should also be registered (Comm. C. Article 354). A corporation acquires legal personality upon registration in the commercial registry. During the pre-incorporation period, the business association is subject to the laws regulating ordinary partnerships. All incorporators have, therefore, joint and unlimited liability for transactions conducted during the preparatory stage of incorporation. In order to be binding on the corporation, transactions entered into by the incorporators in the name of the corporation before registration must be approved by the corporation after it acquires legal personality (Comm. C. Article 355). Only in exceptional cases where the interests of creditors, shareholders or the public is severely endangered, a corporation maybe dissolved by a court decision upon the demand of the Ministry, a creditor or shareholder (Comm. C. Article 353).

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If a corporation is to be formed by offer of shares to the public additional formalities stated in the Commercial Code and especially in the CML should be observed.

[C]

The Operational Structure of Turkish Corporations

The organization of a corporation consists of a Board of Administration, and the General Assembly of Shareholders (General Meeting). These constituent parts are called "organs" and they are necessary for the existence of a corporation. Even a one-man company will have a symbolic Assembly of Shareholders. The non-existence of these organs is a ground for the dissolution of a corporation (Comm. C. Article 530). There can be additional organs if the articles of incorporation so provide. In fact, some corporations, like banks which operate under special laws, must have additional organs. Auditing of a corporation was previously done by auditors attached to the corporation continuously, who constituted another organizational part of the corporation. This is abolished by the new Code and independent auditing is introduced. [1]

Board of Administration (Board of Directors)

(a) A corporation is administered and operated by a Board of Administration. The Board consists of one or more members who are called administrators (Comm. C. Article 359). They are elected by the shareholders for, at most, three years. Reelection is possible. If a shareholder is a legal person, a real person representative of that shareholder must be elected to the Board (Comm. C. Article 359 II). The representation of different shareholder groups on the Board is possible if allowed in the articles of incorporation (Cornm.C. Article 360). The incorporators may also separately agree on the manner of representation on the Board. (b) Board resolutions are passed at board meetings by a majority of members present when there is a quorum of more than half of the Board members. Proxies are not allowed for votes of the Board (Comm. C. Article 390 II). Nevertheless, voting by electronic means is allowed (Comm. C. Articles 390 I and 152 7 I). Turkish law also allows resolutions to be reached by correspondence if none of the administrators objects (Comm. C. Article 330 II). (c) The Board is responsible for administering the corporation. The Board Administration may create Committees and Commissions or transfer administration wholly or partly to other persons. If there is no transfer, administration will be done by all administrators (Comm. C. Article The Board has the power to administer the affairs of the corporation matters not exclusively within the power of the General Assembly and pass resolutions for accomplishing the aims of the corporation (Comm.

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Tugrul Ansay Article 374) Performance of certain duties may not be delegated and are specifically expected from the Board. It has the duty to prepare a yearly balance sheet and a detailed report on the financial condition of the corporation as well as to suggest a yearly dividend rate and the amount of income to be allocated as a reserve fund (Comm. C. Article 514 et seq.) The Board is obliged to hold shareholders meetings and to report to a court if there is a deficit of corporate liabilities over assets (Comm. C. Article 375 I g). There are many provisions in the Code to safeguard the assets of a corporation and to avoid their misuse for the benefit of others. Among them worth mentioning is the prohibition of acquiring its own shares, or of taking them as a pledge (Comm. C. Article 379). The Code also prohibits shareholders, as a rule, from becoming debtors of the corporation (Comm. C. Article 358).

The Board must take necessary precautionary steps to be informed of possible risks as early as possible (Comm. C. Article 378). Since the administrators have the power to administer the assets of a corporation, they are in a peculiarly advantageous position to use the investments of the shareholders. It is generally accepted that the relationship between administrators and the corporation is similar to that of an agent and a principal, requiring a similar degree of diligence and faithfulness (C.O. Article 628). More specifically, Board members must act as prudent administrators and protect the interest of the corporation in good faith (Comm. C. Article 369 I). An administrator must not participate in discussions with the board of administration on matters which are related to his own interests or those of his close relatives (Comm. C. Article 393). Administrators cannot vote on shareholders' resolutions concerning their discharge (ibra, aklanma) (Comm. C. Article 436). The corporation is not allowed to give security or guarantee to close relatives of Board members (Comm. C. Article 395 II). An administrator may contract with his own corporation in his name or in the name of others only with the permission of the shareholders (Comm. C. Article 395). Similarly, an administrator may not enter transactions that compete with the corporation without the permission of the shareholders (Comm. C. Article 396). Administrators also represent the corporation in transactions with third parties. Unless the articles of incorporation expressly allow single representation, two signatures are necessary. If the power of representation is given to other persons, at least one Board member must have the power of representation (Comm. C. Article 370 II). The notarized resolutions of the Board must be submitted to the Commercial Registry for registration and for publication (Comm. C. Article 370 I). Normally the Board empowers a general manager to represent the corporation. Administrators and managers are bound to remain within the scope of the stated purpose of the business of the corporation when they act in the name of the corporation since this sets the broadest limits of their representative power. However, transactions beyond the scope of the business bind the corporation unless third parties knew or had reason to know that the representatives were not entitled to enter such transactions. Outside of these limits the corporation has no legal capacity. Similarly, within the declared scope of business, the power of representation cannot be restricted except when the power is limited to 102


§7.05[C]

the business center, branch office of the corporation or there is a joint representation (Comm. C. Article 371 II and III),. Once the capacity of a corporation is stated in the articles of incorporation by way of its "object clause," no subsequent limitation may be placed on this capacity without amending the articles. A corporation is also liable for torts committed by its representatives during the performance of their duties (Comm. C. Article 371 V). Board members and administrators are liable for damages they cause to the corporation, individual shareholders and creditors of the corporation, if they negligently fail to perform their duties arising from law or the articles of incorporation (Comm. C. Article 553). Lawsuits brought by individual shareholders are rather rare due to an institution that is called "discharge" (ibra). A resolution of the general assembly of shareholders which approves a balance sheet implies, unless otherwise stated, that the administrators are discharged of their liabilities arising out of the information contained in the balance sheet. However, if information is omitted from the balance sheet or if false statements are made which prevent an understanding of the real financial status of the corporation the administrators are not deemed discharged upon the approval of the balance sheet. Shareholders can, of course, annul a resolution of discharge if this violates principles of good faith (Comm. C. Article 445). Banking Law makes the board members and general managers responsible with unlimited liability if the bank becomes bankrupt (See Chapter on Banking Law). [2]

Auditors (Controllers)

The new Commercial Code has made basic innovations on auditing. In contrast to the previous law, where the auditing or controlling organization directly attached to the corporation itself, there are now independent (outside) auditors. The auditing is also made more stringent. First, the auditors must have certain qualifications (Comm. C. Article 400). The work must be done professionally. The new Code introduces provisions harmonizing the accounting system with the international standards. There are many provisions to safeguard the impartiality of the auditors and to avoid conflict of interests between the auditors and the corporations or their administrators. In many stages during the operation of a corporation, auditors should be asked to report on the economic situation. Auditors of a corporation have duties and powers far beyond the position of a normal auditor. They not only check the books and accounts of a corporation, they also have a wide range of inspection and controlling functions, including the investigation of whether administrators are acting in accordance with the law and the articles of incorporation and the examine the general development of the business. They have access to all documents and books of the corporation (Comm. C. Article 401). They annually submit a written report to the general assembly of shareholders as well as a balance sheet prepared by the board of administration (Comm. C. Articles 402 and 403). The auditors are elected by the General Assembly of Shareholders. Upon demand of the Board of Directors or shareholders representing one tenth of capital stock the

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court may appoint an auditor (Comm. C. Article 399 IV). The auditors must be registered in the Commercial Registry (Comm. C. Article 399 I). There are supplementary legal provisions on the auditing of publicly held corporations. The operations of corporations are supervised by the Ministry of Customs and Trade, and if they are publicly held listed corporations, they are also controlled by the Capital Market Commission. [3]

General Assembly of Shareholder

The highest organ of a corporation is the general assembly of shareholders. It is the supreme authority of the corporation in the sense that on certain decisive matters the last word must come from the shareholders. Shareholder's rights are exercised in general meetings and include the appointment of the members of the Board of Administrators as well as Auditors, approval of the yearly balance sheet, yearly report and on the distribution of dividends, and the right to discharge the Board (Comm. C. Article 408). Global sale of a considerable part of the assets of the corporation requires the approval of the shareholders (Comm. C. Article 208 II). Shareholders can decide on modifications of the articles of incorporation, including capital increases or decreases. Shareholders must meet at least once every year within the first three months of the calendar year (Comm. C. Article 409). This is called an ordinary (olagan) meeting. The required agenda (giindem) of ordinary meetings is prescribed in the Commercial Code (Comm. C. Article 413). Other meetings are called extra-ordinary (fevkalade) meetings. The articles of incorporation describe the procedure for invitations to general meetings. Shareholders must be given at least two-weeks notice of a meeting. The topics for discussion must be included in the notice. Any failure to meet formalities can be cured if all shareholders are present or represented at the meeting and none objects to the meeting (Comm. C. Article 416). The place of meeting is normally the stated center of business of the corporation, but the articles of incorporation may allow meetings in other locations. If all shareholders or their representatives are present at the meeting resolutions may be held, without the fulfillment of the formal requirements of invitation (Comm. C. Article 416). Electronic balloting is allowed. The voting will then basically have the same effect as normal resolutions which are voted on in person (Comm. C. Article 1527 V). The general assembly of shareholders is able to meet and start discussions only if a quorum is present. The quorum for ordinary meetings is generally the presence of shareholders representing at least one fourth of the stated capital stock. If this quorum is not reached, shareholders may assemble in a second meeting with those present (Comm. C. Article 418 I). Resolutions may be adopted with a simple majority of the votes cast (Comm. C. Article 418 II). The Commercial Code requires different quorums for extra-ordinary meetings, especially on amending the articles of incorporation. To adopt a resolution at an extra-ordinary meeting to amend the articles of incorporation shareholders representing 50 % of the stated capital must be present and a simple majority of the votes cast is sufficient (Comm. C. Article 421 I). To amend the articles

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§7.05[D]


of incorporation in certain cases unanimous approval of shareholders (to move the business center to another country) or the votes of shareholders representing at least 75 % of the capital is required (Comm. C. Article 421). Shareholder resolutions are binding also on all shareholders, including those who were not present at the meeting. They may, however, be void if they are found to be contrary to the mandatory provisions of the law. Resolutions that are contrary to law or the articles of incorporation or objective good faith are voidable. A suit of annulment on these grounds may be initiated by individual shareholders who claim they were not properly invited to the general meeting, or that they were present but voted against the resolution, or that they were not allowed to vote, or who claim that votes were cast by persons who were not eligible to participate in the voting. A suit of annulment must be brought within three months from the date the resolution was passed (Comm. C. Article 445 et seq.) A peculiarity of Turkish law requires the presence of a representative (komiser) of the Ministry of Customs and Trade (komiser] at shareholder meetings of corporations which are incorporated with the permission of the Ministry of Customs and Trade. The Ministry representative observes the meeting, and if the legal requirements have been complied with, signs the minutes (Comm. C. Article 422). [D]

Shareholder Rights

(1) Shares entitle their holders to certain rights, some of which are of a financial nature, others administrative. Each shareholder is entitled to attend general meetings. This includes the right to participate in discussions and vote at a meeting. Each share gives at least one vote to its holder. Non-voting shares are not allowed. The articles of incorporation may, however, recognize shares with more than one vote or assign a higher limit of votes to a shareholder (Comm. C. Article 434 II) or put a cap on a voting right (Comm. C. Article 479). In some cases, such as on resolutions of discharge of the Board of Administration, voting rights may be frozen (Comm. C. Article 436). (2) The primary financial right of a shareholder is the right to receive dividends. This is part of the right of a shareholder to participate in the profits of the corporation. Although dividends are normally equally distributed according to share ownership, there can be different types of shares with varying rights to dividends. Not all net profits are distributed to shareholders. The Board proposes the amount to be distributed (Comm. C. Articles 507, 516). The Board is bound by statutory restrictions in making dividend proposals. It must consider requirements to establish a reserve fund found in statutory provisions (kanuni yedek akr;e) (Comm. C. Article 519) and provisions of the articles of incorporation and laws on establishing reserve funds for the benefit of the employees (Comm. C. Article 522). The Board may decide not to distribute any dividends for a particular financial year or may keep the amount very low, unless this is incompatible with good faith. The general

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assembly of shareholders has, theoretically, the power to refuse the suggestions of the Board on dividend distribution. In the case of publicly held corporations, the law regulates the distribution of a certain part of the profits (CML Article 19). Shareholders also have a right to be informed (bilgi alma hakkl). Without sufficient information on the affairs of the corporation a shareholder may not be in a position to know whether to discharge the board of liability or to approve the balance sheet or proposals of the board on dividend distributions, and they will not be in a position to bring a suit for compensation against administrators in case of mismanagement. Nevertheless, an individual shareholder's access to the books of a corporation is possible only with the permission of the board of administration or the general meeting of shareholders. These organs of the corporation also decide on the extent of the right to be informed. Shareholders holding 10 % of the stock capital of the corporation have additional rights to be informed (Comm. C. Article 437 et seq.) In cases of the issuance of new shares, the existing shareholders have the preemptive right to get the new shares, which might be rejected by the General Assembly of shareholders with a resolution representing at least 60 % of the basic capital of the corporation (Comm. C. Article 461). Each shareholder may request special auditing for clarifying certain issues (Comm. C. Article 438). If this is rejected, the shareholders constituting 10 % of the capital or those shareholders with shares representing at least TRY 1 billion may demand the appointment of a special auditor (Comm. C. Article 439) at the General Assembly meeting of shareholders. (3) The shareholder rights recognized by the Commercial Code also include the rights of individual shareholders or minority shareholders. Each shareholder has certain rights including the right to be invited to the general meeting of shareholders and to vote there and, to participate in dividends. Rights which may not be taken away under the articles of incorporation or shareholders' resolutions are called vested rights (miiktesep haklar, Comm. C. Article 452). The right to vote and to participate in dividends, as well as the right to initiate an annulment suit against the resolutions of a shareholder's meeting or to participate in assets remaining after dissolution of the corporation are examples of vested rights. Each shareholder may request the appointment of a special auditor (Comm. C. Article 438). They may also initiate a lawsuit against the board of administration for negligently causing damage to the corporation (Comm. C. Articles 553 and 555). Shareholders representing one tenth of the capital stock are given rights additional to those that might be exercised by the holder of a single share. Such shareholder or shareholders may demand the convening of a general meeting of shareholders (Comm. C. Article 411). Similarly, shareholders representing at least one tenth of the capital may demand the dissolution of the corporation (Comm. C. Article 531).

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§7.05[E]

Provisions requiring a special quorum as well as a qualified majority vote give additional protection to minority shareholders. The new Commercial Code gives to shareholders, creditors of the corporation or to the Ministry the right to demand from a court the dissolution of a corporation if one of the organs (Board of Directors or General Assembly of Shareholders) fails. When there are good reasons, shareholders representing at least 10% of the capital may also demand from a court the dissolution of the corporation. The court, instead of ordering dissolution, may decide in favor of a buy-out of the shareholders or for some other suitable and acceptable resolution (Comm. C. Article 531).

[E]

Capital Structure

To protect third persons from the limited liability of shareholders, the Commercial Code sets a minimum amount of capital to be stated in the articles of incorporation and known by third persons. This is the stated capital. This is different than the assets of the corporation which might be called the business capital. Numerous statutory provisions are meant to insure that this amount of the stated capital is subscribed and paid in or contributed as property and that there is a relationship between stated capital and the existing assets of a corporation. If the existing assets of a corporation decrease in comparison to the stated capital to a certain percentage, precautionary measures should be taken and the general assembly of shareholders must be invited by the Board to an extra-ordinary meeting (Comm. C. Article 376). As part of these measures a corporation is allowed to acquire its own shares only in exceptional circumstances which are enumerated in the Code (Comm. C. Article 382). Corporations are also obliged to establish reserve funds (Comm. C. Article 519). The capital of a corporation is divided into shares. Each share must have the minimum nominal value of TRY 1 (appr. 0.5 cent). There can be different categories of shares, such as ordinary shares (common shares, adi hisseler, paylar), preferred shares (imtiyazlr hisseler, paylar), shares issued in consideration of a contribution in-kind, and founders' shares (kurucu hisseleri, paylan). There are different types of preferred shares which entitle holders to priority over other classes of shareholders. The preferential right may be in regard to voting (Comm. C. Article 434). But for some matters, such as amending the articles of incorporation, each share, regardless of type or class, entitles the holder to only one vote. Preferred shares may give their holders preference to dividends or the division of assets on liquidation. Shareholders with preferential or special rights may hold their own general meeting on matters affecting their own interests (Comm. C. Article 454). Participation certificates (intifa senetleri) may be issued, but they are not shares in that they do not entitle their holders to vote on corporate matters. They give rights of income without ownership (usufructuary) to their holders. They may be issued in favor of persons whose shares have been redeemed, or to creditors or of other persons

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Tugrul Ansay

who have some relation of interest to the corporation. The owner of a participation certificate has the right to participate in the net profits, in the proceeds of liquidation or in the allotment on the issuance of new shares (Comm. C. Article 502 et seq.) The General Assembly of Shareholders may also decide to issue bonds, financial bonds, instruments attached to assets, debt certificates and all kinds of negotiable values (Comm. C., Article 504). The total value of the mentioned debt certificates may not exceed the total value of the stated capital and the reserves of a corporation (Comm. C., Article 506). [F]

Share Certificates

Shareholders are entitled to get instruments certifying their shares. Share certificates can be registered or bearer (for listed corporations electronic registration, C. M. L., Article 13 I). If there is no contrary provision in the articles of incorporation, share certificates must be registered (nama yaz1h hisse senetleri, pay senetleri). In some situations corporations are allowed to issue only registered shares. For example, if the capital representing a share has not been fully paid in, the share certificate must be registered (Comm. C. Article 484). Additionally, some statutes, such as the Law on Foreign Direct Investment requires the issuance of registered share certificates for foreign investors in order to make possible the transfer of dividends or proceeds obtained from the sale of shares or from the liquidation of the corporation (See Chapter on Foreign Investment). The name of the shareholder and other information required by law is stated on the registered share certificates and is also registered in the shareholder books of the corporation (Comm. C. Article 499). The transfer of share certificates indicates the transfer of shareholder rights and obligations. Shareholders, in general, are free to transfer their shares. The articles of incorporation may, however, prohibit the transfer of shares or make it subject to the approval of the corporation (Comm. C. Article 492). The approval of transfer may be refused for serious reasons or by offering of the corporation to buy the shares for their real value (Comm. C. Article 493). Where shares are not fully paid up, the corporation may demand security before shares are transferred. A transfer of shares will not be effective as against the corporation until it is registered in the shareholders' book. The owner of a fully transferred share certificate is entitled to vote at shareholder meetings. A written authorization (proxy, vekaletname) is necessary to vote in the name of an absent holder of a registered share certificate. Bearer share certificates (hamiline hisse senetleri) do not state the name of the owner and they are not registered in the corporation's shareholder books. They are, therefore, easily transferable by way of delivery of the certificate. The holder of the bearer share certificate is the owner as against the corporation; he is entitled to vote at a general meeting of shareholders. To prove shareholder status, the owner of a bearer share deposits his share certificates with the corporation during the meeting.

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[G]

§7.06

Liability of Persons Participating in the Administration

Persons who have prepared false documents during the stage of formation or subsequently, are liable for damages suffered by a corporation. More specifically, the founders, members of the Board of Directors and other administrators are liable if they fail to perform their obligations deriving from the Code or from the articles of incorporation causing damage to the corporation, to the shareholders or to the creditors of the corporation, unless they prove that they have not acted negligently (Comm. C. Article 553). Similar liability is foreseen for the auditors, if they perform their statutory duties negligently (Comm. C. Article 554). A liability may cease if a General Meeting of shareholders discharges the liability (Comm. C. Article 558). There is additionally criminal liability for acting against certain provisions of the Code (Comm. C. Article 562). §7.06

PARTNERSHIP WITH LIMITED LIABILITY

This type of business association is very similar to a corporation. It was originally regulated in the Commercial Code and is designed for persons who wish to limit their liability, but do not have enough capital or partners to form a corporation. Like a corporation, the partnership with limited liability has a stated basic capital that is divided into shares and the liability of the partners is limited to the capital they undertake to contribute to the company. With the enactment of the new Commercial Code the importance of the partri-ership with limited liability will diminish, mainly because the basic capital to be brought to corporations is lowered. The advantage of creating a partnership will also lose its attraction mainly because both types of business associations may be established with one shareholder/partner in the future. Because these associations are similar, many provisions on corporations are also applicable to partnerships with limited liability (Comm. C. Article 644). Nevertheless, there are still differences between a corporation and a partnership with limited liability. Although one person is sufficient to form a partnership (One-man partnership), the maximum number of partners can be 50 (Comm. C. Article 574 I). The basic capital must be at least TRY 10,000 (appr. USD 5,000). The value of each share must be minimum TRY 25,000 (Comm. C. Article 583). But it must be fully paid-in before the formation. Negotiable share certificates are not issued for shares. The transfer of shares, if nothing contrary is stated in the articles of incorporation, is not possible without the approval of a general meeting of partners (Comm. C. Article 595). The transfer of shares is subject to formal requirements (Comm. C. Article 595 I). Some business activities, such as banking or insurance may not be engaged in by partnerships with limited liability. The formation of a partnership with limited liability is similar to the simultaneous formation of a corporation. Here too, the founders prepare and sign the partnership agreement, and a notary authenticates their signatures. The partnership agreement must include basic data relevant to external transactions. It must include the subject matter and business center of the partnership, the amount of basic capital and the

109

names, titles and nationalities of the directors (Comm. C. Article 576), Other matters may be stated in the articles of incorporation, if they are expressly permitted by the Commercial Code (Comm. C. Article 579). For the formation of a Partnership with Limited Liability no permission of the Ministry of Customs and Commerce is necessary. The partnership acquires legal personality upon registration in the Commercial Registry (Comm. C. Article 588). Additional information, such as the names of the partners, their domicile and nationality and how the partnership will be represented should be registered (Comm. C. Article 586). A partnership with limited liability is administered and managed by the directors who may be partners or outsiders (Comm. C. Article 623). The extent of representative power is limited by the scope of business stated in the partnership agreement. Code provisions on corporations regarding the general assembly of shareholders are basically applicable to the meetings of partners. For a resolution to pass, partners representing more than half of voting rights represented in the meeting (Comm. C. Article 620) must approve it. For extra-ordinary matters a resolution needs two thirds of votes cast, which also represent the majority of the capital of the Partnership (Comm. C. Article 621). The transfer of shares is subject to the approval of the general meeting of the partners. A transfer must be registered in the books of the partnership. In order to be valid, an agreement to transfer partnership rights must be in written form and a notary (Comm. C. Article 595) must authenticate the signatures. If a_ transfer is not approved, a partner may use his right to retire from the partnership for justifiable reasons or he may demand the dissolution of the partnership (Comm. C. Article 636 III). A partner may be expelled for reasons stated in the articles of incorporation. The dismissal must be approved by the general meeting of the partners with the votes representing a majority of the basic capital of the partnership (Comm. C. Articles 640 and 621 I, h). A partner's liability is limited to the amount he undertook to contribute. When a share is transferred to a third person, a partner is liable for five years for the unpaid part of his assumed capital contribution (Comm. C. Article 602). A partner's liability for taxes of the partnership is unlimited. 1 Selected Bibliography Ansay, T. & Yongal1k, Bankac1lar !c;in $irketler Hukuku Bilgisi, 20th ed., Ankara 2014. Klfca, $ehirali <;:elik & Manavgat, Anonim $irketler Hukuku, vol. 1, Temel Kavram ve (lkeler, Kurulu~, Yi:inetim Kurulu, Ankara 2013. Poroy, Tekinalp & <;:amoglu, Ortakliklar ve Kooperatif Hukuku, 8th ed., Istanbul 2010. Pula~h, $irketler Hukuku $erhi, vols. 1 and 2, Ankara 2011. Tekinalp, tr., Sermaye Ortakliklanmn Yeni Hukuku, 3rd ed., Istanbul 2013.

1. Pulaph, Sirketler Hukuku Serhi, 1874 et seq.

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CHAPTER 8

Unfair Trade Law Giil Okutan Nilsson·

Unfair trade practices in the broadest sense pertain to the prohibition of competition by law or contract, unfair competition and restrictive trade practices. Depending on the purpose, scope and function of these practices, different sets of rules will be applicable; namely rules on the prohibition of competition, unfair competition law and the law on the protection of competition. §8.01

PROHIBITION OF COMPETITION

Although free competition is the basis of a free market economy, in some cases the law prohibits competition between persons who are bound by a special relationship, such as principal and agent or employer and employee or company and directors. In such cases, competition may harm the party who relies on the other party's conduct to safeguard his economic interests. Such statutory rules on the restriction of competition may be found in the Turkish Code of Obligations ("C.O. ") and in the Turkish Commercial Code ("Comm. C. ").

[A)

General Service Contract

Under the C.O.'s provisions concerning the general service contract, an employee may not compete with the employer during the term of employment (C.O. Article 396 (3)). The employee may also enter into a written covenant extending the prohibition of competition for a maximum term of two years following the termination of the employment contract (C.O. Article 444 (1)). Such a contractual restriction of competition may only be validly adopted by employees whose scope of employment gives them the possibility to obtain information about customers or production secrets or

* Associate Professor, Faculty of Law, Bilgi University, istanbul.

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§8.02

Giil Okutan Nilsson

business activities of the employer and if the use of such information may cause a substantial damage to the employer (C.O. Article444 (2)). Furthermore, such covenant may not contain clauses regarding location, term or type of work that will unfairly prejudice the economic future of the employee (C.O. Article 445 (1)). Otherwise, the judge may restrict the covenant in terms of scope and term after evaluating all the circumstances and bearing in mind any consideration promised by the employer in return (C.0. Article 445 (2)). The covenant shall terminate if it is established that the employer has no real interest in its continuation or if the employment contract is terminated by the employer without any just grounds or by the employee due to any reason that may be attributed to the employer (C.O. Article 447).

[B]

Commercial Representatives or Agents

Both the C.O. and the Comm. C. contain rules on the restriction of competition of commercial representatives or agents.

[CJ

Directors of Business Corporations and Partnerships

The directors of partnerships and corporations are under a duty of loyalty towards their partnership or corporation, which results in a prohibition of competition with the partnership or corporation. Such prohibition is regulated in the C.O. for ordinary partnerships (C.O. Article 626) and in the Comm. C. for each individual type of partnership or corporation. For general partnerships (kollektif $irket), the prohibition of competition covers the partners, who are thus precluded from conducting competing businesses on their own behalf or on behalf of third parties or from becoming partners with unlimited liability in competing partnerships (Comm. C. Article 230). The same restriction applies to unlimited liability partners of limited partnerships (komandit $irket) (Comm. C. Article 311) and partnerships limited by shares (payll komandit $irket) (Comm. C. Article 570), to managers of limited liability partnerships (limited $irket) (Comm. C. Article 626 (2)) and to directors of corporations (anonim $irket) (Comm. C. Article 396). §8.02

UNFAIR COMPETITION LAW (HAKSIZ REKABET)

Unfair competition is mainly regulated in the Comm. C., which gives a definition for unfair competition, together with a non-exhaustive list of typical cases that are covered and lays down the conditions and scope of civil and criminal liability. The provisions of the Comm. C. on unfair competition are modeled on the Swiss Law on Unfair Competition of 1986, especially with regard to definition and the list of typical cases. 1

1. The unfair competition section ofthe Comm. C. Nr. 6762of1956, which is replaced with the new

Comm. C. Nr. 6102 of 2011, was based on the Swiss Unfair Competition Law of 1943. The Comm. C. Drafting Commission did not depart from the Swiss system and took into account the changes made to the Swiss Law in 1986 and onwards, especially with regard to the definition of unfair

112

Chapter 8: Unfair Trade Law

§8.02[A]

There is also a provision on unfair competition in the C.O., which should apply with regard to non-commercial matters. According to Article 57 paragraph 1 of the C.0., persons who lose or are faced with the risk of losing their customers due to disinformation or other acts which are contrary to good faith may demand the termination of such acts. In case of fault, they may also claim compensation for their damages. Even though this provision mentions "customers", the Code does not intend to protect "merchants" against unfair competition, as paragraph 2 of the same article reserves the Comm. C. for commercial matters. Therefore, this provision should apply to non-merchants, mainly professionals such as doctors or lawyers. 2 Rules relating to unfair competition may also be found in consumer law (See the Chapter on Consumer Protection), in intellectual property laws,3 and in antidumping legislation. 4 This chapter explains the unfair competition provisions of the Comm. C.

[A]

Definition and Scope of Protection

According to Article 54 paragraph 2 of the Comm. C., "All acts and commercial practices that are deceptive or otherwise contrary to good faith and that affect the relationship between competitors or between suppliers and customers are unfair and illegal". Under this definition, unfair competition will exist if an act or commercial practice is deemed to be contrary to "good faith". It is further stated that goal of the Comm. C. is "to ensure fair and undistorted competition, for the benefit of all stakeholders" (Comm. C. Article 54 (1)). These provisions clarify that the law extends protection not only to competitors but also to consumers and other players in the market in order to ensure a fair market place for all. Article 55 of the Comm. C. gives a non-exhaustive list of typical cases of unfair competition, which are classified into six groups: (1) Unfair advertising and sale practices: This group mainly pertains to misleading or aggressive sales or promotion tactics. Acts that come under this heading include discrediting third parties' business activities or products by giving false, misleading or unduly offending information, or providing false or misleading information about one's own abilities, products or services with a view to obtaining a competitive advantage (Comm. C. Article 55 (1) (a) 1-3). Other examples of such unfair commercial practices are (Comm. C. Article 55 (1) (a) 6, 7, 9); misleading customers about the qualities, amount,

competition and the typical cases which constitute unfair competition. However, during the more than half a decade of application of the Comm. C., Turkish Courts have built a body of case law regarding unfair competition, which the Drafting Commission wanted to preserve (Justifications of Comm. C., General Explanations on Unfair Competition, prior to Art. 54). Therefore the new Comm. C. continues on the general structure of the old provisions. 2. Uygur, T. 6098 S. Tiirk Bon;:lar Kanunu ~erhi, istanbul 2012, C. I., 446. 3. See Chapter 10 on Intellectual Property. 4. Law Nr. 3577 on the Prevention of Unfair Competition in Imports ("Ithalatta Hakszz Rekabetin Onlenmesi Hakkmda Kanun") OG Jul. l, 1989, Nr. 20212.

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purpose, uses or risks of products; luring customers through the act of repeatedly selling certain selected products below cost in a misleading way, or creating a misleading image of the real value of a product by offering supplementary goods or services. Similarly, giving insufficient information about the extra costs involved for payment by installments, or, in case of consumer loans, about the total cost of the loan or other terms and conditions of such contracts is also considered an unfair commercial practice (Comm. C. Article 55 (1) (a) 10-12). Furthermore, aggressive sales practices that impair consumers' freedom of choice are also listed as an example of unfair competition (Comm. C. Article 55 (1) (a) 8). Comparative advertising is also mentioned for the first time in the new Comm. C. under this heading. Comparing one's business, products, services or prices with those of others in a manner that is deceptive or unnecessarily degrades others or takes advantage of their reputation is deemed to be unfair (Comm. C. Article 55 (1) (a) 5). The justifications of the Comm. C. clarify that comparative advertising per se is not illegal, but that it is the lack of objectivity or clarity in the elements of comparison or the exploitation or impairment of the reputation of other persons, which can render such advertising unfair. Creating confusion with third parties' business activities, products or services in order to benefit from their reputation is also a typical example of unfair competitive practice (Comm. C. Article 55 (1) (a) 4). This provision relating to the creation of confusion is intended to apply mainly to cases that do not involve intellectual property, since confusion between trademarks, trade-names or other intellectual property is regulated by special laws. (2) Inducing breach or termination of contract: Inducing third parties' customers to breach their contract with a view to making a similar contract with them is an act of unfair competition (Comm. C. Article 55 (1) (b) 1). Likewise, inducing a buyer, or a person getting a consumer loan, to terminate such purchase or loan contract in order to be able to make the same type of contract with him/her is also deemed to be unfair (Comm. C. Article 55 (1) (b) 4). This type of interference with third parties' contracts is regulated for the first time under the new Comm. C. According to the Turkish Code of Obligations, a contract is binding only upon its parties and therefore may be breached only by its parties. However, according to Article 49 paragraph 2 of the C.O., a person who causes damage to a third party through a willful and immoral act is liable for such damage. Inducement of breach of contract by a willful and immoral act is considered to be covered by this provision. Now the Comm. C. introduces a special type of such inducement, 5 one that is directed towards customers. There is one controversial issue with this provision, however: Under the C.O., inducement of breach or termination of contract will only be unlawful if it is done "wilfully" and through an act that can be

5. Lex specialis, as explained in the Justification of the Comm. C., Art. 55 (1) (b) 1.

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(3)

(4)

(5)

(6)

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considered "immoral". The Comm. C. on the other hand, does not require the existence of any degree of fault or immorality in order to qualify an act as unfair competition. Fault is only a condition for payment of damages under the Comm. C., while the termination of unfair competition may be demanded even where fault does not exist. Given this discrepancy, the new provision of the Comm. C. on inducement of breach or termination of contract must be interpreted narrowly. Bearing in mind that advertising and winning customers is a fundamental requirement of a free market system, general advertising of products and services and exercising contractual rights of termination in order to take advantage of better offers cannot be deemed unfair. Also in this category is the act of offering an economic interest to third parties' employees or agents in order to induce them to breach their contract or to induce them to disclose trade secrets (Comm. C. Article 55 (1) (b) 2-3). Unauthorized exploitation of third parties' business products: (Article 55 (1) (a)) In this section, the Comm. C. aims at protecting data or other product of businesses, such as business plans, calculations or quotations, which are not protected by intellectual property laws. 6 The goal is to prevent the undue exploitation of third parties' works and to ensure that competition is based on one's own labor and efforts instead of free-riding on others. Unlawful use or disclosure of trade secrets: (Article (1) (c) 3) The Comm. C. protects trade secrets against unauthorized use or disclosure. Using or disclosing to others, commercial information that is obtained secretly or without authorization or in another unlawful manner is unfair competition. The law however, does not define trade secrets. Noncompliance with business mles and regulations: (Article 55 (1) (e)) Noncompliance with certain rules that apply to competitors would lead to unfair advantages, especially if they create certain costs that are avoided by those who do not comply with them. According to the law, not complying with statutory rules or regulations that apply to competitors, or with usual business conditions applicable in a business sector or a region is a dishonest commercial practice. Use of general conditions of contract which contradict the principle of good faith: (Article 55 (1) (f)) General conditions of contract are regulated both under the Comm. C. and under the C.O. The C.O. provides for, inter alia, the sanction of nullity of general conditions of contract under certain conditions (C.O. Article 20 et seq.), while the Comm. C. qualifies the use of general conditions of contract contradicting the principle of good faith as an act of unfair competition. According to the Comm. C., especially the following constitutes unfair competition: The use of preformulated general conditions of contract, which, in a misleading manner and to the detriment of the other contract party, significantly deviate from the statutory provisions that would

6. Justification of the Comm C, Art. 55 (1) (c).

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apply directly or by interpretation, or which stipulate an allocation of rights and obligations that significantly contradicts the nature of the contract.

[B]

Types of Legal Actions and Claims

The types of legal actions and permitted claims that can be brought before a court due to an alleged act of unfair competition are regulated by the Comm. C. (Comm. C. Article 56 (1)). An important point to underline is that the existence of fault of the person committing unfair competition is a requirement only for the action for damages. As the other actions or claims are directed towards the elimination of the unlawful act and the restoration of a lawful situation, these can be claimed whether or not fault exists. However, fault, be it in the form of willful conduct or negligence, must exist in order to claim damages. Furthermore, in line with general principles of tort, it is also necessary to establish causality between the act committed and the damages claimed: (a) Action for declaratory relief: The first claim that can be put forward is one for a declaration of the existence of unfair competition. For this, the plaintiff must prove that the act in question is unfair, either by demonstrating that it falls under one of the six categories of examples given in the Code, or by relying on the general definition of unfair competition given in Article 54 and demonstrating that the act is either deceptive or otherwise contrary to good faith and that it affects the relationship between competitors or between suppliers and customers. Declaratory relief is usually claimed to form the legal basis of other claims to follow, such as prohibition of unfair competition or payment of dqmages. (b) Action for the prohibition of unfair competition: With this action, the plaintiff may ask for the termination of an ongoing act of unfair competition or the prevention of recurrence of a previous act. (c) Action for restoration of the state prior to unfair competition: This action allows the plaintiff to ask for measures that will provide the restoration of the plaintiff's state to what it was before the unfair competition occurred. Depending on the type of unfair competition, such measures may include rectification of false or misleading statements, removal of any signs or name plates that create confusion with another party's business, or even the destruction of any products or instruments used for production that were effective in committing the act of unfair competition. (d) Action for damages: In case of existence of fault of the person who committed unfair competition, the plaintiff may ask for compensation of both pecuniary and moral damages. Pecuniary damages cover actual damage suffered and loss of profit, the amount of which the plaintiff must prove. In order to facilitate the calculation of damages, the plaintiff is permitted to claim the amount of profit which is deemed to be possible for the defendant

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to obtain as a result of unfair competition. In case of any injury to personal rights, the plaintiff may also demand moral damages. (e) Claim for the publication of the court judgment: If the case is upheld and the plaintiff so requests, the judge may order the publication, in a manner and form it may deem suitable, of the final court judgment at the expense of the defendant. This may be beneficial for the plaintiff especially in cases where the unfair competition arises from disinformation, defamation, confusion, unlawful advertising or similar situations that may be more effectively rectified by a general public announcement. (f) Precautionary Measures (Injunction): As it may take a considerable amount of time for the court procedure to be completed and the final judgment to be given, the plaintiff may suffer serious damages during this period. Likewise, any changes in the situation after the initiation of legal action may render it difficult or perhaps completely impossible to obtain the desired result at the end of the case. In such instances, the court may grant precautionary measures (C. Civ. Pr., Article 389 et seq.) Such provisional measures may aim at, for example, preserving the status quo, terminating an ongoing act or preventing its recurrence. Such measures may_be demanded either during the legal proceedings or a maximum of two weeks before the start of the legal action (C. Civ. Pr. Article 397). The party claiming precautionary measures must provide security to compensate for any damages that may be caused to the defendant or third parties if the claim is not upheld; unless the court decides, by clearly stating the reasons, that such security is not necessary (C. Civ. Pr. Article 392).

[C]

Persons with a Right of Legal Action

The right of action is granted to persons who have suffered, or are faced with the risk of suffering, damage in relation to their customers, credibility, professional reputation, commercial activities or other economic interests. Consumers whose economic interest has been damaged or who are faced with the risk of such damage may also start the legal actions explained above. However, consumers may not ask for the destruction of products or instruments of production (Comm. C. Article 56 (2)). Furthermore, consumer associations, chambers of commerce and industry or other professional or economic unions that are authorized by their statutes to safeguard the economic interests of their members or public bodies may start actions for declaratory relief, prohibition of unfair competition and restoration of the state prior to unfair competition. In other words, such organizations may challenge the act of unfair competition but may not claim damages.

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Persons who have a right of legal action must start the case in one year starting from the date they obtain knowledge about the existence of such right and in any case in a maximum of three years starting from the date such right comes into existence. If there are longer statutes of limitation that apply to criminal offenses of unfair competition, these shall also apply to civil suits. The statute of limitations does not run as long as unfair competition is ongoing.

[D]

Liability of Third Persons

A court judgment may be enforced not only against the defendant, but also against third persons who were not a party to the case, provided they have obtained the products subject to unfair competition directly or indirectly from the defendant for commercial purposes.

[E]

Special Liability of Employers

Employers may be the target of all the types of actions explained above, if unfair competition was committed by their employees during the course of their employment. According to the C.O., employers may avoid liability if they can prove that they have shown the necessary diligence to avoid damages in choosing, instructing and supervising the employee (C.O. Article 66 (2)). However, the Comm. C. states that the provisions of the Turkish Code of Obligations shall apply to the action for damages, thereby limiting the use of this provision to the action for pecuniary or moral damages (Comm. C. Article 57 (2)). In other words, an employer can rely on this provision to avoid the payment of damages, but not for actions for declaratory relief, prohibition of unfair competition and restoration of the state prior to unfair competition.

[F]

Special Liability of Press, Broadcasting, Communication and Information Technology Enterprises

Unfair competition may be committed through the press, TV or radio broadcasts or via the Internet or other instruments of communication or information technology. In such cases, the principle of the Comm. C. is to impose liability on the person who owns the content that is published or broadcasted as a sound or image or displayed on the screen or other instrument of communication. However, under certain circumstances, the legal actions explained above may be started against newspaper editors, managing editors of broadcasting enterprises, directors of advertising, television program producers or persons who put, or have others put, the image, sound or transmission on the instrument of broadcasting, communication or information technology. Furthermore, if none of these persons can be identified, the process may be initiated against the owner of the enterprise that was instrumental in the act of unfair competition. The enterprises mentioned in the Comm. C. are all enterprises of press, broadcasting, communication and information technology, as well as any such enterprises that may

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become active as a result of future technological developments (Comm. C. Article SS (1)).

The circumstances under which such persons may be the target of a legal action are the following: (a) if the content or advertisement constituting unfair competition was published or otherwise broadcast or communicated against the will or without the approval of the content owner or advertiser; (b) if it is refrained from disclosing the name of the content owner or advertiser; or (c) if for other reasons, the identity of the content owner or advertiser cannot be discovered or a court case against them cannot be started before a Turkish court. The law provides an exemption for service providers (Comm. C. Article S8 (4)): No legal action can be started and no injunction or other precautionary measures may be taken against them, unless they have started the transmission or chosen or altered the content which constitutes unfair competition. However, the court may, by also hearing the service provider, grant an injunction or any other suitable precautionary measure, including the temporary removal of content, in cases where the negative consequences or damage to be caused by the alleged act of unfair competition shall be substantial. In such cases, the precautionary measure may be applied against the service provider as well (Comm. C. Article SS (4)). [G]

Criminal Liability

The Comm. C. also imposes criminal liability for acts of unfair competition. Persons who willfully commit one of the acts of unfair competition which are listed under six groups in Article SS of the Comm. C. and specifically, persons who willfully give false or misleading information about their own personal situation, products or commercial activity in order to gain an advantage over their competitors, persons who deceive employees or agents or other servants to obtain production or trade secrets of their employers or principals, or employers or principals who find out that their employees or agents have committed a crime of unfair competition during the course of their employment but who do not prevent or rectify such crime, may be punished by prison up to two years or legal fines. Criminal punishment is dependent upon the complaint of the persons who have a right of legal action.

Selected Bibliography Guven, $., Hakszz Rekabet Kummunun Amaci ve Komdugu Menfaatler, Ankara 2012. Ozdemir, S., Hakszz Rekabet Kavrami A<;ismdan Diiriistliik Kuralma Aykm Reklamlar, i stanbul 2013.

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CHAPTER

9

Competition Law Kerem Cem Sanli *

§9.01

BACKGROUND AND THE SOURCES OF COMPETITION LAW

The principal legal source of Turkish Competition Law is the Act on the Protection of Competition numbered 4054 (hereinafter the "Competition Act") .1 The Competition Act was enacted after two years of preparation in 1994. Before this date Turkey did not have competition legislation des.pite the legal mandate in Article 167 of the Turkish Constitution, which obliges the government to prevent cartelization and monopolization in the economy. 2 Due to the late establishment of the Competition Authority (Rekabet Kurumu), the main enforcement body vested with investigative and lawmaking powers, effective enforcement of the Competition Act was initiated in 1997 with the Communique (Teblig) numbered 1997 /5. Since then the Act has been subject to several amendments 3 that mainly aimed at strengthening the operational effectiveness of the Competition Authority and the enforcement system. Substantive rules are in place since the enactment of the Competition Act. Most of the provisions in the Act relate to the procedures, institutional structure and legal powers of the Competition Authority. Few substantive rules are found in the second section between Articles 4 and 7 and section five between Articles 56 and 59.

* LL.M, Assistant Professor, istanbul Bilgi University, School of Law, istanbul; Adjunct Professor, Bilkent University, Institute of Social Sciences, Ankara. 1. The Act on the Protection of Competition Nr. 4054, Dec. 7, 1994. OG Dec. 13, 1994, Nr. 22140. 2. The first paragraph of Art. 167 provides that "the state shall take measures to ensure and promote

the sound, orderly functioning money, credit, capital, goods and services markets; and shall prevent the formation, in practice or by agreement, of monopolies and cartels in the markets". 3. The Act has been subject to amendments with: Act Nr. 4971, Aug. l, 2003; Act Nr. 5234, Sept. 17, 2004; Act Nr., Jul. 2, 2005, the Act Nr. 5728, Jan. 23, 2008, Act Nr. 661, Oct. 24, 2011, Act Nr. 6352.

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Kerem Cem Sanh

The Act is inspired by the European Community Competition Law (hereinafter "the European Competition Law"}. Substantive rules prohibiting restrictive agreements and abuse of dominant position are almost identical with Articles 101 and 102 of the Treaty Functioning of the European Union (hereinafter the TFEU}. This is a consequence of the fact that Turkey has a duty to harmonize its laws with that of the European Union. The Turkish Competition Law including secondary legislation is in line with the European Competition law, which has also been confirmed by European Commission Reports. The secondary legislation consisting of regulations, communiques, guidelines, Competition Board Decisions and State Council decisions are other sources of the Competition Law. Among, the most important are block exemption communiques which give interpretive guides and extensive coverage of these rules. They cover all vertical restraints, 4 the insurance sector, 5 R & D agreements,6 standardization agreements7 and technology transfer agreements. 8 Merger Communique numbered 2010/4, 9 which sets out the principles of merger analysis has an important function in the control of economic concentration. Also, in order to reinforce cartel enforcement, Leniency 10 and the Regulation of Fines, 11 have been adopted. It should be mentioned that the vagueness of the substantive provisions of the Competition Act amplifies the importance of secondary legislation especially the Block Exemption Communiques. Besides secondary legislation, the decisions of the Competition Board provide useful guidance in the interpretation of the Competition Act, which is unique for the Turkish legal system given that the Competition Board is not a judiciary organ. It should be emphasized that the Board not only follows the secondary legislation of the European Competition Law, but also the decisions of the Commission and the Court of Justice. §9.02

MAIN CONCEPTS

Turkish Competition Law deals with the problem of economic concentration (monopoly problems} and, as in many jurisdictions, there are three prohibitions in dealing with this problem. These rules are: (i} restrictive agreements (Article 4}, (ii} abuse of dominance (Article 6}, and (iii} merger controls (Article 7}.

4. The Block Exemption Communique on Vertical Agreements, No: 2002/2, OG, Jul. 14, 2002, Nr. 24815. 5. The Block Exemption Communique in Relation to Insurance Sector, No: 2008/3, OG, Jan. 2, 2008, Nr. 26774. 6. The Block Exemption Communique on Research and Development Agreements, No: 2003/2, OG Aug. 27, 2003, Nr. 25212. 7. The Block Exemption Communique on Standardization Agreements, No: 2013/3, OG Jul. 26, 2013, Nr. 28719. 8. The Block Exemption Communique on Technology Transfer Agreements, No: 2008/2, OG Jan. 23, 2008, Nr. 26765. 9. The Communique on the Mergers and Acquisitions, No: 2010/4, OG. Sept. 30, 2011, Nr. 28070. 10. The Regulation on Active Cooperation for Detecting Cartels, OG Feb. 15, 2009, Nr. 27142. 11. The Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition and Abuse of Dominant Position, OG, Feb. 15, 2009, Nr. 27142.

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9: Competition Law Implementing each of these requires certain knowledge regarding the main of competition law. In that respect, generally three points should be taken into

N""'""ntc

- The relevant market, including both product and geographical markets where the undertaking operates. - Territorial reach which determines whether the geography of the activity is covered by the Competition Act. - Subject, whether the competition applies to the person or group of persons said to be infringing the Act. three concepts, which together constitute the scope of the Act, are also implicitly in Article 2. According to that Article:

U'-•·.u"'''Lu.

Agreements, decisions and practices which prevent, distort or restrict competition between any undertakings operating in or affecting markets for goods and services within the boundaries of the Republic of Turkey, and the abuse of dominance by the undertakings dominant in the market, and any kind of legal transactions and behavior having the nature of mergers and acquisitions which shall decrease competition to a significant extent, and transactions_ related to the measures, establishments, regulations and supervisions aimed at the protection of competition fall under this Act.

Hereinafter, the main concepts will be observed in detail by elucidating the method of defining relevant market, the Competition Act's territorial reach and the subject matter of the Act.

[A]

The Relevant Market

The purpose of defining the relevant market is to identify which products and services are close substitutes for one another in order to determine the rivals (competitors) of the undertakings concerned. If rivals cannot be properly determined, it is not possible to analyze competitive constraints on the undertaking whose behavior is under investigation. Thus to decide whether there is anti-competitive conduct, defining the market is the first issue in any legal analysis. Relevant market is not defined in the Competition Act. However, in various Communiques, the Competition Board has explained and set out the methods for determining the market. For instance the Communique number 1997 /1, for the first time, categorized the relevant market into, product and geographic markets and provided definitions that are contained in the following Communiques and -Board decisions. According to the Article 4 of the Communique: In determining the relevant product market within the meaning of paragraph 1, the market comprising the goods or services which are the subject of a merger or an acquisition, and the goods or services which are deemed identical in the eye of consumers in terms of their prices, intended use and characteristics is taken into account; other factors that may affect the market determined shall also be assessed ....

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Kerem Cem Sanh

.... The geographic market which comprises a substantial part of the country within the meaning of paragraph 1, are areas in which undertakings operate in the supply and demand of their goods and services, in which the conditions of competition are sufficiently homogenous, and which can easily be distinguished from neighboring areas, as the conditions of competition are appreciably different from these areas.

Moreover, in order to clarify the method of determining the market, the Competition Board also enacted a Guideline. 12 This non-binding document sets out a framework for market definition and aims to provide clarity, objectivity and consistency in its application. According to this Guideline, the main rationale of the market definition is to determine the proper rivals of the undertaking whose behavior is under investigation. The key tests in this determination are demand and supply substitution. The Competition Board, in its decisions, applies demand substitution as the main test. In demand substitution, the preferences of consumers are taken into account by asking which products are close substitutes with the product in question according to intended use, characteristics, price and other factors. If consumers deem that product (A) can be used instead of product (B), then these two different products are counted as the same product (AB) market. In order to establish close substitution, the Board applies a price (SSNIP) test. According to this test, consumers' reactions, faced with a hypothetical small but significant non-transitory price increase in a given product (B) are analyzed. Should the price increase results in loss due to the fact that voluminous consumers switch to alternative product (A), then the product market is said to consist of (A) and (B) products. Hence producers of these different products are regarded as rivals. Determination of a geographic market is similar. Every producer operates in a certain geographic area and competition has natural geographic borders stemming from factors like transportation costs, legal and physical barriers, and differences in consumer preferences. Here the main question to be answered is whether consumers can switch to alternative sources located in other geographic areas as a result of a non-transitory increase in price increase. If consumers can buy from alternative supply sources located in other areas, then those areas are regarded in the same geographic market. Many Competition Board decisions involve market definitions and determinations of both the product market and geographical market. The Competition Board conducts comprehensive market analysis especially in the application of Article 6 (abuse of dominant position) and Article 7 (mergers and acquisitions) since application of these provisions presupposes a market definition. [B]

Territorial Reach

Ordinarily national laws apply within the territories of the nation. Hence there is no doubt that the competition law applies to undertakings residing and operating in 12. Guidelines on the Definition of Relevant Market (http://www.rekabet.gov.tr/dosyalar/kilavuz/ kilavuzS.pdfJ.

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Turkey. However, if one reads Article 2 of the Competition Act carefully, it is possible to reach a somewhat different conclusion. The Article states that: "agreements, decisions and practices which prevent, distort or restrict competition between any undertakings operating in or affecting markets for goods and services within the boundaries of the Republic of Turkey" are subject to competition law enforcement. The point of reference to apply the Act, according to this provision, is the effects or consequences of anti-competitive behavior in the Turkish markets. Hence it is irrelevant whether the behavior is exercised by undertakings operating and residing in Turkey or abroad. If, for example undertakings residing abroad fix the prices of the products that they export to Turkish markets, then it can be said that the anticompetitive effects of this agreement take place in Turkish markets and therefore the Turkish Competition Law applies to this agreement. In parallel with EU Law, this approach has been named as "effects doctrine" and the Competition Board has endorsed this doctrine in its various decisions. The main implication of this doctrine can be observed in merger control regime as acquisitions between undertakings residing and operating in other jurisdictions are subjected to the notification and clearance procedures under to Communique number 2010/4, provided that they have a turnover in Turkish markets as well (See Article 7). Articles 4 and 6 could also apply to undertakings operating abroad, however, as a technical matter, it is problematical to enforce Turkish Law on undertakings that are only operating abroad since the Authority has no jurisdiction to conduct investigations thereof.

[C]

Undertakings and the Associations of Undertakings

The competition law applies to the behavior of undertakings (te~ebbiis) and associations of undertakings (te~ebbiis birligi). Hence the subject of Turkish Competition Law is the "undertaking". The Act defines this concept in Article 3. According to this definition "an undertaking is a natural or legal person who produces and sells goods or services in the market, and units which can decide independently and do constitute an economic whole". Thus in order to qualify as an undertaking, two factors should be established: "economic activity" and "independence". Explaining these factors will assist in understanding these concepts. The meaning of economic activity is self-explanatory. Providing a good or service in return for a tangible benefit is sufficient to qualify as an economic activity. Profit maximization is not required. Therefore apart from corporations even foundations and cooperatives can be characterized as undertakings. The Competition Board endorsed this view in several decisions including TSE13 and ASKI. 14 The second factor, independence, means that the economic unit should determine its own economic and commercial policies without decisive influence of any other natural or legal person. So independence is an economic but not a legal concept.

13. Decision of the Turkish Competition Board dated Mar. 8, 2002, numbered 02-13/126-53. 14. Decision of the Turkish Competition Board dated Aug. 8, 2002, numbered 02-47 /587-240.

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Ch

For example, if commercial policies of company "S" (i.e., subsidiary) are determined by another company "P"(i.e., parent company), then despite having legal independence, company "S" is not considered as an undertaking since it lacks economic independence. For competition law purposes these two companies are treated as a single "economic unit" and therefore a single undertaking. The question of when and under what conditions an economic entity is controlled by another person can be determined on a case-by-case analysis by taking into account all relevant legal and economic factors. There are at least two main consequences of this "independence" element. One is that economic relations within the economic whole are not within the scope of the competition law. Accordingly, Article 4 is not applied to agreements between "S" and "P" and a merger between "S" and "P" is not covered by Article 7 of the Competition Act. There are many illustrations of this application in the Board's decisions, in particular, with respect to merger cases. 15 A second consequence relates to the imputation of the subsidiary's behavior to its parent. Since a subsidiary is controlled by the parent company, a subsidiary's legal personality is disregarded and parent company is held responsible for the competition law infringement. The prar•ical consequence is that the aggregate turnover figures of the two companies are taken into account when calculating substantive monetary fines. 16 As is clear from these explanations, "the undertaking" is a very broad concept and it encompasses every entity engaged in econom.ic activity regardless of its legal status. It is evident that an undertaking can be a natural person 17 as well as a legal person. Also groups of persons, whether legal or natural, may well constitute an undertaking. 18 Turkish Competition Law also applies to the behavior of associations of undertakings; however, the application is limited by Articles 4 and 5. The Competition Act defines the concept and according to this definition: "any kind of associations with or without a legal personality, which are formed by undertakings to accomplish particular goals are considered as associations of undertakings". As can be understood from the definition, association is a broad term and encompasses not only legal institutions with separate personality but also de facto platforms and gatherings as long as they accommodate undertakings on a lasting basis. The importance of subjecting the association to Article 4 is that, the Board can impose fines to the association itself, which in tum would deter cartel arrangements since these institutions facilitate cartel formation.

§9,

§9.02[C]

15. Decision of the Turkish Competition Board dated Mar. 4, 2010 and numbered 10-21/264-97. 16. Although it should be said that economic unit criterion has been occasionally applied inconsistently especially with regard to imposition of fines. In some decisions the Turkish Competition Board took the turnover figure of the subsidiary whereas in others, the entire economic unit. 17. Decision of the Turkish Competition Board dated Feb. 9, 2006 and numbered 06-11/130-32. 18. Decision of the Turkish Competition Board dated Jul. 17, 2000 and numbered 00-26/291-161.

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Chapter 9: Competition Law §9.03

§9.03[A]

OVERVIEW OF THE SUBSTANTIVE PROVISIONS

Similar to other competition laws, Turkish Competition Law has three pillars of substantive provisions: (i) Restrictive agreements (ii) Abuse of dominant position and (iii) Concentration control. Below these provisions will be analyzed in detail.

[A]

Restrictive Agreements

According to Article 4 of the Competition Act, agreements and concerted practices between undertakings, decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited. In order to apply this Article, four conditions should be present. The first is the plurality of undertakings. There should be at least two undertakings to apply Article 4. The second condition is collusion among undertakings. Collusion may transpire in the form of an agreement, concerted practice or decision of an association. After establishing that there is collusion, the third condition to be met is that the collusion should restrict competition in the relevant market. The third condition, which is in fact not governed in Article 4, is that the efficiencies created by the restrictive agreement should not outweigh the costs associated with the restrictive clauses. This condition is regulated in Article 5 and it is called an exemption. Hence, restrictive agreements can be exempted from the application of Article 4, provided that all the conditions articulated in Article 5 are satisfied. [1]

Collusion

Collusion can be defined as an understanding between undertakings. The level of understanding that is required to satisfy the collusion requirement is controversial. Hence it is appropriate to explain the issue by taking up various forms of collusion separately. The "agreement" simply refers to a meeting of minds (mutual consent) among undertakings. There is no formal condition to be qualified as an agreement, so a meeting of minds can transpire in a written or in an oral form, be explicit or implicit and need not be legally binding on parties. Accordingly, it is broader than a contract, as the latter refers to only legally binding agreements. The only requirement to be qualified as an agreement is that commitments should be serious in the sense that parties should feel as if their future freedom of action is restricted due to the agreement. Naturally formal contracts fulfill this condition as they are binding, but non-binding agreements (gentleman's agreements) are also of this sort.

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Agreements restricting competition are also broadly discussed by the Turkish Competition Board. In its recent decision on Poultry Cartel, 19 The Turkish Competition Board defined "agreement" as follows: "(The) rationale of Article 4 of no. 4054 expressly states that an agreement need not be in compliance with all the requirements arising from contract law. The concept of agreement in competition law is used to define any mutual consent among the parties". The term "concerted practice" is unfamiliar to Turkish law and is not defined in the Act. Considering the broadness of the term "agreement", one could wonder what this concept refers to. As its literal meaning implies, it could be asserted that concerted practices denote mere parallel behaviors where two or more undertakings, for example, increase their prices simultaneously or apply the same conditions to their customers. Although this was once argued in competition law doctrine, it has been now established that concerted practice does not refer to parallel behavior. In fact, conceptually there is no difference between an agreement and a concerted practice. A meeting of minds is necessary to establish concerted practice as well as an agreement. The importance of this terminology lies in the fact that it can be used as an method to prove collusions among undertakings. Given that an agreement that restricts competition is prohibited outright, undertakings will rationally tend to hide their collusive behavior and refrain from overt agreements. Thus it would be very hard for any competition authority to discover collusion if hard and plain evidence is required. Here is where "concerted practice" comes into play:jt enables competition authorities to prove "agreement" by analyzing the market behavior of the undertakings concerned. So, if for instance, the only explanation of undertakings' behavior in the market is that they have colluded, it is possible to conclude that Article 4 is violated. In fact the Act in its second and third paragraphs of Article 4 explicitly governs this possibility. According to those provisions: In cases where the existence of an agreement cannot be proved, that the price changes in the market, or the balance of demand and supply, or the operational areas of undertakings are similar to those markets where competition is prevented, distorted or restricted, constitutes a presumption that the undertakings are engaged in concerted practice. Each of the parties may relieve itself of the responsibility by proving it has not engaged in concerted practice, provided that it is based on economic and rational facts. Consequently, the presumption of concerted practice displays its effects mostly for the burden of proof. The application of the presumption shifts the burden onto the accused party or parties and unless the accused parties can present an economic justification, collusion (and therefore breach of Article 4) is said to be established. It should be said that the Competition Board has been hesitant to apply this presumption and mostly relies on hard evidence as well as market analysis. This approach has been elucidated

19.

Decision of Turkish Competition Board dated Nov. 25, 2009 and numbered 09-57 /1393-362, para. 2460.

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in various decisions. For instance in the Newspaper2° decision the Competition Board has stated that: 1. There must have been positive contacts between the parties such as meetings,

discussions, exchanges of information, which are generally expressed orally or in writing, 2. Such contacts must have been aimed at influencing the market behavior and especially eliminating the uncertainty of an undertaking's future competitive behavior in advance, 3. They must have influenced or changed the commercial behavior of the undertaking concerned in a manner that cannot fully be explained with reference to competitive effects. Another form of collusion is the decisions of undertakings. Hence, if a decision of an association of undertakings restricts competition, the Competition Board may initiate an investigation and impose a fine on the association itself. This is important in cases where the association in question has many member undertakings and decisions thereof have binding effects on members. In these cases, in order to create deterrence, it is vital to prohibit these decisions and impose fines on the associations.

[2]

Test of Illegality: Restriction of Competition

In order to apply an Article 4 prohibition, collusion should restrict competition in the market. So, the illegality test under Article 4 is restriction of competition, which by definition is an elusive concept and requires interpretation. The Act, in order to facilitate interpretation, mentions ,some examples of restriction of competition in the second paragraph of Article 4. As in other modern jurisdictions, the interpretation relies heavily on economic analysis and it is the effects rather than form or wording that is relevant. Consequently, if collusion increases the price of the good and/or reduces the quality, innovation or product variety, then it is accepted that competition is restricted. In some situations a determination can be made based on the agreement without considering its actual effects. The wording of Article 4 accommodates such an approach since it explicitly mentions that if the purpose of an agreement is restrictive it is therefore deemed illegal. In competition law terms, this is called per se approach, and today cartels and agreements between rivals to restrict output and increase price, fall within this category. The Competition Board has embraced a per se approach in its various decisions. For instance in the Marmara Region Cement2 1 decision, it is stated that: If an anti-competitive aim is clearly observed in an agreement, the agreement itself

or the provisions that distort competition would form a "per se" competition infringement. In such case, there is no need to examine the effect of the agreement

20. 21.

Decision of Turkish Competition Board dated Jul. 17, 2000 and numbered 00-26/291-161. Decision of Turkish Competition Board dated Dec. 5, 2005 and numbered 05-81/1118 - 320.

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on competition. Restrictive agreements would form a structural case that parties would discard their own independent competitive activities in behalf of their common interests. Because of such reason, only being a part of a restrictive agreement is prohibited as well, even if the agreement had not showed effect.

For other types of collusive behavior, it is necessary to examine their effects and this approach is called rule of reason analysis. In order to comprehend this approach, it is crucial to make a distinction between horizontal and vertical relations. Horizontal relations refer to agreements between rival undertakings and vertical relations denote agreements between undertakings operating in different levels of the economic chain. For instance an agreement between an undertaking producing widgets and its distributor is a vertical relation, whereas an agreement between widget producers is a horizontal relation. As both horizontal and vertical relations can have restrictive effects, they fall under the scope of Article 4 of the Competition Act; though their legal approach differs significantly. The main rationale behind this approach is that horizontal relations pose greater risks in terms of social costs that they create since the parties to these relations supply substitute products or services. So they have a common incentive to restrict competition as increasing the price or restricting the output will benefit both. Moreover, it is less likely that these agreements create efficiencies outweighing their costs. However, undertakings party to vertical relations simply supply complementary products and they do not have mutual incentives to restrict competition, and no one will suffer from this arrangement. Besides they are likely to create greater efficiencies in terms of greater service, lower price or increased variety. Since economic effects differ, the Competition Board is more likely to interfere with horizontal relations. As already mentioned above, the Board adopts a per se approach to cartel agreements. Other horizontal agreements and all vertical agreements are analyzed under the rule of reason approach which requires a finding of negative effects on the market. This, of course, makes the assessment complex and burdensome since a case-by-case analysis is required. The Competition Board, in order to ease the burden of this approach and simplify the application of the Article, has issued numerous Group Exemption Communiques and Guidelines. 22 These documents not only relieve parties and the authority from conducting costly and ambiguous market analysis but also help us understand the interpretation of the Article 4. [3]

Exemption

Agreements restricting competition may enhance efficiency as well. An exclusive vertical contract, for example, can create incentives for dealers to concentrate on the

22. For instance the Guideline on the Horizontal Cooperation Agreements dated Apr. 30, 2013 and the Guideline on the Vertical Agreements dated Jun. 30, 2013, despite being non binding, are important documents in understanding the interpretation of the relevant articles and the policy of the Competition Board.

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product and to invest in promotional activities that are beneficial for consumers. Likewise, compared to independent dealers, suppliers are more likely to make relationspecific investments to exclusive dealers. Consequently, although exclusivity is regarded as a restriction of competition, its net effects on welfare might well be positive. So, are these contracts prohibited? Article S of the Act answers this question. According to Article S, if a restrictive agreement has efficiency enhancing effects outweighing the costs associated with the restriction, the agreement is exempted from the Article 4 prohibition and legally valid. Hence, Article 4 cannot be applied without taking into account the exemption provision. The conditions to qualify for an exemption are enumerated in the second paragraph of the Article S. According to that paragraph, four conditions must be cumulatively met: a. b. c. d.

Agreement should create economic efficiency, Efficiency should be passed on to consumers, Competition should not be significantly eliminated, The restriction should be proportional to achieve the goals set out in subparagraphs (a) and (b).

In theory, each of these conditions should be assessed on a case-by-case basis. However, given administrative costs associated with such an undertaking, the Act empowers the Board to issue Group Exemption Communiques by which group of agreements are categorically exempted from the Article 4 prohibition provided that agreements comply with the conditions articulated in the relevant communique. So in cases where agreements are covered by a group exemption communique, it is not necessary to assess whether these four conditions exist for that agreement. It is assumed that agreement complies with the provisions of Article S. The Competition Board has issued various group exemption communiques, the most important one being the Group Exemption Communique Concerning Vertical Agreements numbered 2002/2, which covers almost all vertical agreements in the economy. Hence, with this Communique, the Competition Board has endorsed the view that vertical agreements are generally efficiency enhancing. Aside from vertical agreements, research and development, technology transfer and specialization agreements are exempted with group exemption communiques. An agreement that does not fall within any group exemption communiques or contradicts the relevant communique, does not become automatically illegal and unenforceable. In such cases, there is still a possibility that the agreement may satisfy the conditions of Article S and qualify for an individual exemption. It should be mentioned that there is no requirement to make a notification to benefit from the individual exemption. Parties to an agreement may conduct a self-assessment and decide not to notify. However given the ambiguity of the analysis; generally parties tend to notify their agreements.

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[B]

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Abuse of Dominant Position

Article 6 of the Competition Act prohibits abusive behavior of dominant undertakings. According to the first paragraph: "The abuse, by one or more undertakings, of their dominant position in a market for goods or services within the whole or a part of the country on their own or through agreements with others or through concerted practices, is illegal and prohibited." As it can be observed, the wording of the article seems quite complex as it refers to agreements and concerted practices between undertakings, which resemble that of Article 4. However, the logic of Article 6 is very simple: it intends to controls unilateral behavior of dominant undertakings. Holding dominance itself is not unlawful; it is the behavior that is proscribed, and the form of abusive behavior is of no relevance. An agreement, unilateral behavior or even inactivity could be regarded abusive since it is the effects that matter for legal analysis. The second paragraph of Article 6 lists some examples of abusive behavior that aim to ease the interpretation of the term "abuse". In order to apply Article 6 at least two conditions must be met: "dominance in the relevant market" and "abusive behavior". There is no exemption provision in the application of Article 6, wherefore dominant undertaking's efficiency defenses (objective justification) may be recognized under the concept of abuse. Herein below, these two conditions will be analyzed in detail. [1]

Dominant Position

Market dominance is an economic concept, and it merely refers to a high degree of economic power. Article 3 of tbe Competition Act defines the concept: "The power of one or more undertakings in a particular market to determine economic parameters such as price, supply, the amount of production and distribution, by acting independently of their competitors and customers". The legal definition seems to be in accordance with the economic theory, which basically demotes the description to "power over price". However, neither legal nor economic definitions solve the problem of determining the dominance in a particular case. Probably the main question that competition law seeks to answer is: what degree of economic power is necessary for dominance in a market or under what conditions does an undertaking have power over price? The Competition Board measures dominance by looking at two factors: "market share" and "entry barriers". The primary filter to determine the dominance is the "market share" of the undertaking. After defining the relevant market, undertakings' and its rivals' shares are calculated. According to the Competition Board's precedents, market shares above 40% create risk of dominance and shares beyond 60%-70% can give rise to a presumption of dominance. It is interesting to note that, although in theory, low market shares may trigger the risk of dominance, when one looks at the actual practice of the Competition Board, in the majority of cases the dominant undertaking has held market

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shares in excess of 70% or even 80% .23 The mere existence of a high market share is not deemed sufficient; one should also consider the shares of its rivals. Also, high shares should last for some time as they may have resulted from various contingencies other than economic power. A second factor in determining dominance is the entry conditions in the market. It is well established that dominance does not exist without high entry barriers since if entry is easy other firms will be able to exert competitive pressure on the undertaking holding high market shares. The concept is broadly defined and any impediment challenging the entrant is regarded as an entry barrier. Apparently with this definition, one could not think of any market without entry barriers. So, the concept is a relative one. What are entry barriers? Case law provides an extensive list of factors that are recognized as entry barriers. Of course. primary examples are legal barriers. Licenses, intellectual property rights and entry and exit regulations considered as significant, if not absolute, entry barriers. 24 Market conditions could also help an undertaking protect its position in the market and deter entry. In that regard economies of scale and scope, network externalities, high proportion of start-up costs also indicate high entry barriers. Behavior and the performance of the undertaking could also make entry more difficult for newcomers. For example a well-organized distribution system, idle capacity, advertising and brand recognition, limit pricing, product differentiation, high quality of the product, innovation, deep pocket are also deemed to contribute to the dominant position. 25 {2]

The Concept of Abuse

Article 6 prohibits abusive behavior. The Competition Act imposes special responsibility to dominant undertakings not to allow its conduct to impair the competition in the market. The problem with this proposition is that the scope of the responsibility is not entirely clear. The abuse is an elusive concept and despite the non-exhaustive list of abusive behavior enumerated under Article 6/2, it requires interpretation. In that regard, European case law and doctrine are primary resources in understanding the concept and the Turkish Competition Board frequently refers to European case law. Abuse is an objective concept. 26 It is irrelevant whether the dominant undertaking has an intention of infringing Article 6. Conduct could be abusive even, for instance, if it harms the competitive structure in downstream markets where the dominant undertaking has no operations and does not have a potential to do so. 27 What matters is the harmful effect of the conduct on the market. The Turkish Competition Board in several cases endorses this interpretation.

23. 24. 25. 26.

Sanh, 2011, 34. Decision of the Turkish Competition Board dated Nov. 6, 2000 and numbered 00-44/472-257. Decision of the Turkish Competition Board dated Dec. 29, 2005 and numbered 05-88/1221-353. Decision of the Turkish Competition Board dated Aug. 23, 2002 and numbered 02-49/634-257, p. 54. 27. Decision of the Turkish Competition Board dated Apr. 20, 2009 and numbered 09-16/374-88.

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Taking into account its effects on the competitive process, abuse is generally analyzed under two main categories: "exploitative" and "exclusionary" abuses. This categorization is helpful in understanding the concept; therefore, th,e main types of abusive behaviors are analyzed below under two categories. It should be mentioned that there is no rigid demarcation between these categories; the same behavior may fit in with both categories depending on the circumstances of the case. [a]

Exploitative Abuses

The term "abuse" in fact evokes exploitation and that is normally what one expects from dominant undertakings. A dominant undertaking exploits its customers by charging high prices and/or by supplying poor quality products and/or by dictating unfair terms and impairing innovation. These behaviors result in inefficiency and directly harm consumers. Given that this is the public harm that competition law intends to prevent, it is natural that Article 6 prohibits exploitative abuse. The Article 6 explicitly confirms this logic; all these practices are prescribed by the examples of abuse set out in the second paragraph. Article 6/2 (b) prohibits discriminatory practices, 6/2 (c) bans tying and 6/2 (e) forbids impairing innovation and restricting output. Nevertheless, the actual practice of the Turkish Competition Board has not been entirely compatible with this theoretical logic. Compared to exclusionary abuses, the Turkish Competition Board has not been keen to apply Article 6 to exploitative abuses. According to one study28 only around 1/3 of all Article 6 decisions involve exploitative abuses and 1/5 of infringement decisions relate to exploitative abuse. So, the Turkish Competition Board has denied the majority of exploitative abuse allegations. And the verdict in those cases in which the Board has imposed fines generated a lot of controversy. This practice is also in line with the European Commission's attitude. The rationale behind this reluctance is that the market is itself can correct this failures more effectively than the competition. authorities and it is also believed that competition authorities are not suitable, especially, for price control. 29 When we look at the case law of the Competition Board, unfair pricing and price discrimination have been the main types of exploitative practices that the Competition Board has dealt with. There are almost no cases regarding dictating unfair conditions and impairing innovation. The cases involving price discrimination exhibit interesting features since different legal standards have been applied. In the first case, the CINE 5, besides two conventional conditions, the Turkish Competition Board required that the discrimination should put at least one customer in a competitive disadvantage vis a vis its competitors. 30 So, there should be a negative effect in the competitive conditions of downstream markets in order to label the conduct as abusive. However in the

28. Sanh, 2011, 37. 29. See, generally, Sanh, 2000, 87. 30. Decision of the Turkish Competition Board dated Oct. 11, 1999 and numbered 99-46/500-316.

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subsequent two cases, the IBOIA$ 31 and the IZOTA$, 32 both of which involve bus station operators holding monopoly position in their markets, the Turkish Competition Board, after deliberating on the issue, did not insist on this condition and applied Article 6 even though there was no competitive harm. One should note that these two cases resemble very much the practice of the European Commission where bus and airport monopoly's discriminatory prices were found to be abusive although the competitive disadvantage condition was missing. 33 The sole unfair pricing case involves a state owned undertaking, the BELKO, operating in coal distribution and sales in Ankara. 34 The undertaking had a legal monopoly, and therefore there was no prospect of entry. The Turkish Competition Board determined that BELKO, when compared to the prices of coal sold in other cities, was charging very high prices for coal and abused it dominance by unfair pricing. The Benchmarking tnethod indicated that the price of coal was almost 60%-70% higher than the prices in neighboring markets. The unusual thing about the case was that the BELKO was incurring losses due to operational inefficiency. Nevertheless, the Turkish Competition Board concluded that pricing was abusive on the ground that a profit is not required for unfair (excessive) pricing. In effect, BELKO was punished due to its inefficiency. [b]

Anti-competitive Abuses

Article 6 covers anti-competitive abuse, since the second paragraph explicitly lists exclusionary practices as examples of abusive behavior. In fact Article 6 has been more frequently applied to anti-competitive practices of dominant undertakings. To be more precise, almost 2/3 of all Article 6 decisions involve anti-competitive abuses and the proportion of anti-competitive abuses in infringement decisions is even much higher. These figures are in conformity with the general tendency in the EU and in the US case law. Anti-competitive abuse simply refers to exclusionary practices aimed at actual and potential rivals. Here the motivation of the dominant undertaking is clear: to exclude the rival from the market and thereby to maintain and to increase its market share. The main concern of competition law is protecting the rival; to preserve the competitive structure of the market. So actually the anti-competitive behavior may not directly harm the competitive parameters (or the performance) of the market. However, if the competition authorities do not interfere in time there is a probability that the market concentration may increase which in turn could impede market performance. Application of Article 6 to anti-competitive abuses is not without problems. As is clear from the definition, the behavior appears competitive on its face and it does not produce harmful results per se. There is a likelihood that the dominant undertaking is

31. Decision of the Turkish Competition Board dated Sept. 23, 2005 and numbered 05-60/893-242. 32. Decision of the Turkish Competition Board dated Jan. 11, 2007 and numbered 07-01/1-1. 33. OJ (1999) L 69/31, (1999) 5 CMLR 103, upheld on appeal Case 163/99, Portugal v. Commission, Apr. 29, 2001; also see Zaventem decision OJ Sept. 12, 1995, L 216. 34. Decision of the Turkish Competition Board dated Jul. 8, 2009 and numbered 09-32/703-163.

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actually competing on the merits despite its rivals being injured and even excluded from the market as a result of its practices. So the main question here is: on what merits are dominant undertakings allowed to compete? The jurisprudence and case law on anti-competitive abuse seeks to answer this question by demarcating exclusionary practices from efficient but aggressive commercial policies. When we look at the case law of the Turkish Competition Board, it is observed that a variety of practices fall within the category of anti-competitive abuses. Probably pricing practices constitute the main sub-category (almost 2/3 of all cases) since it comprises a range of pricing schemes such as "predatory pricing", "selective pricing", "price squeeze" and "discriminatory pricing". Among them, price discrimination and predatory pricing cases are very common. An Interesting observation is the proportion of refusal to deal cases. The Turkish Competition Board dealt with many "refusal to deal" cases and in five of them the refusal was found to be abusive.

[C]

Concentrations

[1]

The Concept of Concentration

In order for a transaction to fall within the jurisdiction of the Turkish merger control regime, it should first qualify as a concentration. The term concentration has a technical meaning and it simply refers to change in the control on a lasting basis. So unless a transaction does not lead to any change in control structure of the undertakings concerned, there is no concentration within the meaning of the competition law. The control of a firm or entity may be acquired by a single undertaking leading to sole control, or jointly by two or more undertakings leading to joint control. Control denotes the ability to exercise decisive influence on the important commercial policies of another economic unit. So it is purely an economic concept. An acquisition of sole control would mean that there is a concentration in the form of an acquisition or a merger, while an acquisition of joint control means that the concentration is in the form of a joint venture. A concentration will also arise if there is a change from sole control to joint control or from joint control to sole control. The legal basis of the change of control is not important, as competition law is concerned with the economic impact rather than the legal form. Hence for instance, in addition to asset and share purchase agreements, long-term leases and license agreements can be regarded as concentrations provided that they lead to change in control. The second paragraph of the Article 5 of Communique number 2010/4 underlines this point: For the purposes of this Communique, control may be acquired through rights, contracts or other instruments which, separately or together, allow de facto or de jure exercise of decisive influence over an undertaking. In particular, these instruments consist of ownership right or operating right over all or part of the assets of an undertaking, and those rights or contracts granting decisive influence over the structure or decisions of the bodies of an undertaking. Control may be acquired by right holders, or by those persons or undertakings who have been

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empowered to exercise such rights in accordance with a contract, or who, while lacking such rights and powers, have de facto strength to exercise such rights. Even if it is not a "merger" within the narrow meaning of the concept, the assembly of activities of undertakings under a single economic unit is also considered as a merger. This situation is generated particularly when two or more undertakings create a joint economic unit - a joint venture-, while maintaining their separate economic and legal entities. In order to apply Article 7 to joint ventures, however, the newly structured undertaking should have enough resources to carry out its commercial activities independent from parent undertakings (full functionality). For instance, joint ventures that are formed in order to outsource some of the tasks of parent companies do not qualify as fully functional. If the full-function condition is not satisfied, the agreement between parent undertakings is analyzed under Article 4 of Act as restrictive agreements and the restriction of competition test is applied. [2]

Duty to Notify

The Authority should be notified of Concentrations in order for them to be valid and enforceable. Unless a clearance decision (explicit or implicit) is obtained from the Competition Board, parties cannot execute the transaction. Aside from nullity, parties may be subjected to administrative fines of 0.1 % of their annual turnover if they neglect to duly notify. So the Act creates a strong motivation for notification. The question of which transactions should be notified is answered in Communique number 2010/4. According to the relevant .provision: - Total turnovers of the transaction parties in Turkey exceed one hundred million TL, and turnovers of at least two of the transaction parties in Turkey each exceed thirty million TL, or - (b) The turnover in Turkey for the acquired asset or operation in acquisition transactions, or for at least one of the transaction parties in merger transactions exceeds thirty million TL, and at least one of the other transaction parties has a global turnover exceeding five hundred million TL. Hence, if one of these thresholds is exceeded, then the parties (in an acquisition, the purchaser) should notify the Authority about the transaction. Upon notification, the Competition Board has to decide on the case within 15 days, and if the Board does not grant a decision within 30 days, there is a presumption that the transaction is authorized. The Board, by requesting additional information can extend the period up to maximum of 65 days. If the transaction does not pose any competition problems, an authorization decision is granted. However, if there is a risk that the transaction may create or strengthen the dominant position in the relevant market, the Board proceeds to the phase II inquiry and grants a final investigation decision. During this final investigation period, the Turkish Competition Board has six months to reach a final decision, which can be extended to one year.

§9.03[C]

[3]

Kerem Cem Sanh

Illegality Test: Creating or Strengthening Dominance and Thereby Lessening Competition

Once it is established that a concentration falls within the scope of Article 7 of the Competition Act, the criterion under which the assessment is made, is the dominance test. Although competition authorities of the US and EU adopted "competition test" (also called as SLC Test) in assessing the merger cases, the Competition Board with its new Communique numbered 2010/4, has not amended its "dominance test". The dominance test is applied within a two-tier analysis. Firstly, the Competition Board analyzes whether after the transaction dominance will be created or an existing dominance will be strengthened. If it is determined that dominance is created, then it will proceed to the second tier and assess whether dominance significantly decreases competition in the relevant market. If both conditions are met then the Competition Board will prohibit the transaction. Despite creating a dominant position, a transaction could be cleared on the grounds that it will not affect competitive conditions significantly. The second tier is called an SLC test and it is particularly important in transactions where the acquirer already holds dominance in the market. In such cases, the test allows dominant undertakings to make acquisitions. However in practice, the Board rarely resorts to SLC tests and generally conducts solely the dominance test. Determining dominance is the same as in the application of Article 6. The basic element in this test is market share and entry conditions. The Competition Authority also examines the changes in market concentration levels (as usually measured by HHI Tests) and uses short-cut indications to determine under which conditions the transactions do not pose risks to competition. These indications and the framework under which the analysis is conducted are explained in two separate Guidelines. One relates to assessment of horizontal and the other concern non-horizontal concentrations. These Guidelines resemble those of EU competition legislation and create transparency and consistency in merger enforcement regimes. When we look at the actual practice of the Board, it can be noted that the Board rarely interferes with merger/acquisition transactions. Up until 2013 among almost 2,500 merger decisions only four transactions were prohibited and one of them was mainly related to Article 4 of the Act. There were few transactions that qualified for Second Phase investigation but most of them were cleared with commitments offered by the parties. The Board has recently enacted a Guideline on merger enforcement that clarifies the ways in which parties to a transaction can offer remedies and solutions to the Authority in cases where the merger in question creates significant competitive risks and therefore is likely to be prohibited. According to the Guideline on the Remedies Acceptable by the Competition Authority on Mergers/ Acquisitions Transactions dated September 7, 2011, in order to lessen the competitive problems associated with the transaction, parties can offer structural and/or behavioral remedies to the Authority and, should the Authority accept them, the transaction can be cleared on the grounds that the remedies are fulfilled. Parties have been increasingly resorting to this solution and the Board has in its various decisions cleared mergers with structural remedies despite very high risks resulting from the transactions. The AFM/Mars dated

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November 17, 2011 and Mey ic;:ki/Diageo dated August 17, 2011 transactions are prominent illustrations of this policy.

Selected Bibliography Aslan, Y., Rekabet Hukuku, Ekin Kitabevi, Bursa 2007. Ate~, M., Rekabet Hukukuna Giri$, Ankara 2013. Giiven, P., Rekabet Hukuku, Ankara 2008. OECD, Competition Law and Policy in Turkey, 2005. Sanh K.C. (ed.), Dikey Anla$malar ve Rekabet Hukuku, Sorunlar ve <;:oziim Onerileri, XII Levha Yaymlan, istanbul, 2009. Sanh K.C. (ed.), Hakim Durumun Kotiiye Kullamlmasi: Sorunlar ve <;:oziim Onerileri, XII Levha Yaymlan, istanbul, 2011. Sanh K.C., Rekabet Hukukunda Tekelci Fiyatlandirma, Per$embe Konferanslan, S.10, Rekabet Kurumu Yaymi, Ankara 2000, 75-165. Sanh K.C., Rekabetin Korunmasi Hakkmdaki Kanun'da Ongoriilen Yasaklayici Hiikiimler ve Bu Hiikiimlere Aykm Sozle$me ve Te$ebbiis Birligi Kararlanmn Gec;ersizligi, Rekabet Kurumu Yaymi, Ankara 2000.

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10

Property Giil Okutan Nilsson*

§10.01

GENERAL BACKGROUND

Historically Turkey provided protection for only three types of intellectual property (IP): Patents, copyrights, and trademarks. Patents were protected by the Patent Law of 1879, trademarks by the Trademark Decree of 1872 and copyrights by the Copyright Law of 1910. Following the foundation of the Turkish Republic, these laws were replaced with new ones. A new copyright law was adopted in 1951 and a new trademark law in 1965. However, it took the old patent law more than a century to be modernized: the Decree-Law on Patents and Utility Models was adopted only in 1995. 1995 was a turning point in the development of IP law in Turkey. That year, Turkey and the European Communities agreed on the establishment of a joint Customs Union. In order for the Customs Union to work efficiently, Turkey committed itself to modernizing some of its laws and harmonizing them with EU law, including those in the area of IP. Within that same year, four decree-laws on the protection of trademarks, patents and utility models, geographical indications and designs were adopted, based on the relevant European directives. Copyright law was amended to include some new concepts such as the protection for computer programs and related rights. The development of Turkish IP law continued in 2004 with the enactment of a decree-law on the protection of topographies of integrated circuits and a law on plant breeders' rights. Currently, IP law continues to be updated in order to stay harmonized with EU legislation. Apart from this legislation, there are rules in the Turkish Commercial Code on the registration and protection of trade-names, which cover the names of companies and enterprises. There is also a regulation on the registration of domain names. 1 However, * Associate Professor, Faculty of Law, Bilgi University, istanbul. 1. Internet Alan Adlan Yonetmelig, OG, Nov. 7, 2010, Nr. 27752.

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as there are no laws creating absolute rights on domain names, their legal protection can be ensured, to the extent possible, by the rules regarding unfair competition, trademarks or trade-names. Throughout the years, in order to keep its IP laws on a par with international standards and to take part in international registration systems, Turkey also joined many international treaties and conventions concerning IP protection, such as the Treaty establishing the World Intellectual Property Organisation (WIPO), Treaty on the Trade Related Aspects of Intellectual Property Rights (TRIPS) and the Paris Convention for the protection of industrial property of 1883 (1967 Stockholm Act as amended in 1979). Other "international instruments" to which Turkey is a party in respect of patents, designs, trademark and copyright are mentioned below under the relevant headings. Due to the wide scope of IP law, this Chapter will only explain the regulations regarding patents, designs, trademarks and copyright. §10.02

ADMINISTRATIVE BODIES AND COURTS

The public authority responsible for registering industrial property rights in Turkey and drafting legislation in the field of industrial rights is the Turkish Patent Institute (TPI), 2 based in Ankara. For copyright issues such as the supervision of collecting societies and drafting legislation relating to copyright, the Copyright General Directorate of the Turkish Ministry of Culture and Tourism is authorized. Specialized civil and criminal IP Courts in Istanbul, Ankara and Izmir were set up in 2001, with the goal of achieving a better legal enforcement of the law. In cities where there are no specialized courts, the High Board of Judges and Prosecutors shall determine the chambers of civil or criminal courts authorized to hear IP cases. §10.03

PATENTS AND UTILITY MODELS

Patents and utility models are protected by the Decree-Law on the Protection of Patents Nr. 551. 3 There is also an implementing regulation laying down the details of procedure. 4 In the field of patents, Turkey is a party to the European Patent Convention (as revised in 2000), the Patent Cooperation Treaty (as amended in 1979 and modified in 1984), the Strasbourg Agreement Concerning the International Patent Classification (as amended in 1979), and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. Turkey has signed, but not yet ratified the Patent Law Treaty.

2. www.tpe.gov.tr. 3. Patent Haklannm Korunmasz Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27, 1995, Nr. 22326 ("PatKHK"). 4. Patent Haklanmn Korunmasz Hakkmda Kanun Hiikmiinde Karamamenin Uygulama ;Jeklini GOsterir Yonetmelik, OG Nov. 5, 1995, Nr. 22454.

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[A]

§10.03[B]

Types of Patents and Patentable Subject Matter

Turkish law grants protection to "product patents" (iiriin patenti) and "process patents" (usul patenti). It is also possible to obtain "patents of addition" (ek patent) for inventions which form a unity with the subject matter of the main patent and which improve or develop the invention for which the main patent is obtained. Under Turkish law, not all inventions can obtain patents. The law does not define inventions but states that patent protection will not be granted to the following, since they are not considered to be inventions: - Discoveries, scientific theories, mathematical methods. - Schemes, rules and methods for performing mental acts, playing games or doing business. - Literary and artistic works, scientific works, esthetic creations, computer programs. - Nontechnical methods for collecting, arranging, presenting and transmitting data. - Methods of diagnosis, therapy and surgery applied to humans or animals. Furthermore, the following inventions will not be protected by patents on moral grounds: - Inventions contrary to public order or morality. - Plant or animal varieties or essentially biological processes for the production of plants or animals. The old patent law of 1879 did not grant patents to pharmaceuticals. Patent protection for human and veterinary pharmaceutical products and processes started on January 1, 1999, 5 in fulfillment of Turkey's obligations under the TRIPS.

[B]

Conditions for Patentability

In order to obtain patent protection, the invention must meet three criteria: [1]

Novelty

The invention must be new; in other words, it must not be part of "prior art". Prior art covers any publicly accessible information regarding the invention, which was disclosed in any part of the world by written or oral presentation or by use or otherwise, before the date of filing of the application for patent. Certain disclosures do not prejudice the novelty of the invention. These are disclosures made during the 12 months preceding the date of filing or, where priority is claimed, the date of priority of the application, by the following parties:

5. PatKHK Transitional Art. 4.

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- The inventor or a third party that obtained the information directly or indirectly from the inventor. - An office, where the information was contained in another application filed by the inventor and was not supposed to be disclosed by that office. - An office, where the information was contained in an application filed without the knowledge or consent of the inventor by a third party which obtained the information directly or indirectly from the inventor.

[2}

Inventive Step

An invention shall be considered as involving an inventive step if, having regard to prior art, it is not obvious to a person skilled in the relevant technical field. If an invention lacks any inventive step, it may still obtain protection as a utility model provided it is new and has industrial applicability. [3}

Industrial Applicability

Finally, the invention must have industrial applicability, which will be deemed to exist if the invention can be manufactured or is usable in p.ny industrial branch, including agriculture. [C]

The Right to Apply for a Patent

The right to request a patent belongs to the inventor or her/his successors or transferees. The person who first files a patent application is considered to be entitled to the right to request a patent, unless proven otherwise. The inventor has the right to be mentioned as inventor in the patent registration. There are special provisions relating to employee inventions. Employee inventions are classified as "service inventions" or "independent inventions''. Service inventions are those inventions made by private or public sector employees during the term of their employment, which are created either as a result of the tasks assigned to them or which are substantially based on the experience or works of the enterprise or public body. Independent inventions are those inventions of employees that do not fall under the definition of employee inventions. Employees are required to report service inventions without delay to their employers, whereupon the employer is entitled to claim partial or full rights on the invention in return for the payment of an appropriate compensation. Independent inventions must also be reported to employers, in order to enable them to decide whether or not the invention is indeed an independent invention and if so, whether it is related to the business field of the employer, or whether the employer has made serious preparations to start activities in the business field related to the invention; in which case the employer will have a right of first refusal on using the invention under

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appropriate terms and conditions. Inventions made by academics at universities are categorized by the law as independent inventions. [D]

Rights Granted by a Patent

The patent grants its holder absolute rights on the invention that are mentioned in the law. The holder of a product patent is entitled to prevent the unauthorized production, sale, use or importation of patented products or their possession for purposes other than for personal needs. The holder of a process patent, on the other hand, is entitled to prevent the unauthorized use of or unauthorized proposals made for the use of a patented process. Furthermore, the holder of a process patent may also prevent the unauthorized production, sale, use or importation of products which are manufactured directly by using the patented process, as well as the possession of such products for purposes other than for personal needs. Patent rights may be the subject of inheritance, pledge, seizure, transfer or license. Licenses are non-exclusive, unless otherwise stated in the contract. Compulsory licenses may be granted by court order if the patent holder does not make use of his invention for three years without any objective_ economic, technical or legal grounds that prevent use. Likewise, where inventions protected by patents are not independent of each other so that a new patent holder has to make use of a prior patent in order to put her/his own patent into legal use, she/he may request that a court to grant a compulsory license. Furthermore, the Council of Ministers may subject a patent to compulsory license due to public benefit, if the patent is deemed important for public health or security or if the nonuse or insufficient use of the patent may lead to serious economic or technical underdevelopment of the country. Finally, if a patent owner abuses competition while exercising the patent rights, she/he may be ordered by the court to make an offer for a license. [E]

Infringement of Rights

The rights to a patent will be infringed by unauthorized counterfeiting of patented products and sale, distribution, importation or possessing for commercial purposes or putting into commercial circulation in any other way of such counterfeits where the person conducting such acts knows or should have known that the products are counterfeit. Unauthorized use of patented processes and sale, distribution, importation or possessing for commercial purposes or putting into commercial circulation in any other way of products directly manufactured in such way is also an infringement. Where the patented process pertains to the manufacture of a product, all products bearing the same characteristics as that product will be considered to be manufactured by the patented process. Other acts of infringement are; transgressing the scope of the rights granted by the patent holder on the basis of a contractual license or granted by compulsory license or unauthorized transfer of such rights to third parties, and refraining from declaring

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the source of counterfeit products. Persons facilitating infringement of patent rights will also be held liable. In determining the scope of protection conferred by an application for patent or a patent, all elements equivalent to the elements expressed in the claims shall be also considered. Where the equivalent element performs substantially the same function and performs such function in a substantially similar manner and produces the same result as the element expressed in the claims, such element shall be generally deemed to be equivalent to the element expressed in the claims. In case of infringement, right holders may claim, inter alia, the prohibition and termination of the infringement, the seizure or, if necessary, the destruction of infringing goods and instruments used for infringement, compensation for moral or pecuniary damages including loss of reputation and profit and the announcement to the public of the court judgment. Prior to 2010, infringement of patent rights also led to criminal liability. However, the provisions of the Decree-Law on Patents and Utility Models on patent crimes were cancelled by a decision 6 of the Constitutional Court. According to Article 38 of the Turkish Constitution and Article 2 of the Turkish Criminal Code Nr. 523 7 that has priority over all special codes containing criminal sanctions, crimes and punishments may only be imposed by acts passed by the Parliament. With regard to patent crimes, punishments were indeed stipulated by an act of Parliament. However, the" definition" of crimes relating to patents was stipulated not by ah act of Parliament, but by the provisions of the above mentioned Decree-Law. Decree-laws are legal instruments issued by the Cabinet of Ministers upon authorization granted by the Parliament. 7 The Constitutional Court decided that this was against the principle of the rule of law enshrined in the Constitution and the general principles of the Turkish Criminal Code on the legality of crimes and punishments and cancelled such crimes with effect from June 10, 2010, in other words, one year after the publication of the cancellation decision in the Official Gazette. However, since no new laws have been passed to replace the cancelled provisions of the Decree-Law, criminal liability no longer exists in the field of patents in Turkey.

[F]

Registration and Period of Protection

Applications for Turkish Patents must be made to the TPI. The description and claims may be initially filed in English, French or German, although a Turkish translation must be filed within one month. Applications may also be made to designated offices via the Patent Cooperation Treaty. The date of patent application is the date and time, by hours and minutes, on which the application form, claims, description and drawings are submitted to the TPI. Natural or legal persons who are nationals of any state party to the Paris Convention, 6. Constitutional Court Decision dated Feb. 5, 2009, E: 2005/57, K.: 2009/19, OG Jun. 10, 2009. 7. The reason why decree-laws were chosen as the appropriate legal means was that, back in 1995 there was need for a quick reform of IP laws due to the Customs Union process and the procedure of adopting decree-laws was faster than passing laws in the Parliament.

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or who are domiciled or have an active business in these states, shall enjoy a right of priority of 12 months as from the date of filing an application for the grant of a patent or a utility model certificate before the authorized bodies of these states. A priority period of 12 months is also granted for displaying the invention at an official or officially recognized, national or international exhibition held in the states party to the Paris Convention. The law allows applications with or without a request for a search on prior art. In the former case, protection will be granted for 20 years, while in the latter case, for only seven years starting from the date of application. Utility models are protected for 10 years, also starting from the date of application. [G]

Termination of Patent Rights

Patent rights will terminate upon the expiry of the term of protection, by the patent holder's written surrendering of patent rights in whole or in part, by the patent holder's failure to pay the registration fees on time, or by a court ruling on the invalidity of the patent. Patents may be declared invalid where it is proven that the subject matter of patents do not fulfill the conditions for patentability,. or that the description of the invention was not sufficiently clear and complete to enable a person skilled in the art to apply it, that the patent protection granted exceeded the application, or that the patent holder did not have the right to request the patent. §10.04

INDUSTRIAL DESIGNS

Industrial designs are protected by the Decree-Law on the Protection of Industrial Designs Nr. 554. 8 There is also an implementing regulation laying down the details of procedure. 9 The Decree-Law is based on the system of the EU Directive 98/71/EC of October 13, 1998 on the legal protection of designs. 10 Designs may also be protected under copyright law, if they meet the necessary criteria. In the field of designs, Turkey is a party to the Hague Agreement Concerning the International Registration of Industrial Designs (Geneva Act of 1999) and the Locarno Agreement Establishing an International Classification for Industrial Designs. [A]

Scope of Protection

An industrial design relates to the appearance of a product. According to the DecreeLaw, "design means the entirety of the various features such as lines, shape, form,

8. Endiistriyel Tasanmlann Korunmas1 Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27, 1995, Nr. 22326 ("EndTasKHK"). 9. Endiistriyel Tasanmlann Korunmas1 Hakkmda Kanun Hiikmiinde Karamamenin Uygulama $eklini Gosterir YOnetmelik, OG Feb. 7, 2006. 10. OJ L 289, Oct 28, 1998, 28.

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color, texture, material, elasticity or other characteristics perceived by the human senses of the appearance of the whole or part of a product or its ornamentation." In some countries, in order to be protected under special design law, designs must not only be technical/functional, but must also have an aesthetic value. Under Turkish law, designs will be protected whether or not they have aesthetic value. Designs of products which are parts of complex items shall also be protected if and when the design of the part itself is new and has individual character. Designs resulting from a technical function which does not leave the designer any freedom in the design characteristics and elements fall outside the scope of protection. Likewise, designs that must necessarily be produced in an exact form and dimension in order to enable the product in which the design is incorporated or to which it is applied to be mechanically assembled or connected with other products fall outside the scope of protection. However, designs serving the purpose of allowing the connection of units within a modular system shall be protected, provided that they are new and have individual character. Designs contrary to public order and general principles of morality are not protected. [B]

Criteria for Protection

Not all designs can obtain special protection under des'ign law. In order to be protected, a design must have: [1]

Novelty

A design shall be considered new if before the date of application or priority no identical design has been made available to the public in the world. Designs differing only in immaterial details shall be deemed to be identical. Disclosures made by the designer or her/his successor in title or by a third person having their approval 12 months before the date of application or priority shall not affect the novelty and individual character of the design. Disclosures made as a result of abuse of a relationship with the designer shall also be treated in the same way. {2]

Individual Character

A design shall be understood to have individual character if the overall impression it creates on the informed user is significantly different from the overall impression created on the same user by any design, which has been made public in Turkey or anywhere else in the world or which is still protected in Turkey as a registered design as of the date of application or priority. In the assessment of individual character, the emphasis of evaluation shall be on the common features of the designs and the degree of freedom of the designer in developing the design shall also be taken into consideration.

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§10.04[E]

The Right to Apply for Design Registration

The right to apply for design registration belongs to the designer or her/his successors. The designer has the right to be mentioned in the design application and registration. The right to designs made by employees during the course of their employment belongs to the employers, unless otherwise stated in the contract or unless it can be deduced from the nature of the work. Furthermore, even if the design is not made for the purpose of performing tasks required by the employee's duties but by using the knowledge and tools available at the workplace, the rights on the design will still belong to the employer. However in the latter case, the employee will be entitled to receive an appropriate compensation. If the design is made upon order under a freelance or similar service contract, the design rights will belong to the party ordering the design to be made, unless otherwise agreed by contract. Rights on designs made by academic members of universities belong to such persons. However, if the academic institution has made any special expenditures for the production of the design, and if the academic member has commercially profited from the design, the academic institution may share in the proceeds up to the maximum amount of the expenditures made by the institution.

[D]

Rights Granted by a Design

Once a design is registered, others cannot use the design without permission. It is especially prohibited to manufacture, import, put on sale, use or possess for commercial purposes products incorporating the design without the permission of the design holder. Designs may be the subject of inheritance, pledge, seizure, transfer or license. Licenses are non-exclusive, unless otherwise stated by contract.

[E]

Exceptions to Design Rights

The rights conferred by a registered design shall not extend to: - Acts that are limited to private and non-commercial purposes. - Acts done for experimental purposes. - Acts of reproduction for the purposes of making citations or of teaching, provided that such acts are compatible with fair trade practices and do not prejudice the normal exploitation of the design and the source of the design is mentioned. - The equipment on ships and aircraft registered in a third country that enter the territory of the Turkish Republic temporarily, as well as the importation of spare parts and accessories for the purpose of repairing such ships and aircraft and execution of the repairs.

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§10.04[H]

[F]

Giil Okutan Nilsson

Infringement of Rights

The rights to a design will be infringed by unauthorized manufacturing of products that are the same or significantly similar to the design and by sale, distribution, importation or possessing for commercial purposes or putting into commercial circulation in any other way of such products. Other infringing acts are transgressing the scope of contractual license rights or transferring such rights to third parties without permission, and refraining from declaring the source of counterfeit products. Persons facilitating infringement of design rights will also be held liable. In case of infringement, right holders may claim, inter alia, the prohibition and termination of the infringement, seizure or, if necessary, destruction of infringing goods and instruments used for infringement, compensation for moral or pecuniary damages including loss of reputation and profit and the announcement to the public of the court judgment. The explanations given under patents regarding criminal liability apply also for industrial rights. The Constitutional Court, with the same decision mentioned above 11 has cancelled the provisions of the Decree-Law on the Protection of Designs on the definition of crimes regarding design rights.

[G]

Registration and Term of Protection

The applications for Turkish design registrations are made to the TPI. International applications can be made under the Hague Agreement Concerning the International Deposit of Industrial Designs. Once the design is registered, it gives absolute and exclusive rights to its owner for five years. The registration ean be renewed for further periods of five years for a maximum period of 25 years. Non-registered designs may be protected by unfair competition rules or copyright rules.

[HJ

Termination of Design Rights

Design rights will terminate upon the expiry of the term of protection, due to not renewing the term of protection by paying the necessary fees, by the design holder's written surrendering of rights in whole or in part, or by a court ruling on the invalidity of the design. Designs may be declared invalid where it is proven that the conditions for protection are not fulfilled, or that the design holder did not have the right to request registration.

11. Supra note 6.

§10.05[B]

Chapter 10: Intellectual Property §10.05

TRADEMARKS

Trademarks are protected by the Decree-Law on the Protection of Trademarks Nr. 556. 12 There is also an implementing regulation laying down the details of procedure. 13 The Turkish Decree-Law is based on the same principles as the EU Directive 2008/ 95/EC of October 22, 2008 on the approximation of laws of the Member States relating to trade marks. Recently the TPI has issued a set of Trademark Examination Guidelines, which are accessible in English online at the TPI' s website. 14 In the field of trademarks, Turkey is a party to the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks, the Vienna Agreement Establishing an International Classification of the Figurative Elements of Marks, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks and the Trademark Law Treaty. Turkey has also signed but not yet ratified the Singapore Treaty on the Law of Trademarks.

[A]

Concept

A trademark is a distinctive sign that helps to distinguish a good or a service from other similar goods or services. In addition to individual trademarks identifying the commercial source of goods or services, Turkish law also protects collective marks (ortak marka) and certification marks (garanti markasi). Collective marks are used by a group of undertakings of producers or traders or providers of services to distinguish the goods and services of the undertakings belonging to the group from the goods and services of the other undertakings. Certification marks serve the purpose of the guaranteeing the common characteristics of the undertakings, their production methods, geographical origins 15 and quality. When filing an application for registration of a certification or a collective mark, a regulation specifying the ways and means of using the mark must be filed.

[B]

Criteria for Protection

There are few restrictions on what can be registered as a trademark. Trademarks may consist of words, letters, numerals, symbols, drawings, combination of colors, or threedimensional signs such as the shape and packaging of goods or even audible signs such as music. In order to be registered, a trademark must be able to distinguish goods or services for which it is going to be used, from similar ones. Each trademark is registered 12. Markalann Korunmasi Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27, 1995. 13. Markalann Korunmasi Hakkmda Kanun Hiikmiinde Karamamenin Uygulama $eklini Gosterir Yonetmelik, OG Apr. 9, 2005. 14. http://www.turkpatent.gov.tr/dosyalar/haber/TM_Guidelines_ENG. pdf. 15. It should be noted that there is also special legislation on the protection of geographical indications, which, in practice, is preferred over certification marks.

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§IO.OS [CJ

for certain categories of goods or services. One is free to use a mark that is the same as or similar to a previously registered trademark, if the mark is going to be used for a different category of goods or services. However, if a trademark is "well-known", protection goes beyond the category of products or services for which the trademark is registered, if the registration of the same or similar mark would take unfair advantage of, or be detrimental to, the distinctive character or repute of the well-known trademark. Trademark registration may be denied based on "absolute" or "relative" grounds for refusal. Absolute grounds for refusal are generally objective grounds which preclude a sign to be used as a trademark due to lack of distinctiveness, descriptive nature, deceptive characteristic or prohibition of registration under the Paris Convention. The TPI makes an ex-officio examination based on absolute grounds of refusal. Relative grounds for refusal are those grounds which pertain to rights owned by third parties. The most important relative ground for refusal is the existence of similarity between two trademarks (the likelihood of confusion). Such a similarity or likelihood of confusion is objectionable if the trademarks are used for the same or a similar category of goods or services. It is also objectionable if, although the categories are different, one of the trademarks is well-known as explained above. A special type of confusion is by "association", where the consumer may know that two products are different, but may think that the manufacturers are associated with each other. Trademark registration may also be opposed based on other intellectual property rights such as designs, copyrights or trade-names. Earlier use of an unregistered trademark may also be a ground for opposition to the registration of that trademark by a third party. Absolute or relative grounds for refusal also serve as grounds for invalidation of a registered trademark. [C]

Rights Granted

A trademark grants an exclusive right to its owner for the use of the trademark. The trademark owner can prevent the manufacture, importation, sale or otherwise putting into commercial use of counterfeit products; that is, products of the same or similar category bearing the same or confusingly similar signs as the registered trademark. In a 2009 amendment to the Decree-Law on the Protection of Trademarks (Article 9), it was also made clear that the trademark owner can prevent the use of the same or confusingly similar signs as a domain name, keyword or code with similar functions in a way that will create a commercial impact on the Internet, provided that the person using the sign does not have any legitimate right on or connection to that sign. Trademark rights may be the subject of inheritance, pledge, seizure, transfer or license. Licenses are non-exclusive, unless otherwise stated by contract.

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§10.0S[F]

Exceptions to Trademark Rights

The owner of a trademark cannot prevent third parties from using, in the course of trade, their own name or address, indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of the goods or of rendering of the services, or other characteristics of the goods or services, provided the use is effected in accordance with fair trade practices. [E]

Infringement of Trademark Rights

In case of infringement of trademark rights, the trademark owner can demand protection from law courts or criminal courts. Goods violating the trademark right may be withdrawn from the market, seized at the customs and destroyed upon the demand of the trademark owner. The trademark owner may also demand compensation for moral or pecuniary damages, including actual damages, loss of profit and any damage to the reputation of the trademark. Infringement of trademark rights can also lead to criminal punishment. Prior to 2009, the crimes were stipulated by the Decree-Law on the Protection of Trademarks. As explained above for patent crimes, in a similar ruling, 16 the Constitutional Court found that laying down crimes by a decree-law, in other words with an act of government, rather than an act of parliament, was against the principle of the rule of law. The Court cancelled the relevant provisions of the decree-law with effect after six months following the publication of the decision, in order to leave time for the enactment of a new law in accordance with the general principles of the Criminal Code and the Constitution. A new law on trademark crimes was enacted in 2008, 17 according to which legal fines and prison sentences of one to three years or two to four years depending on the type of crime may be given for crimes committed against trademarks registered in Turkey. [F]

Registration and Period of Protection

In order to register a trademark in Turkey, an application must be filed at the TPI. Applications may also be made via the Madrid system of international registration. The application must contain a clear reproduction of the sign filed for registration, including any colors, forms, or three-dimensional features. The application must also contain a list of goods or services to which the sign would apply. The period of protection of trademarks in Turkey is 10 years from the date of application for registration. However, a trademark can be renewed indefinitely beyond the time limit with the payment of additional fees.

16. Constitutional Court Decision dated Jan. 3, 2008, Nr. E: 2005/15, K.: 2008/2, OG Jul. 5, 2008. 17. Law Nr. 5833 amending the Decree-Law Nr. 556 on the Protection of Trademarks, OG Jan. 28, 2009.

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§10.06[A] [G]

Giil Okutan Nilsson Termination

Trademark rights will terminate upon the expiry of the term of protection if the rights are not renewed in due time through the payment of necessary fees, by the trademark owner's written surrendering of rights in whole or in part, or by a court ruling on the invalidity of the trademark. Trademarks may be declared invalid in whole or in part, inter alia where it is proven that the sign is not suitable for functioning as a trademark or due to the existence of absolute or relative grounds for refusal. Also, if a trademark is registered but not used for manufacturing or selling goods or services for more than five years, third parties may sue for the cancellation of trademark. § 10.06

COPYRIGHT

Turkish copyright law is regulated by the Law on Intellectual and Artistic Works Nr. 5846 18 (LIA). There are numerous regulations on the implementation of various aspects of the law. The LIA has undergone many amendments, the last one being in 2008. In the field of copyright, Turkey is a party to the Berne Convention for the Protection of Literary and Artistic Works (1971 Paris Act), the Rome Treaty on the Protection of Performers, Phonogram Producers and .Broadcasting Institutions, WIPO Copyright Treaty and WIPO Performances and Phonograrns Treaty. [A]

Protected Works

Copyright is granted to "works" that reflect the "individual character" of the author. This is generally taken to mean that the contribution of the author should give the work a level of creativity that goes beyond what is ordinary or commonplace. In order to be protected by copyright law, a work must also fall under one of the following categories: - Literary and scientific works (including computer programs and dramatical works). - Musical works. - Works of fine art. - Cinematographic works. Adaptations and compilations are also protected, provided that they reflect the individual character of their author. Databases have two different types of protection: The creativity in the selection and compilation of the data, in other words, the creative effort in the making of the database is protected by author's rights. In this sense, the creator of the database is

18. OG Dec. 13, 1951, Nr. 7981.

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deemed to be an "author" if the level of creativity is found to meet the "individual character" criterion. Secondly, the producer of the database, i.e., the person who makes the investment for the collection, verification or presentation of the data is protected by a so-called "sui generis" right, if such investment is deemed to be qualitatively and/or quantitatively substantial. This right prevents the permanent or temporary transfer or distribution, sale, rental or communication to the public in any way of all or a substantial part of the content of the database for 15 years. Copyright protection is not dependant on the fixation of works in a tangible medium, except for cinematographic works. Registration is also not a precondition for a work to be protected. The protection of the law starts as soon as the work is created. However, there is a system of registration by the Ministry of Culture for films and musical works, which aims at tracking the right holders in order to minimize breach of rights. It is also possible to make a voluntary registration, which may be a useful tool in providing evidence, albeit rebuttable, in case of a conflict regarding the real author of a work. [B]

Ownership of Copyright

The owner of copyright or the "author" is the person who creates the work. The dominant view in literature is that only natural persons can qualify as "authors", since creativity is a quality inherent to humans and not to legal entities. There is a special rule that regulates authorship of cinematographic works. The joint authors of such a work are the director, the script and dialogue writers and the composer of the original music score. For cinematographic works which are produced with the technique of animation, the animator is also among the joint authors of the work. In certain cases, the rights on the work are granted by law to persons other than the author: Firstly, the rights on works created by employees during the course of their employment belong to employers, unless otherwise stated in the contract or unless it can be deduced from the nature of the work. Secondly, if the work is a joint work that was created by the participation of more than one author where the work constitutes an indivisible whole, the rights on the joint work are exercised by the natural or legal person that has assembled the authors, provided that nothing to the contrary is stipulated in a contract or in the terms of service or in any law that was in force at the time of creation of the work. This rule does not apply to cinematographic works, as otherwise the rights of the joint authors of cinematographic works mentioned above would be undermined. Turkish law also protects rights related to copyright. Related right holders are phonogram (sound recording) producers, producers of cinematographic works, performers and radio and television broadcasters.

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[C]

Gill Okutan Nilsson

Rights Granted

The law grants both moral and economic rights to the author. The moral rights are the rights to be named as author, the right to determine the time and manner of disclosure of the work to the public and the right to prevent any modifications to the work. Economic rights are the right to make adaptations of the work, the right to copy and distribute the work, including by way of sale, rental and public lending, the right to public performance 19 and the right of public communication, which covers the communication of the work to the public by means of, inter alia, radio, television, the internet or GSM networks. Under Turkish law, the right of making the work available to the public at a place and time chosen by them (the so-called "making available right") also comes under the right of public communication. Economic rights are absolute rights, giving the author the power to authorize or prohibit said acts. Related right holders also enjoy economic rights on the performances, productions or broadcasts which they make. These are absolute rights, which give related rights holders the power to authorize or prohibit the copying, distribution, public performance or communication to the public of the performance, production or broadcast. The rights of the authors are reserved. Performers are the only related right holders who have moral rights. They are granted the right to be named as performers and the right to prohibit modifications of their performances. The economic rights on the work can be transferred or licensed, with or without restrictions in terms of scope, territory or duration. Moral rights may not be transferred, but the author or performer may authorize others to exercise those rights. Economic rights can also be the subject of pledge, seizure or inheritance.

[D]

Collective Rights Management

Sometimes it is difficult for the authors and related rights holders to pursue their economic rights by themselves. This is especially true for certain types of rights such as public performance or broadcasting, where there are numerous right holders and numerous users, which makes collective rights management a better option to manage economic rights. In Turkey, authors and related right holders may establish collecting societies authorized to make license agreements with users, collect license fees and distribute them to their members. Music colleting societies are most active in this field. They make annual agreements with users such as hotels, restaurants, shops or shopping malls for public performance rights and with TV and radio broadcasters for the right of communication to the public. According to the law, collecting societies must set and announce payment tariffs for users. In order to reach a fair payment system, public places such as hotels, restaurants, etc. are classified according to certain criteria like their location, size or number of stars. Similarly, broadcasters are classified 19. The right to public performance covers the right to directly or indirectly perform, play, recite, exhibit or otllerwise display a work in places accessible by the public, whether or not admission is dependent on the payment of an entrance fee.

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according to criteria such as the coverage area of their broadcast or the type of their broadcast, such as news or general entertainment. Collecting societies then set the tariffs according to this classification. Tariffs are open for negotiation. In case of disagreement, a non-binding mediation procedure is stipulated in the law. If parties cannot agree, they can go to court. Apart from licensing economic rights, collecting societies are also authorized to initiate legal action to defend the rights of their members against infringement.

[E]

Exceptions and Limitations to Copyright

The economic rights of the author and related right holders are restricted due to reasons of public order, public benefit and private use. The law does not have one general "fair use" type of limitation but gives an exhaustive list of permitted restrictions. Restrictions due to public order allow works to be used by courts, police forces or other official authorities as evidence in disputes or for public security purposes. Also, other laws such as the Criminal Code or laws intended to protect minors from obscene publications may prevent authors from exercising their economic rights in full, by imposing certain restrictions on the circulation of the work. Restrictions due to public benefit aim at safeguarding access to information or at promoting research and education. In this category, the law allows the use of officially published legal documents such as the texts of laws or court judgments; the reproduction or broadcast of public speeches with the purpose of supplying information to the public; the quotation of news items and the broadcasting of works if required by news reporting. Educational restrictions include the freedom to perform works in educational institutions, during face-to-face education, without a profit motive, provided that the name of the author and the work are declared. One of the most important restrictions in this category is the freedom to make compilations of works for educational purposes. The law allows publishers to incorporate parts of a work into a compilation if it is being prepared for teaching purposes and if the incorporation is done to an extent that may be justified by the purpose. It is also necessary that the incorporated work has been previously published. Such freedom may not be used in a way that can unreasonably damage the rights of the author and may not conflict with the normal exploitation of the work. The final restriction in this category is the freedom of quotation and borrowing provided that reference is provided to the work and author quoted. A new addition to the restrictions for public benefit is the freedom to reproduce copies of works for handicapped people. If written literary and scientific works that are protected by the law do not have a version which can be used by the handicapped, then handicapped persons themselves or associations, foundations, etc. which are set up for helping the handicapped may reproduce those works in the form of an audio tape or CD or by Braille alphabet or in similar formats and may lend such reproductions to the handicapped. Such copies may not be sold or put into commercial use or used in any other way than the intended purpose.

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Finally, the restriction due to private use allows private copying. All intellectual and artistic works may be reproduced for private use and without purposes of profit. However, such use may not unreasonably prejudice the legitimate interests of the author or conflict with the normal exploitation of the work. There are also detailed rules on certain private use exceptions regarding computer programs.

[F]

Infringement

The infringement of author's rights and related rights may be sanctioned by legal or criminal action. Civil remedies aim to stop the breach, and compensate for any loss or damage that has occurred due to the breach. The law allows the following actions for authors and related right holders: -

Action for establishing authorship. Action for prohibition of infringement. Action for the elimination of infringement. Action for moral or pecuniary damages. Precautionary measures. Seizure at the customs. Publication of the court decision. Protection against copyright violations on the internet ("Notice and Take Down").

The 2004 amendments have introduced a new system of protection against violation of copyright on the Internet. According to the additional Article 4 of the law, if a copyright holder believes that her/his works are being posted on the internet without her/his permission, she/he can ask the content provider to take the work down. In practice, it is deemed sufficient to send an e-mail to the administrator of the webpage to ask for the unpermitted work to be taken down. If the content provider does not stop the violation, then the copyright holder can go to the public prosecutor and ask the prosecutor to order the service provider to stop giving service to the content provider. In this way, public access to that webpage can be prevented. As part of precautionary measures and under the action for elimination of infringement, the author may ask pirated works to be withdrawn from the market, seized at customs and even destroyed. The author may also demand compensation for her/his damages up to three times the amount that could have been demanded if the violated right had been granted by contract, or up to three times the current value of the use of such right. This is one of the rare occasions where Turkish law provides the award of higher compensation than the amount of actual damages. The law contains detailed provisions about criminal penalties, which may be triggered upon the breach of both moral rights and economic rights of the author and of related rights. There are different penalties of imprisonment depending on the type of the offense. For breach of economic rights, the imprisonment may be as high as up to five years; for moral rights, up to two years. There are also heavy fines. Prosecution

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for these offenses is conditional on the filing of a complaint, except for the crime of selling books or CDs or DVDs without the protective hologram sticker they should carry (bandrol). Besides the persons whose rights have been breached, the Ministries of Culture and Education and press institutions may also file a complaint for certain offenses. Also, collecting societies may file complaints in the fields where they are active.

[G]

Protection Period

For authors, the protection period differs for natural persons and legal persons. For natural persons, protection is granted during the lifetime of the author and for 70 years following death. For legal persons, protection period is 70 years starting from disclosure to the public. Different terms apply for the work and its adaptations. Related rights are protected for a period of 70 years, starting from the following dates: - For performers, from the date of first fixation of the performance, or, if there is no fixation, from the date of first public communication of the performance. - For producers of films and phonograms, from the date of first fixation. - For radio and television institutions, from the date of first broadcast.

§10.07

EXHAUSTION OF INTELLECTUAL PROPERTY RIGHTS

All decree-laws on industrial rights contain provisions to the effect that once goods carrying a patent, trademark or design are put on the market with the permission of the right holder, acts regarding such goods will not infringe intellectual property rights. In the case of trademarks, this rule has been interpreted by the Turkish Court of Appeals to mean that importation rights will also be exhausted. In a case regarding sunglasses with the "Police" brand, the Turkish Court of Appeals decided that third-party importers may import original Police sunglasses from third countries, since the trademark owner had exhausted his right of first sale upon putting the sunglasses on the market in Turkey. 20 The Turkish Court of Appeals has confirmed this ruling in later decisions. In the field of copyright, the LIA has a provision with a much clearer wording which explicitly states that the author has the exclusive right to import copies of a work that have been reproduced abroad with his permission and to exploit such works by distribution.

Selected Bibliography Unal, T., Fikri Miilkiyet Hukuku, 5th ed., istanbul 2012.

20. Court of Cassation (Yargitay) 11. HD, Mar. 12, 1999 E.1998/7997 K. 1999/2098.

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11

Labor Law Nurhan Siiral & Mustafa Kilu;oglu *

§11.01

GENERAL INTRODUCTORY REMARKS

Approaches to and expectations of labor laws are changing drastically in many industrialized countries. How labor laws can evolve to support national economic and employment objectives has become the major issue. To this end, the classical model of labor legislation designed to protect the weaker party is transforming. Liberalization, ongoing privatizations, opening up to international trade and capital flows, globalization, the process of incorporation and implementation of European Union (EU) acquis necessitated and pressurized for modernization of the Turkish labor market. There is now the emergence of new debates such as employment creation through flexibility, corporate governance, corporate social responsibility, and alternative dispute resolution. Initiatives to modernize labor laws to meet challenges of the globalization of the economy resulted in the adoption of the Labor Act 2003 (LA), 1 Social Insurances and General Health Insurance Act 2006, 2 Code of Obligations 2011 (C.0.), 3 Occupational Health and Safety Act 2012 (OHSA), 4 and the Unions and Collective Labor Agreements Act 2012 (UCLAA). 5 Turkey's labor laws are evolving, but whether this evolution leads to the creation of an adaptable workforce and a labor market responsive to the challenges of globalization is the key concern.

* Prof. Dr. Nurhan Siiral: Professor of Law; National correspondent to the European Network of

1. 2. 3. 4. 5.

Legal Experts in the Field of Gender Equality. The authors can be reached at [email protected]. Dr. Mustafa K1lu;oglu: Honorary Chamber Chief Judge of the Appeals Court; lecturer, Faculty of Law, Baskent University, Ankara. jP Kanunu, Law Nr. 4857, OG Jun. 10, 2003, Nr. 25134. Sosyal Sigortalar ve Genel Safj.1k Sigortas1 Kanunu, Law Nr. 5510, OG Jun. 10, 2006, Nr. 26200. Bon;lar Kanunu, Law Nr. 6098, OG Feb. 4, 2011, Nr. 27836. jP Safj.1{!J. ve Giivenlifj. Kanunu, Law Nr. 6331, OG Jun. 30, 2012, Nr. 28339. Sendikalar ve Toplu jP Sozle;;mesi Kanunu, Law Nr. 6356, OG Nov. 7, 2012, Nr. 28460.

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Turkey is a civil law country by choice. The codification processes aimed at producing a localized system of Turkish labor law were heavily affected by the Continental European legal system and currently by the standards laid down by the EU. There is an indisputable impact of EU law on the evolution of Turkish labor law. Turkey, as a country eager to join the EU, is enacting pieces of legislation with the idea of incorporating EU law into its legal system. The incorporation and implementation of EU acquis represents a key challenge for Turkey. Labor market legislation has its impacts on labor market performance and the quality of its impacts will continue triggering new laws and/or law amendments. § 11.02

SCOPE AND BRANCHES OF LABOR LAW

Labor law is divided into two main parts: individual and collective labor law. Individual labor law governs individual labor relations, i.e., labor relations between an employer-a private person or a legal entity (legal person; corporate body) and a private worker. Workers are wage earning employees as opposed to public officials (staff employees), or salary-earning employees. The main statute regulating individual labor relations is the Labor Act. In June 2001, the Ministry of Labor and Social Security formed a tripartite commission composed of nine university professors, three appointed by the government, three by the Turkish Confederation of Employers' Association (TISK), and one by each of the three labor confederations (TURK-IS, HAK-IS, and DISK). This technical commission was tasked with the preparation of a new Labor Act that materialized in 2003. Collective labor law regulates collective labor relations, i.e., relations between an employer who might be a private person or a legal entity, and organized labor in the form of a trade union. Trade unions constitute a countervailing power to management. The stronger the unions are, the better will be the protection provided for workers. Between the employer and organized labor, the constant and unending dialogue of powers takes place at the bargaining table. Collective labor law deals mainly with the formation, composition and functioning of unions, collective bargaining, formation, form, content and termination of collective labor agreements, collective labor disputes and their settlement through peaceful means or industrial action. The main statute regulating collective labor relations is the UCLAA. In the Turkish labor relations system the same term, "unions" (sendika), is used to denote both the workers' and employers' occupational organizations. Throughout this chapter, the term "trade unions" is used to denote workers' unions (labor unions) (i$<;i sendikalan), "employers" associations' to denote employers' unions (i$Veren sendikalan) and "unions" to denote both.

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[A]

§11.03[A]

INDIVIDUAL LABOR LAW

Basic Concepts and Coverage

Labor law excludes the self-employed (baffemszz r;ali~anlar) from its coverage because the element of subordination is the hallmark of relations between workers and employers. There exists the element of subordination also as regards civil servants (memurlar) performing the fundamental and permanent functions required by the public services but they do not work under a labor contract and they are subject to the principles and rules laid down by the administrative law. A worker is a real person employed in any job under a labor contract (LA, Article 2). "Any job" implies that the Labor Act covers public and private sector workers as well as manual (bedenen r;all~anlar) and non-manual (fikren r;all$anlar) workers. For ship crew and press workers such as journalists and photographers there are special acts, the Maritime Labor Act 6 and the Press Labor Act. 7 However, port operations, i.e., loading and unloading ships and manual press workers are not covered by these special acts but the Labor Act. Workers not covered by the Labor, Maritime Labor, and the Press Labor Acts are covered by Articles 393-469 of the sixth chapter of the Code of Obligations on labor contracts. Examples are homeworkers (evde r;ali~anlar), domestic workers (ev hizmetlerinde r;ali~anlar) such as maids, nannies, and butlers; agricultural workers in agricultural and forestry workplaces where up to 50 workers are employed; and people doing handicrafts at home provided that they are members of the same family or relatives up to the third degree. Psychological harassment (mobbing) (psikolojik taciz; mobing) (Article 417), releases of debt (ibra) (Articles 132, 420), and annual leave boards (yilllk izin kumllan) (Articles 422-425) are important issues regulated not by the Labor Act but by the new Code of Obligations. An employer is a real or legal entity who employs workers (LA, Article 2). An employer's representative (i~veren vekili) is any person acting in the workplace on behalf of the employer and charged with the administration of a particular work(s) or workplace. An employer's representative shall also assume obligations and responsibilities conferred upon the employer. A subcontractor (alt i$veren) is the one who carries out work and engages workers exclusively in a certain section or subordinate facilities of the workplace belonging to the principal employer ( asil i$veren). A subcontractor is not an employer's representative since he conducts the work he has undertaken independently of the principal employer. A workplace is an organizational unit comprising workers and corporeal and incorporeal elements aiming at production of goods or services. Labor contract (i$ sozle$mesi) comprises work, wage, and subordination. Council Directive 91/533/EEC of October 14, 1991 on an employer's obligation to inform

6. Deniz jP Kanunu, Law Nr. 854, OG Apr. 29, 1967, Nr. 12586. 7. Basm Meslefj.nde <;alipanlarla <;aliptiranlar Arasmdaki Milnasebetlerin Tanzimi Hakkmda Kanun, Law Nr. 5953, OG Jun. 20, 1952, Nr. 8140.

§11.03[B]

Nurhan Siiral & Mustafa K1h<;oglu

employees of the conditions applicable to the contract or employment relationship 8 obliging employers to provide all employees with a document containing information about the essential elements of their contract or employment relationship served as a basis for Article 8 of the new Labor Act on the form of labor contracts. [B]

Labor Contract

[1]

The Types of Labor Contracts

Since the 1980s, economic problems have become the root of the revisions of labor laws. Labor laws are now believed to support and enhance employment creation and development of "just-in-time management". There has been a diversification in forms of employment in terms not only of legal status, but also of hours, periods and rates of work. Turkey's Labor Act, trying to follow European patterns, constituted a drive toward flexibility. Open-ended labor contracts (employment contracts of an indefinite duration) (belirsiz siireli i;; sdzle;;mesi) remained as the general (typical) form of employment relationship. The parties may agree on a trial period before establishing a definite relationship, and therefore can agree to a labor contract with a trial period ( deneme siireli i;; sdzle;;mesi). A trial period may be agreed upon in contracts for permanent employment. The trial period may not exceed two months. However, this period can be extended up to four months through cdllective labor agreements. During the trial period, either party, without prior notification or compensation may cancel the contract (LA, Article 15). In order to cope in a flexible way with the diversity of the labor market, the Act regulated atypical (flexible) types of employment, mainly part-time (kismi siireli 9ali;;ma), fixed-term (belirli siireli 9ali;;ma), and temporary (ge9ici i;; ili;;kisi) labor contracts that existed in practice but were devoid of legal regulation. Although the Act tried to incorporate economic considerations, it fell short of its aims mainly due to a distorted understanding of protectionism. The Labor Act went further beyond relevant EU directives, the Part-time Work Directive, 9 Fixed-term Work Directive, 10 and Temporary Agency Work Directive, 11 in providing protective measures. Thus the balance between "flexibility" (esneklik) and "security"(giivence) referred to as "flexicurity" (giivenceli esneklik) was distorted in favor of "security". Turkey's labor regulations are still rigid by international comparison. For example, in Turkey, temporary work as envisaged by the Temporary Agency Work Directive is non-existent and temporary work agencies are illegal. The legal rules on fixed-term contracts are interpreted rigidly both by doctrine and courts as a result of which such contracts can be concluded only in limited circumstances in the formal sector. Investment Climate Surveys show that 8. OJ L 288, Oct. 18, 1991, 32-35. 9. Council Directive 97 /81/EEC of Dec. 15, 1997 concerning the Framework Agreement on part-time work concluded by the UNICE, CEEP and the ETUC, OJ Jan. 20, 1998, L 014, 9-14. 10. Council Directive 1999/70/EC of June 28, 1999 concerning the Framework Agreement on fixed-term work concluded by ETUC, UNICE and CEEP, OJ Jul. 10, 1999, L 175, 43-48. 11. Directive 2008/104/EC of the European Parliament and of the Council of Nov. 19, 2008 on temporary agency work, OJ Dec. 5, 2008, L 327, 9-14.

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despite these restrictions, temporary and fixed-term contracts are common; hiring informal workers is the simplest way for firms to achieve this flexibility. 12 Also, against this backdrop, a "semi-formal" sector has emerged: formal firms register and legally employ a core workforce, but in addition use informal workers to cope with fluctuations in business conditions. Semi-formality appears widespread in volatile manufacturing sectors (such as textiles and clothing) and in service sectors such as transportation, hotels and restaurants. 13 A part-timer is a worker whose normal number of working hours, calculated on a weekly basis, is substantially lower than the normal number of working hours of a comparable full-timer (LA, Article 13). In the explanatory memorandum to the article and the Working Time By-Law, 14 "substantially less" is interpreted as "less than 2/3 of the contracted weekly hours of work" (Article 6). Therefore, a part-time job above a certain weekly limit is considered a full-time job. For example, if the statutory number of weekly working hours (45) is at the same time the contracted weekly hours of work, work beyond 30 hours a week will be deemed full-time work. The Labor Act stipulates that a part-timer must not be subjected to differential treatment in comparison to a comparable full-timer solely because his contract is part-time, unless there is a justifiable cause for differential treatment. Consequently, a part-timer has access to the all fringe benefits (e.g., bonuses, premiums, child allowances, heating allowances, holiday pay) granted to full-time workers but only in terms of divisible amounts in proportion to the length of his work. Employers have to give consideration to requests by workers to transfer from full-time to part-time work and vice versa if there is such availability in the establishment. Call work (<;agn iizerine r;ali$ma) is part-time employment relying on a call to work upon emergence of a work undertaken by the worker (LA, Article 14). If the duration of the work has not been specified by the parties on a weekly, monthly or yearly basis, it will be deemed as 20 hours a week which is at the same time set as the minimum. Whether the worker involved actually performs work or not, he shall be entitled to remuneration for the specified period that cannot be less than the minimum. Unless otherwise specified, the employer concerned has to make the call at least four days prior to the workday. If daily hours of work have not been specified by the parties, then the employer has to utilize the worker for at least four hours in a day. When compared with zero-hour contracts in other countries under which an employer does not guarantee the worker a fixed number of hours per week but the worker is expected to be on-call and receive remuneration only for hours worked, this regulation is quite strict. A fixed-term labor contract is one that is concluded between the employer and the worker in written form, for work of a specified term or which is based on the emergence of "objective conditions" such as the completion of a certain project or the occurrence of a certain event (LA, Articles 11-12). Such a wording is interpreted rigidly

12. World Bank, Turkey Country Economic Memorandum: Informality: Causes, Consequences, Policies, Report No. 48523-TR, Mar. 2, 2010, p. iv. 13. OECD Economic Surveys Turkey, July 2012, Paris 2012, 89. 14. jfi Kanununa llipkin <;:aliprrw Siireleri Yonetmeligi, OG Apr. 6, 2004, Nr. 25425.

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by the judiciary and majority of the doctrine as a result of which an objective justification is required in order to be able to conclude a first fixed-term contract. Also, a labor contract for a definite period must not be concluded more than once, except when there is a "substantial cause" which may necessitate repeated (chain) contracts. Otherwise, the labor contract is deemed to have been made for an indefinite period from the very beginning. The terms "objective conditions" for the first conclusion and "substantial cause" for subsequent conclusion are regarded equivalent by the judiciary.15 When a fixed-term labor contract terminates upon expiration of specified period, there shall be no severance pay for the worker. However, upon termination of an open-ended labor contract by the employer, the worker shall be entitled to severance pay, except being dismissed for a so-called "zero-tolerance offense" .16 Therefore, upon termination of a fixed-term contract due to expiration of its specified period, the worker almost automatically applies to the court claiming "absence of objective conditions/substantial cause" for its first and/or subsequent conclusion. The rigid interpretation of the article restricts the conclusion of fixed-term contracts. It ends up with not only a great deal of workload for the judiciary but also unwillingness by the employers to conclude fixed-term labor contracts. Because fixed-term contracts are authorized only under very special circumstances by the courts, they play a very marginal role in the formal labor market. This may end with the rule on fixed-term contracts in the new Code of Obligations that requires substantial cause not for the first conclusion but for its renewal: If an employment relation established for a fixed-term is tacitly continued after its expiry, it is deemed extended for an indefinite period. A consecutive fixed-term labor contract may be concluded if there is a substantial cause (Article 430/2). In a temporary labor relationship, a worker employed by an enterprise may at a certain point be seconded to another enterprise belonging to the same holding or to the same group of undertakings for a limited period in order to work under the daily supervision and direction of the latter firm (LA, Article 7). The worker has not been employed in order to be assigned to another firm to work there temporarily. This is a situation where the worker is incidentally put at the disposal of another firm. Such a regulation is not a temporary labor relationship when viewed under the Temporary Agency Work Directive that applies to workers with a labor contract or labor relationship with a temporary work agency (ge<;-ici istihdam biirosu) who are assigned to a user enterprise (kullamo i~letme) to work temporarily under their supervision and direction. Temporary employment is characterized by a triangular relationship between the temporary work agency, the user company, and the temporary worker (ge<;-ici <;-all~an).

15. K1h9oglu and Kemal $enocak, 180. 16. Immediate dismissal may occur for specified serious offenses known as gross misconduct (zero

tolerance offenses). Examples are resume fraud (CV fraud), sexual harassment ofother workers, verbal or physical abuse directed at the employer or the members of his family, illegal drug usage, willful neglect of duty that is not trivial, and has not been condoned by the employer, abuse of trust such as theft, embezzlement, disclosure of trade secrets, use of employer's equipment (e.g., vehicles and computers) to engage in non-work-related activity. Some workers dismissed for gross misconduct may face additional consequences like criminal prosecution (e.g., bank teller stealing money from the cash drawer) or a civil lawsuit.

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The agency has the role of intermediary. The workers have a contract with the agency which sends them to work as a temp for a user company needing additional staff. In Turkey, temporary work agencies are prohibited. Turkey's recent employment policy initiatives go in the direction of making the labor market more flexible. According to the Ministry of Labor and Social Security, constraints on temporary hiring force many formal firms to use overtime rather than creating new jobs. A new law authorizing temporary work agencies and temporary contracts was adopted by the Parliament in 2009, but, after strong trade union opposition, the President vetoed the law. A new draft law was submitted for discussion to the social partners in November 2011. This draft law is an important initiative, but it appears more restrictive than in other OECD countries. 17 A stable and steady lifetime employment system experienced for a long time especially in the public sector constrains them. Also, developing cooperation in setting common objectives is quite difficult in Turkey especially due to the polarization and credibility gap between the competing labor confederations that adversely affect the bipartite, tripartite and multi-partite relations. Unfortunately, many union executives see compromise as an underrated virtue. Any compromising attitude is regarded as a sign of weakness whereas being a hard-liner is equated with being a strong and influential unionist. Consequently, there is an excessive win-lose confrontation instead of a win-win psychology and social dialogue platforms are mainly used to "play to the gallery" instead of as a means of reaching consensus on contentious issues. 18 [2]

Working Time

Provisions on working time were rigid in the former labor act. Due to the lack of schemes such as flexible working time (flexitime) (esnek i~ siiresi] and annualized hours, employers did not have flexibility in deployment of staff and lower labor costs could not be gained by abolishing overtime. On the other hand, the workers could not enjoy individual patterns of working time, i.e., individual derogations. 19 Working time, as implied by relevant labor provisions, is the period during which the worker performs work at the employer's disposal. According to the Labor Act, the normal weekly working time cannot exceed 45 hours (Article 63). The maximum number of hours to be worked weekly is 45. This total is to be distributed over the workdays in such a way as not to exceed 11 hours a day. Unless agreed otherwise, 45 hours have to be distributed evenly over workdays. Deviations are possible from an even breakdown of a certain contractual hours of work over an equally contractual number of weekdays. There is a reference period (denkle~tirme siiresi] of two months that can be extended to at most four months through collective labor agreements. Reference periods allow flexibility: Decreases or increases 17. OECD Economic Surveys Turkey 2012, 89. 18. Nurhan Sliral, A Pragmatic Analysis of Social Dialogue in Turkey, Middle Eastern Studies, Vol. 43, no. 1, January 2007, 143-152. 19. Nurhan Si.iral, Reorganization of Working Time and Modalities of Employment under the New Turkish Labor Act, Middle Eastern Studies, Vol. 41, no. 3, May 2005, 407-420.

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in regular work are possible for operational reasons but in such a way as to ensure that the average time worked over two or four months is that agreed upon. Use of manpower can now be better adapted to wavering demand and as a result "unused" working time does not have to be paid. [3]

Termination of the Labor Contract (Termination of Employment)

The rules on initiation and terminations of labor relationships are known as employment protection legislation (EPL). Studies and surveys reveal that a high level of protection has adverse effects on employment creation. 20 Unfortunately, the Labor Act has not achieved incorporation of economic considerations in its handling of employment protection. A national perception of protection is the ethos surrounding the making and interpretation of legal rules. EPL and its implications for labor market dynamics have always been a muchdiscussed sensational issue in Turkey. Discussions focus mostly on job security. Employers prefer flexibility in hiring and firing procedures, whereas the workers claim the need for security. The challenge has been how to reconcile the employers' need for flexibility in hiring and firing with that of the workers' for security. The stakeholders are not in search of "greater good for all" but voice only the interests of their social basis. In order to meet the challenges of globalization, Turkey must focus on the productivity and competitiveness of companies and 'Should reconsider the extent of its rules on social protection. Where laws weaken the employment flexibility of firms against business cycle fluctuations and come up with lengthy and costly employment terminations, the firms may tend to hire workers informally to avoid EPL as is the case in Turkey. 21 There are various ways of terminating an employment relationship. Herein, basic information only on unilateral terminations, i.e., dismissals and resignations, will be provided. Dismissal is employment termination at the initiative of the employer. The Labor Act distinguishes between causes for instant dismissal (summary dismissal, dismissal for just cause) (hakli nedenle fesih; bildirimsiz fesih) (Article 25) and lesser forms of dismissal (dismissal on notice) (feshi ihbarla fesih; bildirimli fesih) (Articles 17-21).

Dismissal on notice is provided by the Labor Act only for open-ended labor contracts. Where an employer ends the employment of a worker, the employer must provide a written notice of termination. The labor contract gets terminated not at the

20. EU Commission, Towards Common Principles of Flexicurity: More and better jobs through flexibility and security, COM (2007} 359 final, Jun. 27, 2007, 7, http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=COM: 2007:0359:FIN:EN:PDF; EU Commission, Employment in Europe 2006, 13, 83, http://ec.europa.eu/ employment_social/news/2006/nov/employment_europa_ en.pdf. 21. For details see: Nurhan Sural, Economic Implications of Employment Protection Legislation in Turkey: Has Turkey Found its Juste Milieu?, Comparative Labor Law and Policy Journal, Vol. 30, no. 1, Winter 2009, 335-372.

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time of notification but with the elapse of the notice period (ihbar/bildirim siiresi). 22 The worker has to continue working during the notice period and be paid his corresponding regular wages. The employer may fear retaliation. In some extreme cases, dismissed workers have been known to erupt in violence against their former employers. The employer may opt for advance termination meaning that the worker does not get the required notice but termination pay (advance payment). Termination pay is a lump sum advance payment equal to the wages that the worker would have earned during the notice period had notice been given. Where notice periods are not recognized by the employer, the worker shall be paid compensation called "notice pay" (ihbar tazminati)equaling the worker's last basic wage plus whatever wage supplements, monetary or in kind, corresponding to the notice period. There are two sets of workers who may be subjected to dismissal on notice: Workers with increased job security and workers with regular job security. Workers with increased job security enjoy greater protection against dismissal on notice. A worker who has been working for more than six months under an open-ended labor contract at a workplace where at least 30 (SO in agriculture) workers are employed benefits from increased job security if he is not in the position of an employer's representative managing the whole undertaking or workplace with the authority of hiring and firing. Where the employer owns more than one workplace in the same industry, the total number of the workers shall be considered. The 30-worker threshold is to avoid imposing administrative, financial and legal constraints in a way which would hinder the creation and development of small and medium-sized businesses (SMEs) (kiii;iik ve orta oli;ekli i~letmeler). A worker with regular job security may be dismissed at any time for any reason or indeed for no reason. The employer is not under the legal obligation of specifying the ground for dismissal. In these aspects, workers with regular job security are similar to "at will employees" in the United States. However, workers with regular job security have protections against "wrongful terminations" and the courts will intervene to protect the ex-worker from allegedly unfair treatment by the employer. A wrongful termination is a breach of "good faith and fair dealing," an implied covenant that workers have to be treated fairly by their employers. Abusive and discriminatory dismissals are deemed wrongful termination. For example, an abusive dismissal exists when a worker who has reported wrongdoing in the workplace (whistle blower) or who has not yielded to sexual advances from the employer and encounters retaliatory termination. Dismissal as a form of sexual harassment, on the ground of sexual orientation or gender reassignment, 23 dismissal in violation of labor laws, and individual and collective labor agreements constitute abusive dismissal. It is the worker's burden to prove that he has been abusively dismissed. An abusively dismissed worker shall be entitled to the so-called bad-faith pay, thrice the amount of notice pay.

22. If the length of employment at the workplace concerned is less than six months, the corresponding notice period is two weeks, four weeks for employment between six months to 1Y2 years, six weeks for employment between l 1h years and three years, and eight weeks for employment of more than three years. 23. K1lu;ogtu and $enocak, 240.

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Bad-faith pay (kbtiiniyet tazminati), discrimination pay (aynmcilik tazminati), and severance pay (kidem tazminati) are the possible consequent types of compensation in wrongful terminations. Where a worker with increased job security is dismissed, the employer has the legal obligation to specify the reason of dismissal clearly and precisely. The worker has to be provided an opportunity to defend himself/herself when the allegations are related to his/her capacity or conduct. Where no reason is specified or the reason specified is not valid, the worker can pursue court action to protect his/her rights and can be reinstated (i~e iade) by the court. If the employer does not reinstate him/her, as is usual due to the fear of retaliation, the worker shall be entitled to job security pay (i~ giivencesi tazminati). The minimum amount of this compensation corresponds to the worker's four months' basic wages and the maximum to the worker's eight months' basic wages. There shall also be severance pay to be paid to such a worker if he/she has completed at least one-year of service at the relevant workplace. On the basis of the ILO C158, 24 the Labor Act on increased job security presents a non-exhaustive list of incidents that do not constitute a valid reason for contract termination amongst which are union membership or participation in union activities; religion, race, color, sex, marital status, family obligations, pregnancy, confinement. The employer has to prove the valid reason he has claimed. If the worker claims that there was another reason for dismissal, the burden of proof (ispat yiikii) shifts to the worker. There is no written rule that a dismissal must be ultima ratio (son <;are), but according to the rulings of the Appeals Court, largely drawn on German law and practices, dismissal has to be the employer's final solution. 25 The ultima ratio rule presumes that alternatives to dismissal, such as an offer of reasonable alternative employment, or training for another job in the same workplace or another workplace of the same employer have been envisaged. Instant dismissal is a means of termination at the initiative of the employer on the basis of "just causes" specified by the law. There are four categories of just causes: Just causes related to worker's health, gross misconduct, force majeure, and excessive absenteeism. Instant dismissal is possible not only for indeterminate but also for fixed-term workers. As there is a just cause to terminate the labor contract immediately, there are no notice periods, notice pay, bad-faith pay, unionism pay, or job security pay. As a general rule, a worker dismissed on notice or for a just cause is entitled to severance pay. The only exception is being dismissed for gross misconduct. There is a costly severance pay regime. This is why many times an employer tries to base the dismissal on worker's gross misconduct (zero tolerance offenses), 26 whereas the worker tries to

24. Convention on the Termination of Employment Relationship at the Employer's Initiative, 1982. 25. K1l!yoglu and ~enocak, 322-330. 26. Examples are resume fraud (CV fraud), sexual harassment of other workers, verbal or physical abuse directed at the employer or the members of his family, illegal drug usage, willful neglect of duty that is not trivial, and has not been condoned by the employer, abuse of trust such as theft, embezzlement, disclosure of trade secrets, use of employer's equipment (e.g., vehicles and computers) to engage in non-work-related activity. Some workers dismissed for gross

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the most by claiming that he has been dismissed due to his union membership or in union activities. There is a special protection against employment terminations for trade union (i$yeri sendika temsilcileri) provided in the UCLAA (Articles 24, 27). union representatives are appointed by the authorized trade union from among member workers employed at the concerned workplace. As long as the collective agreement is in effect, trade union representatives represent the trade union in workplace, their number varying in proportion to the number of the total Limited to the workplace, they follow up and try to resolve workers' requests and complaints, promote and maintain cooperation, harmony of work and peaceful labor relations, protect rights and interests of workers and assist the enforcement of working conditions provided by labor laws and collective labor agreements. Because the union activities of trade union representatives make them more liable to anti-union discrimination, they enjoy special job security. An employer may not terminate the labor contract of a trade union representative without justifiable cause being indicated clearly and precisely. Any circumstance under which the terminating party cannot in good faith be expected to continue the employment relation is in particular deemed justifiable cause (OA, Article 435 /2). In case of a dismissal, the trade union representative or his union has the right to apply to the competent labor court demanding reinstatement regardless of the length of his service and the number of total employed in the workplace. If not reinstated, his wages and other rights will continue to be paid as long as he retains the title. The employer can neither change the trade union representative's workplace nor make substantial amendments in his conditions of work without his written consent. A collective dismissal (toplu i$ten r;ikanna) exists where at least 10 workers out of 20-100 total employed, or at least 10 % of the total employed between 101-300, or at least 30 out of 301 or more workers are dismissed on notice at the same time or different times during a period of one-month (LA, Article 29). Procedures pertaining to projected collective dismissals include information-sharing and consultation but there is no legally provided social selection procedure. This provision draws on the ILO Cl58 and Council Directive 98/59/EC of July 20, 1998 on the approximation of the laws of the Member States relating to collective redundancies. 27 Collectively dismissed workers are given special priority by the employer when seeking rehire. A "recall right" is the legal right of collectively dismissed workers to be called back to work by the employer. When the employer is to employ new workers for the same jobs within a period of six months following the collective dismissal, of the collectively dismissed those with the qualifications for the vacancies shall have priority. A substantial amendment made in employment conditions (r;ali$ma ko$ullannda esasli def;i.$iklik) may lead to contract termination. According to the Labor Act, when a substantial amendment in employment conditions established by the labor contract, or similar sources, or consistent workplace practices is desirable by the employer, he has to notify the worker in written form (Article 22). A substantial amendment made misconduct may face additional consequences like criminal prosecution (e.g., bank teller stealing money from the cash drawer) or a civil lawsuit. 27. OJ Aug. 12, 1998, L 225, 16-19.

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without a notification or a notification objected in written form by the worker shall not be binding on the worker. If the worker objects to amendment, the employer may make a dismissal on notice claiming that the amendment is based on a valid reason or that there is another valid reason for termination. The worker may challenge dismissal according to protections provided for workers with regular or increased job security. If the worker is not paid his wage or paid a lesser wage or if the conditions of work are not applied, then the worker shall have the right to resign for a just cause, and is entitled to severance pay (Article 24/2 e, f). A substantial amendment in employment conditions such as being assigned to an undesirable shift, or moved to a different location or subjected to unfair hostility or degrading working conditions may amount to "constructive dismissal" (contrived resignation), another form of wrongful termination. For the purposes of not being sued for termination and not to pay severance pay, companies may wish for a worker to exit of his own accord on notice and therefore use forms of manipulation, hoping that he will leave "voluntarily". Constructive dismissal is not easy to prove. If the worker quits on notice as a result of such a manipulation, he shall not be entitled to compensation including severance pay and there is no legal rule on converting such a resignation into unfair termination by the employer. However, when the reason for termination is unclear, it is up to the court to find out the facts and define the type of termination. Resignation (voluntary termination) is employment termination at the initiative of the worker. Depending on the worker's reason, a ·worker may resign on notice or make an instant resignation (resignation for just cause). Personal dissatisfaction with job or employer, confinement, family obligations, moving to a new location, graduation, hire at a new job with better conditions, or establishing their own business are examples of reasons for resignation on notice. A worker making an instant resignation is entitled to severance pay but. there shall be no severance pay upon resignation on notice. This reduces incentives not only to change employers but also to establish own businesses. According to the OECD, severance payment can be a barrier to efficiencyenhancing labor reallocation by discouraging workers from quitting their current jobs to move to better jobs. 28 This problem arises where high tenure workers are entitled to significant severance payments, if they are dismissed from the current job, but lose this entitlement if they voluntarily quit jobs. This is why in Turkey workers refrain from resignation on notice trying to "create incidents" to be dismissed on notice. Severance pay is equal to the last 30 days' gross wage multiplied by the years of employment. Remaining time periods are calculated on a prorated basis. Wage supplements of a continuous character, if any, are also added to the last monthly gross wage. The 30-day-period may be increased through individual and collective labor agreements. To be entitled to severance pay the worker has to have worked for at least a year at the concerned workplace, and there has to be one of the legally specified means of contract termination. During the time of the employment relation and the month following its termination, the worker may not renounce claims which arise from peremptory 28. OECD, Economic Survey of Turkey 2006, OECD Publishing 2006, 70, available at http://www. sourceoecd.org.

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provisions of the law or from binding stipulations of an individual/collective labor agreement (C.O. Article 420). For a renunciation of claims (release of debt) (ibra senedi) to be valid, it has to be in written form, prepared at least a month after contract termination, state explicitly the claims and their amounts, and the payment to be made in whole through a bank. §11.04

[A]

COLLECTIVE LABOR LAW

Formation of Unions

International human rights law establishes the workers' right to organize, and the ILO conventions, recommendations, and jurisprudence further elaborate it. In Turkey, freedom of association (orgiitlenme ozgiirliigu) has a collective aspect in the sense that it is a civil liberty and an individual aspect in the sense that it is recognized as the personal right of each worker. Of the relevant international instruments, Turkey has signed and ratified the Universal Declaration of Human Rights (UDHR), International Covenant on Civil and Political Rights (ICCPR), International Covenant on Economic, and Social and Cultural Rights (ICESCR). The ILO's Governing Body has identified eight conventions as "fundamental", covering four categories that are considered as fundamental principles and rights at work: freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labor (angarya); the effective abolition of child labor; and the elimination of discrimination in respect of emyloyment and occupation. These principles are also covered in the ILO' s Declaration on Fundamental Principles and Rights at Work (1998). The Declaration commits Member States to respect and promote principles and rights in four categories, whether or not they have ratified the relevant Conventions. Turkey has ratified these core conventions, inter alia, ILO C87 concerning Freedom of Association and Protection of the Right to Organize, and ILO C98 concerning the Right to Organize and Collective Bargaining. The UCLAA conforms to the principles of freedom of association (voluntary unionism) (ihtiyari sendikacilrk), industrial unionism (i$kolu sendikaciliffe) and multiunionism (union pluralism) (sendika <;oklugu). Freedom of association has a collective aspect in the sense that it is a civil liberty and an individual aspect in the sense that it is recognized as the personal right of each worker. As regards the individual aspect of freedom of association, union security practices such as closed shop 29 (kapali i$yeri) union shop 30 (sendikali i$yeri) or agency shop 31 (aidat $arti) which make the employment of a worker conditional on his 29. A closed shop is a form of union security agreement under which the employer agrees to hire trade union members only, and workers must remain members of the trade union at all times in order to remain employed. 30. A union shop is a form of a union security clause under which the employer agrees to hire either trade union members or nonmembers but all non-union workers must become union members within a specified period of time or lose their jobs. 31. An agency shop is a form of union security agreement where the employer may hire union or non-union workers, and workers need not join the trade union in order to remain employed. However, the non-union worker must pay a fee to cover collective bargaining costs. The fee paid by non-union members under the agency shop is known as the "agency fee."

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membership, either before or after recruitment, or non-membership in a trade union, are regarded as contradictory with the principle and therefore forbidden by both the Constitution (Article 51) and the UCLAA (Articles 17/3, 25). Everyone holding the title of a worker is free to become a member of or withdraw from membership in a trade union. No one may be compelled to become a member, remain a member, or withdraw from membership in a trade union. Freedom to form or join unions is called "positive freedom of association" and freedom not to form or not to join or to withdraw from membership is called "negative freedom of association." Employment cannot be made conditional on union or non-union membership. Industrial unionism (i$kolu sendikacill[jl.) denotes unionization by industries (work branches, branches of activity). The 20 industries in which unions may be constituted are: Agriculture, forestry, hunting and fishing; food; mining and stone quarries; petroleum, chemicals, rubber, plastics and medicine; textile, ready-made clothing and leather; wood and paper; communication; press, publishing and broadcasting; banking, finance and insurance; commerce, bureaus, education and fine arts; cement, ceramic and glass; metal; construction; energy; transportation; shipbuilding, sea transport, warehouse and storage; health and social services; accommodation and entertainment places; national defense and security; general services (UCLAA, Article 4/1) .32 Trade unions and employers' associations are occupational organizations with corporate status constituted at an industrial level by at least seven workers or employers in order to maintain and further their 'economic and social rights and interests in labor relations (UCLAA, Article 2/lg). Trade unions must be constituted on an industrial basis by workers employed at workplaces in the same industry regardless of their particular trade or craft (UCLAA, Article 3). Work that is subsidiary (yardimci i$ler) to the major activity carried out in a workplace shall be deemed to be within the industry of the major work (UCLAA, Article 4/2). Employers' associations are also to be constituted on an industrial basis by employers in the same industry. Public employers' associations are an exception to the principle of industrial unionism. For employers' associations in the public sector, the condition that these be constituted by public employers in the same industry is not required (UCLAA, Article 3/2). According to the principle of union pluralism, more than one union may be established in each industry. Industrial unions may establish local branches ($Ube) on condition that this is specified in their regulations (sendika ir;tiiziigu) (UCLAA, Article 8 g). Confederations (konfederasyon) are higher organizations having legal entity established by the association of at least five unions operating in different industries (UCLAA, Article 2/lf, 1). In Turkey, on the management side, there is a single employers' confederation (Tiirkiye j$veren Sendikalan Konfederasyonu, TjSK) but on the labor side, there are three workers' confederations: The Confederation of Turkish Trade Unions (Tiirkiye j$r;i Sendikalan Konfederasyonu, TURK-j$), the Confederation of Turkish Real Trade

32. By-law on Industries {j;;kollan YOnetmeltgi), OG Dec. 19, 2012, Nr. 28502.

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Unions (Tiirkiye Hak j$<;i Sendikalan konfederasyonu, HAK-j$], and Confederation of Revolutionary Trade Unions of Turkey (Tiirkiye Devrimci j$<;i Sendikalan Konfederasyonu, DjSK). Turkey has had a history of militant, ideologized trade unionism (anarchosyndicalism) especially in the 1970s. This made the gulf between labor and management very wide. Labor disputes that would have been settled pragmatically by listening to reason and making effective use of social dialogue took on political and ideological overtones. To their own detriment, some of the trade unions still stage demonstrations and strikes as a kind of nostalgic throwback to their days of militancy perceiving themselves as opposition political parties rather than workers' organizations holding interests in common with management. On the other side, there have been and still are some employers using tactics to outmaneuver trade unions. Despite such a history and its repercussions, today there is a higher degree of trust in the attitudes that labor and management hold toward each other. Social dialogue capacitybuilding projects and initiatives to foster mutual understanding are underway. The results they are set to harvest are hoped to mobilize the potential in order to create better social cohesion, stronger growth and more jobs. On the basis of July 2013 labor statistics (<;ali$ma istatistikleri] issued by the Ministry of Labor and Social Security, there are 11,628,806 workers in Turkey. The number of trade unions is 108 and the number of unionized workers (sendikali i$<;iJ is 1,032,166 with a unionization rate (sendikala$ma oram) of 8.88 % . Representation of at least 1 % of the total number of workers in the industry is one of the numerical requirements of being designated as the authorized trade union. Of 108 trade unions, only 44 fulfill this requirement. 33 [B]

Structure of Unions

The general board (genel kuml), managing committee (yonetim kumlu), auditing committee (denetleme kumlu) and disciplinary committee (disiplin kumlu) are mandatory organs of confederations, industrial unions, and union branches (UCLAA, Article 9/1). Unions and confederations may, in addition to these mandatory organs (zomnlu kumllar], establish voluntary organs (ihtiyari kumllar] to meet their needs. However, the powers, functions and responsibilities of the mandatory organs cannot be delegated or transferred to these voluntary organs (UCLAA, Article 9/2). The members of the managing committee are considered union executives (sendika yoneticileri] (UCLAA, Article 2/li). [C]

Union Membership

A worker who has completed 15 years of age is free to join a trade union. Similarly, an employer is free to join an employers' association (UCLAA, Article 17 /1-2). As a result of the principle of industrial unionism, a worker employed in subsidiary works (yardimci i$ler) may join the trade union established in the industry covering his 33. OG Jul. 30, 2013, Nr. 28723.

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workplace (UCLAA, Article 17/4). Where a worker or an employer becomes a member of more than one union in the same industry at the same time, their subsequent membership shall be void. However, part-time workers employed in different workplaces falling under the same industry may be a member of more than one union in the same industry (UCLAA, Article 17/3). Union membership shall be acquired via e-State. The application for membership shall be considered approved if it is not refused by the union within 30 days. Any worker or employer whose application is refused without a valid reason shall have the right to apply to the court within 30 days of receipt of the notification. The decision of the court shall be final (UCLAA, Article 17/5). Workers and employers cannot be forced to remain as union members; they are free to resign from membership. Resignation is possible via e-State by means of which the concerned union and the Ministry of Labor and Social Security shall be notified at the same time. Resignation shall become effective with the elapse of a one-month period following e-notification. If the resignee applies for a new union membership within this one-month period, it shall become effective at the end of this period (UCLAA, Article 19/1-3). It is the general board that can take a decision to expel a member. Ministry of Labor and Social Security shall be notified of the expulsion decision via e-State and the expelled member via a written notification. The expelled member may contest the decision at the court. Membership continues until finalization of the expulsion order (UCLAA, Article 19/4). Simplified procedures for acquisition and termination of union membership via e-State will become effective on November 7, 2013 (By-law, Article 14/la). 34 Anti-union discrimination is deemed a violation of freedom of association. The UCLAA prohibits anti-union discrimination at the time of recruitment, during the course of employment, and at the time of employment termination. Employers are prohibited from discriminating between union and non-union workers or workers who are members of another trade union. Employers cannot discriminate against workers involved in trade union activities outside working hours or during working hours with the employer's permission (UCLAA, Article 25/1-3). Where an employer makes contract termination for a union-related reason, the worker with increased job security shall be entitled to apply to the court claiming "unionism compensation" equal to basic annual wage and/or reinstatement (UCLAA, Article 25/5-6). If the worker does not want to continue working at the concerned place of work, he may ask only compensation. The court shall rule for compensation for the worker with increased job security; this is independent from being reinstated by the employer or not. 35 If a union-related reason is claimed as the cause of dismissal, the

34. By-law on Acquisition and Termination of Union Membership and Collecting Dues (Sendika Uyelifjnin Kazamlmas1 ve Sona Ermesi ile Uyelik Aidatmm Tahsili Hakkmda Ydnetmelik), OG Jul. 09, 2013, Nr. 28702. 35. Mustafa K1lu;:oglu, 6356 Say1li Sendikalar ve Toplu j~ Sdzle;miesi Kanunu Yorumu, Ankara 2013,192-200.

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burden of proof shall shift to the employer. It shall be the employer who proves the existence of another reason for contract termination. A worker with regular job security may also be dismissed for a union-related reason. Whether such a worker shall be entitled to unionism compensation like a worker with increased job security or bad-faith compensation is a contentious issue in the doctrine. 36 [D]

The Scope and Level of Collective Labor Agreements

Representative and institutional capacity of the social partners involved has an impact on the efficiency and effectiveness of the national industrial relations that in turn affects the political and economic development of the country. The UCLAA as the new law on unions and collective labor agreements regulates framework, workplace, undertaking, and group collective labor agreements. This means that a collective labor agreement may be concluded at four different levels: Framework agreement (i;:en;eve sdzle~me) is an industrial level collective labor agreement concluded between trade unions and employers' associations which are members of workers' and employers' confederations represented in the Economic and Social Council (UCLAA, Article 2/lb; 33). Unaffiliated industrial unions are devoid of such a right. The Turkish Economic and Social Council (ESC) 37 is one of the main multi-party social dialogue mechanisms comprising various social groups and the government. The chairman is the prime minister. Apart from the government representatives, the Council has three groups of members, those representing employers, the employed (workers and civil servants), and tradesmen, craftsmen and farmers. ESC is to ensure the participation of the various social partners in governmental economic and social policies, to promote consensus and cooperation both between the government and these groups and among these groups themselves. All three workers' confederations, TURK-i$, HAK-i$, and DiSK, and the employers' confederation, Ti SK, are represented in the Council. A framework agreement has a voluntary basis and it shall be concluded, upon the invitation of one of the industrial unions and the acceptance of other, for no less than one-year and no more than three years. A framework agreement may have provisions on vocational training (mesleki e@tim), occupational health and safety (i~ saglr@. ve giivenli@), corporate social responsibility (sosyal sommluluk) and employment policies (istihdam politikalan).

When a collective labor agreement is concluded at the level of a single workplace, it is called a workplace (local) collective labor agreement (i~yeri toplu i~ sozle~mesi) (UCLAA, Article 34/1). A workplace agreement may be concluded between a trade union and the employer. On the employer's side, there may be an unaffiliated employer (sendika iiyesi olmayan i~veren) or an employers' association representing the employer. 36. Klhi;:oglu, 297. 37. Law on the Establishment and Working Principles and Procedures of the Economic and Social Council (Ekonomik ve Sosyal Konseyin Kurulu,m, (:all,51Tla Es as ve Ydntemleri Hakkmda Kanun), Law Nr. 4641, OG Apr. 21, 2001, Nr. 24380.

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A real person or a legal entity or a public entity may have more than one workplace in the same industry. In such a case, there cannot be separate workplace collective labor agreements for these workplaces owned by the same employer. These workplaces in the same industry shall constitute the level of an undertaking collective labor agreement (i$letme toplu i$ sozle$mesi) (UCLAA, Article 2/ld, 34/2). As can be seen, the term undertaking is not used in its technical sense; the important point is being in the same industry, an economic and technical unity between the workplaces belonging to the same employer is not required. A group (workplaces) collective labor agreement (grup toplu i$ sozle$mesi) is one concluded at the level of various workplaces and undertakings in the same industry (UCLAA, Article 2/li;;, 34/3). For various workplaces and undertakings to be grouped together as a bargaining unit, the employers of grouped workplaces and undertakings must be represented by the same employers' association and the majority of workers by the same trade union. Unaffiliated employers cannot be a party to a group collective labor agreement.

[E]

Competence and Authorization

It is for the competent and authorized trade union to conclude the collective labor

agreement (UCLAA, Article 41). Competence (ehliyet} is a prerequisite for authorization (yetki). Confederations do not have competence to conclude collective labor agreements. A trade union has competence for those workplaces and undertakings in the industry in which it is founded. There are two numerical requirements for authorization. To be the authorized trade union (yetkili sendika) (majority union; the most representative union), as well as representing at least 1 % (1 % until January 1, 2016 and 2 % until July 1, 2018 and 3 % thereafter) of all those employed in the industry, more than 50% of the workers employed in the workplace must be represented. In an undertaking collective labor agreement, the workplaces belonging to the undertaking shall be considered as a whole and the trade union representing more than 40% of workers shall be the authorized one. Authorization procedures 38 for a new collective labor agreement may start 120 days prior to the termination of the existing one. However, the new agreement may not go into effect prior to expiration of the previous one (UCLAA, Article 35 /4). The trade union that considers itself authorized shall make an application in writing to the Ministry of Labor and Social Security requesting that it be determined as the authorized trade union (UCLAA, Article 42/1). In order to determine the applicant trade union as the authorized union, the Ministry must refer to its own statistics that are published in the official gazette in January and July each year. If the Ministry finds that the numerical requirements have been fulfilled, a determination notice (tespit yazisi) so specifying will be given to the applicant trade union. An unaffiliated employer or an employers' association wanting to conclude a collective labor agreement may also apply to the Ministry requesting the determination of the authorized trade union. The 38. K1!11;:oglu, 41-45.

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determination notice may be challenged by the concerned employer or employers' association or other trade unions formed in the same industry provided that they represent at least 1 % of the total number of workers employed in the industry (UCLAA, Article 43). If the determination notice has not been challenged or if the competent court has rejected such a challenge, the trade union shall be given an authorization document (yetki belgesi) by the Ministry (UCLAA, Article 44).

[F]

Collective Bargaining

Collective bargaining (collective negotiations) (toplu pazarllk) is a condition sine qua non of industrial relations. The essence of collective bargaining is dispute settlement, i.e., the resolution of conflicting views into a workable compromise. In Turkey, as in most countries, different settlement procedures apply to different types of labor disputes (i$ uyu$mazhklan) and consequently the legislation and collective labor agreements distinguish between these different types. The two most prevalent types of classification are those distinguishing rights disputes (hak uyu$mazllklan) from interests disputes (r.;ikar/menfaat uyu$mazliklan) and individual labor disputes (bireysel i$ uyu$mazliklan) from collective labor disputes (toplu i$ uyu$mazllklan). The distinction between interests disputes and rights disputes is based on the nature and subject matter of the dispute, whereas the distinction between individual and collective disputes is based on the parties to the dispute. Collective bargaining is the central concern of labor policy in collective interests disputes. Collective bargaining is the first phase in the formation of a collective labor agreement. This phase is compulsory in the sense that the parties have to pass through this phase and discuss their differences trying to reach a collective labor agreement, and voluntary in the sense that the parties are not compelled to reach an agreement. Thus, the collective bargaining may end without an agreement. One of the parties to collective bargaining has to invite (request) the other party to negotiations (toplu gorii$meye r.;agn) within 15 days following receipt of the authorization document to initiate the formation of a collective labor agreement (UCLAA, Article 46/1). If a request is not made within the prescribed period, the authorization document shall lose its validity (UCLAA, Article 46/2). The inviting party must hand over all its proposals to the other party within the 15-day period. However, the parties reserve the right of making changes in their proposals during the negotiations (UCLAA, Article 46/3). It is the parties themselves that agree upon the place, date and time of negotiations and inform the responsible office thereof. If they cannot reach an agreement, then it shall be the responsible office (gorevli makam) to make the determination upon the application of one of the parties (UCLAA, Article 47 /1). The responsible office is, in general, the local office of the Ministry of Labor and Social Security, i.e., the Provincial Directorate of Labor and Employment Office ((;all$ma ve j$ Kurumu jzMiidiirliigu). Only when there is a group collective labor agreement covering workplaces and undertakings that fall within the jurisdiction of different provincial directorates, the responsible office shall be the Ministry (UCLAA, Article 2/lc).

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§ll.04[H]

Collective bargaining takes 60 days starting from the date of the first meeting (UCLAA, Article 47 /3). [G]

Mediation

The phase of mediation follows the phase of collective bargaining. Like collective bargaining, this phase is compulsory in the sense that the parties are compelled to pass through this phase, but voluntary in the sense that the parties are not obliged to reach an agreement. In Turkey, the term mediation has been used in a manner consistent with its etymological origin denoting a strong form of intervention by the third party, the mediator (arabulucu). The mediator will expend every effort to have the parties reach an agreement and may propose solutions to the parties. If either of the parties fails to attend the first meeting of collective negotiations or attends but does not start negotiations, or discontinues attending after negotiations start, or if no agreement is reached within the period specified for collective bargaining, either of the parties informs the responsible office of the deadlock. If the responsible office is not informed, the authorization document shall become ineffective (UCLAA, Article 49). The responsible office, upon being informed, shall assign a mediator from the official list of mediators (resmi arabulucu listesi) (UCLAA, Article 50/1). The duration of mediation is 15 days but with the consent of the parties this term may be extended, by at most six working days (UCLAA, Article 50/3). If the mediator obtains the agreement of the parties, mediation shall end with the formation of a collective labor agreement. If an agreement is not reached, the mediator prepares a record of proceedings, including his recommendations and proposals to resolve the dispute, and submits it to the responsible office. The responsible office will forward copies of this record to the parties and responsible office (UCLAA, Article 50/5). Now, there may be recourse to industrial action, but if there is a prohibition of industrial action, the dispute will be settled through private or compulsory arbitration or through an agreement reached by the parties after mediation. Private arbitration (ihtiyari/ozel tahkim) is a peaceful settlement procedure for collective interests and rights disputes. The arbitrator's award is binding on the parties. The arbitrator's award in collective interests disputes (contract arbitration) (menfaat/r;ikar uyu$mazliffe hakemligi) has the nature of a collective labor agreement and in collective rights disputes (grievance arbitration) (hak uyu$mazliffe hakemligi) the nature of a court decision. Although there is no legal prohibition, the Court of Cassation does not allow private arbitration in cases of individual rights disputes. 39 [H]

Industrial Action and Its Consequences

Strikes (grev) and lockouts (lokavt) are the only means of industrial action that may be conducted in case of collective interests disputes with an occupational cause (mesleki amar;). Because existence of an occupational cause is a requirement for legality, 39. K1ll<;:oglu, 294-296.

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§ll.04[H]

politically motivated strikes (siyasi grev), solidarity strikes (dayam$ma grevi), occupation of work premises (i$yeri i$gali), labor slowdowns (i$i yava$latma), decreasing production (iiretimi/verimi azaltma) and other forms of obstruction are prohibited (UCLAA, Article 58/2). The authorized trade union can call a strike following the completion of the phases of collective bargaining and mediation with no agreement. A decision to call a strike may be taken in 60 days following receipt of the mediator's report and put into practice within this period, and the date of commencement of the strike shall be communicated to the other party six working days before. If a decision to call a strike is not taken or its date is not communicated to the other party within specified periods, the trade union's authorization shall become invalid (UCLAA, Article 60/1). The employer or the employers' association is to be notified of the decision to strike through a notary (UCLAA, Article 60/5). After being notified of the decision to strike, the unaffiliated employer or the employers' association may take a decision to order a lockout within 60 days following the notification and have it implemented by informing the trade union of its commencement date six working days beforehand (UCLAA, Article 60/2). Decision to strike or lockout has to be posted immediately at the struck workplace(s) (UCLAA, Article 60/5). Recourse to industrial action will not be possible if there is a permanent or temporary prohibition of industrial action, postponement of industrial action, or a no-strike decision in a strike vote. Industrial action is permanently prohibited in the following works and workplaces: Preservation of life or property; hospitals; funeral services and in cemeteries; urban water, electricity and gas; exploration, production, processing and distribution of natural gas and petroleum; petrochemical work starting from naphtha and natural gas; banking services; fire fighting; and urban sea, land and railway and other mass transportation services on rail provided by the public sector; workplaces run directly by the Ministry of National Defense, the General Command of Gendarmerie and the Coast Guard Command (UCLAA, Article 62/1). In the case of a permanent prohibition, one of the parties may refer the dispute to the Supreme Arbitration Board (Yiiksek Hakem Kurulu) within six working days after receiving a copy of the mediator's record of proceedings sent by the responsible office. If there is no application, the trade union shall lose its authorization. The decision of the Supreme Arbitration Board will have the nature of a collective labor agreement and be binding for the parties (UCLAA, Article 51). This is called compulsory arbitration (zorunlu tahkim). The parties may also decide, through mutual agreement, to refer the dispute to private arbitration (UCLAA, Article 52). A temporary prohibition of industrial action exists where the life of the community is paralyzed by a natural disaster. The Council of Ministers may, limited to such areas and the period of effect of the case, prohibit industrial action in workplaces deemed necessary. The lifting of the prohibition shall be subject to the same procedure. Industrial action may be initiated within 60 days of lifting of the decision by informing the other party six working days beforehand (UCLAA, Article 62/2). Also, industrial action may not be conducted in sea, air or land transportation vehicles which have started but have not completed the journey to domestic terminal points (UCLAA, Article 62/3).

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Any legal strike or lockout that has been called or implemented may be postponed (grev ve lokavtm ertelenmesi) by a decree of the Council of Ministers for 60 days if it has the nature of endangering general health and national security (UCLAA, Article 63). A suit for the annulment of the decree may be brought in the Council of State and an injunction order (yiiriitmeyi durdurma karan) may be demanded. Following the issuance of the postponement decree, the Minister of Labor and Social Security himself or a mediator designated from the official list of mediators, shall make every effort for the settlement of the dispute during the postponement period. If the parties have neither reached an agreement nor referred the case to private arbitration by the date the postponement period ends, one of the parties shall apply to the Supreme Arbitration Board for the resolution of the dispute. Otherwise, the trade union shall lose its authorization. If one fourth of the workers employed in the workplace at the time of posting of strike decision apply in writing to the responsible office requesting a strike vote (grev oylamasi), there shall be a vote within six working days following this application (UCLAA, Article 60/S). If an absolute majority of the voters decides against the strike, the strike decision shall not be implemented. Here, the parties have to reach an agreement or the trade union has to apply to the Supreme Arbitration Board. In default thereof, the trade union shall lose its authorization. The workers, whether members of the authorized trade union or not, are completely free to join or not to join the strike. Freedom to work is protected and those who refuse to join the strike or have joined but decided to abandon the strike can in no way be barred by strikers from working at the struck workplace. Rights and obligations emanating from the labor contracts of striking workers shall remain suspended (askiya almma) throughout the strike.

[I]

The Duration, Effect and Termination of Collective Labor Agreements

Either through peaceful means or industrial action, a collective labor agreement shall finally be reached by the parties. With the formation of the collective labor agreement, the authorized union becomes the signatory union (taraf/akit sendika). The collective labor agreement is an industrial peace treaty and at the same time a normative treaty between social powers: the trade union and the employer or employers' association. The collective labor agreement is the outcome of "joint management" or "industrial self-government." This written agreement reflects a joint understanding covering wages, hours, fringe benefits, work rules and a number of "non-economic matters," such as seniority, grievance procedures or union representation. A collective labor agreement shall be formed for a specified period of not less than a year and not more than three years. Once it is formed, the parties to a collective labor agreement become unable to amend its duration. Where a collective labor agreement is to apply to work that is due to last for a period of less than a year, the agreement may cover a period of less than a year. But, if the work is not completed, then the collective labor agreement remains valid until the end of one-year (UCLAA, Article 35/1-3).


§ l l.04[I]

The date of formation and the effective date of a collective labor agreement may be the same or different. A collective labor agreement may become valid on the day it is formed or an earlier date may be prescribed as its effective date. The day following the expiration date of the previous collective labor agreement may be prescribed as the earliest effective date (UCLAA, Article 35/4). The members of the signatory trade union benefit from the collective labor agreement. Of these workers, those who were members on the formation date benefit starting from the effective date; those who join the signatory union subsequently benefit starting from the date on which the employer is informed of their membership by the signatory union. A member worker whose labor contract gets terminated between the formation and effective dates of the new collective labor agreement may benefit from the agreement until termination of his labor contract (UCLAA, Article 39/3). Workers who are not members of the signatory trade union may benefit from the agreement through paying solidarity dues (dayam?ma aidati). These workers benefit from the agreement starting from the day on which they notify the employer of their intention to pay dues. Benefiting starts from the day on which they notify the employer of their intention to pay dues. Due to the principle of voluntary unionism, the approval of the signatory union is not required. The amount of s_olidarity dues is to be specified in trade union regulations provided that it cannot exceed the membership dues (UCLAA, Article 39/4). Extension is a process of extending a collective labor agreement to workplace(s) without one (UCLAA, Article 40). At the request of a trade union, employers' association or an unaffiliated employer in the same industry, the Council of Ministers may extend the collective labor a:greement concluded by the trade union representing the majority of workers in that industry to workplace(s) in whole or in part or by making amendments it deems necessary. Collective labor agreements are enforced as binding contracts in accordance with the Roman adage pacta sunt servanda. Collective labor agreements have an erga omnes effect. A collective labor agreement is binding not only on its signatories but on the groups they represent. A collective labor agreement has an automatic and compulsory effect on individual labor contracts. Substantive provisions are automatically incorporated into individual labor contracts (UCLAA, Article 36). The parties are obliged to refrain from any industrial action during the effective period of the agreement. A peace obligation arises as a collective obligation from the "contractual function" of the collective labor agreements. This obligation is an absolute one obliging the parties to refrain from all industrial action for the duration of the collective labor agreement. Interpretation and implementation of collective labor agreements are entrusted to labor courts. Disputes may arise during the course of a collective labor agreement. There may be a violation of the established rules or an interpretation dispute (yomm uyu?mazligi). Such disputes are collective rights disputes, and they are to be settled through peaceful means, adjudication (as suits over interpretation and suits for payment) (yomm davasi; eda davasl) (UCLAA, Article 53) or private arbitration (UCLAA, Article 52).

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Nurhan Siiral & Mustafa Kdiyoglu

Selected Bibliography K1hc;oglu, M., 6356 Sayilz Sendikalar ve Toplu j~ Sozle~mesi Kanunu Yorumu, Ankara 2013. K1hc;oglu, M. & $enocak, K., j~ Kanunu $erhi, 3rd ed., istanbul 2013. Dereli, T., "Labor Law and Industrial Relations in Turkey'', in International Encyclopaedica for Labor Law and Industrial Relations, 4th ed., edited by R. Blanpain, 2012. OECD, OECD Economic Surveys Turkey, Paris 2012. Pennings, F. & Siiral N. (eds.), Flexibilisation and Modernisation of the Turkish Labor Market, 2006. Sur, M., "General Framework and Historical Development of Labor Law in Turkey". Comparative Labor Law and Policy Journal 30, no. 159, 183-197. Turunc;, N. & Sur, M., Turkish Labor Law, izmir 2010.

I

184

CHAPTER

12

Tax Law Ahmet Kumrulu & Billur Yalti *

§ 12.01

INTRODUCTION

The concept of tax is thoroughly studied in works on public finance. Assuming it to be known, we shall proceed with a definition developed in view of legal theory (developed with a legalistic approach): Taxes are compulsory contributions levied by the state based on its sovereignty over persons, property, income, commodities and transactions. In modern state tax law, it appears as the branch of law which studies the rules governing the tax relationship, as well as establishing a balance between the legal interests of the parties involved. In this chapter, after a brief look at historical developments, the basic principles, rules and institutions underlying Turkish tax law will be discussed briefly. The following section will contain a general analysis of the primary taxes in force today in the Turkish tax system. Since the founding of the Republic, the most fundamental attempts to reform the Turkish tax system were achieved by the adoption of certain laws in 1949 which came into force in 1950. This attempt is considered as a milestone in the modernization of the system. The three laws passed in 1949 include the Income Tax Act (Gelir Vergisi Kanunu, ITA); the Corporate Tax Act (Kurumlar Vergisi Kanunu, CTA) and the Code of Tax Procedures (Vergi Usul Kanumi, CTP). This process of legislation was followed by frequent amendments. In 1984, another major change was introduced to the tax system by adhering to the Value Added Tax (VAT) model in the field of turnover taxation, to begin in 1985 (Katma Deger Vergisi Kanunu, VATA). The Income Tax Act and CTP are still in force today. However, in 2006, the Corporate Tax Act was totally rewritten and most of its provisions were retroactively applied as of January 1, 2006, * Prof. Dr. Ahmet Kumrulu: Faculty of Law, University of Ankara. Prof. Dr. Billur Yalt1: Faculty of Law, Km;: University, Istanbul.

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Ahmet Kumrulu & Billur

whereas provisions on transfer pricing entered in to force on January 1, 2007. The new Corporate Tax Act does not represent an ultimate change in corporate taxation; instead it is consistent with the prior CTA, preserving the past applications in a coherent way, nevertheless establishing a new legal and fiscal environment compatible with the current needs of the globalized world economy by introducing provisions on such matters as transfer pricing or controlled foreign company legislations. Today the main features of the Turkish tax law system can be described as being constructed in principle on Continental law. As for substantive law, the acts that make up the skeleton of the system are derived mainly from German legislation and VAT can be said to be based in principle on the present EU model. The three codes which constitute the main legislation (CTP); Code on the Collection of Public Claims (Amme Alacaklannm Tahsil Usulii Hakkinda Kanun, CCPC); Code on the Procedures of Administrative Adjudication (Mari Yargzlama Usulii Kanunu, CPAA)) concerning procedural law are based mainly on the German and French systems. To sum up, the present tax system has the legal characteristics of a contemporary fiscal system. Though the existing tax structure may be criticized on certain grounds, the system as a whole may be qualified as being quite capable of adjustment with minor changes, in view of, for example harmonization with EU legislation. §12.02

[A]

A SURVEY OF GENERAL PRINCIPLES AND INSTITUTIONS

Tax Law Classification

Tax law, per se, can be classified as general tax law and special tax law. In this classification the latter may also be considered part of the Turkish tax system. In its general provisions, tax law's main principles and the rules underlying this legal discipline and pertaining to all taxes and other fiscal charges are studied together with related institutions. Through special provisions, various taxes are studied analytically with reference to the respective laws by which they are levied. Below, in part II, various issues of general tax law are discussed briefly, and in section §12.03 taxes are studied within the scope of the special provisions of Turkish tax law. Another classification may be based on the distinction between substantive tax law and procedural tax law. In substantive tax law, such basic topics as the rules concerning the emergence and cessation of tax liability are studied; whereas in procedural tax law the ways and means of realizing rights, powers and liabilities are dealt with. Tax law may also be studied in terms of other subdivisions such as the law of taxation procedures, the law of tax enforcement, the penal law of taxation and tax jurisdiction. In this section while various topics of general tax law, pertaining both to substantive law and procedural law are examined, some will be touched upon within the scope of the above mentioned subdivisions of tax law.

Chapter 12: Tax Law [B]

§12.02[B]

Sources of Law

Turkish tax law is in principle statutory. This characteristic is a consequential requirement of the constitutional maxim of "legality of taxes" (vergilerin kanunilif;i ilkesi). It may therefore be easily asserted that the scope of custom and usage is almost none, or very minor. This is also true of judge made law. Only in some cases pertaining to procedure where the provision of the law is unclear or there is a legal gap within the law, may the judge render a decision by taking into consideration the general principles of law. The sources of Turkish tax law are listed below in a hierarchical order. Most of these sources are common to all branches of law. Here only some of them with their characteristics pertaining to tax law will be discussed briefly. [1]

Binding Sources

[a)

Primary Legislation

The Constitution as the fundamental source of law i$ binding on all parts of the government. Taxes can only be raised with the assent of parliament (Const. Article 73). This is a restriction on the power of the state to levy taxes. Laws on taxation must conform to all the provisions of the Constitution. The maxim of the legality of taxes and the principle of the rule of law prohibit "tax by analogy" in taxation and the retroactivity of tax laws. The constitutional principle of legality of administration is binding on the tax administration in all its acts of assessment. Universality and equality in taxation are to be heeded within the principle of justice. In the context of rule of law, the maxim of equality in taxation means the horizontal equality of taxpayers with the same ability to pay are to be taxed equally. Another principle prescribed by the Constitution is the principle of the "welfare state". While envisaging social justice, it also requires people with different economic capacities to be taxed differently, with the aim of vertical equality. These principles require progressive income tax rates and the taxation of wealth. However, tax laws should not restrict fundamental rights and liberties to an extent inconsistent with the requirements of a democratic order. The Constitution prescribes judicial review of the constitutionality of laws, hence tax laws lie within the scope of this review and they may be invalidated by the Constitutional Court if they provide for any infringement of the Constitution. International treaties signed and duly ratified become a part of national legislation. When their texts contain provisions contrary to Turkish law, they have priority and their constitutionality cannot be challenged. Turkey has signed and ratified about 81 bilateral agreements for the avoidance of double taxation. In these texts as a rule the state of residence is accepted as the state empowered for imposition and the two methods of avoidance, relief by way of exemption and deduction, are adhered to. Among the international multilateral tax agreements to which Turkey is a party either as signatory or participant in preparation are the OECD Draft Double Taxation Convention on Income and Capital (OECD Model Tax Convention) and the UN Model

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§12.02[C]

Convention for Tax Treaties between Developed and Developing Countries. Turkey's reservations to some of the provisions of these treaties have contributed to major changes in their texts. [b]

Secondary Legislation

Regulations, bylaws and statutory decrees (kanun hiikmiinde karamameler) are the ordinary forms of secondary legislation with no special characteristics as regards tax law. On the contrary, statutory and special governmental decrees on tax issues are instruments with some aspects particular to tax law that need to be elaborated. In Turkish law, within the rule making power of the executive, the Council of Ministers may have with the power to issue statutory decrees. Under the Constitution basic rights and freedoms, including political rights, are not within the scope of the executive's power to enact statutory decrees unless there is a declaration of martial law and a state of emergency. Because the primary article on taxation in the Constitution (Article 73) is situated among the provisions on political rights, tax matters cannot be regulated by statutory decrees other than at times of martial law or a state of emergency. Consequently, statutory decrees have a limited function as a source of tax law. The Constitution, on the other hand, empowers the Council of Ministers to amend the rates, exemptions and deductions in taxes, duties and fees and similar financial impositions within the limits prescribed by law (Article 73). This power of the Council of Ministers is used by issuing special decrees within the scope of the said article. The executive annually and widely uses these special governmental decrees. [c]

Judicial Source of Law: Unifying Decisions of Courts

The unifying decisions of higher courts (i<;tihadi birle~tirme kararlari) are the only judicial source of law among the binding sources of tax law. As regards tax matters it is in principle the Council of State (Dam~tay) which is the high administrative court with the authority to render unifying decisions, but in the case of tax crimes, the Court of Appeals (Court of Cassation, Yargitay) is empowered to render decisions.

[CJ

Non-binding Secondary Sources of Law

[1]

Administrative Decisions

This category includes documents of an administrative character issued by the Ministry of Finance which are explanatory rather than regulatory (announcements, general circulars, etc.).

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Chapter 12: Tax Law [2}

§12.02[D]

Court Decisions and Jurisprudence

In tax law, the non-binding decisions of courts and of scholarly publications may be of a guiding nature.

[D]

Parties to the Tax Relationship

[1}

Taxpayer (Yiikiimlii)

The taxpayer is the debtor liable to pay the tax due, as a result of being within the scope of any tax act. Individuals and legal persons may be liable to taxes. A person's nationality is not the dominant factor for liability; nationals and foreigners are generally subjected to all impositions. Turkish tax acts, as a rule, accept the principle of territoriality, which in most cases is applied in accordance with the principle of residence. Sometimes to be domiciled in Turkey is treated as the basis of liability, whereas in some cases certain provisions of tax acts may follow Turkish citizens abroad in accordance with the principle of nationality. Persons, as subjects of rights, are liable to any tax and in this sense full capacity is not a requirement in tax law. Individuals with limited capacity and minors may also be subjected to any tax as a consequence of the sole basis of liability accepted in Turkish tax law, that is the "ability to pay". Legal persons such as societies, foundations and business associations are other categories of taxpayers. Foreign companies are subject to Turkish legislation. Turkish public corporate entities (public legal persons) are generally exempted from taxes. In some cases, even being a "legal person" is not required for liability. Partnerships, joint ventures, and the economic enterprises of societies and foundations are such taxpayers under the Corporate Tax Act. The CTP sets forth provisions envisaging tax liability even if the chargeable event is forbidden by law (CTP, Article 9/2). For instance, illegal trading creates tax liability for the person involved. [2}

Tax Claimant (Vergi Alacaklm)

The state, having the power by virtue of its sovereignty to levy taxes, is the principal claimant in the tax relationship. The Ministry of Finance has the authority and responsibility to collect all taxes, duties and fees that enter the general budget. Within the Ministry, it is the General Directorate of Revenues which is the department that engages in such collection. In this structure, Regional Directorates of Tax Offices and local tax offices are the authorities empowered for the assessment and collection of specific taxes. The constitutional right of the state to levy taxes may be delegated to some public corporate bodies. Within the principles of intergovernmental fiscal relations, the right to assess and collect some taxes, fees and duties is delegated to local authorities. In this

§12.03[A]

Ahmet Kumrulu & Billur Yalt1

context, provincial local administrations (il ozel idareleri) and municipalities (belediyeler) are empowered to collect certain taxes. [3]

Tax Responsibility (Ve:rgi Sommlulugu)

Besides the taxpayer, the debtor sector includes persons who, in their capacity as a result of a certain status, are held responsible by the tax administration for the collection of the tax debt of the real taxpayer. People in the status of responsibility therefore are not the actual debtors, but they are required to perform the necessary acts and pay the tax due by the taxpayer. Failure to fulfill these assignments leads to sanctions for those held responsible in the same manner as the taxpayer. Legal representatives of real persons and of legal persons, and in the case of withholding taxes, employers, are persons with the responsibility to collect taxes. [4]

Third Parties

Some people who are not the taxpayers for a specific tax debt or have the status of tax responsibility, may, by tax law, be assigned as third parties to obey certain rules and perform duties required for the sake of correct assessment. For example, someone who got involved in an economic relation with the taxpaye~ may be required, though not the real debtor of the tax in question, to yield information to the tax office concerning the taxpayer. In such cases, a failure to obey by the assignee is a crime. §12.03

THE TURKISH TAX SYSTEM IN GENERAL

In this section some of the main.taxes in the Turkish tax system will be described with their most general legal characteristics. The purpose of this section is to get acquainted with these taxes without going into the intricacies of the laws. [A]

Classification of Major Taxes

The main taxes prevailing in the present system can be enumerated in line with a classification made according to the taxable assets or economic source on which they are levied. There are three taxes which, due to their relative importance in total budget revenues and also to their nature reflecting the theoretical foundations of the tax system, will be dealt with here: Income tax; corporations tax and VAT. However, among these three, it is the income tax, which will be emphasized, as it constitutes the backbone of the system. Below the anatomy of the said three taxes, their basic elements receive further attention: taxable matters (konu); taxable events (vergiyi doguran olay); taxpayers (yiikiimlii); tax base (matrah); and tax rate (oran).

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Chapter 12: Tax Law

[B]

Taxation of Individual Income: Income Tax

Individual income is subjected to a tax in line with the provisions of the Income Tax Act (ITA, Gelir Vergisi Kanunu, Nr. 193, dated 1960). Real persons earning income within the scope of Articles 1 and 2 of ITA are liable to this imposition. [1]

Taxable Matters

Taxable matters are transactions, profits, assets or anything else that is deemed liable to tax according to law. The Income Tax Act defines taxable matter as follows: "Incomes of real persons are subjected to income tax. Income is the net total of all earnings of a real person obtained in one calendar year". Subsequent to the definition of income in Article 1, the Income Tax Act prescribes the items to be taxed within the concept of income (ITA, Article 2). These items are: profits from trade (ticari kazani;lar), agricultural profits (zirai kazanc;lar), wages, salaries and fees from employment or an office (iicretler), profits ofliberal professions (serbest meslek kazanc;lan), income from self-employed non trade activities, income from professional activities, earnings from immovable property (gayrimenkul sermaye iratlan), income from lettings, rental income from real property, earnings from movable capital (menkul sermaye iratlan), interest income, dividend income and other profits and income. The following items of income comprise earned income, investment income and capital gains and can be categorized as business income, income from labor and income from wealth. The main characteristics of income may be deduced from the definition prescribed by the Income Tax Act as follows (ITA, Article 1): (i) (ii) (iii) (iv) (v)

Income of real persons is charged under the IT A. Income is taxed on an annual basis. Income is charged on its net amount. The real amount of income is subject to tax. Income is taxed as an aggregate.

It should immediately be pointed out that the five characteristics cited above reflect the

principles underlying the concept of income. The Income Tax Act however, in its subsequent provisions, prescribes exceptions to these principles and in some cases these exceptions reach a scale where the principle itself becomes an exceptional provision and the exceptions are transformed into the rule. [2]

Taxable Event (Vergiyi Doguran Olay)

The event that creates liability is "to receive" income. For business profits (trade profits and agricultural profits) earning income is prescribed by the Income Tax Act on an accrual basis (tahakkuk esasi) and for other items of income on a cash basis (tahsil esasi) as a rule.

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§12.03[B] [3]

Taxpayer

Real persons who are recipients of income are liable for income tax. Nationality does not, in principle, make any difference for liability. Hence foreigners, as well as Turkish nationals, are subjected to the tax. The Income Tax Act sets forth provisions for two sorts of liability, which pertain to the determination of the aggregate taxable income of the taxpayer. The said two sorts of liability are not, as a rule, based on the principle of nationality. The distinction between them aims at determining whether the items of income earned abroad are to be included in the tax base of the taxpayer or not. Those taxpayers considered to be in the status (capacity) of full liability are taxed on the aggregate of their income earned within Turkey and abroad (worldwide basis). Taxpayers with limited liability, on the contrary, are taxed only on their income earned within Turkey (domestic basis). The criterion used for the distinction between the two sorts of liability is not, as a rule, the principle of nationality, but the principle of residence. Those resident (or considered to be resident) in Turkey, either Turkish nationals or foreigners, are subject to full liability and taxpayers non-resident in Turkey, whether of Turkish nationality or not have limited liability. In the case of full liability taxes paid abroad on portions of income earned in foreign countries are deducted from the tax computed on the annual worldwide aggregate income (ITA, Article 123). Within the principle of territoriality, the residents to be charged as taxpayers with full liability are those who are either domiciled in Turkey or, if not domiciled, have been residing in Turkey for more than six months continuously in the same calendar year. [4]

Tax Base

As a rule the Income Tax Act charges the net amount of income on its aggregate which is determined on a real basis (gerc;ek usul) (ITA, Article 1). As was mentioned above, there are exceptions prescribed by the law to the principles concerning the taxation of income as set forth in Article 1 of the Income Tax Act. For instance, the "simple method" (basit usul) envisaged for small business profits is half way between the real method for the determination of taxable income which is constructed on a thorough recording and bookkeeping and lump-sum taxation. Again, instead of taxing the income on its aggregate the rules accepted by the law for some sorts of income that remain outside of the principle of aggregation constitute other important exceptions, such as wages and salaries earned from various employers, and deposit interests, for which a withholding tax is the final taxation. [5]

Tax Rate

In line with the rule of taxing annual income as an aggregate, the Income Tax Act adheres to progressive taxation (Article 103). The progressive rate is set as 15 % for the

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§12.03[B]

Chapter 12: Tax Law

first bracket and 35 % for the top bracket, whereafter it becomes constant at 35 % . The rates for wages are similar; however, the third and top brackets are set higher than the brackets applied to other income. On the other hand, the brackets of income in the progressive tariff change from year to year. Among the cases of exceptions from the principles prescribed by the Income Tax Act, the provisions permitting withholding as final taxation also represent an exception from the principle of progressive taxation.

{6]

Methods for Determining the Tax Base

The Income Tax Act as a rule adopts the principle of taxing income on its real net amount within the scope of the real method (gen;ek usul). This implies the aggregation of items of income on their real net amounts determined by bookkeeping and accounting. To the end of obtaining the real amount of income, all receipts and expenses have to be recorded. Before the amendment of 1998, the Income Tax Act also envisaged lump-sum (gotiirii) taxation for certain items of income such as small business and agricultural profits, etc. In its stead a new method has been accepted in 1998, named the "simple method" (basit usul) which is valid for small business profits and some other items of income and which can be qualified as a form of taxation that lies in between lump-sum taxation and real method of taxation. Yet, because it requires taxpayers to keep all the documents for their purchases, sales, expenses and receipts, the simple method may be considered more or less closer to the real basis of taxation. Small agricultural profits are liable to withholding tax.

[7]

Techniques of Assessment (Verginin Tarm)

Taxation through withholding excepted, assessment within the Income Tax Act depends mainly on self-assessment (beyan usulii]. As a rule taxpayers are required to file a return for their aggregate annual income (ITA, Articles 85, 86). For taxpayers with full liability, the time of filing the annual return (ytlltk beyanname) for the income of the previous year and consequently the time of payment change according to the items of income to be declared in the return. The tax due can be paid in two installments. Two groups of taxpayers, those who engage in large commercial business and those who carry out self-employed professional activities, are liable for an advance tax (ge<;ici vergi] of 15% calculated and paid on the income of each three months of the current year (quarterly income) and to be deducted from the tax calculated on the annual return submitted the following year. When calculating the taxable income on the annual return, relief for losses (zarar mahsubu) and loss carry over (zarar nakli] for five years is possible (ITA, Article 88). To avoid double taxation, the Income Tax Act provides for the deduction of withholding taxes, income tax paid abroad, and taxes paid on wages according to the simple method of assessment from the tax calculated on the annual return (vergi mahsubu) (IT A, Articles 121-12 3) .

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Those assigned responsibility for withholding taxes must file a monthly withholding return (muhtasar beyanname) which is the second sort of return prescribed by the Income Tax Act (ITA, Articles 98-100) within 23 days of the end of the month and pay the tax dues by the 26th of the following month. A third sort of return is also to be allowed in the Income Tax Act, which is called a "special return" (individual return) (miinferit beyanname) and which pertains to the declaration of some items of income earned by taxpayers with limited liability. This special return is to be delivered and the tax due thereon is to be paid within 15 days after obtaining income (ITA, Articles 101 et seq.) [BJ

Tax Advantages

There are several tax advantages provided for in the Income Tax Act. Among these, those of importance are as follows: A research and development allowance granted for new technology and information is an exempt item for income tax purposes. It is calculated as 100 % of those expenses realized in a year (ITA, Article 89). Capital gains

obtained during one year are subjected to income tax only when they exceed a certain amount (ITA, Article SO). Among the privileges concerning enterprises the exemption on export earnings of taxpayers with limited liability (ITA, Article 7) and exemption for artisans (small traders and craftsmen, esnafmuaflif;L) (ITA, Article 9) may be mentioned. It must be added that income tax rate reductions may be applicable under the investment incentive regime. Noncommercial earnings of individuals from stock exchange operations are exempted from income tax. As for personal relief an allowance for disabled wage earners (engellilik indirimi) may be available (ITA, Article 31). A minimum living allowance (asgari gec;im indirimi) is applied as a credit against the income tax due on employment income. The allowance is calculated as a percentage of the minimum wage officially applied throughout Turkey. The basic amount of the allowance is 50% of the annual gross minimum wage for the employee. The allowance is increased by 10% of the annual gross minimum wage for the spouse who is unemployed and has no income, and by 7.5% for the first two children and by 5% for each additional child. An amount equal to I 5 % of the total minimum living allowance so calculated is creditable against the income tax due from the employee (ITA, Article 32). The Income Tax also sets forth an exemption for income earned from intellectual property rights (ITA, Article 18). Finally, there exists a partial exemption for rents obtained from house lettings (ITA, Article 21). [CJ

Taxation of Corporate Income: Corporate Tax

The second tax in the Turkish system imposed on income is the corporate tax levied by the Corporate Tax Act (Kurumlar Vergisi Kanunu, CTA). The Corporate Tax Act charges the profits of some legal persons and of some entities.

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Taxable Matters (Konu)

Since, as was mentioned above, the corporate tax is in the same category of taxes as income tax, the matters that these two charges are identical. The only difference is regarding the respective taxpayer. The Corporate Tax Act, indeed, defines the profits of corporate bodies with reference to the Income Tax Act: "Profits of corporate bodies consist of the items of income within the scope of the Income Tax Act" (CTA, Article· 1/2). The profits of a corporate body may therefore consist of one or several items of income. For instance a corporate body may obtain agricultural profits, wages, earnings from lettings, etc. The only difference from income tax is that the Corporate Tax Act considers and taxes the various items of income as the business profits of the corporate body. Taxation of the same economic source first as the profits of the corporate body and then further taxation of the same profits when distributed to the shareholders as dividends subjected to income tax creates double taxation in an economic sense. In the tax legislation of different countries several methods for avoiding this double taxation may be used. To this end, until 2003 a tax credit and its deduction were adopted in the Turkish legislation. Effective from 2003, the imputation credit mechanism on dividends received by resident individuals is replaced by a fun· credit for withholding taxes applied upon distribution. Under those rules, one half of the gross dividends is exempt from income tax with a full tax credit for the withholding taxes on dividends, which can be set off against the income tax calculated on the remaining half of the gross dividends (Article ITA, 22/2). [2]

Taxable Event (Vergiyi Doguran Olay)

The event creating liability for corporate tax is the same as for income tax. Earning profits is the taxable event for the imposition of corporate bodies. Just like trade profits are treated within income tax, it is the earning of income on an accrual basis that generates the tax debt for corporate bodies. [3]

Taxpayer (Ytiktimlti)

The corporate tax can be defined as a tax levied principally on the profits of a legal person. Two consequences may be derived from the above qualification: (i) The corporate tax, as a rule, is imposed on the profits of legal persons, but in

some cases this status is not required for liability. For example joint ventures, which are treated as ordinary partnerships without legal personality in Turkish law, are, though optional, liable for corporate tax (CTA, Article 2/7). Societies and foundations, as nonprofit corporate bodies are not subjected to the tax, but in the situation where they operate an economic entity, this entity itself, with no legal personality, acquires the status of taxpayer for corporate tax.


§12.03[C]

(ii) Not all legal persons are liable for corporate tax. Only some categories of business associations are included as taxpayers of corporate tax. As mentioned above, nonprofit corporate bodies such as societies and foundations are not considered as taxpayers themselves. Keeping these two points in mind, categories of taxpayers liable for corporate tax are (CTA. Articles 1-2) business associations having limited liability (joint stock companies, partnerships with limited liability, and limited partnerships in which the capital is divided into shares. See Chapter 7 on Business Associations), cooperatives, State economic enterprises, business entities owned by societies and foundations and joint ventures. The legal policy for the liability of the second, third and fourth categories of taxpayers is to avoid unfair competition among the enumerated economic enterprises and other undertakings. As with income tax, the Corporate Tax Act distinguishes two sorts of liability: Full liability and limited liability (CTA, Article 3). This distinction is of primary importance for foreign companies. Those legal persons resident in Turkey are prescribed as taxpayers with full liability. A corporate body with either its statutory domicile or place of management (i:; merkezi) in Turkey is considered as carrying full liability. Since these conditions require incorporation according to Turkish law, thes.e taxpayers are treated as Turkish companies. Non-resident corporate bodies, that are companies and other juristic persons with neither their legal center nor their central management in Turkey, are prescribed as taxpayers with limited liability. Foreign companies are in this category. Consequently, it can be asserted that, contrary to the provisions of income tax, in the Corporate Tax Act the two sorts of liability are provided for completely on the basis of nationality (on the principle of nationality). The one point which needs to be clarified here is that a Turkish company considered in the status of full liability may possess foreign shareholders, even if they hold the majority of the shares. The legal and fiscal result of being subjected to corporate tax within the status of either full or limited liability is the same as that of income tax: Taxpayers of corporate tax with full liability are taxed on their profits on a worldwide basis although there is the possibility for deduction of taxes paid abroad (CTA. Article 33). Taxpayers with limited liability are taxed only on their profits earned in Turkey (domestic basis). These non-resident companies may possess a place of business, a branch, and a permanent representative or agency or liaison office in Turkey. (4)

Tax Base (Matrah)

The taxable income of corporate bodies is the net profits earned in one year, which corresponds to the period (term) of accounting. The Corporate Tax Act makes reference to the provisions of the Income Tax Act for the determination of net business profits (CTA, Article 6/2) which leads to the determination of the tax base according to the balance sheet method.

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Another consequence of the above mentioned reference involves deductible expenses. Since the taxable income or net profits of corporate bodies is determined in the same way as business profits in income tax, all the principles and rules concerning business expenses are relevant as regards corporations tax. The Corporate Tax Act, however, also has special provisions pertaining to taxable income liability under this tax (CTA, Articles 8, 11). Among these rules, which may be qualified as particular provisions pertaining to corporate tax, those regarding taxation for the distribution of hidden profits between related companies and persons by way of transfer pricing (transfer fiyatlandirmasi yoluyla ortiilii kazarn; [email protected]) and the interest paid on hidden capital (ortiilii sermaye) may be mentioned (CTA, Articles 12, 13). A controlled foreign company (CFC) regime was included in the Corporate Tax Act with effect from January 1, 2006. Under the regime, the profits of a CFC, whether distributed or not, may be taxable in Turkey. The provisions apply to Turkish companies' subsidiaries that are resident in low-tax jurisdictions. A CFC is a foreign company (subsidiary) in which a resident company (parent company) owns directly or indirectly at least 50 % of the share capital or voting rights or of rights to profits. Under certain conditions, the CFC profits corresponding to the participation ratio of the Turkish company are included in its taxable base for corporate income purposes and taxed accordingly in Turkey (CTA, Article 7). [5]

Tax Rate

Corporate tax is paid at one standard rate of 20% (CTA, Article 32). But the Income Tax Act also provides for a withholding tax on distributed profits of corporations(ITA, Article 94). In the Corporate Tax Act there exist no privileges to the benefit of the taxation of publicly owned companies. The tax rate is the same for both close companies and publicly owned companies. In taxing some items of income for taxpayers with limited liability, the Corporate Tax Act prescribes a withholding tax which usually stands for final taxation for the mentioned taxpayers. The items of income coming into the scope of this withholding are those which do not originate from commercial and agricultural activities. Profits of liberal professions (including wages), income from rent, interests on bank deposits and bonds are all examples of such items of income subject to withholding. The rate of withholding tax is prescribed as 15% in the Act; but the government is empowered to vary this rate according to items of income (CTA. Article 30). [6]

Methods to Determine the Tax Base

In corporate tax, the taxable income is determined according fo the rules contained in the Income Tax Act for trade (business) profits. The method adhered to for such determination is the real method (gen;ek usul) where the balance sheet method is used as a rule. As for the taxation of foreign transportation companies performing activities both abroad and in Turkey, a sort of quasi lump-sum taxation (yan gotiirii usul) is

§12.03[C]


accepted for practical reasons (CTA. Article 23) where their net profits earned in Turkey are calculated as a percentage of their gross receipts therein.

[7]

Techniques of Assessment

The term of taxation for corporate tax is the term of accounting, which normally is one calendar year, or another term of 12 months. The corporate tax return is filed during the fourth month (until the 25th of that month) following the closing of the accounting period and the tax is assessed within the same period and paid until the end of that month. The second sort of return in corporate tax is the special return which pertains to the declaration of certain items of income earned by taxpayers with limited liability. This return has to be filed within 15 days after receiving the income and the tax due has to be paid in the same period. The third and last sort of return pertains to the declaration and payment of withholding taxes on some profits of taxpayers with limited liability. Those responsible for withholding are required to submit the consolidated return within 23 days following the month when such withholding has been made and pay the tax due until the 26th of that month (CTA, Articles 15, 30). In line with the imposition of income tax, taxpayers of corporate tax are also required to pay an advance corporate tax (ge<;ici vergi) of 20% on their quarterly profits, to be deducted from the tax calculated for the current year (CTA. Article 32). Other deductions foreseen in the Act are for taxes paid abroad and for taxes withheld (CTA. Articles 33, 34).

[8]

Tax Advantages

Profits earned from participation in other resident corporations are exempted. The reason for this exemption is to avoid double taxation on the profits that are already imposed when earned by the main company (CTA. Article 5/a). In addition, qualifying foreign-source dividends and profits from foreign permanent establishments and representatives derived by resident companies are exempt from corporate income tax (participation exemption) under certain conditions (CTA, Article 5/b, 5/g). The parts of the profits of cooperatives that are distributed to the partners according to the volume of their transactions with the cooperatives are excluded from the taxable profits of such undertakings (CTA. Article 5/i). Another exemption allowed by the Corporate Tax Act pertains to the portfolio earnings of undertakings for collective investment in transferable securities (UCITS, yatmm fonlan) (Article 5/d). And lastly, an exemption which pertains to the profits obtained abroad by companies from construction projects and technical services may be cited (CTA. Article 5/h). Furthermore, corporate tax rate reductions are available under the investment incentive regime.

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§12.04[C]

TAXATION OF EXPENDITURE: VALUE ADDED TAX (KATMA DEGER VERGISI)

As regards charging expenditures with a turnover tax, the Turkish tax system has adopted the model of VAT. The Value Added Tax Act (VATA) was, after a preparation of about 15 years, passed in 1984, to have effect in 1985. The model accepted for VAT is on the whole in compliance with EU legislation. The most important of the differences that existed between the Turkish Act and EU model have been eradicated by an amendment in 1998 which introduced completely the consumption type of tax base in VAT. It must be noted that several excises applied in the field of expenditure taxation have been repealed by the introduction of a special consumption tax (ozel tiiketim vergisi) in 2002 (Special Consumption Tax Act).

[A]

Taxable Matters (Konn)

VAT is charged on goods and services. VAT taxes expenditures for goods and services, both domestic and imported. When the provisions of the VATA are taken into consideration, the taxable matter of VAT may be defined as transactions performed in relation to commercial or professional businesses such as the delivery of goods (teslim), the supply of services (hizmet ifasi), and the importation of goods and services. It is important to note that all supplies, provisions and imports have to be, as a rule, in connection with a business enterprise. Non business supplies, such as sales by private individuals, are beyond the scope of VAT. And VAT is charged on goods and services supplied in Turkey as well as on importation of goods and services, which also means the place of supply is in Turkey.

[B]

Taxable Even.t (Vergiyi Doguran Olay)

Delivering goods (sales and deemed deliveries), performing services and importing goods and services are the various legal and economic events that create liability for VAT (VATA, Articles 1-5). The VATA taxes the mentioned events only on the condition that the transaction is performed in Turkey. This condition requires the goods delivered to be existent in Turkey at the time of delivery and the services to be either performed or benefited from in Turkey (VAT A, Article 6).

[C]

Taxpayer (Yiikiimlii)

The person who is liable for VAT is legally the person who runs the business, performs his liberal profession or imports goods and services (VATA, Article 8). There is no distinction based on the nationality of the entrepreneur. This liability, as formulated, corresponds to the formal imposition of the tax, namely the person who is required by law to pay the tax.

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Ahmet Kumrulu & Billur Yaltl

Another aspect of VAT also has to be taken into consideration when liability is examined. Since VAT is an indirect tax that can be shifted in an economic sense, the real taxpayer is the purchaser of goods and services either as a producer or consumer to whom the tax is transferred. If economic conditions allow, it is the consumer who actually and finally bears the burden, that is, the consumer ends up paying the tax. In order to secure the collection of the tax, the VATA provides for a status of tax responsibility for those who are involved as a party to the transaction where the legal taxpayer has no domicile, place of business, statutory domicile or place of management in Turkey (VATA, Article 9).

[D]

Tax Base

The consideration paid for the supply of goods and services makes up the base on which the tax is calculated (VATA, Article 20). For imports of goods, the import value calculated on CIF basis and including all taxes, duties and fees for importation makes up the base (VATA, Article 21). All expenses of transportation, packing, insurance, etc. made by the seller up to the place of delivery are included in the tax base (VATA, Article 24), whereas discounts made in line with commercial usage and the VAT calculated are excluded from the tax base (VATA, Article 15).

[E]

Tax Rate

The rate structure of VAT is similar to that of the EU. The basic tax rate which the Act stipulates is 10% (VATA, Article 28). The Council of Ministers is empowered to increase the rate up to 40 % and to decrease it to 1 % , and this power may be used for rate differentiation for goods and services. At present the standard rate is fixed at 18 % . For goods of basic alimentation a reduced rate of 8 %, and for agricultural products, etc., a reduced rate of l %, is in force. The increased VAT rates of 26% and 40% applied on luxury items are abolished as from August 1, 2002 as a result of the introduction of the special consumption tax.

[F]

Techniques of Assessment (Verginin Tarhz)

Each month of the calendar year is a separate term of assessment. Taxpayers are required to deliver their monthly returns until the 24th of the next month and pay the VAT due until the 26th of that month (VATA, Articles 41-46). The expenditures of the taxpayer chargeable and therefore the VAT payable is arrived at by deducting the VAT prepaid for purchases during the taxable period (month) from the VAT calculated on the deliveries in the same term of taxation. In other words, VAT paid on inputs (VAT paid as an input tax) is deductible from the tax calculated on outputs (VAT calculated as an output tax). As a rule, the balance remaining after the deduction of the input VAT may not be claimed from the tax office; instead, it is carried forward to the next taxable period. A refund for excess input VAT is, however, granted with respect to input VAT

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related to supplies which are zero rated and supplies subject to the reduced rate (VATA, Articles 29, 32). Tax Advantages

[G]

Since the VAT A adheres to the destination principle for the taxation of goods and services circulating between countries, among the privileges provided by the Act the most important is that on exportation of goods and services (VATA, Articles 11 et seq.) The delivery of goods for a client outside Turkey or the performance of services which benefit a client abroad are not liable for VAT (zero rated). On the other hand, VAT paid as an input tax on exports (namely VAT paid for the inputs of goods exported) is refunded to exporters (VATA, Articles 11 / c, 3 2) . A tax refund for tourists' purchases of goods in Turkey is also possible within the scope of exemption on exports (VAT A, Article 11 /b). The same exemption is also provided for on the principle of reciprocity for the purchases of those who benefit from diplomatic immunity in Turkey. Among the miscellaneous tax advantages stipulated by the Act, the following may be cited: Exemption for Turkish public bodies; exemption for imports made for social and military purposes; exemption on transit transportation, etc. (VATA, Articles 13-17). §12.05

PROCESS OF TAXATION

In this subsection the general mechanism of taxation will be discussed by summarizing the principles and provisions of the CTP, the Code on the Collection of Public Claims and of respective tax laws. Taxation is meant here as the creation of a specific tax liability and the following legal stages for assessment and collection thereof: [A]

Prerequisites

The Turkish tax law sets forth some prerequisites for the assessment of any tax whatsoever: (a) As a result of the maxim of legality of taxes, there must exist a law or a provision in force to impose a tax on any person, asset or transaction. (b) According to the budgetary system, the government should be empowered to assess and collect a specific tax during the current year by the inclusion of that item of revenue in the annual budget (the principle of prior authorization). (c) The event generating the tax must occur. This event, whether economic, legal or even natural, establishes the causal relation between the taxpayer and the tax (earning income, ownership of an immovable, sale of a commodity, etc.).

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Ahmet Kumrulu & Billur Yalu

The occurrence of a taxable event sets the person involved automatically in the status of taxpayer. But this debt, though existing in the legal system, is very obscure by its nature and the dimensions thereof need to be determined. This requirement takes us to the next stage.

[B]

Preparatory Stage: Determination. of the Tax Base

In order to determine the amount of tax due some calculations are needed. First of all, the determination of the specific tax base is required to the end of finding the amount due by applying the tax rate. There are two main methods for determining the tax base. The base is determined and declared by the taxpayer; or the tax administration has the initiative for assessment. When the taxpayer possesses the initiative, he/she calculates the base and informs the tax administration thereof by filing a return. In other words, this is the method of self-assessment (beyan usulii). As for the latter method, the tax administration uses its power for fixation either by ex officio fixation (discretionary assessment, resen vergi tarhi) or by complementary fixation (ikmalen vergi tarhi). Ex officio fixation is applied in cases like non-filing, keeping false records or no records at all, etc. In complementary assessment (deficiency assessment) the amount of the tax base is fixed after filing and is determined according to the taxpayer's return, records, and material evidence, etc. After the completion of this preparatory stage, the next phase, which in a strict and technical sense constitutes the taxation process, starts. But before proceeding it would be convenient to point out that the stages of taxation explained here rather diagrammatically do not exist in all taxation processes. Still the main lines described represent the legal approach and technique underlying the Turkish system. In some processes of taxation such as ex officio and complementary assessments, all these stages are passed through one by one. But, as in the case where an entertainment tax is paid by buying a ticket, only the last stage, which implicitly comprises all the former stages, occurs. [C]

Stage of Administrative Actions

This is the stage where the tax administration performs some acts for taxation which, per se have legal consequences and hence are actionable. The respective acts of this stage are: assessment (tarh); notification (teblig); accruing (tahakkuk); and collection (tahsil).

After the determination of the tax base, the amount of tax due is calculated by applying the rate to the base and in this way the tax is assessed (tarh). In selfassessment the taxpayer himself calculates the tax due on the return filed. In other instances it is the tax administration that assesses the tax due. Assessment constitutes an administrative act by itself in the sense of Continental legal systems and is actionable. One characteristic of the Turkish legal system as regards assessment is that this stage does not constitute an act to be completed once it is begun. The result to be

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§12.06[A]

derived legally is that assessment is not sufficient for collection. The collection or payment of the tax assessed is suspended to other stages. First of all the taxpayer has to be notified about the assessment. If upon notification the taxpayer accepts and pays the debt there arise no legal problems. In the case where the taxpayer chooses to file an action within 30 days after notification, stay orders automatically have effect and no collection can be made until the decision of the tax court is rendered in favor of the tax administration. If the decision of the court disfavors the claimant taxpayer then the third stage is reached and now the debtor is obliged to pay the tax due. In other words, the stage of accruement sets the operations for collection in motion. Yet the taxpayer has the right to appeal against the decision of the tax court and when the final decision is in his favor, he gets a refund. The tax that is due, accrued either by mere acceptance of the debtor or as a result of legal mechanisms, is collected by the tax administration. And this ends the process of taxation for a specific tax debt. There exist some sanctions for the delinquent debtor. In addition to a delay penalty, the tax administration may apply a lien and collect the proceeds of sale according to the rules and provisions of the Code on the Collection of Public Claims.

[D]

Time Limits (Statutes of Limitation, Zaman A$lmi)

The CTP envisages a time limit for assessment (CTP, Article 114). After the occurrence of the chargeable event, if no assessment and notification thereof is achieved within five years starting from the first day of the calendar year which follows the date of occurrence of that event, the expiry of the term of limitation occurs and the claimant administration no longer possesses the right either for collection of the tax debt in question or for any supplementary assessment. But before the date of expiry, the tax office has the right to conduct such operations as tax examination, checking, control, search, etc. The Code of the Collection of Public Claims prescribes another time limit for the stage of collection which is also five years, starting from the first day of the calendar year that follows the date due for payment (CCPC, Article 102). §12.06

CONFLICT SOLVING IN TAX DISPUTES

Turkish tax law comprises administrative and judicial procedures as two main ways for solving tax disputes.

[A]

Administrative Procedures

Administrative procedures aimed at settling disputes at the administrative level consist of two tax reviews. These procedures may also be qualified as" amicable" methods for conflict solving. Two main characteristics of these procedures are:

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§12.06[B]

(1) Administrative appeals are optional in the sense that it is not compulsory for

the taxpayer to appeal for administrative review before suing. (2) When the taxpayer who has chosen to ask for an administrative review is not satisfied with the results of the review, he may still seek judicial relief by filing a law suit in a timely manner.

[1)

Correction of Errors (Dtizeltme)

If the assessment has errors, which are of a rather simple nature, that is, which can be

discovered easily, the taxpayer may apply to the tax office for correction by filing a protest. Miscalculation, wrong application of the rate and mathematical errors on the tax return are errors that can be corrected (CTP, Articles 116-126). Such an appeal should not pertain to a dispute arising from a point of law; disputes of this sort have to be settled by the judiciary. If the tax office accepts the appeal, the dispute is solved. In the case of a refusal, the issue may be taken by the taxpayer to the Ministry of Finance for hierarchical supervision (~ikayet basvurusu). Upon any rejection at this level, the taxpayer possesses the right to sue. [2)

Conciliation Agreement (Uzla~ma)

The second method of conflict solving at the administrative level is conciliation provided for in the CTP (CTP, Suppl. Article 113). This optional procedure may be started by the taxpayer within 30 days after notification of the assessment. Conciliation is a procedure of negotiation and agreement based on practical reasons for both of the parties. When the debtor chooses to apply for conciliation, a conference date is set. If a compromise among the parties is attained, the dispute is settled finally. In the case where no solution whatsoever is agreed upon, the taxpayer may take the case to the tax court. There also exists a special sort of conciliation which can be achieved before assessment and upon the proposal of the tax office (pre assessment conciliation, tarhiyat oncesi uzla~ma) (CTP, Suppl., Article 11).

[B]

Judicial Procedures

Tax law and tax adjudication aim at instituting a legal balance of interests between the administration and the taxpayer. As a result of the constitutional principles of the rule of law and of legality of administration, all acts and actions of the administration and hence all acts of taxation of tax authorities are subjected to judicial review. It must be stated here that the discretionary power of tax administration is very limited. Within these principles and rules misinterpretation and misapplication of tax laws are prohibited judicially. Judicial review is valuable for both stages of assessment and collection. Different acts and actions of tax administration at these stages can be referred to independent courts. Tax case may pertain to a point of law or it may stem from a factual dispute. 204

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§12.07

If an action is commenced at the stage of assessment it possesses the nature of a remedy of annulment (iptal davasi). When the taxpayer sues the administration after the collection of a tax, for example for a refund of the tax, then there is a full remedy action (tam yargi davasi). In addition to taxes, administrative penalties can also be litigated. Within 30 days of notification the taxpayer may file a case with the tax court, and at the stage of collection such different acts like the issuance of an order of payment or the application of a lien can also be sued upon, though within different time limits. As was mentioned above, at the stage of assessment, commencement of an action by filing a petition has the effect of an automatic stay order on collection. If his case is denied, the taxpayer must pay interest retroactively for the entire period of deficiency. The decisions of tax courts may be appealed before the higher courts. There is not, as a rule, any recourse against the decisions of higher courts, the precedents of which are binding for the lower courts. This brief description needs to be supplemented with some notes on the structure of the tax judiciary. The tax judiciary is situated within the structure of the administrative judiciary where some courts have jurisdiction solely on tax issues conflicts and function as the judicial authorities of first instance. There are three judges assigned for each court and the court hears cases according to the amount of the tax litigated. A single judge reviews some minor cases. When the tax disputed exceeds a certain amount, the case is heard by a board of three judges. Judgments rendered by a single judge court are reviewed only by the Regional Administrative Courts (Bolge Mare Mahkemesi]. And those judgments of the tax court issued by a board of three judges can, within 30 days after issue, be taken to the Council of State on appeal. As mentioned above, there is as a rule that no recourse is available against the decisions of higher courts that act as courts of last resort on tax disputes. It should also be pointed out that as a result of the organization of the tax judiciary in a structure of two levels, the decisions of Regional Administrative Courts cannot be taken to the Council of State for further review. The Council of State is the highest court in the administrative judiciary and has mainly appellate jurisdiction. It also has the power to review the legality of some governmental acts concerning delegated legislation as the Court of First Instance. Of the 12 chambers of the Council of State, five have competence for tax cases. There also exists a plenary session of the members of chambers with the venue to review the judgments of tax courts that are contrary to the reversed decisions of the chambers. During trials at courts of first instance and at higher courts, hearings may be held upon request or ex officio by the judicial authority. Contrary to the commencement of a case, appeals to higher courts do not create an automatic stay order; but a decision may be rendered to that end.

§12.07

PENAL LAW OF TAXATION

The CTP prescribes several sorts of violations of tax laws and their respective sanctions (CTP, Articles 344-376). When considered as a whole the various offenses and their

§12.07


relevant punishments may be classified in two groups. First, there exist some infractions of the law that are basically of an administrative and fiscal nature. These offenses may cause a tax loss for the revenue service, or they may only bear the risk of creating a tax loss in the future. The said offenses are dealt with in administrative and fiscal ways and methods and are rather in the nature of misdemeanors. This category can be classified as fiscal offenses and penalties. The tax administration is empowered to apply the related sanctions and the judicial control of the relevant adlninistrative penalizing acts lies within the jurisdiction of tax courts. The CTP on the other hand, also envisages some offenses to be considered more serious in the sense that they correspond to some acts in the nature of crimes in criminal law. These offenses appear when the taxpayer violates the law through some fraudulent means such as using fictitious names, false returns, false records, and double-entry in bookkeeping, etc. (tax frauds). In addition to the fines for the said offenses, the CTP also sets forth imprisonment as a sanction. These offenses are subject to criminal prosecution and hence lie within the jurisdiction of criminal courts. Selected Bibliography Derdiyok, T., The Turkish Taxation System, Ankara 1999. Oneel, M., Kumrulu, A. & Nami <;:agan, Nami, Vergi,Hukuku, 22nd ed., Ankara 2013. Ozbalc1, Y., Gelir Vergisi Kanunu Yorum ve Ar;iklamalan, Ankara 2012. Ozbalc1, Y., Katma Deger Vergisi Kanunu Yorum ve A<;iklamalan, Ankara 2012. Tekin, C. & Kartaloglu, E., Kurumlar Vergisi Kanunu Yorum ve Ar;iklamalan, 2nd ed., Istanbul 2010. Uluatam, b. & Methibay, Y., Tiirk Vergi Hukuku, 5th ed., Ankara 2001.

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13

Banking Law B~ak $it imamoglu'

§13.01

SOURCES

Banking regulations have two ultimate objectives: to establish and maintain a smoothly functioning banking system and to regulate the relations between the bank and its customers who are the relatively weaker party in a banking transactions. Turkish legislation and regulations ("order rules" diizen normu) cover both objectives but emphasize the first objective. Order rules are basically public law rules. In the field of banking law, the target of these rules is to assure that banks function in a secure and safe way. The provisions regarding the establishment, structure, operation and regulations relating to financial reporting, auditing, supervision of banks and measures to be taken under certain circumstances, credit limitations, capital adequacy, etc., can all be qualified as "order rules". The breach of banking rules is generally sanctioned by certain measures applied against the bank, and does not affect the legal situation created by a contract between the bank and its customer. The private law aspect of banking transactions is mainly governed by the terms of individual contracts. The only provision in Banking Law regarding private law aspects of banking transactions is on the right of withdrawal of deposits and participation funds (Article 61). [A]

Banking Law (BL)

The main source of banking law is Banking Law, No. 5411. There are additional rules regulating banking law in the Central Bank Law, Turkish Commercial Code (Comm. * Assistant Professor of Law, University of Ankara.

Ba~ak $it imamoglu

§13.0l[C]

C.), Capital Markets Law, Cheque Law as well as regulations, communiques and decisions of the Banking Regulation and Supervision Agency (BRSA-Bankacilik Diizenleme ve Denetleme Kummu-BDDK -Agency). Provisions of the Banking Law (Bankacilik Kanunu) (Law No. 5411 1), which is

the primary source of banking law, can be described as a unification of a new order based on international standards (i.e., for corporate governance: Basel Accords, European Union Directives), relevant doctrine and the extraordinary competence granted to BRSA and the Savings Deposit Insurance Fund (SDIF-Tasarmf Mevduatz Sigorta Fonu-TMSF).

The Banking Law establishes the financial structure of the banks according to these international standards in order to attract foreign capital to Turkey and to carry on external borrowing from foreign markets,.

[B]

Secondary Legislation

Another important source of banking rules is the Banking Regulation and Supervision Agency which implements the powers assigned by the Banking Law through regulatory actions and specific decisions of its Board (Kum[). The BRSA is also authorized to issue regulations and communiques regarding the enforcement of the Banking Law (Article 93). It must be noted that the relevant regulations and,communiques are amended very frequently. Therefore, one should pay special attention to determine the latest version of the positive law. Turkey has begun to apply Basel II rules2 in full. The harmonization process of Basel II in the Turkish banking system has been realized through secondary legislation issued by the BRSA. Secondary legislation on the banking law varies widely. 3 The most influential are on adequacy of reserves, 4 operations subject to permission, indirect shareholding,5 credit operations, 6 use of "own" funds,7 liquidity adequacy, 8 provision on internal systems, 9 and provisions on the qualification of loans and other receivables.

[CJ

Form Contracts Term and Conditions

General contractual provisions (genel i~lem ko~ullan / ~artlan) attached to different types of banking transactions, especially to loan and deposit contracts, to agreements 1. Publication, OG Nov. 1, 2005. Visit www.tbb.org.tr for an unofficial English version of the BL. 2. International Convergence of Capital Measurements and Capital Standards. 3. For an accurate list, visit www.bddk.org.tr. 4. Regulation on Measurement and Evaluation of Capital Adequacy of Banks (Bankalann Sermaye Yeterlilifj.nin Olc;iilmesine ve De~rlendirilmesine jli?kin YOnetmelik).

5. Regulation on Operations of Banks Subject to Permission and Indirect Shareholding (Bankalann I "zne Tabi jfi/emleri ve Dolayli Paysahiplifj. Hakkmda Yonetmelik).

6. Regulation on Credit Operations of Banks (Bankalann Kredi jfi/emlerine flipkin Yonetmelik). 7. Regulation on Banks' Own Funds (Bankalann Ozkaynaklanna j/i?kin Yonetmelik). 8. Regulation on Measurement and Evaluation of Liquidity Adequacy of Banks (Bankalann Likidite Yeterlilifj.nin Olc;iilmesine ve De~rlendirilmesine flipkin Yonetmelik).

9. Regulation on the Internal Systems of Banks (Bankalann jc; Sistemleri Hakkmda Yonetmelik).

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§13.02[A]

on checking accounts or capital markets operations are important areas of banking regulation. Banks are the stronger party to a contract with their customers. Clauses restricting the rights of the customer and providing for the exoneration of banks from their obligations are usually unfairly to the advantage of the banks. Therefore, bank customers as well as consumers are protected by law, namely by Code of Obligations (Article 20 ff), Commercial Code (Article SS}, and Law on the Protection of the Consumer (Article 6}. However, the protection provided for the bank customer is not always as broad as that of an ordinary consumer. For example, if the customer is also a "merchant", then he carries the burden of acting as a prudent businessman in all of his business activities (Comm. C. Article 18 II}. Such a customer does not have the right to claim that he was unaware of the provisions of general conditions in a contract. §13.02

TYPES OF BANKS

Banks differ according to the objective of their formation and its stated scope of activity. There are three types of banks: Deposit banks and participation banks, which are called "credit institutions" and development and investment banks (BL Article 3}. Credit institutions are usually called commercial banks. There is little difference between a deposit bank and a participation bank (katilrm bankasi). Thus, these two types of banks are generally subject to the same legal provisions. Funds of a commercial bank are the savings of depositors (tasarruf) and their own funds (ozkaynak). On the other hand, development and investment banks are not authorized to accept deposits; they basically use their own funds and the money they obtain from public offerings and from national or international financial institutions. Therefore, commercial banks work with many branches ($Ube) while development and investment banks work with fewer or even no branches. [A]

Credit Institutions

[1]

Deposit Banks (Mevduat Bankalan)

Deposit banks are institutions operating primarily for the purpose of accepting deposits and granting loans in their own names and for their own accounts (as per the provisions of the BL} and their branches in Turkey of such institutions which have established abroad (BL, Article 3}. The term "bank" principally refers to deposit banks. 10 Unless otherwise permitted or decided by the BRSA, such banks have full capacity to perform all the operations stated in Article 4 of the BL, except accepting participation funds and transacting

10. As ofJune 2013 deposit banks' share of the entire banking market is more than 80% [The Report of BRSA on the General View of Turkish Banking Sector, 15 (www.bddk.org.tr}].

209

I

§13.02[A]

Ba\)ak $it imamoglu

financial leasing services. The most common operations performed by these types of banks are accepting deposits and granting loans. Secondary banking operations, other than credit and deposits (i.e., portfolio management, payment, counseling), are also performed by deposit banks due to their number of branches. {2]

Participation Banks (Katlhm Bankalan)

Participation banks are institutions operating primarily for the purposes of collecting funds through special current accounts and participation accounts and granting loans pursuant to the BL. Unless otherwise permitted or decided by BRSA, such banks have the full capacity to perform all the operations stated in Article 4 of the BL, other than accepting deposits. Special current accounts are accounts opened at participation banks that consist of funds that can be partially or fully withdrawn at any time upon request and for which no charge is paid to the owner of the account in return. The objective of special current accounts is solely custodial, hence it qualifies as a bailment (vedia) .11 Participation accounts are accounts comprising funds collected by participation banks that result in participation in the loss or profit t~at arises from their use by these institutions. They do not require the payment of a pre-determined return to their owners and do not guarantee the re-payment of the principal sum. Since the payment of the principal sum is not guaranteed, the operational risk arising from such accounts belongs to the owner. The prevailing opinion is to consider them as ordinary partnerships.12 {3]

Development and Investment Banks (Kalkmma ve Yatmm

Bankalan) Institutions operating primarily for the purpose of granting loans and/or fulfilling the duties assigned to them by their charters and the branches in Turkey of such institutions established abroad are called development and investment banks. Since development and investment banks' sources for granting loans are their own funds and long term credits, such banks may utilize their funds according to long term financial techniques. Therefore, unlike deposit or participation banks, development and investment banks support major investments and the reimbursement of loans granted by such banks are met by the income deriving from the investment in which the borrower has invested the credit. Development and investment banks are subject to all provisons of the BL, other than that issues specifically stated in the Law (on credit limitations, (Article 77 and Articles 54-56, on restriction on property and commodity transactions, Article 57, on 11. Reisoglu, 121. 12. Reisoglu, 121; Tekinalp, 22.


§13.03[A]

deposits and participation funds, Articles 61, 63, 64, 130.a, 131, on revocation of operating permission decisions, (Article 106). §13.03

BANKING INSTITUTION (BANK AS A CORPORATION]

A bank must be established as a corporation (BL Article 7 I, a). Consequently, the establishment procedure of corporations ("joint stock companies") required in the Comm. C. must be followed unless otherwise provided in the BL. On matters on which the BL is silent, relevant provisions of the Comm. C. must be applied.

[A]

Formation and Termination

[1]

Permissions for Formation and Operation

Pursuant to Article 6 of the BL, the formation and operation of a bank in Turkey or the opening of the first branch in Turkey by a bank established abroad is subject to the permission of the Board of the BRSA, providing that the formation conditions laid down in the BL are fulfilled. Nevertheless, according to Article 333 of Comm. C., in regard to (corporation) formation, none of the independent administrative authorities, including the Board of BRSA is entitled to give permission in the formation of a corporation. Article 333 of the Comm. C. revokes the formation permission authority of the Board, but not the authority to grant permission to operate. Pursuant to Article 10 of tl!e BL banks that are permitted to be established in Turkey or permitted to open branches in Turkey within the framework of the provisions of Article 6 of the BL are obligated to receive permission for operation from the Board of the BRSA. The permission is to be given upon an application to be accompanied by a declaration that covers all the activities set out in Article 4 of the BL, within the framework of the limitations set out in the last paragraph of the said article, unless otherwise decided by the Board. [2]

Formation Conditions

Any bank to be established in Turkey shall meet the requirements provided in Article 7 of the BL, which are in harmony with European Union directives and Basel Principles. As mentioned above, banks must be formed as corporations. The shares must be issued in cash and must be registered, to secure full capitalization of the bank and prevent anonymous shareholding. The founders must meet the requirements indicated in Article 8 of the BL. It should be noted that, although Article 7 speaks of "founders" indicating that the formation of a bank cannot be accomplished as a one-man company, Article 338 I of the Comm C. enables the formation of a one-man company13).

13. See also the Chapter on Business Associations.

211

§13.03[A]

Ba(>ak $it imamoglu

Members of the board of directors shall have the qualifications set out in the corporate governance provisions of the BL and shall have the professional experience required for carrying out the planned activities. The bank's envisaged fields of activity shall be in harmony with its financial, managerial and organizational structure. Its paid-up capital, consisting of cash free of fictitious transactions, should not be less than USD 30 million (appr. USD 15 million). Its articles of incorporation shall not be in conflict with the provisions of the BL and the Commercial Code. There should be a transparent and open partnership structure and organizational chart that will not constitute an obstacle for the efficient supervision of the institution. There should not be any element that hampers its consolidated supervision. The work plans for the envisioned fields of activity, the projections regarding the financial structure of the institution including capital adequacy, the budgetary plan for the first three years and an activity program including internal control, risk management and an internal audit system showing the structural organization must be submitted. For development and investment banks, paid-up capital shall not be less than two-thirds of the amount provided above. Pursuant to Article 8 of the BL, founders of a bank should also have qualifications of financial strength and competence. [3}

Requirements for the Opening of a Branch in Turkey by Banks Headquartered Abroad

The opening of a first branch in Turkey by a bank established abroad is subject to the permission of the Board (Article 6 I). The Board has no discretionary power regarding an application for permission of a foreign bank. That is to say, an application meeting all the conditions required by the BL cannot be rejected by the Board based on its discretion. Nevertheless, the Board may reject the application due to (among others provided in Article 7 of the BL), for example, lack of professional experience required for carrying out planned activities (Article 7Id) .14 Any bank established abroad that will operate in Turkey through a branch must meet certain conditions enumerated in Article 9 of the BL. Banks established abroad may open up representative offices in Turkey with the permission of the Board provided that they do not accept deposits or participation funds and that they operate within the framework of the principles to be set by the Board (Article 6 IV). The framework of principles regarding opening branches and representatives are laid down in the Regulation on Operations of Banks Subject to Permission and Indirect Shareholding.

14. Reisoglu, 202.

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Chapter 13: Banking Law [4]

§13.03[C]

Termination

Other than the provisions relating to dissolution and termination of corporations provided by the Commercial Code, there are two other special instances foreseen by the BL. These are the revocation of operating permission by the Board and transfer of the bank to the Fund. The BRSA is entitled to take various measures if the bank fails to fulfill the requirements stipulated in Banking Law (Article 67). If the BRSA determines that a bank has not taken proper restrictive measures, or the continuation of the bank's activities will endanger the rights of the depositors as well as the security and stability of the financial system, or the bank has not fulfilled its obligations as they fall due, or the total value of the liabilities of the bank exceeds the total value of its assets, or the dominant partners or managers of the bank fraudulently use the resources of the bank for their own or others' benefit in such a manner that the sound operation of the bank will be at stake, then the BRSA is authorized to revoke the operating permission of that bank or to transfer the shareholders' rights (except dividends) and the management and supervision of the banks to the Fund, for the purposes of transferring, assigning or merging them with other banks partially or fully, on condition that the loss will be deducted from the capital share of the existing partners (Article 71).

[B]

Scope of Activity

In comparison with the former 'banking acts, Law No. 5411 is the only act that enumerates the range of permissible activities for banks on an unrestricted bases. (Article 4 Activities other than accepting deposits and participation funds, can be performed not only by banks but by other financial and/or capital market institutions as well. Therefore, it is stated that banks may carry out these activities without prejudice to the provisions of other laws (Article 4 I). In other words, a bank wishing to carry out such an activity (i.e., portfolio operations) has to fulfill the requirements foreseen in the related legislation as well (i.e., permission of Capital Markets Board). The Banking Board is also authorized to determine that other non-enumerated activities are accepted as banking activities. Support and consultancy services, 15 over the counter market brokering, 16 brokering in electronic fund transfers 17 are some examples of activities determined by the Board that banks are allowed to carry out.

[C]

Shares and Shareholders

Besides ordinary shares, such as in any other corporation, the BL specifically foresees qualified shares (nitelikli pay). Pursuant to Article 3, shares that represent, directly or

15. BRSA Decision 3.8.2006 Nr. 1947 (dated Aug. 10, 2006). 16. BRSA Decision 31.5.2007 Nr. 2196 (dated Jun. 5, 2007). 17. BRSA Decision 14.5.2009 Nr. 3183 (dated May 20, 2009).

§13.03[D]

indirectly, 10% or more of the capital or voting rights of an undertaking, or that grant the privilege to appoint members to the board of directors regardless of the share amount, are qualified shares. The shareholders owning qualified shares are required to meet the criteria applicable to founders. These shareholders shall not use their preemption rights until the percentage of their direct or indirect shares in the capital fall below 10 % (Article 18 V). Acquisition of qualified shares is conditioned on permission of the BRSA (Article 18 I). According to Article 18 IV of the BL, "transactions resulting in the number of shareholders falling below five, and transferring of shares affected without permission, shall not be recorded in the book of shares. Any records made in the book of shares in breach of the foregoing provision shall be null and void". Another important institution in banking law is indirect shareholding (dolayli paysahipli[Ji). Since the Turkish banking system caused and experienced destructive financial crises in the past, Turkish legislation places a great emphasis on "group banking". Pursuant to Article 5 of the BL, for the purposes of determining indirect share ownership by a real person, the shares belonging to a real person, his spouse and children and the undertakings in which such persons participate with unlimited responsibility as well as the shares belonging to undertakings controlled by such persons individually or jointly, shall be taken info account.· For the purpose of determining indirect share ownership by legal persons, the shares belonging to them as well as the shares belonging to undertakings which are controlled by them will be taken into account.

[DJ

Board of Directors and Corporate Governance (Committees)

Pursuant to Article 23 of the BL, the board of directors of a bank should have at least five members including the general manager. The minimum number of members is also consistent with the provisions regarding credit and auditing committees while the constitution of these committees also requires at least five board members. Unlike the Commercial Code, the qualifications of the members of the Board of Directors are prescribed by the BL. Besides the requirements provided in Article 8, certain qualifications foreseen for the general manager in Article 25 (i.e., university degree, 10 years of professional experience in the field of banking or business administration) are also required for the majority of the board of directors (Article 23). The general manager and the chairman of the board of directors cannot be the same person. There is no obstacle to legal persons becoming a member of the bank's board of directors through a representative. In such a case, the qualifications applicable to real persons required for the members of a board of directors should be satisfied by the representative of the legal person. The other qualifications should be possessed both by the legal person and the representative.

214


§13.03[E]

At least a three-member board of managers, including the manager of the main branch office, having the authority and responsibilities of a board of directors, shall be established at the main branch office in Turkey, of a bank established abroad and opera.ting in Turkey through branches. The three-member board of managers shall be the equivalent of the board of directors and the requirements set out for members of boards of directors apply to the members of the board of managers as well (Article 23 II). Under corporate governance principles the board of directors should establish an audit committee for the fulfilling of audit and monitoring functions of the board of directors. The audit committee shall consist of at least two members. Its members shall be appointed from the members of the board of directors who do not have any executive duties. For banks operating in Turkey as branches, a member of the board of managers to whom no executive unit is attached shall be appointed to fulfill the duties of the audit committee. Members of the audit committee shall have the qualifications stipulated by the Regulation on the Internal System of the Banks. The audit committee shall, once every six months at the maximum, report the result of its activities to the board of directors; the measures taken by the bank; the practices that need to be introduced; as well as other matters that it deems necessary for the sound operation of the bank. Another important committee is the credit committee which can be described as a sub-board of directors with regard to extending loans. The board of directors may assign the power to extend loans to the credit committee or head office within the framework of principles and procedures set by the Regulation on Credit Operations of Banks. A credit committee composed of a minimum of two members is to be elected by the board of directors from among its members, who satisfy the same conditions as apply to a general manager other than the term specified in Article 25 of the BL and bank general manager or deputy general manager may be empowered to perforrp the duties assigned by the board of directors in connection with credits. For foreign banks operating in Turkey through branches, the board of directors functions as a credit committee as well. The board of directors may delegate credit extension powers to the credit committee and office of general manager at a maximum rate of 10% and 1 % of equity, respectively. Resolutions adopted by the credit committee unanimously are directly implemented while resolutions adopted by a majority of votes are put into implementation after the approval of the board of directors.

[E]

Independent Auditing and Supervision

Banks are subject to internal, independent and public auditing (supervision). Among these, the most important ones are independent auditing and supervision.

Ba~ak $it imamoglu

§13.04[A]

Independent auditing of banks is performed on consolidated and nonconsolidated basis. The final objective of independent auditing is to reflect a corporation's real financial situation in its financial reports and to keep interested parties informed. Provisions of the Commercial Code regarding independent auditing are mainly parallel to that of the BL. Problems resulting from differences between provisions on the preparation of financial statements or the appointment of the auditor should be solved by the joint interpretation of the BL, Comm. C. and Decree Law No. 660, together. Supervision of banks is carried out by the BRSA. In order to maintain the efficiency, sustainability, and proficiency of supervision, the BRSA makes an audit on the basis of a risk-focused method in accordance with international accords. Supervision consists of an independent process and is different for each bank depending on its risk profile. According to the result of its supervision, the BRSA may decide to take relevant measures provided for in Articles 68-70 of the BL. §13.04

THE REGULATION OF SOME IMPORTANT BANKING TRANSACTIONS

As mentioned above, banks can act as intermediaries between savers and entrepreneurs. Therefore, accepting deposits and granting loans are the most important banking transactions. Hence, Turkish legislation contains provisions in its BL only with regard to these two transactions. However, the private law aspects of these transactions is not regulated under the BL. [A]

Deposit Transactions

A deposit is money acquired by a bank, with or without consideration to be returned on a certain date of maturity or whenever it is withdrawn. Only deposit banks are permitted to accept deposits. Other types of banks, institutions, other real or legal persons are forbidden to accept deposits. Overseas branches and undertakings of credit institutions established in Turkey will carry out transactions for the preparation of deposit books and other relevant documents pertaining to the collection of funds, in the country where they operate. Under no condition should books or documents pertaining to collection of funds be prepared or granted in Turkey by such branches and undertakings (Article 60 V). Credit institutions shall classify deposit accounts and participation fund accounts according to maturity and type as determined by the Central Bank upon receiving the opinion of the Board and shall segregate their saving deposit accounts and participation funds belonging to real persons from other accounts (Article 60 VII).

216

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Chapter 13: Banking Law [B]

§13.04[B]

Loan Transactions

The Turkish legislative approach to loan transactions can be described as recognizing any transaction that bears risk and includes a deferred payment to be made by banks as a loan. This approach appears mostly in the definition of loan. According to Article 48 of the BL, cash loans and non-cash loans such as letters of guarantee, counterguarantees, suretyships, avals, endorsements, acceptance loans and commitments bearing such characteristics, bonds and similar capital market instruments that have been purchased, funds lent through making a deposit or other ways, receivables arising from the deferred sales of assets; overdue cash loans, accrued but non-collected interests, values of non-cash loans that have been converted to cash, receivables incurred from reverse repurchasing transactions, risks undertaken within the scope of futures and option contracts and other similar contracts, partnership shares and transactions recognized as loans by the Agency are considered loans. The three important consequences attributed to a "loan" are credit limitations, provisions (terms) and capital adequacy. The credit limitations in connection with a bank's own funds are based on risk groups. Pursuant to Article 49 of the BL, there are four risk groups: General risk group, a risk group in which the bank itself is involved, public banks risk group (kamu bankalan risk grubu) and public institutions risk group (kamu kurulu$lan risk grubu). A bank granting a loan to a real or legal person or to one of these risk groups is limited to 25 % of its own funds (Article 54). If the restriction and threshold related to the standard ratios set in the BL are reached or exceeded, the bank shall promptly inform the Agency thereof. The excess o:t limitations set forth in the BL and in the relevant regulations must be remedied within the framework of the principles and procedures determined by the Regulation on Credit Operations of Banks. Pursuant to Article 53 of the BL, banks must prepare, implement and regularly review their policies regarding compensation for the damages that have arisen or are likely to arise in connection with the loans and other receivables and to reserve an adequate level of reserves against impairment in the value of other than those assets, for the quality and classification of assets; receiving of guarantees; measurement of value and reliability of them, monitoring the loans under follow-up and the re-payment of overdue loans, and establish and operating the structures that will execute all these transactions. Capital adequacy means keeping adequate funds against losses that could arise from the risks encountered. Banks are obliged to calculate, achieve, perpetuate and report their capital adequacy ratio, which shall not be less than 8 % of their own funds. As of June 2013, the minimum capital adequacy ratio amongst Turkish banks belonging to participation banks is determined as 14.8. 18

18. See the Report of BRSA on the General View of Turkish Banking Sector (www.bddk.org.tr).

Ba~ak $it imamoglu

§13.06 §13.05

ELECTRONIC BANKING

Electronic banking Ce-banking} refers to conducting, performing and finalizing banking transactions within the electronic environment. Therefore, it is not a new banking transaction, but a new environment and instrument. From the perspective of the bank, e-banking includes ATM transactions, credit card and SWIFT transactions, electronic fund management, capital markets operations, informing and counseling, granting loans, etc. E-banking functions through multilateral and bilateral contracts, central electronic instruments and the networks related thereto. There are no special regulations in Turkish law regarding e-banking. But, in conformity with the prevailing approach, the Turkish Court of Appeals decided that 19 since banks benefit from e-banking, they should also bear the risk deriving therefrom so that the benefit-loss equilibrium will not be jeopardized. Technical problems need technical solutions. That is to say, although the solution to such problems are expensive and onerous, since it is the bank that opens the gate to e-banking than it must again be the bank who carries the burden. §13.06

CONFIDENTIALITY

Pursuant to Article 73 of the BL, the chairman and Board members and Agency personnel as well as the Chairman and members of the Fund Board and the Fund personnel should not disclose the confidential information that they acquire during the performance of their duties pertaining to banks as well as their associates, subsidiaries, jointly-controlled undertakings and customers, to anybody other than those who are authorized by the BL and those who are authorized by special provisions of the law and they should not use such information for their own or other's benefit. The outsourcing institutions from which the Agency receives support services and the employees of such institutions shall also be subject to this provision. This obligation continues even after leaving office. Those who, by virtue of their positions or in the course of performance of their duties, have access to confidential information about banks or clients are not permitted to disclose such confidential information to any person or entity other than the authorities expressly authorized by law. This confidentiality obligation survives termination of employment contracts (Article 73 III}. Confidentiality can be evaluated within the scope of Articles 23-25 of the Civil Code regarding the protection of personality, as well.

Selected Bibliography Arkan, S., Ticarf j~letme Hukuku, 18th ed., Ankara 2013. Reisoglu, S., Bankacilzk Kanunu $erhi, Ankara 2007.

19. 11. HD, Nov. 24, 2006, 11943/12226.

218


§13.06

$it, B., 6102 Sayili Tiirk Ticaret Kanunu Kar;;ismda Banka Anonim $irketi, Batider 2012, Vol. XXVIII, Nr. 4, p. 175 et seq. $it, B., Tiirk Hukukunda Banka Kredisi Kavrami ve Euna Baglanan Sonw;lar, Ankara 2011. Tekinalp, U., Banka Hukukunun Esaslan, 2nd ed., Istanbul 2009.

CHAPTER

14

Private International Law Tugrul Ansay & Eric Schneider*

§14.01

OVERVIEW

Turkish private international law (devletler ozel hukuku) includes choice of substantive law issues (conflict of laws, kanunlar ihtilafl) and problems of international civil procedure. The rules relevant to these matters are found in the Statute Regarding International Private Law and Procedure ("Statute", Milletlerarasi Ozel Hukuk ve Usul Hukuku Hakkmda Kanun), enact~d on November 27, 2007. 1 Previously, a Statute of 1982 regulated these issues. There are other statutes that contain choice of law or procedural provisions as well as many international agreements, both multilateral and bilateral, to which the Turkish Republic is a party. International agreements with choice of law or procedural rules are not affected by the Turkish Statute Regarding International Private Law and Procedure (Article 1 II). The provisions of the Statute do not specifically regulate all issues of conflict of laws and international procedure relating to business transactions. As in the past, scholarly publications and decisions of the Turkish High Court of Appeals (Yargitay) will probably contribute to the law in this regard. §14.02

GENERAL CHARACTERISTICS OF TURKISH PRIVATE INTERNATIONAL LAW

Former Turkish Statute of 1982 on private international law followed a model adopted by most countries facing outward migration. Affected by the nationalist movements of * Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Km;: University, School of Law, Istanbul. Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of Baltimore School of Law, Baltimore, Maryland. 1. Dated Nov. 27, 2007, Law numbered 5728. See Annex.

221


§14.03

the nineteenth century, they followed choice of law concepts and procedural rules, which required the application of the national law of the parties to disputes. In matters of personal status, such as marriage or divorce, parties were subject to the common national law of the parties or to the national laws of each party involved. Similarly, the Turkish Code of Civil Procedure gave exclusive jurisdiction to Turkish courts on matters of the personal status of Turks even if they were domiciled in other countries. Economic and social conditions changed drastically in and outside of Turkey after 1982. Millions of Turks left their hometowns or villages in Anatolia to work in different countries, especially in Western Europe. There was also a dramatic increase in the number of foreign tourists in Turkey. Turkish business people occasionally became involved in legal conflicts or were faced with the application of Turkish law. They had disputes arising from contracts for the purchase of real or personal property or were involved in tortuous acts. Even emigrant Turks, returning to spend their summer holidays in Turkey, became involved in problems of a transnational nature when, for example, their foreign registered car caused a traffic accident in Turkey, Another development affecting Turkish private international law was the considerable increase in international business activity in and outside of TurJr Turkish import and export trade expanded immensely and foreign investment in Turkey was encouraged and increased during the last decades (See Chapter 16 on Foreign Investment). As a result, many foreign companies conduct business in Turkey either directly or through representatives or branch offices. Similarly, Turkish companies are operating in foreign territories. The primary objective of the new Statute of 2007 is to bring Turkish private international law closer to the law of the European Union and follow the trend of modern conflicts rules is to favor the application of the law of "habitual residence" (rather than nationality) of the parties to a dispute. It also gives guidance to foreign judges in determining the governing law in cases where Turkish nationals are involved in a case pending before a foreign court, even if the applicable provision of the Statute refers to persons in general, whether Turkish or foreign. 0

§14.03

".

GENERAL PROVISIONS

How a court characterizes a case can be important to the choice of which law governs that case. For example, if the basis of a conflict is characterized as a "contract" then the law of the place of making the contract might govern rather than the place of breach. If the case is characterized as "tort," the law of the place of injury might govern. The Turkish Statute does not contain a general provision regarding whether the law of the forum or of a foreign legal system should determine the characterization of a legal issue. However, authorities generally agree that the law of the forum will determine this. 2 Conflicts of laws issues may arise when a judge, after having decided that foreign law governs a case, finds that the foreign law's conflicts of law rules refer to another 2. Nomer, 99 et seq.

222

Chapter 14: Private International Law

§14.03

country's law. On this issue of renvoi the Turkish Statute states that a Turkish judge will use the internal substantive law of a foreign jurisdiction when the applicable conflict of laws rule of that jurisdiction defers to another foreign law in matters of personal status, which also includes family relations (Article 2 III). Another general provision of the Statute prohibits the application of foreign law by a Turkish judge if it "obviously" conflicts with the Turkish ordre public (Article 5). A finding that a foreign law is contrary to Turkish "ordre public" does not, however, always result in the automatic application of Turkish law. If a foreign law is found to be against Turkish ordre public, a Turkish judge may apply Turkish law only if "necessary." In addition, the requirement that foreign law not be applied only when it is "obvious" that it conflicts with the Turkish ordre public demonstrates a legislative intention to limit the use of ordre public to extreme cases. There are not many cases involving business transactions in which a Turkish court has rejected the application of foreign law due to an obvious conflict with the Turkish public order. The application by a foreign judge of a law that is in "obvious" conflict with the Turkish public order can endanger the enforcement or recognition of foreign judgments in Turkey. Furthermore, a Turkish judge can refuse to recognize and enforce a foreign arbitral award on the ground that it violates Turkish public order even without a finding that the conflict is "obvious." Similarly, a Turkish court will not enforce agreements to submit to the jurisdiction of a foreign court if it finds that the Turkish ordre public demands that Turkish courts have exclusive jurisdiction (Article 47 I). Here again, a finding of an "obvious" conflict with the Turkish ordre public is not required. In its general part, the Statut.e also includes a provision on the formal requirements of legal transactions. Under Article 7, a legal transaction may be concluded according to the formal requirements prescribed by the law of the place where it is entered or by the law which governs the substance of the transaction. This alternative formulation makes it possible for the parties to choose the applicable law for the formal requirements of their transaction. 3 In situations where only one party has acted, such as the creation of a power of attorney, the place where the transaction occurred determines the validity of the form. 4 A power of attorney or representation sent from a foreign country to Turkey is valid if its formalities conform to the requirements of the country where the power was created. 5 Similarly, a notice sent to put another party in default, or to inform them that delivered goods are defective, is valid if it conforms to the laws of the country from which it is sent. Turkish courts will recognize declarations if they meet the formal requirement of the country in which they were made. As a result, a document prepared or ratified by a notary public will be accepted as a public document, if the law of the country of the notary authorized the notary to issue or notarize that particular

3. Tekinalp, 112; Nomer, 207-208. 4. Nomer, 209. 5. Nomer, 210.

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document or declaration. 6 It should be noted that Turkish law also authorizes Turkish consuls in foreign countries to act as notaries for the notarization of acts or transactions of Turkish nationals. The Statute also contains specific Articles on the formal requirements of particular legal transactions in which the general rule regarding formalities stated in Article 7 are repeated. These specific provisions recognize, for example, the validity of dispositions of property intended to take effect at death (Article 20 IV) and the validity of marriage ceremonies if they conform to the formality requirements of the substantive law of the place where celebrated (Article 13 I). The law of the place where real property is located governs formalities regarding transactions in real property (Article 21 IV). Thus contracts dealing with the transfer of title to land located in Turkey must conform to Turkish formalities without regard to the location or nationalities of the parties or the place of contract formation. This is also true for creating mortgages on immovable property located in Turkey. Negotiable instruments are recognized in Turkey as being valid if they are issued according to the formal requirements of the country where they were signed. 7 However, a subsequent undertaking on a negotiable instrument will be valid only if it meets the formal requirements of the country where the subsequent undertaking is made. Furthermore, a negotiable instrument issued by a Turkish national in a foreign country in compliance with Turkish law will be recognized as valid against another Turkish citizen in Turkey. 8 Another general n,ile applicable to all matters deals with statutes of limitation. Article 8 of the Statute 1characterizes statutes of limitation as matters of substantive rather than procedural law9 and directs that they are to be determined by the law of the place where the primary transaction or relationship occurs. Statutes of limitation regarding negotiable instruments are regulated differently in the Commercial Code, which provides that a statute o-f limitation period be calculated according to the laws of the place where the negotiable instrument was issued. 10 If there is no statute of limitation period under the governing foreign law, or if the limitation period is extremely short, a party may object that the foreign law is contrary to Turkish ordre public. 11

§14.04

[A]

SPECIFIC RULES OF CONFLICTS OF LAW

Personal Status

Due to the increased number of Turkish citizens living abroad, most of the Statute is devoted to the regulation of problems of personal status, such as marriage, divorce or 6_ Nomer, 210. 12- H.D. (Court of Cassation, Nov. 1, 1983, Yarg1tay Kararlan Dergisi (YKD) 1984, 266-268_ 7. Comm_ C. Arts 767, 771 and 820_ 8. Comm. C Art. 767. On issuing protest see Comm. C. Art. 768. 9. The law of the forum usually governs procedural issues_ 10_ Comm. C. Arts 769, 778, 818. 11- <;:elikel & Erdem, 465; Nomer, 213.

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the status of children. National law basically governs matters of personal status, but the Statute allows the law of the country of domicile or habitual residence to govern if the parties involved do not have the same nationality. And, in cases involving children, a court may not apply a law if it is not in the best interest of the child. [B]

Capacity

Capacity to contract is an important issue in conducting business transactions. The legal capacity of a real person to have rights or to act is governed by his national law. However, under the Statute, if a foreigner who transacts business in Turkey is legally competent under Turkish law but lacks legal capacity under his national law, he is bound by the legal transaction (Article 9 I and II). An exception to this rule is that the legal capacity to conduct transactions related to immovable property in a foreign country is determined by the law of that country (Article 9 II). Turkey is not a signatory to international agreements regulating the capacity of legal persons. Under the Statute, the capacity of legal persons to be holders of rights or to act are governed by the law of the location of their administrative center designated in their statutes (Article 9 IV). This law determines when and whether a foreign legal person exists, 12 the extent of its capacity to enter into transactions, the legal status of the various constituent parts of the legal person, the legal relationships between members, partners or shareholders and legal relationships between these persons and the legal person. 13 If, however, the actual center of administration of a foreign entity is in Turkey, Turkish law may be applied on the issue of its legal capacity. The Statute applies to busiftess associations with legal personality such as corporations, partnerships with limited liability and other commercial partnerships as well as to non-profit-sharing societies and foundations, which have legal personality in Turkey. It does not regulate the applicable law to the internal relations of the corporations. [C]

Property

Article 21 of the Statute concerns ownership and other interests in movable or immovable property, like liens, mortgages (hypothec], usufructs, easements, and flat ownership. The law of the country where the property is located governs these rights. Ownership interests in goods that are in transit are, however, subject to the law of the place of destination. The law of the last location of the property governs rights in rem (real rights) in property that is not yet acquired if there has been a change of location (Article 21 II and III). However, real rights in air, sea and rail transportation vehicles shall be governed by the laws of their country of origin, which is generally is determined according to the place of registration (Article 22).

12. Tekinalp, 80 et seq. 13. Tekinalp, 73.

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Rights in intellectual properties are governed by the law of the country where protection is sought (Article 23). The Turkish Law on Copyrights states that Turkish law will govern copyright interests in works that are first made available to the public in Turkey. 14

[D]

Contracts (and Unilateral Declarations)

The basic principle of the Statute is to allow persons freedom of contract. Parties to an agreement may choose the applicable law to govern future contractual disputes arising out of their contract at any time, even during court proceedings (Article 24). This agreement on applicable law must be explicit. It is, however, sufficient if it is understood clearly and beyond doubt from the provisions of the contract or from the relevant circumstances that the parties have agreed on the applicable law. However, laws of the forum concerning consumer protection, labor law, insurance, restrictive trade practices and other protective legislation, cannot be avoided by the parties' agreement on which law shall govern their contract. 15 If a governing law has not been explicitly chosen, the Statute foresees that, as a rule, the law of the country which is most closely connected with the contract should govern. The Article 24 of the Statute reflects Article 4 of the EU Convention on the Applicable Law to Contractual Relations of 1980. This Article 24 regulates the details of this general rule of "close connection", according to which, the most closely connected law will be determined by referring to the place of the characteristic performance of the obligor. The place of characteristic performance is determined according to the place of habitual residence at the time of the enactment of the contract. For contracts related to commercial or professional activities, this is the place of business of the obligor of the characteristic performance. If t_here is no such place of business, the law of his domicile will be applied. If there is more than one place of business of the obligor of the characteristic performance, the law of the country to which the place of business is most closely connected is considered as the place of performance. Nevertheless, if there is a law more closely connected with the contract, after considering all relevant circumstances, the contract shall be governed by this law (For the presumption of close connection, see also Article 29 on carriage of goods). Contracts relating to immovable property or their use shall be governed by the law of the country where such property is located (Article 25). For consumer contracts, as a rule, the law of the habitual residence of the consumer shall be applied. If the parties have chosen the applicable law, this law may not prejudice the rights of the consumer available under the laws of his habitual residence (Article 26). On disputes deriving from labor contracts, if there is no agreement among the parties on the applicable law, the law of the country where the employee habitually

14. Fikir ve Sanat Eserleri K. Art. 88 II. 15. Namer, 331 et seq.

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carries out his work will be applied. If, however, the employee does not habitually carry out his work in a specific country, but in more than one country, the law of the country where the principle place of business is situated is applied. If there is another law which is more closely connected with the employment contract, this law shall govern (Article 27 III and IV). In intellectual property disputes, if the parties have not agreed on applicable law, the law of the place of business of the party transferring intellectual property rights or assigning their use, shall be applied. If there is no such place of business, the law of his place of habitual residence shall apply. If, however, there is another law, which is more closely connected with the contract, this law shall apply (Article 28). [E]

Torts

For disputes regarding torts, the place where the tortuous act is committed or where the damage occurs determines the applicable law, unless there is a relationship of an obligatory nature underlying the tortuous act, which is more closely connected with another country (Article 34). This rule is significant in cases arising out of traffic accidents in Turkey that were caused by foreigners or Turks who reside in a foreign country and are only visiting in Turkey. Generally these persons travel back to their country of residence where they realize the greatest damaging effects of the tort. Unfair competition disputes are governed in two different ways. Normally liability for damages shall be governed by the law of the country whose market is directly affected by the act of unfair competition. If, however, only the interests of the plaintiff are damaged, then the law of the country where the place of business of the damaged party is located shall be applied (Article 3 7). Liability for violation of "personality" and the non-contractual liability for producers of goods are also covered in the Statute (Articles 35 and 36). [F]

Unjust Enrichment

The law of the place that governs a legal relationship governs whether a party to that legal relationship is entitled to compensation for unjustly enriching another party in the relationship. If an unjust enrichment is not the result of a legal relationship the law of the place where the unjust enrichment has occurred will govern (Article 39). §14.05

INTERNATIONAL LAW OF PROCEDURE 16

The provisions of the Statute on procedural matters are basically the same as the previous law. ' !

16. See, Poroy & Oziilkii, "Turkey'', Enforcement of Foreign Judgments, (eds.: Garb & Lew, 1997) which contains a list of international conventions to which Turkey is a signatory.

§14.0S[A]


International procedure involves four basic issues: (1) When does a Turkish court have jurisdiction in a dispute involving foreign

parties or interests? (2) If a Turkish court has jurisdiction, which county's procedural rules apply? (3) If a foreign law governs a dispute before a Turkish court, how will the Turkish judge determine the content of the foreign law? (4) Finally, under what circumstances will foreign court decisions be recognized and enforced by Turkish courts?

[A]

Jurisdiction

(1)

Agreements on Jurisdiction

The Statute gives persons freedom to agree on which country's courts will have jurisdiction over contractual relations that involve foreign elements or interests. 17 This is, however, only possible if the jurisdiction of Turkish courts is not exclusive or not determined by ordre public (Article 47). Turkish courts have exclusive jurisdiction over disputes related to immovable property located within Turkey. 18 Turkish courts may also have exclusive jurisdiction over law suits deriving from contracts entered into by agents against foreign businesspeople doing business through agents in Turkey. 19 This rule may not be eliminated by an agreement of the parties (Comm. C. Article 105 II). The jurisdiction of the Turkish courts may also not be avoided on matters deriving from labor contracts or labor relationships, from consumer or insurance contracts (Article 44 et seq. 47 II). The parties may enter into a jurisdiction agreement. The Code of Civil Procedure allows such agreements only between merchants (Article 17). To be valid they should be made in written form (Statute Article 47 I, Code of Civ. Pr. Article 18. An agreement on jurisdiction may be proved only if there is a written proof). For some time the Turkish High Civil Court of Appeals held that an agreement on jurisdiction did not deprive Turkish courts of their normal international jurisdiction but gave only an alternative jurisdiction in which a claimant could sue. 20 In more recent decisions the Supreme Court has held that an agreement on jurisdiction can give jurisdiction to a foreign court and Turkish courts will not have concurrent jurisdiction. The new Statue solved this problem by allowing jurisdiction to Turkish courts in such cases, only if the foreign court considers itself as not having jurisdiction (Article 47 I). If a person is sued in a Turkish court and wishes to defend on the basis of an agreement depriving Turkish courts from having jurisdiction, the agreement must be raised as a preliminary objection. 21 17. 18. 19. 20. 21.

Article 47 and Art. 22 C. Civ. Pr. Namer, 500. See Chapter on Agency. HGIK (Court of Cassation), June 15, 1988, YKD 1988, 123. Namer, 464f.

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If the parties to a dispute involving international matters have no agreement on jurisdiction, a Turkish court will determine whether it has jurisdiction based on its internal rules of jurisdiction (Article 40). In making this decision, the nationality of the parties is not conclusive. For real persons, courts located in the Turkish domicile of the defendant have jurisdiction (C. Civ. Pr. Article 6). If the defendant has no present domicile in Turkey, courts located in his habitual residence in Turkey have general jurisdiction (C. Civ. Pr. Article 9). The domicile of legal persons is the place of their administrative center (C. C. Article 51). The business center stated in a legal person's statutes is considered as the equivalent of the domicile of a real person. Foreign business associations may do business within Turkey through branch offices or agents. Turkish courts will also have jurisdiction over foreign persons for disputes arising out of contracts entered into or negotiated by their branches offices or agents (Comm. C. Article 105 II). If the center of a holding company is outside of Turkey, the courts where the domicile of the subsidiary is located have jurisdiction (Comm. C. Article 202 I e). The Statute contains additional provisions giving jurisdiction to Turkish courts. Lawsuits related to property may be initiated in Turkey at the place of residence of the defendant. If the defendant has no known residence in Turkey, jurisdiction is at the place where the property is located (C. Civ. Pr. Article 9). Turkish courts also have jurisdiction over disputes arising out of contractual obligations if the obligation was to be performed in Turkey (C. Civ. Pr. Article 10). Turkish courts also have jurisdiction over obligations arising out of tort if the tort was committed or damage occurred or the domicile of the damaged person is within Turkey (C. Civ. Pr. Article 16). In addition, Turkish courts have jurisdiction over cases involving the personal status of Turkish nationals even \Yhen they have no domicile in Turkey, if a suit may not be brought to a court in a foreign country (Article 41). These cases are heard at a Turkish court where the person resides. If there is no residence in Turkey, at the courts of last domicile within Turkey; otherwise civil courts of first instance in Ankara, Istanbul or Izmir have jurisdiction (Article 41) .22

{2]

Pending Process (lis pendis, derdestlik)

Occasionally lawsuits are brought in more than one court in Turkey. Turkish internal law discourages this and allows parties to object to a second law suit. The objection may be raised at any stage of the process (C. Civ. Pr. Article 114 et seq.) Unfortunately, the Statute does not regulate situations in which lawsuits are brought in two different countries. 23 It has been argued that the filing of a lawsuit in another country which has jurisdiction, does not preclude bringing a lawsuit in a Turkish court. 24 Some bilateral agreements between Turkey and foreign countries, however, explicitly state that pending cases concerning the same subject matter, between the same parties, and

22. For inheritance cases see Art. 43. For personal status of foreigners see Art. 42. 23. Except the jurisdiction agreements, Art. 47 I. 24. Nomer, 442.

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based on similar facts, precludes a new law suit in Turkish courts. 25 Some argue that this is presently the law in Turkey, even without a bilateral agreement or treaty. 26

[B]

Lex Fori

Even in cases involving foreign substantive law, a Turkish judge will apply Turkish procedural rules. 27 The Turkish court will apply the Turkish law on evidence and the judge will evaluate under rules of Turkish law whether to admit the testimony of witnesses or written evidence taken in a foreign country. 28

[C]

Proof of Foreign Law

There has been an evolving answer in Turkey to the question of whether foreign law in a Turkish court is an issue of fact which the parties have the burden to prove, or an issue of law which must be determined by the court. The present Statute on PIL and the Code of Civil Procedure give a clear answer to this issue. According to Article 2 of the Statute, the judge, ex officio, applies the Turkish conflict of laws rules and the governing foreign law which is applicable according to these rules. This is also stated in the new Code of Civil Procedure (C. Civ. Pr., Article 33). The judge is required to apply not only foreign statutory law, but case law and doctrinal writings as well (Article 2 II). Thus foreign law must be treated not as a "fact" but as "law." If the foreign law is applied wrongly, or not applied at all, it will be a ground of appeal because of "misapplication of law". 29 The Turkish judge is not obliged to know the foreign law. 30 In determining the content of applicable foreign law the judge may demand the help of the parties. When the relevant provisions of the -foreign law applicable to the specific case cannot be determined, the judge must apply Turkish law (Article 2 I). Turkey is a participant in the European Convention on Information on Foreign Law of June 7, 1968, 31 which enables a judge to get official information on applicable foreign law. A judge may also require expert opinion to describe the rules of foreign law applicable to the particular case.

[D]

Enforcement and Recognition of Foreign Court Decisions

Under Turkish law Turkish courts can recognize (tan1ma) and enforce (tenfiz) foreign judgments. Generally the same rules apply to recognition and enforcement. Whether a default judgment of a foreign court will be recognized or enforced is regulated in the 25. 26. 27. 28. 29. 30. 31.

Agreement by Turkey and Tunisia, 1982, Art. 2 f, <;:elikel & Erdem, 642. <;:elikel & Erdem, 642. Namer, 380 et seq. Namer, 391 et seq. Namer, 199 et seq. Namer, 189. OG Aug. 26, 1975.

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Statute. Default judgments are enforceable if the judgment is validly given under the laws of the country where it is rendered (Article S4 I, c;. See below section §14.0S[D][3]). In practice, "payment orders" as well as other foreign "enforceable titles" are not considered "judgments" within the meaning of the Statute and are therefore not enforceable. 32 [1]

Enforcement Hearing

A foreign judgment, which is final under the laws of the country where it was entered, will be recognized and enforced by a Turkish judge after a hearing is held to determine if all the statutory preconditions necessary for execution or recognition are present. The hearing is not a re-opening of the facts of the case, but is more than just a formality. The judge must invite both parties to the hearing. He renders his decision after an inquiry conducted under rules of simplified procedure. There is normally no review of the merits of the original case and the defendant can only show that the statutory conditions for enforcement do not exist or that the foreign court decision has already been fully or partly fulfilled or that an event which hinders its fulfillment has meanwhile occurred (Article SS II). The Turkish court may decide to enforce the judgment fully or partly, or may refuse enforcement. This decision shall be written beneath the foreign court decision and signed and sealed by the Turkish judge (Article S6). [2]

Reciprocity (Kaqnhkhhk)

The recognition or enforcement of a foreign judgment in Turkey requires reciprocity (Article S4 I, a). Turkey has signed reciprocity agreements with some countries 33 but reciprocity established by an international agreement is not a prerequisite for enforcement of a foreign judgment. De facto reciprocity is also sufficient (Article S4 I, a). If the actual practice of a foreign country is to enforce Turkish court decisions, the decisions of that country will also be enforced in Turkey. Such de facto reciprocity has already been established for court decisions rendered in some of the Western European countries, including England, Germany and Switzerland. 34 It is not clear if foreign countries whose courts enforce Turkish judgments only after a review of the merits of the case will be considered by Turkish courts as meeting the reciprocity standard.

32. Budak, 84-85. 33. Norner, 497 et seq. 34. c;:elikel & Erdern, 622 et seq.; Budak, 82 et seq.

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Tugrul Ansay & Eric Schneider Ordre Public

A foreign judgment will not be enforced if it concerns a matter under the exclusive jurisdiction of Turkish courts 35 or if it is obviously against Turkish ordre public (Article 54 I, b and c). When basic values of Turkish law are damaged, as when a party has not had an opportunity to defend himself in court, it is assumed that Turkish ordre public is damaged. 36 In particular, a foreign judgment will not be enforced if, under the law of the foreign country, the person against whom the enforcement is sought has not been properly summoned, or was not represented in court, or had a default judgment rendered against him, which was contrary to the laws of that country. Enforcement in these cases will be rejected if the party against whom the enforcement is sought raises these objections in the Turkish court. 37 It has been argued that a foreign court decision will not be enforced in Turkey if a similar case between the same parties has already been decided in Turkey. 38 [4]

National Treatment

Foreign judgments that have been granted enforcement in Turkey are treated like Turkish internal court judgments and can be executed upon as if they were Turkish court decisions (Article 57 I). Selected Bibliography Ansay, T., American-Turkish Private International Law, New York 1966 (Mainly for the law prior to 1982}. Budak, A.C., Making Foreign People Pay, 1999. <;:elikel, A. & Erdem, B., Milletlerarasi Ozel Hukuk, 11th ed., Istanbul 2012. Namer, E., Devetler Hususi Hukuku, 20th ed., Istanbul 2013. $anh, C., Milletlerarasi Ozel Hukuk, Istanbul 2013. Tekinalp, G. & Uyamk, c;:., Milletlerarasi Ozel Hukuk, 11th ed., Istanbul 2011. Tekinalp, G., "The 2007 Turkish Code Concerning Private International Law and International Civil Procedure". Yearbook of Private International Law IX (2007}: 313-341.

35. 36. 37. 38.

Suits on immovable property located in Turkey. Nomer, 500 et seq. Nomer, 505. Article 54 I,<;. <;:e!ikel & Erdem, 640.

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CHAPTER

15

Foreign Investment Bilgin Tiryakioglu *

§15.01

FOREIGN INVESTMENT: HISTORY AND LEGISLATIVE FRAMEWORK

The legislative framework of foreign investments under Turkish law is not solely limited with domestic legislation, but reaches out to cover bilateral and multilateral treaties to which Turkey is party, In this respect, some issues such as definition of investment and investor, settlement of investment disputes, standard of treatment to which foreign investments will be subject are governed by national legislation regarding investments, in conjunction with international law. On the other hand, forms of investments are also subject to the provisions stipulated under some of the fundamental Codes, such as the Turkish Commercial Code and Turkish Civil Code, and other regulations set out under the Turkish legal architecture. The first legal initiative observed to have been undertaken in Turkey in order to attract foreign investment into the country was known as Law No. 6224 on Encouragement of Foreign Capital,1 which was promulgated in 1954. 2 At the time when it * Professor of Private International Law, Faculty of Law, Bilkent University, Ankara. 1. Law Nr. 6224, Jan. 18, 1954. OG 23 Jan. 23, 1954, Nr. 8615.

2. One must also consider two other significant steps that were taken prior to the promulgation and entry into force of this law. The first is the Law on Guaranteeing Private Undertakings and Foreign Currency Commitment (Law No. 5583, Mar. 1, 1950 (OG. Mar. 4, 1950). This law was abrogated, together with Law No. 5821 on the Promotion of Foreign Capital Investment, after being in force about a year (Law No. 5821, Sept. 8, 1951 (OG. Aug. 9, 1951). Law No. 5821 enabled foreign investments to enter into the country, provided that it be used in matters open to Turkish private capital and provided that it not constitute monopoly or grant privilege. The law opened up the industry, energy, mining, public works, transportation and tourism sectors to foreign investments, and accepted profit transfer of foreign investment, albeit with a restriction at a certain rate. The law was abrogated, together with Law No. 6224 on Encouragement Foreign Capital, after having been in force for about 2,5 years, when it was understood that its aim could not be accomplished.

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Bilgin Tiryakioglu

entered into force, Law No. 6224 had principally prioritized the goal to incentivize foreign capital and was considered the most liberal foreign capital law of its time. This Law, for many years, served as an applicable legal source to all foreign investments, excluding oil exploration, drilling and processing. While the Law permitted foreign capital to enter the country on the condition that it be used for businesses open to Turkish private sector, it also sought other conditions, such as being beneficial to the country's economic development, not causing monopoly and not seeking privilege. With respect to profit transfer, Law No. 6224 lifted the restrictions set forth under the previous Law No. 5821, and enabled investors with foreign capital to be treated equally with domestic investors in terms of acquisition of rights, exemptions and conveniences. Although the Law No. 6224 was considered to be a pro-investment legal instrument, its provisions related to the approval of foreign investments were designated in an ambiguous and broad manner. Hence, most of the foreign investors came to the crossroads where they either had to bear a long and busy bureaucratic process in order to obtain official approvals for their investments, or to withdraw their applications on early stages. Having been in force for nearly SO years and being considered as an "investment-friendly" law despite its failure to attain its goals due to bureaucratic hurdles, Law No. 6224 was consequently abrogated in 2003 with the entry into force of the currently applicable Law No. 4875 on Foreign Direct Investment (FDI). 3 Law No. 4875, together with the Regulation that sets forth the principles of its implementation (hereinafter "Regulation on FDI Act"), 4 comprise the basic legal framework on foreign investments in Turkey. Essentially, the Law and the Regulation are the products of legal efforts spent for the creation of an eligible climate for foreign investments that took start in 1980s5 and gained momentum couple of years prior to the enforcement of the current legal framework. Significant amount of work undertaken during this period, including relevant amendments to Turkish Constitution could be deemed to have composed a reform. In brief, the system applicable since 1950s came to an end in 2003 as a result of the enactment of fundamental legal amendments which reflect the 1980s policy of opening up to the outside world and indicate the legal efforts for attracting foreign capital that took place as continuation of this policy until 2000s. The most fundamental characteristic of this new legal framework, to which Law No. 4875 constitutes a central instrument, is the abrogation of the permission and 3. Law No. 4875, Jun. 5, 2003, OG. Jun. 17, 2003. 4. The principles on the application of Law Nr. 4875 have been regulated with the Regulation on the Application of Foreign Direct Investment Law (OG. Aug. 20, 2003). Pursuant to Provisional Art. 1 of Law Nr. 4875, the Foreign Capital Framework Decree that entered into force with the Council of Ministers Decision, dated Jun. 7, 1995 and numbered 95/6990, and communiques related to this decision have been abrogated with the entry into force of this regulation. 5. Together with the Decisions dated Jan. 24, 1980 (referred to as the "January 24 Decisions"), which constitute a turning point for the Turkish economy, the Turkish economy was opened to foreign countries. The January 24 Decisions brought about significant changes not only in the foreign capital area, but also in all other areas of the economy. Among the January 24 Decisions, the Bylaw Nr. 8/168 on Foreign Capital Framework (OG. Jan. 25, 1980-16880) was enacted in order to steer foreign capital investments, decisions and implementations in relation to these as well as to overcome the hold-ups in relation to foreign capital. The enactment of this bylaw is considered to be a turning point in Turkey's approach towards foreign investment.

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Chapter 15: Foreign Investment

approval system (which was in force until 2003 as an indispensable part of the former applicable system) from the Turkish foreign investment law and its practice. On the other hand, one can observe that the other restrictive elements of the previous Turkish foreign investment regime are no longer sought under the new one. For instance, the new regime neither requires the foreign investor to bring in a specified amount of capital in order to enter the country nor necessitates the investment to be related to an area which is open to Turkish private sector. Moreover, constituting monopoly is not considered to be an obstacle for the foreign investment to take place under the new regime. In the new period that began in the 2000s, due to the extremely liberal legal regulations taking effect (including the amendments made to the Turkish Constitution, as being the foremost) and the radical decrease in the bureaucratic procedures, the number of multilateral and bilateral agreements on foreign investments to which Turkey became party, rapidly increased. In this context, the principles and assurances stipulated under national laws for foreign investors were not confined, and Turkey's responsibilities towards foreign investors were aligned with international commitments. Turkey had been party to 41 bilateral investment treaties between the period of 1962-2000 (approximately 40 years); however, this number significantly increased to 75 including 34 new treaties signed in the past 13 years as a result of the policies that began in 2000 to attract foreign investors into the country. Furthermore, it is noteworthy that Turkey's official participation as a signatory state to the Energy Charter Treaty (ETC), 6 a treaty pertinent to energy investments, falls within this time period as well. §15.02

DEFINITION OF INVESTMENT AND INVESTOR UNDER THE NEW TURKISH FOREIGN INVESTMENT REGIME

Under the new foreign investment regime, the definitions for "investment" and "investor" have been kept broadly in alignment with international standards, such as those found under bilateral and multilateral international agreements.

[A]

Foreign Direct Investment

Pursuant to Article 2 (b) of Law No. 4875, economic assets such as capital in cash, company stocks and bonds (excluding government bonds), machinery and equipment, and industrial and intellectual property rights have been deemed as direct foreign investment, provided that they are acquired from abroad by the foreign investor. On the other hand, Law No. 4875 also considers certain investments that are made through certain economic assets as direct foreign investments even if they have not been acquired from abroad. In this respect, reinvested earnings, revenues, financial claims or any other investment related rights of financial value that are acquired from Turkey by a foreign investor are evaluated as FDI. Additionally, commercial rights for the exploration and extraction of natural resources that are acquired from Turkey are also considered as FDI under Law No. 4875. 6. OG Jul. 12, 2000, Nr. 24107.

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§15.03[B]

Bilgin Tiryakioglu

The foregoing economic assets that have been enumerated under Law No. 4875 and considered as FDis are not limited with the aforementioned ones. Since the provision explicitly uses the phrase "by means of, but not limited to ... "when listing the means of investment; similar other means and investment types are also considered as FDis even though they are not listed specifically under Law No. 4875. In this respect, various means of investment that may arise as result of economic and technological advancements are also be deemed as FDI under Turkish law. [B]

Foreign (Direct) Investor

The definition of a foreign investor is stipulated under Article 2 of Law No. 4875. Accordingly, real persons residing abroad, possessing foreign nationality and Turkish citizens residing abroad, together with foreign legal entities established under the laws of foreign countries and international institutions, are considered as foreign investors provided that their investments in Turkey fall within the scope of FDI. In order to consider Turkish nationals residing abroad as foreign investors, they must certify that they reside abroad by obtaining work or resident permits (Article 10, Regulation on FDI Act). §15.03

[A]

THE GOVERNING PRINCIPLES IN THE NEW FOREIGN INVESTMENT REGIME Freedom to Invest

As a result of entry in to force of Law No. 4875, the permission and approval system (an indispensable part of the old investment regime) was abrogated and it was replaced with a system based on reporting information. Unless otherwise specified by international agreements and special legal provisions, Article 3 (a) (1) of Law No. 4875 expressly provides that foreign investors are free to make FDis in Turkey. Since the permission and approval system was abrogated, foreign investors are now obliged to report statistical information with respect to their investment to the Ministry of Economy, General Directorate of Incentive Practices and Foreign Capital. The last paragraph of Article 4 of Law No. 4875 stipulates that such information cannot be used as evidence other than for statistical purposes. [B]

National Treatment Principle

The principle that national investors and foreign investors shall be equally treated was also one of the fundamental principles of the previous Turkish investment regime that was in force before 2003. This principle has also been preserved in Law No. 4875. Unless stipulated otherwise by international agreements and other special laws, foreign investors shall be subject to equal treatment with domestic investors (Article 3 (a) (2), Law No. 4875).

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[C]

Freedom to Transfer

Under the new foreign investment regime, foreign investors may freely make transfers without being subject to any restrictions. In fact, Law No. 4875 does not stipulate any rule preventing the foreign investor from making transfers abroad even if the foreign investor is in debt for tax due or for insurance premiums. Moreover, allocating funds for technological innovation is not designated as a condition for the transfer under the Law either. As per Law No. 4875, foreign investors may transfer abroad net profits, dividends, proceeds from the sale or liquidation of all or any part of an investment, compensation payments, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions, without any legal limitation (Article 3 (c), LawNo.4875). §15.04

[A]

OTHER PRINCIPLES APPLICABLE TO FOREIGN DIRECT INVESTMENTS WITHIN THE NEW FOREIGN INVESTMENT REGIME

Standards of Expropriation and Nationalization

Through the Law No. 4875, principles of both international customary law and international agreements related to expropriation and nationalization of foreign investments have been injected into t~e national law. In this respect, FDls shall not be expropriated or nationalized, except for public interest and upon compensation in accordance with due process oflaw (Article 3 (b), Law No. 4875). While Law No. 4875 has not included the "non-discrimination of expropriation and nationalization" criteria (which is in fact an expropriation and nationalization standard that has become international customary law), this criteria is observed to have been accepted under all of the bilateral investment agreements to which Turkey is party.

[B]

Resorting to Arbitration and Other Dispute Resolution Mechanisms in the Resolution of Disputes

Another remarkable development that took place in the 2000s was the lifting of obstacles that lay before international arbitration, through enactment and amendment of national legislation both on the Constitutional and lower level. In addition to this, Turkish legislator specifically regulated this issue under Law No. 4875. For the settlement of disputes arising from investment agreements subject to private law and investment disputes arising from public service concessions contracts and conditions which are concluded with foreign investors, foreign investors may apply to national or international arbitration or other means of dispute settlement, along with authorized local courts, provided that the conditions in the related regulations are fulfilled and the parties agree thereon (Article 3 (e), Law No. 4875).

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Bilgin Tiryakioglu

Valuation of Non-cash Capital

Non-cash capital is valued within the framework of the regulations stipulated under the Turkish Commercial Code. In case that stocks and bonds of companies established abroad are used as foreign capital share of foreign investors, the values determined by the relevant authorities in the home country, or by the experts designated by the courts of the home country, or any other international institutions performing valuations will be accepted (Article 3 (f), Law No. 4875). §15.05

FORMS OF INVESTMENT

Investments that are considered to be FDis pursuant to Law No. 4875 which are maintained either through assets enumerated on Article 2 of Law No. 4875 or through similar economic assets thereto, regardless of being acquired from abroad Turkey, may be in the form of establishment of a new company or branch office of a foreign company, or acquisition of shares of a company established in Turkey outside the stock exchange (Article 2 (b) of Law No. 4875). Share acquisitions of a company can be the acquisition of 10 % or more of the shares or voting power of a company acquired through the stock exchange. Finally, companies established as per foreign laws can open liaison offices in Turkey, provided that they. are not engaged in commercial activities. By courtesy of Law No. 4875, the requirements for companies with foreign capital to bring in at least USD 50,000 and be incorporated as either a joint stock company or a limited liability company have been removed. Accordingly, through the use of the means of investment that are exemplified under Article 2 (b) of Law No. 4875, foreign investors can now establish any company and participate in established companies, just like domestic investors, without having regard to whether or not that company has a legal personality. Currently, there is no special requirement sought solely for foreign investments, regarding the forms of investment, except for the establishment of a liaison office, as a matter of fact, pursuant to Article 9 of the Regulation on the FDI Act, companies that foreign investors can establish or participate in shall fall within the categories of companies regulated under the Turkish Commercial Code or shall be ordinary partnerships regulated under the Turkish Law of Obligations. Partnerships that are established as a result of an agreement, and do not possess the distinct qualities of companies regulated under the Turkish Commercial Code, namely as consortiums, business partnerships and joint ventures are considered as ordinary partnerships for purposes of the application of Law No. 4875.

[A]

Incorporation of a Company

In the new investment regime, since the principle of "freedom to invest" has been accepted and the permission and approval system is abrogated, any type of company can be incorporated to operate in any sector with economic assets stipulated under Article 2 (b) of Law No. 4875. The issue of how these companies will be incorporated

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§15.05[C]

is thoroughly regulated with national laws. The rules applicable to companies incorporated by Turkish nationals (i.e., the Turkish Commercial Code, Turkish Law of Obligations and provisions under other legal regulations) will all be applicable to foreign investors without any discrimination. The only difference with respect to foreign investors is the obligation to report statistical information on foreign investments for companies incorporated pursuant to Law No. 4875 to the respective unit of the Ministry (Article 4 (3), Law No. 4875).

[B]

Establishing a Branch Office

There is no special obligation for foreign investors to establish a branch office through the use of forms of investment enumerated under Law No. 4875. Rules under the Turkish Commercial Code and under other legislations that are relevant to incorporation of branch offices by the domestic investors that fall outside the scope of the FDI have equal applicability to the incorporation of branch offices by foreign investors. Incorporating a branch office through the forms of FDI are not subject to special regulations, other than the reporting obligation specified under the last paragraph of Article 4 of Law No. 4875.

[C]

Share Acquisition and Portfolio Investment

Law No. 4875 has regulated share acquisitions that fall under its scope in a bifurcated manner. Pursuant to Law No. 487_5, foreign investor may acquire shares in two distinct ways. The first option would be to acquire shares of a company outside the stock exchange, irrespective of the number of shares. Such an acquisition can result in the foreign investor being a shareholder in a current company; it could also take place as a consequence of the full acquisition of a current company. In any event, the provisions of the Turkish Commercial Code and the relevant legislation will be applicable. The second option would be to maintain investment through share acquisition in stock exchanges. In this case, as per Law No. 4875, in order for this acquisition to be considered a FDI, the share acquired must be at least 10 % . Although such an acquisition essentially is of the nature of a portfolio investment, it is considered as a FDI with respect to Law No. 4875. The regulations to which such acquisitions would be subject are the ones applicable to share acquisitions of domestic investors, which are found under the Turkish Commercial Code, as well as in the Capital Markets Law. Therefore, there is no special provision set forth for the aforementioned situations; however, the only stipulation applicable thereto, is the reporting obligation which has been regulated due to the fact that shareholders' capital would be foreign sourced or the shareholders themselves would be foreigners. Article 5 of the Regulation on FDI provides a detailed rule on how and when reporting obligations are to be satisfied. In this respect, companies and branch offices that fall within the scope of Law No. 4875 are obliged to report information with respect to their capital and operations on a yearly basis and by the end of May every year. These companies and branch offices are also obliged to report information on

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payments made in the capital account within one month following the payment. Additionally, information with respect to share transfers made amongst the current national or foreign shareholders or to any national or a foreign investor outside the company must be reported to the Ministry of Economy, General Directorate of Incentive Practices and Foreign Capital within one month of the date when the share transfer takes place (Article 5 (a), Regulation on FDI). Companies with full national capital that fall outside the scope of Law No. 4875 are also obliged to report transfers of shares in case a foreign investor participates in the company or a foreign investor outside the company participates in the company's capital increase. In addition, if the company falls within the scope of Law No. 4875, it would be obliged to report share transfers as well. In these cases, share transfers must be reported to the General Directorate within one month following the date of the transfer of the shares (Article 5 (b), Regulation on FDI).

[D]

Establishing a Liaison Office

Contrary to incorporating a company or a branch office or share acquisition, establishing a liaison office in Turkey by a company that is incorporated as per the foreign laws is peculiar only to foreign investments. All provisions pertaining to liaison offices are regulated solely by legislation on FDI. Law No. 4875 s~eks two important requirements for the establishment of a liaison office: First, the liaison office that is established in Turkey is prohibited to engage in commercial activities, and second, the foreign company must obtain permission in order to establish such a liaison office. If it is revealed through inspections that the liaison office has engaged in commercial activities after having obtained the permission and commenced operations, its official authorization will be cancelled (Article 8 (d), Regulation on FDI Act). As per Article 6 of the Regulation on FDI Act, the Ministry of Economy is the competent authority to grant permission to establish a liaison office (provided that they are not engaged in commercial activities in Turkey) and to extend the periods of these authorizations for companies that have been incorporated pursuant to the foreign laws. When evaluating the requests of newly incorporated companies to establish liaison offices in Turkey, The Ministry decides in light of factors such as the company's field of operations, its capital and the number of personnel who are to be employed. The Ministry may also require a one-year period to be elapsed after the incorporation of the company when granting permission. The requests of foreign companies to establish liaison offices that will operate in special areas regulated by special legislation (such as the financial markets, and the insurance sector) are evaluated by the authorized agencies and institutions, within the context of the special legislation relevant to those sectors. With respect to applications for liaison offices that are made for the first time, authorization to operate in the area declared by the applicant is given for the maximum of three years (Article 8, Regulation on FDI Act). However, it is possible for this time period to be extended afterwards. Liaison offices that wish to extend their term of operation may apply to the General Directorate before the term of operation elapses.

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I

I


§15.06

However, the terms of liaison offices that have obtained permission in order to conduct market research or to advertise the foreign company's products or services cannot be subject to extension. In addition to the requirement of authorization for the term of the operation, liaison offices that have begun operating upon obtaining such authorization are also obliged to report. As stipulated under Article 8 of the Regulation on FDI Act, liaison offices are required to give information regarding their operations in the preceding year, latest by the end of May each year. [E]

Merging with a Turkish Company or Acquiring a Turkish Company

Apart from the competition law liabilities of merging companies, a merger is subject to the provisions stipulated under the Turkish Commercial Code. Since a merger essentially results in the incorporation of a new company, the explanations made relevant to the issue of incorporation of companies, also apply here. Pursuant to the provisions stipulated under the Turkish Commercial Code, in case of an acquisition, a company would be deemed to have been wholly or completely acquired by another company. [F]

Participating in a Joint Venture

There is no special regulation for a foreign investor participating in a joint venture through the forms of investments stipulated under Law No. 4875; such participation has been made subject to the same regulations as applied to the establishment of joint ventures by wholly national investors. As a matter of fact, pursuant to the express provision under Article 9 of the Regulation on FDI Act, partnerships that are established as a result of an agreement, and do not possess the distinct qualities of companies regulated under the Turkish Commercial Code, namely as consortiums, business partnerships and joint ventures are considered as ordinary partnerships for the purposes of the application of Law No. 4875. §15.06

WORK PERMITS OF FOREIGN PERSONNEL

Special provisions have been stipulated in relation to employment of foreigners in FDis. Therefore, these provisions provide a more favorable treatment to foreigners who fall within its scope, compared to the rest of the foreigners who are subject to general treatment concerning issues of employment. However, the scope of application for these special provisions does not include all FDis that fall under Law No. 4875. Favorable provisions of the special regulations are to be applied for the work permits of key personnel who will be employed in foreign investments which are of a special nature that fall within the context of FDI (Article 3 (g), Law No. 4875). If the personnel who will be employed in FDis are not considered to be key personnel, or if investments are not categorized as having special nature, the general regime on employment of foreign personnel will be applicable.

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§15.06

Bilgin Tiryakioglu

While employment of foreign personnel is regulated under the Law on Work Permits of Foreigners, 7 the provisions of the Regulation on Foreign Personnel in FDis (hereinafter "Regulation on Foreign Personnel in FDI"), 8 which constitutes a special regulation, apply to the procedure and principles on work permits of foreign personnel who will be employed at companies, branch offices and liaison offices that operate within the scope of Law No. 4875, as described above (Article 2, Regulation on Foreign Personnel in FDI). Work permits have been regulated in a more favorable context under the said regulation with respect to periods of time and the requirements sought, in comparison with Law No. 4817 and the its Regulation9 which are applied to other foreigners. In particular, the requirements under Article 14 of the Law No. 4817, which constituted as the basis for rejecting work permit applications, are not sought for key personnel who will be employed in FDis of a special nature. Law No. 4817 and Its Regulation will be applicable to work permits of those foreign personnel falling outside Article 2, Regulation on Foreign Personnel in FDI. Article 4 of the Regulation on Foreign Personnel in FDI has defined FDis that are of a special nature. 10 Key personnel who are employed in investments that fall under the scope of this definition are also specifically determined. Accordingly, key personnel are those who are: employed at the senior management or executive organ of a company that is incorporated in Turkey and that has legal personality; managing the whole or a part of the company; the company auditors; supervising or controlling the work of administrative or technical personnel; hiring new personnel to the company or letting go of currently employed personnel or authorized to make offers in these respects. Those who engage in the foregoing can be a company shareholder, CEO, board member, general manager, deputy general manager, company manager or company deputy manager. On the other hand, an individual who possesses knowledge of the company's services, its research equipment, techniques or information fundamental to the company management is also considered as key personnel. With respect

7. 8. 9. 10.

Law Nr. 4817, Feb. 27, 2003, OG Mar. 6, 2003. OG Aug. 29, 2003. OG Aug. 29, 2003. Indicates the company or the branch office that fulfills at least one of the following conditions and that falls within the scope of Law Nr. 4875: a)

Company or branch office whose turnover in the past year is at least TRY 79.8 million, provided that the total capital share of the foreign partners is at least TRY 1,062,491. bl Company or branch office whose exports in the past year is at least TRY 1 million, provided that the total capital share of the foreign partners is at least TRY 1,062,491. c) Company or branch office in which at least 250 personnel registered to the Social Security Administration were employed in the past year, provided that the total capital share of the foreign partners is at least TRY 1,062,491. d) Should the company or the branch office invest, the anticipated minimum fixed investment amount should be at least TRY 26.6 million. e) There must be one more foreign direct investment in at least one other country other than the country where the principal company is located. All values indicated in Turkish Liras above correspond to 2013 rates. The original monetary values indicated in the Regulation are calculated every year by adding asset revaluation rates (Art. 17, Regulation on Foreign Personnel in FDI).

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§15.06

to liaison offices, only one person to whom a certificate of authorization is issued by the principal company based abroad can become a key personnel. The competent authority to grant the work permits for key personnel in FDis that are of a special nature, is the Ministry of Economy (Article 5, Regulation on Foreign Personnel in FDI). Application for a work permit can be made from abroad, as well as from Turkey. Pursuant to Article 7 of the Regulation on Foreign Personnel in FDI, such foreigners can make their work permit applications abroad to the diplomatic missions of the Republic of Turkey in those countries of which they are nationals or where they are permanent residents. The diplomatic missions directly convey these applications to the Ministry, together with any evaluations they may have in relation to the respective work permit application. Documents requested at the time of appl~cation must be submitted to the Ministry by the employer of the foreigner within three business days· as of the date when the foreigner applies to the respective diplomatic mission. The details on making an application from Turkey by individuals falling under this group of persons are regulated under Article 8 of the Regulation on Foreign Personnel in FDI. Such foreigners or their employers can directly submit their work permit applications to the Ministry, provided that the foreigner is legally allowed to be in Turkey. The regulation also foresees that it is possible for the foreign personnel who have obtained work permit to also obtain work visa. Pursuant to Article 9 of the Regulation on Foreign Personnel in FDI, key personnel who have obtained work permit for FDis that are of a special nature, must submit this document to Turkey's diplomatic missions within 90 days as of the day when they obtained this work permit in order to request work visa and must apply within 30 days as of the day when they enter Turkey in order to obtain a resident permit from the Ministry of Interior Affairs. The requirement to obtain work visa from Turkey's diplomatic missions does not apply to key personnel who have obtained resident permit for at least six months and who have been granted with work permit within this period. Documents that are sought during application are those proving, in essence, that the company or the branch constitutes a FDI that is of a special nature, and that personnel with foreign nationalities are eligible to be considered as the key personnel (Article 10, Regulation on Foreign Personnel in FDI). Work permit for the operations of a liaison office is given to at most one person who is authorized. Application documents in this respect demonstrate that the respective liaison office has brought at least USD 200,000 or equivalent currency from abroad in the past year. The ministry finalizes applications for work permits or time extensions for key personnel, who will be employed at liaison offices with FDis that are of a special nature, within 15 days (Article 12 (I), Regulation on Foreign Personnel in FDI). Selected Bibliography <;:elikel, A. & Gelgel G., Yabancilar Hukuku, 19th ed., istanbul 2013. <;:ic;:ekli, B., Yabancilann <;ali$ma frinleri, Ankara 2004. Ek~ioglu, N., Yabancilar Hukukuna jli$kin Temel Konular, istanbul 2006.

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§15.06

Bilgin Tiryakioglu

Erten, R., Dogmdan Yabanci Yatmmlar Kanununun Tiirk Yabancilar Hukuku Sistemi jr;indeki Yeri ve Rolii, Ankara 2005. Gi:ikyayla Dernir C. & Siiral, C., "4875 say1h Dogrudan Yabanc1 Yatmrnlar Kanunu ve Getirdigi Yenilikler", Dokuz Eyliil Universitesi Hukuk Fakiiltesi Dergisi, 6, no. 2 (2004): 131-167. Tiryakioglu, B., Dogmdan Yabanci Yatmmlann Uluslararasi Hukukta Korunmasi, Ankara 2003.

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CHAPTER

16

International Commercial Arbitration in Turkey Zeynep Derya Tannan'

§16.01

LEGISLATIVE FRAMEWORK (SOURCES)

The main difficulty associated with arbitration in Turkey is that international and domestic commercial arbitration, and the enforcement of awards are all addressed under separate legal frameworks. There is a distinction between provisions relating to domestic and international arbitration. Both sets of rules are largely based on the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Arbitration Law). Arbitration is not seen as a cost-effective method to resolve domestic disputes which do not involve significant amounts. Therefore, arbitration in Turkey is not widely used for domestic disputes compared to litigation. However, arbitration is widely used to resolve international disputes. The only specific code relating to international arbitration proceedings is "The International Arbitration Law". The International Arbitration Law entered into force on July 5, 2001 1 and was modeled on the UNCITRAL Model Arbitration Law and the international arbitration section of the Swiss Federal Private International Law of 1987. The primary reason behind the preparation of the Law was Turkey's desire to attract more foreign companies and foreign investors by providing not only economic stability but also legal stability in a country where they plan to make investments. Consequently, the general principles enshrined in the Model Law constitute the general principles of arbitration in Turkey under the International Arbitration Law. In this regard, parties have equal rights and competence in arbitral proceedings and both parties must be given the opportunity to submit their claims and defenses in full. Party autonomy is encouraged and the * LL.M., Koi;: University, School of Law, istanbul. 1. Law Nr. 4686 published in the OG, Jul. 5, 2001, Nr. 24453.

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Zeynep Derya Tarman

intervention of the State courts in arbitral proceedings is limited to specific circumstances. The Turkish Code on Civil Procedure (hereafter: C.Civ.Pr.) which came into effect on October 1, 2011 2 deals with domestic arbitrations between local parties where no foreign elements are involved. The former C.Civ.Pr. was outdated and contained restrictive provisions on arbitration. The C.Civ.Pr. of 2011 is more aligned with the Turkish International Arbitration Law and reflects international legal and procedural principles, even though it applies only to domestic arbitration proceedings. Under Turkish law, there is no restriction preventing the Turkish state or its state entities from entering into arbitration agreements with other parties as long as the matter is arbitrable. They may then become a party to an international arbitration. Reluctance by the parties to refer to national courts of the state or its state entities with a concern that they will not be treated impartially makes arbitration an attractive alternative particularly for state - investor disputes. Moreover, in 1999, the Turkish Constitution was amended to make concession contracts arbitrable. 3 By this change, instead of the administrative courts' exclusive jurisdiction, the parties were allowed to conclude a private law contract with an arbitration clause. This was particularly important for privatization projects and Build-Operate-Transfer (BOT) contracts. The recognition and enforcement of foreign awards is regulated separately under the Private International Law and International Civil Procedure Code (hereafter: PIL 4 Code). Article 1/2 of the PIL Code states that "The provisions of international conventions, to which the Turkish Republic is a parti;, are reserved." If an issue falls within the scope of an International Convention, the International Convention takes precedence over provisions of the national law. Turkey is a party to the Washington Convention on the Settlement of Investment Disputes between States and Nationals of 5 Other States (1965), to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), 6 and to the Geneva Convention on International Commercial Arbitration (1961). 7 These conventions constitute a part of Turkish arbitration legislation. The most prominent institutions in Turkey for international arbitration are: The Union of Chambers and Commodity Exchanges of Turkey8 and The Istanbul Chamber 2. Law Nr. 6100 published in the OG, Feb. 4, 2011, Nr. 27836. 3. The demand to establish a code of international arbitration became apparent in disputes arising from Concession agreements and contracts regarding public services concluded for the assurance of necessary services and investments to construct big infrastructure facilities such as bridges, reservoirs, sewages and water treatment services which can only be executed by external financing. The major drawback of Concession agreements and contracts was the Council of State's (Dam;>tay) authority of preliminary examination. Since conflicts concerning Concession agreements and contracts were subject to administrative jurisdiction, the Council of State was granted the right to eliminate the clauses concerning international arbitration within Concession agreements and contracts during a preliminary examination. This elimination was an obstacle for foreign investors to make investments in Turkey. To put an end to this conflict created by the Council of State, many laws were amended starting with the Constitution. Kalpstiz, Ttirkiye'de Milletleraras1 Tahkim 2007, 5; ~anlt, 240. 4. Law Nr. 5718, OG Dec. 12, 2007 Nr. 26728. 5. Law Nr. 3460, May 27, 1988, OG Jul. 2, 1988, Nr. 19830. 6. Law Nr. 3731, May 8, 1991, OG May 21, 1991, Nr. 20877. 7. Law Nr. 3730, May 8, 1991, OG May 21, 1991, Nr. 20877. 8. Its website is www.tobb.org.tr.

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Chapter 16: International Commercial Arbitration in Turkey

§16.02[A]

of Commerce. 9 These organizations have a list of arbitrators and their own arbitration rules in respect to both domestic and international arbitration. There is a Draft Law, 10 which has not yet been ratified, proposing the establishment of an arbitration center in Istanbul for the resolution of domestic and international disputes. §16.02

[A]

TURKISH INTERNATIONAL ARBITRATION LAW

Scope of Application

The International Arbitration Law governs arbitrations that are "seated" in Turkey and involve a "foreign element". The place of arbitration in Turkey is one of the conditions of application of the International Arbitration Law and is used as a binding point. 11 Even if the seat (place) of arbitration is not in Turkey, the parties, the arbitrator or the arbitral tribunal can subject the arbitration to the International Arbitration Law, provided the dispute has a foreign element (Article 1/2). The Law specifies the cases where the dispute is considered to have a foreign element. In Article 2 of the International Arbitration Law, it is not only the place of arbitration or the applicable procedural law, but certain features of the dispute which give a foreign character to the arbitration. 12 The following circumstances will constitute a foreign element under Article 2: - if the habitual residence, domicile or place of business of any party to the arbitration agreement is located outside Turkey (m.2/1); - if the habitual residence, domicile or place of business of any party to the arbitration agreement is located in a country other than the seat (place) of the arbitration designated in the arbitration agreement [(m.2/2(a)]; - if the habitual residence, domicile or place of business of any party to the arbitration agreement is located in a country other than the place where the majority of the obligations under the main agreement will be performed or the place where the subject of the dispute is primarily related to [(m.2/2(b)]; - if at least one of the shareholders of a company that is a party to the main agreement containing the arbitration clause has injected foreign capital into the company under applicable foreign investment legislation 13 or when a loan or a guarantee agreement is executed in order to bring foreign investment to Turkey for performance of the relevant agreement (m.2/3); and

9. Its website is www.ito.org.tr. 10. http://www.kgm.adalet.gov.tr/DUYURULAR/isttahkim.pdf (erii;im tarihi: Aug. 24, 2013}. 11. The place of arbitration being in Turkey does not impose an obligation to perform arbitration

proceedings in Turkey, and it should not be interpreted as the only place where arbitrators meet and hear witnesses and experts or where the arbitral award is given. Namer, Eki;i & Geigel, 37. 12. Akmc1, 60; Kalpsuz, Turkiye'de Milletleraras1 Tahkim, 16-26; $anh, 247; Namer, Eki;i & Geigel, 38. 13. Law Nr. 4875 on Foreign Direct Investment of June 5, 2003, OG Jun. 17, 2003, Nr. 25141. See Chapter 15 on Foreign Investment.

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Zeynep Derya Tarman

- the main agreement or legal relationship constituting the basis of the arbitration agreement permits the flow of capital or goods from one country to another (m.2/4). The International Arbitration Law provides that "this Code shall not apply to disputes concerning in rem rights of immovable properties located in Turkey or to disputes that are not subject to the parties' will" (Article 1/4). Under this Article, a dispute related to immovable property is not arbitrable if it has arisen from immoveable property located in Turkey and the dispute concerns in rem rights. Turkish law restricts recourse to arbitration on matters that are not subject to the parties' freedom of contract. 14

[B]

The Arbitration Agreement

The International Arbitration Law defines the arbitration agreement as an agreement executed by the parties to settle all or any, present or future disputes arising between them out of an existing legal relationship through arbitration. An arbitration agreement can be established as an arbitration clause in a contract or as a separate agreement (Article 4/1). The main requirement for the validity of an arbitration agreement is the common consent of the contracting parties to resolve the dispute through arbitration. In some circumstances, even though the contract does not provide an arbitration clause, the parties may agree that the dispute should go to arbitration after the dispute has arisen. The consent of the parties to take the dispute to arbitration must be explicit and free of any kind of doubt. For example, clauses stating that disputes which cannot be solved by arbitral resolution should be solved by national courts are interpreted by courts as "contradictory" and therefore invalid. 15 The arbitration agreement must be in writing. This requirement is considered fulfilled if there is a written document signed by the parties or written communications between the parties confirming agreement (e.g., letter, fax or electronically). If the main contract makes a reference to a different document that includes an arbitration agreement, such reference will be acknowledged as a valid arbitration agreement by incorporation. 16 Alternatively, this requirement is also satisfied when a party refers to an arbitration agreement in court and the respondent does not object to the petition for arbitration claiming that there is a written arbitration agreement (Article 4/2).

14. Family law disputes, administrative law disputes or criminal issues cannot be referred to arbitration. In .order to protect the weaker party to the employment contract (employee), the Turkish Court of Cassation held that labor law disputes are not arbitrable. The amendment in Art. 20 of the Labour Act (numbered 4857) allows for the inclusion of an arbitration clause in the employment contract. This article provides that an employee whose contract was terminated can refer to arbitration as long as the collective employment contract has an arbitration clause or the parties have agreed to take the dispute to arbitration. The Turkish Court of Cassation held that only disputes arising from termination and the consequences of the termination of the employment contract are arbitrable. Thus, disputes arising from the other matters of labor law must be resolved by the Labour Law Courts (Court of Cassation 9th Civil Circuit decision, Mar. 22, 2004 numbered 5846/5621). 15. $anh, 231. 16. $anh, 253; Namer, Ekpi & Geigel, 42.

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§16.02[C]

The validity of the arbitration agreement is governed by the law chosen by the parties; failing such a choice of law, by Turkish law (Article 4/3). The validity of the arbitration agreement will also depend on whether the arbitration agreement has been signed by the authorized person. The International Arbitration Law does not deal with the issue of which law governs the capacity of the parties to enter into an arbitration agreement. This is determined according to the general conflict of law provisions in the PIL Code. 17 It is noteworthy that the International Arbitration Law recognizes the principle of the independence of the arbitration agreement from the underlying main agreement (Article 4/4). If the arbitration agreement is a clause in a main contract, the invalidity of the contract does not necessarily invalidate the arbitration agreement, provided the necessary requirements for a valid arbitration agreement are otherwise met. An arbitration clause which forms part of a contract can be treated as an agreement independent of the other terms of the contract and separable from the other parts of the contract (separability principle) .18 Under Article 7 (H) of the International Arbitration Law arbitrators may rule on their own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement (doctrine of competence-competence). For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration agreement. 19 [C]

Governing Law

[1]

Procedn.ral Law

The parties are free to agree on the rules of procedure to be applied in arbitration proceedings through specifically creating their own procedural rules. The Turkish International Arbitration Law also allows references to procedural acts or procedural rules of the ICC, UNCITRAL, GAFTA, etc. As a result, it would be possible to conduct an arbitration proceeding in Turkey pursuant to the International Chamber of Commerce Arbitration Rules. However, the procedural rules chosen by the parties cannot be contrary to the mandatory rules of the Turkish Arbitration Law. 20 These include, for example, the rules that the parties are treated equally and that due process is provided for parties to raise their claims and defenses. In the absence of the parties' agreement on the rules of procedure, the rules apply that are set out in the Code of Civil Procedure, in the case of domestic arbitrations, and the Turkish International Arbitration Law, in the case of international arbitrations.

17. Nomer, Devletler Hususi Hukuku 2013, 541. According to Art. 9 of the PIL Code, the applicable law to determine capacity is the national law of a real person. For a legal entity, the law of the seat of administration in their statues is applicable to determine capacity. 18. $anh, 253. 19. $anh, 253-254. 20. $anh, 258.

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§16.02[D] [2]

Zeynep Derya Tarman Substantive Law

Since the principle of party autonomy entitles the parties to choose the applicable law to the merits of the case as well, the arbitrator or the arbitral tribunal will decide on the merits of the dispute in accordance with the applicable law chosen by the parties. 21 Where a given state's laws are referred to, this reference is to be construed, unless otherwise expressed, as applying to the substantive law of that state; the reference is not generally extended to that state's procedural law. Similarly, unless otherwise agreed, the reference to the applicable law of a state does not extend to the state's conflict of laws rules according to Article 12 (C) of the International Arbitration Law. The arbitrators are bound by the choice of the parties under the principle of party autonomy in that once the parties have chosen the applicable law, the arbitrators are obliged to apply it. The arbitrators can only act as amicable compositeur if they are so instructed by the parties. When determining the substantive issues, the parties' contract must be taken into account in the first instance. In interpreting and applying the provisions of the contract, commercial practices and usages of trade will be taken into account. Under Article 12 (C) of the International Arbitration Law, in the absence of the choice of law to be applied to the substance of the dispute, the sole arbitrator or the arbitral tribunal decides according to the law with which they consider the dispute to be most closely connected. The arbitrators have great freedom over the method used to determine the law most closely connected to the dispute. 22

[D]

Intervention of the State Courts

The International Arbitration Law reduces the power of the State courts over arbitration and establishes arbitration -as a method of dispute resolution based primarily on the principle of party autonomy. State courts may only intervene in a dispute referred to arbitration to the extent permitted by the provisions of the International Arbitration Law (Article 3/2). The Court of First Instance where the respondent's habitual residence, domicile or place of business is located will have jurisdiction over the dispute in the circumstances stipulated in the Arbitration Law. If the respondents's habitual residence, domicile or place of business is located outside Turkey, the Istanbul Civil Court of First Instance will have jurisdiction (Article 3/1). In international arbitrations, Turkish courts can intervene in the following circumstances: 23 (i) Grant provisional and protective measures before the arbitral tribunal is constituted or during the arbitration proceedings or assist in enforcing provisional and protective measures ordered by the arbitral tribunal, if a party does not comply voluntarily with such measures (Article 6).

21. Sanh, 259. 22. Namer, 557. 23. Namer, Ek~i & elgel, 49.

250


§16.02[E]

(ii) Assist in taking evidence requested by the arbitrators to support the arbitration [Article 12 (B)]. (iii) Appoint an arbitrator if a party fails to appoint its arbitrator or if the arbitrators appointed by two parties fail to agree on the third [Article 7 (B)] .24 (iv) Decide on the challenge of an arbitrator [Article 7 (D)]. (v) Relieve the arbitrators if they are unable to reach a decision [Article 7 (F)]. (vi) Grant an extension of time if an award cannot be made within the necessary time limit [Article 10 (B)]. 25 (vii) Set aside the arbitral award (Article 15).

[E]

Setting Aside Procedure of the Arbitral Award

There is no appeal procedure for international arbitration awards. The only possibility is a setting aside action. The setting aside procedure excludes the possibility of any appeal on the merits of the dispute. Under Turkish law, the courts are not entitled to examine which substantive law the arbitral tribunal applied for the resolution of the dispute and whether it applied the law correctly or not. 26 An application for setting aside must be made· within 30 days of the party receiving the award. The hearing of the case must be held in a simplified procedure [Article 15 (A) 1)]. The setting aside procedure stops the execution of the arbitral award [Article 15 (A)4)]. The grounds for setting arbitral awards aside are listed in Article 15 (A) in a numems clausus manner, under two main titles. These are (a) causes to be taken into consideration by the judge ex-officio and (b) causes to be proved by the requesting party. 27 Under Article 15 (A), an arbitral award may be set aside if the court finds that (i) the subject matter of the dispute is not capable of settlement by arbitration under Turkish law; or (ii) the award is in conflict with public policy. Article 15 further provides the causes of setting aside an arbitral award that must be proved by the requesting party. If the party requesting the court to set aside the arbitral award proves that:

24. The parties' freedom to select the arbitrators includes not only their freedom on the determination of the number - however the number has to be odd-, but also the nationality, qualifications and appointing authority of the arbitrators. There are no requirements as to the professional qualifications or educational background of the candidates for arbitrators under Turkish Law. However, in case the arbitrators are appointed by the state court, the sole arbitrator or the chairman of the tribunal shall be of a nationality other than those of the parties [Art. 7 (B}]. 25. International Arbitration Law provides that where parties are silent on the time frame the sole arbitrator or the arbitral tribunal will render the award on the substance within one year from the appointment of the sole arbitrator or within one year of the date of the first minutes of meeting of the tribunal where there is more than one arbitrator. If the parties agree, the duration will be extended with their agreement, if they cannot agree one of the parties can appeal to the Court to extend the duration. 26. Nomer, 558. 27. The relevant circumstances are similar to those listed in the New York Convention of 1958 as the grounds which prevent enforcement of an arbitral award and those listed Art. 36(1} of the UNCITRAL Model Law.

251

Zeynep Derya Tarman

§16.02[E]

(i) a party to the arbitration agreement was under some incapacity; or the said

(ii) (iii) (iv) (v)

(vi)

(vii)

agreement is not valid under the law to which the parties have subjected it or, failing any indication regarding the law applicable, the arbitration agreement is invalid under Turkish law; the composition of the arbitral tribunal is not in accordance with the parties' agreement; the arbitral award was not rendered within the term of arbitration; the arbitral tribunal unlawfully found itself competent or incompetent; the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration; the arbitral proceedings were not in compliance with the parties' agreement or, failing such agreement, with the International Arbitration Law, and such non-compliance affected the substance of the award; and the parties were not treated with equality, the Court of First Instance will set aside the arbitral award.

The International Arbitration Law envisages another step before an award can become final and enforceable; the right to appeal the court's decision with respect to the setting aside request on the same grounds [Article 15 (A)7]. The acceptance of both setting aside and appeal procedures will result in the extensiqn of the period before the dispute will be finally resolved. Article 15 of Turkish International Arbitration Law allows the parties to partially or wholly waive their right to apply to have the award set aside. Such a waiver is permitted only if neither party has a domicile or place of habitual residence in Turkey [Article 15 (A)5]. Such a waiver seems to be accepted for the promotion of Turkey as a place of international arbitration. Unless an application is made to set aside the award, or if such application is made and dismissed by the competent court, any party may acquire a document from the Court of First Instance indicating that the award rendered is final and binding [Article 15 (B) I]. In granting this document, the Civil Court of First Instance must consider whether, under Turkish law, the dispute subject to the arbitration award is capable of being resolved by arbitration and whether the award is in compliance with public policy. The court can consider these issues on its own motion, without the need for any demand of the parties [Article 15 (B)2]. The "executor decision" document given by the court is sufficient and necessary for the execution of an arbitral award. 28 This applies to arbitrations which are subject to the International Arbitration Law. An arbitral award where the Turkish International Arbitration Law has been applied is considered a domestic arbitral award. For this reason, such arbitral awards are directly enforceable and are not required to be subject to an enforcement lawsuit in Turkey. Otherwise, the enforcement of foreign awards is subject to the New York Convention or the PIL Code.

28. Nomer, 558-559;

~anll,

266.

252

Chapter 16: International Commercial Arbitration in Turkey §16.03

§16.03

RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS

The recognition and enforcement of foreign and domestic arbitral awards are subject to different regimes under Turkish law. Arbitr al awards rendered in accordance with the Turkish International Arbitration Law or the Code of Civil Procedure will be deemed "domestic arbitral awards". An award will be directly enforceable in Turkey when it becomes final and binding. On the other hand, if the award is rendered in the territory of a state other than Turkey29 and if the award is not deemed a domestic award under Turkish law, the recognition and enforcement of that award is subject to a different regime. In respect to the decision of the Court of Cassation, 30 "the awards given in the authority of the foreign law is a foreign arbitral award". Foreign arbitral awards are subject to an enforcement lawsuit in order for them to be enforceable in Turkey. The PIL Code provides the conditions of a foreign arbitral awards' enforceability in Turkey. Furthermore, Turkey is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). Turkey's participation in the New York Convention is subject to reservations. Turkey made two reservations permitted by the New York Convention: the "reciprocity" and the "commercial" reservations. Turkey applies Article 1 (3) of the New York Convention only with respect to the recognition and enforcement of an award rendered in a signatory state in accordance with the reciprocity principle and that it must apply the New York Convention only to disputes arising from legal relationships, whether contractual or not, and to disputes which are considered as commercial under its domestic law. As a party to the New Yprk Convention, the recognition and enforcement of foreign arbitral awards in Turkey is allowed if the relevant conditions stated in Article V of the New York Convention are met. In case of recognition and enforcement of a foreign arbitral award in Turkey, the New York Convention will be applied instead of the PIL Code. However, Article VII of the New York Convention provides that any interested party is entitled to benefit from the provisions of the place of enforcement. In comparison with the New York Convention, the PIL Code sets out heavier conditions for recognition and enforcement of foreign arbitral awards. Furthermore, if the New York Convention is not applicable, the foreign award can still be enforced under the PIL Code. Since the New York Convention does not contain any procedural rules and leaves the procedure of recognition and enforcement lawsuits to the law of the country where the recognition and enforcement is sought (Article III), the procedural rules for recognition and enforcement lawsuit are the rules provided in the PIL Code. PIL Code Article 62 and the New York Convention Article V provide similar grounds for refusal of the recognition and enforcement of an award. A request for an enforcement order of a foreign arbitral award can be refused under limited circumstances. Under both the burden of proof lies with the party arguing for refusal of

29. 15th Civil Circuit, E. 1975/1617, K. 1976/1052, T. Mar. 10, 1976 (Norner, 537, fn. 348). 30. HGIK. Nov. 7, 1951 (Norner, 536, fn. 346).

253

Zeynep Derya Tarman

§16.04

enforcement. However, where questions of the violation of public policy or nonarbitrability arise, the enforcing court may consider these two grounds on its own motion. 31 Regarding the enforcement of foreign arbitral awards, an examination on the ground of "public policy" is one of the most invoked grounds for refusal of recognition and enforcement. In the past, the attitude of the Turkish State courts towards the perception of "public policy" was unjust. 32 "The Keban Case", which occurred between a foreign company and DSi, a Turkish State Institution, is one of the predominant cases causing a bad reputation for Turkey. The Court of Cassation held that the submission of the draft award to the ICC Arbitration Court in order to provide enforceability of the arbitral award was incompatible with Turkish public policy. 33 Hence the enforcement request was refused by the Turkish judges on the basis of public policy. In a recent decision of the General Assembly of the Court of Cassation, 34 the Court emphasized in its decision that the conformity of the foreign arbitral award to Turkish public order must be taken into consideration by the courts. The dispute was related to tax law and the General Assembly of the Court of Cassation underlined that a taxing issue is an issue related to public order. For this reason, the Gener;i l Assembly of the Court of Cassation overruled the decision of the Court of First Instance enforcing the arbitral award related to a dispute of tax law. On the other hand, it is a fact that Turkish State courts are gradually changing their attitudes towards the recognition and enforcement of arbitral awards. 35 The recent decisions of the State courts will bring an end to this very broad application of the concept of public policy and enable the more effective enforcement of foreign arbitral awards in Turkey. The court grants or refuses the enforcement of foreign arbitral awards at inter party proceedings. Its decision can be appealed and reviewed by the Court of Cassation. The filing of an appeal request suspends execution of the decision (Article 61/2 PIL Code). The length cif enforcement proceedings varies according to each specific case. Generally, enforcement proceedings in the State courts can take approximately one year with an additional year for any appeal process. §16.04

CONCLUSION

There is a gradually increasing trend towards applying arbitration instead of resorting to litigation for settlement of commercial disputes of an international nature. Since arbitration is becoming more popular in international commercial disputes, national courts are becoming increasingly familiar with this alternative dispute resolution method. There are no specialized arbitration courts in Turkey. The Turkish International Arbitration Law has been enacted based on the UNCITRAL Model Law and on arbitration rules of Switzerland. Therefore, it contains 31. 32. 33. 34. 35.

Norner, 542. Norner, Ek~i & Geigel, 74. 15th Civil Circuit, E. 1975/1617, K. 1976/1052, T. Mar. 10, 1976. HGlK E. 2011/13-568, K. 2012/47, T. Dec. 8, 2012 (www.kazanci.corn.tr). Sanll, 371-372.

254


§16.04

regulations generally accepted in the international arbitration arena. Moreover, the rules of domestic and international arbitration have been harmonized through the implementation of the new C.Civ.Pr. This put an end to the long-standing conflicts between the Turkish International Arbitration Law and the arbitration section of the former C.Civ.Pr dated 1927. From this point of view, the existence of arbitration rules in Turkey at an international level is positive for foreign investors. The next step, namely the enactment of the Law of the Istanbul Arbitration Center, will be the start of a new era in Turkish arbitration. Turkey's being a party to the New York Convention has provided the opportunity to enforce foreign arbitration awards in Turkey. Arbitration awards qualified as foreign arbitral awards may provide effective results in Turkey if they are recognized and enforced by the State courts. Turkey's reputation as a reliable forum for the settlement of international disputes depends heavily on how it can further promote the enforcement of foreign awards by Turkish courts. The perception of arbitration by the Court of Cassation is generally considered as positive although in a number of cases the court has remained skeptical of arbitration.

Selected Bibliography Aklnc1, Z., Arbitration Law of Turkey: Practice and Procedure, London 2011. Aklnc1, Z., Milletlerarasi Tahkim, Ankara 2007. Kalpsiiz, T., Milletlerarasi Tahkim Kanununda ICC Tahkim Kurallan ile IPL'den Esinlenen Hiikiinler, ICC Tiirkiye, 2003. Kalpsiiz, T., Tiirkiye'de Milletlerarasi Tahkim, Ankara 2007. Nomer, E., Devletler Hususi Hukuku, istanbul 2013. Namer, E., Ek~i, N. & bztekin Gelgel, G.,Milletlerarasi TahkimHukuku, istanbul 2013. $anh, C., Uluslararasi Ticari Akitlerin Hazirlanmasi ve Uyu$mazliklann (:oziim Yollan, istanbul 2011. Siiral, C., "Nearly a Decade on the Perception of International Arbitration Law by Turkish Courts'', Arbitration International 26, no. 3 (2010): 421-435.

255

Index A

Absenteeism, 170 Abuse of dominance, 122, 123 dominant position, 122, 124, 127, 132-136

Acceptance loan, 217 Acceptor, 84, 85 Accessory claim, 60 Acente, 51, 55-57 contract, 55-57 Acentelik, 55-56 Acquisitions, 18, 70, 123, 125, 136, 138, 176, 214,234,238-241

Actions Prohibitory, 116 Adequacy of reserves, 208 Adi

~irket,

89, 91-94

Administration board of, 101-103, 105, 106 Administrative actions, 202-203 adjudication, 186 bodies, 47, 142 courts, 6, 142, 188, 246 judiciary, 205 penalties, 41, 205, 206 powers, 93 Administrators (directors), 11, 99-104, 106, 109, 110, 112, 118, 158

Advertisements, 33, 40, 42, 119 Advertising Council, 40 AFM/Mars, 138

Age, 16, 77, 89, 175 Agency contract, 4, 43, 47-51, 53-54, 56, 57 relationship, 47-51, 53-54 Agenda, 104 Agent, 12, 34, 47-57, 60, 92, 102, 111, 112, 115, 119, 228, 229 Agricultural profits, 191, 193, 195 Agriculture, 144, 169, 174 Aircraft, 73, 75, 149

Alienation, 72 Alternative dispute resolution, 161, 211, 254

Amicable methods, 203 Annual leave, 163 return, 193 Annual leave board, 163 Annulment, 105, 106, 182, 205 Anonim ortakllk

(~irket],

89, 100, 112

Anti-competitive abuse, 135-136 Antitrust law. See Competition law Applicable foreign law, 230 law, 223, 225-227, 230, 247, 250, 252 Appointment, 49, 50, 92, 104, 106, 216 Arbitration agreement, 52, 246-249, 252 award, 180, 255 clauses, 246-249 Committees, 41-42, 45 compulsory, 180, 181 contract, 180 grievance, 180

257

Index private, 180-183 Arbitrators, 180, 247, 249-2Sl Articles of incorporation, 97-110,

Banka

Kalkmma ve yatmm bankast, 20-2h Katthm bankast, 209 Mevduat bankast, 209-210 Banking board, 213 electronic, 218 group, 214 Regulation and Supervision Agency,

212

Artisans, 70, 194 Assets, 74, 90, 92, 94, 97, 99, 102, 104, 106-108, 136, 137, 190, 191, 201, 213,21~23S,236,238

Assignee, 79, 190 Association agreement, 2 Associations, 3, 4, 8-10, 12, 41, 61,

39,208

89-110, 11~ 12S-12~ 129, 1S2, 1S7, 162, 173-179, 181-183, 189, 196,22S, 229 Attorney, 48, Sl, 223 Auditing, 91, 101, 103, 104, 106, 17S, 207, 214-216 Auditing committee, l 7S, 214 Auditors, 101, 103-104, 109, 216, 242 special, 106 Authenticated translation, 110 Author, 17, 1S4-1S9

Authorities competent, 34, 41, 73, 178, 240, 243 judicial, 20S public, 41, 43, 142 Authorization, 48-SO, S2, S4-56, 108, llS, 137, 146, 178-182, 201, 240, 241,243 Aval, 68, 82, 83, 217 Award, 1S8, 180, 24S, 2Sl, 2S2, 2S4, 2SS arbitral, 223, 2Sl-2S4 foreign arbitral, 223, 2S3-2SS B

Bailee, 87 Bailment, 18, 210 Balance sheet, 102-104, 106 method, 196, 197 Bank depo~t,

regulations, 39, 207-209 transactions, 207, 208, 216-218 Banking Law, S, 98, 103, 207-218 Bankrupt, S3,61-63, 94,96, 103 Bankruptcy, 9, S2, SS, 64, 71, 90, 94 Barter, 16-17 Basel accords, 208 Basel II rules, 208 Basel principles, 211 Basit usul, 192, 193 Bearer eertificates, 78, 108 Behavior, 4S, 123-126, 128-130, 132-13S Beyan usulii, 193, 202 Bilateral agreements, 187, 221, 229, 230, 23S, 237 Bill of exchange, 68, 78-87 Bill of lading, 18, 78, 87

Binding rules, 6 Bireysel, 179

Board of administration, 101-103, lOS, 106 Bona fi-de third persons, S4 Bonds, 78, 79, 108, 197, 217, 23S, 238 Bono, 79, 86 Bookkeeping, 192, 193,206

Branches executive, 101 offices, 9, 12, Sl, S2, S4, S6, 103, 21S, 222, 229, 238-240,242

79, 197, 209-210, 216

development and investment, 209-212 participation, 209, 210, 217 supervision of, 207, 213, 216

Broker, 48, Sl, S6 agent, SS Built, operate, transfer. See BOT Business

258

Index activities, 1, 2, 4, 5, 10, 61, 90, 98, 109, 112-114,209,222 associations, 3, 4, 8-10, 12, 61, 89-110, 189, 196,225,229 contracts, common, 3 corporations, 51, 78, 79, 89, 90, 97, 102, 104 enterprise, 1, 4, 11, 12, 51, 67, 89, 90, 97, 199 entities, 12, 196 environment, 8, 10-11 law, 1-12 organizations, 8, 11, 12 profits, 90, 191-193, 195-197 transactions, 3, 5, 6, 10, 48, 89, 221, 223,225 unionism, 173-175 Businessmen/businesswomen, 1, 2 Buyer, 15-26,33, 35, 36,38, 114 Bylaws, 188

c Calculations, 5, 115, 116, 202 Calendar year, 104, 191, 192, 198, 200, 203 Call work, 165 Campaigns, 31, 37, 38 Capacity, 3, 30, 48, 51, 60-61, 81, 89, 92,9~ 99, 102, 103, 133, 170, 177, 18~ 189, 190, 192,209,210, 225,249 Capital adequacy,207, 212,217 contribution, 93-95, 99, 110 gains, 191, 194 Movements, 2 stated, 97, 104, 107-109 stock, 99, 100, 103-104, 106 Capital market, 209, 213, 217, 218 Commission, 104 Law, 5, 78,98,208,239 Capital Market Administration (CMA), 10 Capital Markets Board, 98, 213

Capital Markets Law (CML), 5, 78, 98, 107, 239 Carrier, 18, 26, 87 Case law, 6, 133-136, 230 Cash loan, 217 Cassation, Courts of, 4, 31, 42, 43, 67, 180, 188, 253-255 Central Bank Law, 207 Certificate of guarantee, 33, 34 Certificates, 9, 61, 63, 69, 78, 85, 97, 107-109, 147, 243 Certification marks, 151 Cessation, 35, 40, 42, 186 Chambers of Commerce, 9, 117, 249 Check, 5, 78, 79, 85-87, 103,209 Cheque Law, 208 Cinematographic works, 154, 155 Ciro, 82-83 Civil Law System, 3-5 procedure, 221 servant, 163, 177 Claimant, 42, 189-190, 203, 228 Co-debtor, 59, 62, 66 Code of Tax Procedures (CTP), 45, 185, 186, 189,201,203-206 Code on the Procedures of Administrative Adjudication (CPAA), 186 Code provisions, 3, 5, 6, 57, 74, 91, 98, 110 Collateral Guarantees, 67-68 Collective bargaining, 162, 173, 179-181 interests disputes, 179, 180 marks, 151 Collective labor agreements, 162, 164, 167, 169, 171-173, 177-183 disputes, 162, 179 law, 162, 173-183 Collective labor agreement duration of, 182-183 effect of, 182-183 group (workplaces), 177-179

259

Index termination of, 182-183 undertaking, 177, 178 Collective rights management, 156-157 Collusion, 127-129 Commercial activities, 2, 4, 29, 117, 119, 130, 137,

Board, 10, 122-125, 128-138 Board decision, 122, 124 distort, 123, 125, 129 Law, 121-139, 241 rules, 150 Competitors, 113, 115, 116, 119, 123, 132, 134

238,240

advertisements, 33, 40, 42 agent, 51, 55 banks, 209 books, 3-5, 90 contracts, 15, 20, 55, 250 custom, 20, 24 enterprise, 4, 8, 11, 12, 16, 32, 51, 54-56, 60, 61, 73, 74, 95

nature, 4, 66 registry, 3, 4, 9, 54, 56, 90, 95, 96, 100, 102, 104, 110

representative, 48, 51, 54, 55, 60, 112 sales, 5, 15, 19, 20, 22 transactions, 3-5, 7, 15 usage, 5-6, 19, 32, 200 Commission, 39, 56, 57, 162 Commissioner, 48, 51, 56 Communique block exemption, 122 Group Exemption (see Group Exemption Communiques and Guidelines) Concerning Vertical Agreements, 131 merger, 122 Companies. See also Corporations joint stock, 89, 97-109, 196, 211, 238 private, 2 Compensation bad-faith, 177 goodwill, 57 severance, 172 unionism, 176, 177 Competence, 178-179, 205, 208, 212, 245

Competent court, 171, 179, 252 Competition Act on the Protection of, 121 Authority, 121, 128, 134, 135, 138

Concentration control, 127 economic, 122 Concerted practice, 127, 128, 132 Concession contracts, 10, 237, 246 Concessions, 10 Conditions, 2, 3, 9, 10, 18, 24, 26, 31-32,35,39,40,57,67, 70,87, 93, 99, 102, 112, 114, 115, 124, 126-128, 131-135, 137, 138, 143-145, 147, 150, 164-166, 171, 172, 174, 196-200,208-209, 211-213,215,216,222, 231,234, 237,247,253 Conditions for patentability, 143-144, 147

Confederation of Revolutionary Trade Unions, 175 of Turkish Real Trade Unions, 174-175

of Turkish Trade Unions, 174 Confederations, 162, 167, 174-175, 177, 178

Confidence, 50, 53, 90 Confidentiality, 218 Conflicts, 9, 100, 103, 155, 157, 158, 205,212,221-227,230,249-251, 255 solving, 203-205 Confusion, 114, 116, 117, 152 Constitution, 2-3, 6, 8, 29, 38, 121, 146, 153, 174, 187, 188,214,234, 246 Court, 38, 146, 150, 153, 187 Constitutionality, 38, 187

Consumers contracts, 6, 30-32, 35-41, 43-44, 226 courts, 42-45 credit contracts, 31, 32, 38-39, 43, 44 260

Index institutions, 41-42 interests, 29 organizations, 35, 41, 42 problems, 10, 41-42, 45 protection, 5, 29, 30, 42, 43, 226 Contract formation, 3, 4, 16, 17, 19, 22, 25, 224 price, 20 Contractors, 49, 70, 115 Contractual relations, 1, 7, 228 Contributed capital, 95, 99 Contributions, 91, 93-95, 99, 107, 110, 154, 185 Contrived resignation, 172 Cooperatives, 8, 70, 73, 89, 90, 125, 196, 198 Co-owners, 70, 92 Copyrights, 16, 18, 141, 142, 147, 150, 152, 154-159,226 exceptions and limitations to, 157-158 ownership of, 155 Corporate status, 174 tax, 194-198 Tax Act, 185, 186, 189, 194-198 Corporate bodies, 189, 195-197 nonprofit, 195, 196 public, 189 Corporate governance, 161, 208, 212, 214-215 Corporate social responsibility, 161, 177 Corporate Tax Act (CTA), 185, 186, 189, 194-198 Corporations. See also Business corporations, Companies closely held, 90, 91, 97, 98 publicly held, 10, 90, 91, 97, 98, 104, 106 Cost, Insurance and Freight (CIF) basis, 200 Council of Ministers, 145, 181-183, 188, 200 Counter-guarantee, 68, 217 Court action, 170

cases, 4, 49, 119 costs, 42 decisions, 6, 11, 61, 100, 180, 189, 228,230-232 Craftsmen, 8, 70, 177, 194 Credit committee, 214, 215 contract, 31, 32, 38-39, 43, 44, 66 institution, 209-211, 216 instrument, 79, 80 limitation, 207, 210, 217 Creditor, 34, 37, 59-66, 68-75, 77, 92-94, 100, 103, 107, 109 Crime, 40, 119, 146, 150, 153, 159, 188, 190,206 Criminal penalties, 158 Currency, 17, 63, 69, 80, 81, 243 Custom, 5, 20, 24, 25, 153, 158, 187 Customs duties, 21 D

Damages, 1, 9, 11, 17, 19-21, 24-26, 29-30, 32, 34, 35, 40, 50-53, 57, 63,64, 66,67, 85,86, 92, 96, 103, 106, 109, 112-119, 146, 150, 153, 157, 158,21~ 22~229,232 Death, 90, 94, 96, 159, 224 Debt, 36, 40, 59-64, 66, 68-72, 92, 94, 108, 163, 190, 195, 202, 203, 237 certificates, 78, 108 conditional, 60, 69 primary, 71 Debtor, 25, 39, 59-70, 72, 73, 75, 102, 189, 190,203,204 Declaratory relief, 116-118 Decreasing production, 181 Decrees, 5, 29 postponement, 182 special governmental, 188 Default, 11, 19-20, 24-26, 35, 36, 39, 40,62,65, 223, 230-232 Defective, 22, 23, 44 goods,21-24, 30,33-35,42,44,223 goods, sales of, 33, 35, 42

261

Index Defects, 16, 19, 21-24 hidden, 23 Defendant, 116-118, 229, 231 Defense, 6, 23, 61, 63, 68, 79-80, 132, 174,245,249 Deficit, 102 Delivery defective, 23 final, 18-19 Denet<;i, 103 Deposit, 73, 79, 86, 108, 142, 192, 197, 207-213, 216 Deposit transaction, 216 Derdestlik, 229-230 Demekler, 12 Design registration, 149, 150 rights, 149, 150 Directors, 11, 100-103, 110-112, 118, 155, 212, 214-215 Discharge, 36, 39, 51, 54, 63, 66, 72, 93, 102-106, 109 Discrimination, anti-union, 171, 176 Dismissal collective, 171 constructive (see Contrived . resignation) as a form of sexual harassment, 169 instant, 168, 170 for just cause, 168 on notice, 168-172 summary, 168 Disputes contractual, 226 individual labor, 179 interests, 179, 180 interpretation, 183 investment, 2, 233, 237, 246 rights, 179, 180, 183 settling, 203 Distributor, exclusive, 57 Dividends, 102, 104-108, 191, 195, 198, 237 Documents of title, 78, 87 Domestic worker, 163

Domicile statutory, 196, 200 Dominance, 132-133, 135, 138-139 Dominant position, 122, 127, 132-133, 137, 138 power, 132 f. power, abuse of, 132 f. Doorstep selling, 31, 32, 37, 43-44 Draft,30, 31, 142, 167,254 Dues, 35, 36, 183, 194 solidarity, 183 Duty to notify, 65, 137 Diizeltme, 204 E

Earnings, 162, 191, 194, 195, 198, 235 Economic activity, 69, 125, 126 competition, 111 ff. entity, 126, 195 interests, 40, 41, 111, 115, 117 rights, 156-158 source, 190, 195 Effects doctrine, 125 Electricity, 10, 16, 36, 181 Elimination of infringement, 158 Employee inventions, 144 Employees, 47-49, 52, 105, 111, 112, 115, 118, 119, 144, 149, 155, 162, 164, 194,218,226-227 Employers, 49, 111, 112, 118, 119, 144, 149, 155, 162-172, 174-179, 181, 183, 192, 243 associations, 162, 174, 175, 177-179, 181-183 principal, 163 representative, 163, 169 unaffiliated, 177, 178, 181, 183 Employment contract, 49, 111, 112, 218, 227 permanent, 164 policy, 167, 177 temporary, 166

262

I I

Index Employment Protection Legislation (EPL), 168

F

Emtea senetleri, 78, 87

Fair dealing, 169 Farmers, 15, 177 Financial condition, 9, 102 reporting, 207 status, 103 strength, 90, 97, 212 Fishing, 174 Five-year plans, 8 Fixed-term Work Directive, 164 Flexicurity, 164 Flexitime, 167

Encouragement of Foreign Capital Law No. 6224, 233 Endorsement, 74, 78, 81-83, 217 Energy, 16, 174, 235 Energy Charter Treaty (ETC), 235 Enforceable titles, 231 Enforcement, 6, 61-63, 69, 121, 122, 125, 138, 142, 171, 186, 208, 223, 230-232,245,246, 252-254

Enterprises mixed, 2, 8 private, 2 Entry barriers, 132, 133 Establishing authorship, 158 EU competition law, 122 European Community, 2, 5, 122 Court, 2 European Commission, 2, 134, 135 European Community Competition Law, 122

European Economic Community (EEC), 163

European Patent Convention, 142 European Union (EU), 2, 3, 43-44, 98, 122, 135, 138, 161, 162, 164, 186, 199,200,222 legislation, 141, 186, 199 model, 186, 199 European Union Directives, 208, 211

Exchange bill of, 68, 79-82, 84-87 stock, 10, 17, 20, 97, 98, 194, 238, 239 Execution Office, 59, 72, 73, 75 Executive Decree, 234 Exhaustion of intellectual property rights, 159 Exporters, 201 Exports, 2, 15, 125, 194, 201, 222 Expropriation, 3, 237

Force majeure, 170 Foreclosure, 59, 72, 73

Foreign companies, 186, 189, 196, 197, 222, 238,240,241,245, 254

countries, 192, 223-225, 227, 229-232,236

court, 65, 222, 223, 228, 230-232 court decisions, 230-232 currency, 17, 69, 81 employee, 241, 243 enterprises, 56 entity, 225 investment, 2, 222, 233-243, 247 investors, 2, 108, 234-241, 245, 255 judges, 222, 223 judgments, 223, 230-232 law, 222-224, 228, 230, 238, 240 law governs, 222, 228 legal system, 222 personnel, 241-243 Foreigners, 12, 100, 189, 192, 225, 227, 239,241-243

Forestry, 163, 174 Formalities, 86 Formation formalities, 90 process, 99, 100 Form contracts, 31, 208-209 Foundation, 2-7, 12, 41, 90, 125, 141, 157, 189, 190, 195, 196, 225

263

~

j

11

'W

Index Framework agreement. See Collective labor agreements Franchising, 5 Fraud,22-24, 33, 60 Free market economies, 2, 111 Freedom of association negative, 174 positive, 174 Freedom of contract, 6, 11, 38, 226, 248 Fringe benefit, 165, 182 Full functionality, 137 G Garanti, 67-68, 151

GATT/WTO, 2 Ger;ici vergi, 193, 198 Gelir vergisi kanunu, 185, 191

General contractual provisions, 208 General Directorate of Foreign Investment (GDFI), 240 General Directorate of Incentive Practices and Foreign Capital, 236,240 Gerr;ek usul, 192, 193, 197 Germany, 3, 231 Gift, 16-17, 52, 55 Good faith, 7, 20, 31, 32, 51, 54, 66, 99, 102, 103, 105, 113, 115, 116, 171 Goods delivered, 18, 19, 21-23, 25, 26, 37, 55, 199, 223 fungible, 23, 26 industrial, 33, 34 specific, 19, 25, 26, 39 Grev, 180 Group Exemption Communiques and Guidelines, 130 Guarantee contracts, 67 Guarantor, 67, 68 Giindem, 104

H

Habitual residence, 222, 225-227, 229, 247,250,252 Hakszz rekabet, 112-119 HHI Test, 138 High Court, 6 Homeworker, 163 Horizontal agreements, 130 Human Rights, 2, 3, 173 I

Ibra, 102, 103, 163 Ibraz, 84 Idare meclisi. See YOnetim kumlu Ihbar, 169 Ihtiyati tedbirler, 117

ILO convention, 173 Immovpble property, 10, 15, 18, 30, 36, 44, 50, 68-72, 74, 94, 191, 224-226,228,248 Imports, 33, 57, 149, 159, 200, 222 Incentives, 130, 194, 198 Income lower, 35 subject, 191, 197 tax, 190-198 Taxable, 192, 193, 196, 197 Tax Act (ITA), 185, 191-197 Incorporation, 97-110, 157, 161, 162, 168, 196,212,238-241,248 Incorporation of a company, 238-239, 241 Incorporator, 99 Independence, 80, 125, 126,249 Independent auditing and supervision, 215-216 Independent inventions, 144, 145 Indirect shareholding, 208, 212, 214 Individual character, 148-150, 154, 155 Indorsee, 82 f. Indorsement (see also endorsement), 82-83

264

Index Indorser, 83, 85, 87 Industrial action, 162, 180-183 applicability, 144 designs, 147-150 property, 16, 142 unionism, 173-175 unions, 174, 175, 177 Infringement of rights, 145-146, 150, 158 of trademark rights, 153 Inheritance, 145, 149, 152, 156 Injunction, 117, 119 order, 182 Installments, 37, 114, 193 Installment sales, 15, 18, 31, 32, 35-37, 43,44 Institutions autonomous, 10 public, 40, 41, 70, 73, 217 Insurance, 3, 10, 31, 43, 71, 99, 109, 122, 174,200,226,237 agents, 50, 55 companies, 1, 5 general health, 161 social, 161 Intellectual properties, 113-115, 133, 141-159, 194,226,227,235 property rights, 133, 152, 159, 194, 227,235 Intermediaries, 10, 47, 49, 51, 55-57, 167, 216 International agreements, 12, 221, 225, 231, 235-237 arbitration, 237, 245-252, 255 procedure, 221, 228 International Covenant on Civil and Political Rights, 173 International Covenant on Economic, Social and Cultural Rights, 173 Intifa senetleri, 107 Inventive step, 144

Investment direct, 234 f. foreign, 2, 108, 222, 233-243, 247 foreign direct, 5, 108, 234-238 incentives, 194, 198 Investor, 2, 8, 67, 108, 233-241, 245, 246,255 Istanbul, 142, 229, 247 J Joint management, 182 representation, 52, 95, 103 stock company (see Corporations) sureties, 62, 66 suretyships, 62, 66 ventures, 2, 8, 91, 97, 136, 137, 189, 195, 196,238,241 Joint stock company, 238 Joint venture, 2, 8, 91, 97, 136, 137, 189, 195, 196, 238, 241 Judge, 7, 21, 24, 74, 112, 117, 142, 187, 205, 222, 223, 228, 230, 231, 251, 254 Judicial decisions, 188 procedures, 203-205 source, 188 Jurisdiction exclusive, 222, 223, 228, 232, 246 international, 228 Just cause, 64, 168, 170, 172 Justice, 45, 187 courts, 122 K Kambiyo senedi, 78 Kampanyali sati$lar, 3 7 Kapidan satl$lar, 3 7 KaT$lliklilik, 231 Katma deger vergisi, 185, 199-201

265

Index Kefalet, 11, SO, SS, S9-66 Adi, 61 Birlikte, 62 Kefile, 62 Miiteselsil, 62 Riicua, 62 Kzymetli evrak, 77 evrak hukuku, 88 Kolektif !jirket, S4, 89, 112 Komandit !jirket, 112 Komisyoncu, 48, Sl Konu, 190, 19S, 199 Kurumlar Vergisi Kanunu, 90, 18S, 194

L

LA 161 f. Labor Act, 161-16S, 167, 168, 170, 171 contracts, 163-173, 182, 183, 226, 228 disputes, 162, 17S, 179 law, 161-183, 226 legislation, 161 organised, 162 relations, 162, 171, 174 relationship, 166, 168, 228 slowdown, 181 statistics, 17S Labor Act Maritime, 163 Press, 163 Labor contract Fixed term (see Fixed-term Work Directive) open ended, 164, 166, 168, 169 Part time (see Part-time Work Directive) temporary (see Temporary Agency Work Directive) termination of, 168-173, 183 with a trial period, 164 Labor law collective, 162, 173-183

confederation, 162, 167 individual, 162-173 Labor-management relations, 17S Lading bill of, 18, 78, 87 Land charge note, 69 Register, 69-72 Law on Intellectual and Artistic Works, 1S4 Law on the Protection of the Consumer (LPC), 23,29-4S, 209 Lawsuits, 42, SS, 92, 94, 103, 106, 229, 2S2,2S3 Lawyer, 6, 9, 49, SO, 113 Leasing, S, 39, 40, 98, 210 Legal action, 62, 6S, 116-119, 1S7 capacity, 3, 60, 81, 89, 92, 99, 102, 22S conflicts, 100, 222 entity, 8, 137, lSS, 162, 163, 174, 178, 236 personality, 4, 11, 12, 89-9S, 97, 100, 110, 126, 19S, 22S, 238, 242 persons, 3, 9, 30, 43, 47, 81, 89, 91, 9S, 97, 101, 12S, 126, 146, lSS, 1S9, 162, 189, 190, 194-196, 214, 216, 217, 22S, 229 rights, 89, 92, 171 transactions, S4, 123, 223-22S Legislation draft, 142 national, 187, 233, 237 protective, 226 special, 8, 8S, 240 Legislators, 6, 7, 237 Legislature, 41 Lehdar 68, 79, 86 Leniency, 122 Letter of confirmation, 11 Letter of guarantee, 217 Levy, 187, 189 Lex fori, 230

266

Index agreements, 182 Managers, 11, 54, 102, 103, 112, 213-215, 242 Managing committee, 175 Mandatory law, 6, 105 provisions, 16, 98, 105 Market geographic, 123, 124 price, 17, 20 product, 123, 124 relevant, 123-124, 127, 132, 137, 138 share, 132, 133, 135, 138 Marriage, 222 ceremonies, 19, 224 Martial law, 188 Matrah, 190, 196-197 Maturity, 17, 19, 63, 66, 72, 81, 83-84, 86,216 Mediation, 157, 180, 181 Mediator, 180-182 Medium Sized Enterprises, 169 Menkul mal, 3 Merchandise, 87 Merchants, 1, 4-6, 8-12, 18, 20, 47, 50, 52, 55,90,94, 113,209,228 Merger controls, 122, 125, 136 Mergers, 98, 122-126, 136-138, 241 Mergers and acquisitions, 123, 124, 138 Minerals, 16 Mines, 10, 73, 74 Mining, 74, 174 Ministry of Customs and Trade, 99, 105 Labor, 162, 167, 175, 176, 178, 179 Ministry of Economy, 236, 240, 243 Ministry of Labor and Social Security, M 162, 167, 175, 176, 178, 179 Machines, 70, 235 Misconduct, 170 Maintenance, 33, 34 Mobbing. See Psychological harassment Makbuz senedi, 78, 87 Monopolies, 7, 135, 234, 235 Makbuz senetleri, 78, 87 problems (see Economic Management, 93, 156-157, 162, 164, concentration) 175, 196,200,210,213, 218,237, Moral or pecuniary damages, 116, 146, 242 150, 153, 158

Liability, 10, 12, 22, 31, 33-35, 37, 44, 48, 50-52, 61-66, 68-70, 72, 80, 83,84, 86,89-98, 100, 102, 103, 106, 107, 109-110, 112, 118-119, 146, 150, 186, 189, 191-201, 213, 225,227, 238,241 Liaison offices, 196, 238, 240-243 License, 74, 133, 136, 145, 149, 150, 152, 156, 237 Licensee, 74 Licenser, 74, 133, 136, 145, 149, 150, 152, 156, 237 Liens, 3, 62, 64, 65, 73, 75, 203, 205, 225 Limitations statute of, 72, 73, 94, 118, 203,224 Limited ~irket, 89, 112 partners, 96 partnerships, 89, 96, 112, 196 Limited liability, 10, 90, 91, 97, 98, 107, 109-110, 112, 192, 194, 196-198, 225 company, 89, 238 Liquidation, 107, 108, 237 Liquidity adequacy, 208 Litigation, 24, 42, 61, 245, 254 Loan, 8, 34, 37, 39, 40, 55, 69, 71, 114, 208-210,215-218,237,247 Loan and deposit contracts, 208 Lokavt, 180 Lower courts, 42, 205 LPC. See Law on the Protection of the Consumer (LPC) Lump sum payment, 169

267

Moral rights, 156, 158 Mortgage certificates, 69 debt, 59, 69, 72 rights, 87 Mortgaged property, 59, 62, 69-72 Mortgagee creditor, 59, 72 Mortgages, 3, 10, 59, 69-73, 75, 79, 82,

0

Objective conditions, 165, 166 Obligations, 3-9, 15-26, 29-32, 34-37, 39-41,47-50, 55, 59-68, 70, 75, 84, 89, 91-93, 97,98, 108, 109, 111, 114, 116, 118, 143, 161, 163, 166, 169, 170, 172, 182, 183,209, 213,218,229,238,239,247 contractual, 53, 229 Obligor, 84, 85, 226 Occupational health and safety, 177 Occupational Health and Safety Act, 161 Odeme, 84

83,224,225

Mortgagor, 69-71 Movable property, 15, 68, 72-75, 225 Movables, 15, 18, 30, 72-75, 191 Multinational Investment Guarantee Agency, 2

OECD Code, 2 Draft Double Taxation Convention,

Muraklp. See Denet<;i Miiteselsil bor<;luluk, 66 N

187

Model Tax Convention, 187 Offenses, 118, 158, 159, 166, 170, 205,

Nationality, 95, 100, 110, 189, 192, 196, 199,222,224,225,229,236,243

206

Nationalization, 23 7 National treatment principle, 236 Natural, 30, 43, 66, 124-126, 134, 146,

Omissions, 82 Oral agreement, 11 Order paper, 78, 82 Order rules, 207 Ordinary meetings, 104 partnership, 89-94, 110, 112, 195,

155, 159, 201, 235

gas, 181 resources, 235 Negative freedom, 174 Negligence, 9, 24, 50, 64, 85, 116 Negotiability, 79-80 Negotiable instruments, 3-5, 11, 52, 54,

238,241

suretyships, 61, 63 transactions, 4, 92, 93, 95 Ordre public, 223, 224, 228, 232 Owner, 11, 15, 17, 18, 21, 50, 54, 60, 61,

55, 69, 73-75, 77-87, 89,224

Net profits, 105, 108, 196-198, 237 Non-cash loan, 217 Non-performance, 19, 20, 36, 67 Notary, 11, 48, 50, 85, 90, 99, 109, 110,

65, 70-72, 7~ 83, 87, 90, 97, 108, 118, 119, 145, 150, 152-155, 159, 210

181,223,224

Notice of dishonor, 84-85 Notice pay, 169, 170 Notice period, 63, 169, 170 Notices, 9, 11, 19,22,23,25, 33,37,38, 52-57, 63, 66, 68, 72, 73, 75, 84-85, 94, 104, 158, 168-172, 178, 179, 223 Novelty, 143-144, 148

Ownership flat, 70, 225 transfer of, 3, 15, 17-20 p

Pacta sunt servanda, 183 Parental relationships, 97 Paris Convention, 142, 146, 147

268

Index Participation, 96, 99, 155, 170, 177, 197, 198,209-213,216,217,235,241, 253 certificates, 107, 108 Partnership agreement, 48, 92, 94-96, 109, llO assets, 92, 94 business, 238 debts, 92, 94 general, 47, 54, 89, 90, 94-96, ll2 limited, 89, 96, 112, 196 with limited liability (limited liability company), 89, 90, 97, 109-llO, 112, 196, 225 name, 90, 95, 96 ordinary, 89-94, 100, 112, 195, 210, 238,241 Part-time Work Directive, 164 Patent of addition, 143 Cooperation Treaty, 142, 146 crimes, 146, 153 laws, 141-143 license, 74, 145 Pay bad-faith, 169, 170 discrimination, 170 job security, 170 senetleri, 108 severance, 166, 170, 172 Penal law, 186, 205-206 Personal liability, 69, 70, 72 property, 3, 16, 25, 222 property, sales of, 15-26 rights, 42, ll7, 173 status, 222-225, 229 Pledge, 18, 59, 62-66, 72-74, 102, 145, 149, 152, 156 Police, 157, 159 Political parties, 2, 8, 175 rights, 188 Portfolio investment, 239-240 Power of attorney, 48, 223

Power over price, 132 Precautionary measures, 107, 117, 119, 158 Predatory pricing, 136 Preemptive rights, 106 Prepaid sales, 25, 31, 32, 37, 43, 44 Presentment, 84, 86 Price, 15-17,20-22,25,26,29, 30,33, 34, 36, 41, 44, 45, 72, 114, 123-125, 128-130, 132, 134-136 purchase,23-24,33, 35,37 squeeze, 136 Price-quotation, 32 Pricing discriminatory, 135, 136 predatory, 136 selective, 136 Principal, 47-57, 60-68, 70, 81, 102, 111, 119, 121, 163, 189, 210, 243 Principal employer, 163 Private arbitration, 180-183 International Law, 221-232, 245, 246 investors, 2, 8 law, 8, 12, 29, 207, 216, 237, 246 person, 162 Privatization contracts, 246 laws, 98 process, 8 Procedural law, 186, 247, 249 rules, 224 Process patents, 143, 145 Producer of the database, 155 Producers, 22, 34, 35, 37, 124, 130, 151, 154, 155, 159, 200, 227 Production secrets, 111 Productivity, 168 Product patents, 143, 145 Profits, 67, 90, 93, 105, 106, 108, 116, 125, 135, 146, 150, 153, 157, 158, 191-198,210,234,237 Profit transfer, 234 Prohibited practices, 132 Prohibition, 32, 35, 40, 42, 102, 269

Index 111-112, 116-118, 122, 129, 131, 146, 150, 152, 158, 180 temporary, 181 Prohibition of infringement, 158 Promissory note, 78, 79, 86, 87 Property, 3, 10, 12, 15-26, 30, 35, 36, 40, 44, 50, 52, 54, 55, 59, 62, 68-75,89, 91,92, 94, 10~ 113-115, 133, 141-159, 181, 185, 191, 194, 210, 222, 224-229, 232, 235,248 Protection period, 159 Protest, 55, 84-85, 204 Protesto ve ihbar, 84-85 Provincial Directorate of Labor and Employment Office, 179 Proxy, 108 Prudent businessman, 56, 209 Psychological harassment. See Mobbing Public Economic Institutions, 8 law, 29, 207 legal persons, 3, 30, 43, 189 order, 6, 30, 143, 148, 157, 223, 254 policy, 6, 29, 251, 252, 254 sector, 144, 167, 174, 181 Publication of the court decision, 158 Public banks risk group, 217 Public Economic Institutions (PEis), 8 Public institutions risk group, 217 Public official, 162

Q Qualified share, 213, 214 Quorum, 101, 104, 107 R

Railroads, 7, 87 Real property, 3, 12, 16, 25, 26, 52, 54, 55, 70, 92, 191, 224 securities, 59, 61, 63, 68-75

Recall right, 171 Reciprocity, 201, 231, 253 Recognition of foreign judgments, 223, 230,231 Reference period, 167 Refusal to deal, 136 Regional Administrative Courts, 205 Directorates, 189 Regions, 115, 129 Register, 4, 9, 64, 69-75, 100, 153, 165 Registration, 4, 9-10, 25, 26, 54, 70, 74, 75, 95, 99, 100, 102, 110, 141, 142, 144, 146-147, 149-153, 155, 225 Registration and term/period of protection, 146-147, 153 Regulation of banking transactions, 216-217 Regulation of Fines, 122 Regulation on Foreign Personnel in FDis, 242, 243 Regulatory agencies, 10 Rehin, 78, 83 Reimbursement, 210, 237 Rekabethukuku, 139 Relationship competitive, 116 contractual, 20, 47, 48, 52, 56 Renvoi, 223 Repatriation of investment, 237 Representatives appointed, 60, 171 powe~ 51, 54, 56, 57, 102, 110 Reserves, 102, 105, 107, 179, 217 Residence, 61, 84, 187, 189, 192, 222, 225-227, 229, 247,250,252 Residents, 63, 192, 195-198, 236, 243 Resignation instant, 172 for just cause, 172 Restrictive agreements, 122, 127-131 Restrictive trade practices, 111, 226 Retailers, 15 Retirement, 93, 96

270

Index Retiring partner, 93, 96 Rights disputes, 179, 180, 183 Rome Treaty, 1S4 Rule of reason analysis, 130

s Safety, 40, 41, 161, 177 product, 34-3S Salaries, 191, 192 Sale contract, 4, lS-20, 2S, 31, 32, 40, S7

on trial and inspection, 164 5;art, 26 Savings Deposit Insurance Fund (SDIF), 208

Secondary legislation, 122, 188, 208 Security(ies), 2, S9-7S, 77, 78, 83, 102, 108, 117, 14S, 1S7, 162, 164, 167-179, 182, 198,213 personal, S9-68 real, S9, 61, 63, 68-7S Seizure at the customs, 1S8 Selective pricing, 136 Servants, 49, 119, 163, 177 Services, 1, 2, 29-39, 43, 44, 48-Sl, 111-llS, 119, 123-12S, 127, 130, 132, 144, 149, lSl-lSS, 1S8, 16S, 170, 171, 174, 181, 198-201,206, 210,213,218,241,242 inventions, 144 public, 163, 237 Settlement, 2, S2, SS, 162, 179, 180, 182, 233,237,246,2Sl,2S4,2SS

Shareholder books, 108 meetings, 102, lOS, 106, 108 resolutions, 102, lOS, 106 rights, 77, 78, 90, 104-108, 213 Shares acquisition, 238-240 bearer, 108 registered, 108 transfer of, 108-110, 240 Shipment, 20-21

Shop agency, 173 closed, 173 union, 173 5;irket adi, 89 kolektif, S4, 89, 112 SLC test, 138 Small and medium sized businesses, 169 Small and medium size enterprises (SMEs), 169 Social, 2, 8, 130, 161, 162, 168, 171, 173-176, 17~ 179, 182, 187,201, 222 partners, 167, 177 Societies, 12, 73, 91, 142, 1S6, 1S7, 1S9, 189, 19S, 196, 22S Solidarity due, 183 Sources, 2-S, lS-16, 42, 4S, 78, 98, 121-122, 124, 146, 149-lSl, 171, 187-190, 19S, 207-210, 234, 24S-247 Staff employee, 162

State aid, 8 banks, 1 economic enterprises, 8, 196 State Council decision, 122 State Planning Administration (SP A), 8 Statute of limitations. See Limitations Statutory decrees, 188 law, S, 230 provision, S, 38, 78, 107, llS sources, 2-S Stipulation, 81, 86, 173, 239 Stock, 10, 17, 18, 20, 34, 89, 97-109, 194, 196, 211, 23S, 238, 239

capital, 99, 100, 103, 104, 106 Strike, l 7S, 180-182 politically motivated, 181 solidarity, 181 vote, 181, 182 Sub-board of directors, 21S Subcontractor, 163

Index Subsidiary, 97, 126, 174, 17S, 197, 218, 229 Subsidiary work, 17S Substantial amendment in employment conditions, 171, 172 Substantial cause, 166 Supervision, 39, 98, 123, 142, 166, 204, 207,208,212,213, 21S-216 Supreme Arbitration Board, 181, 182 Suretyship, 11, SO, S2, SS, S9-68, 217 contracts of, SO, S2, SS, 60, 61, 68

T Tacir, 11 Taksitle sati!'j, 3S Ta!'jmir rehni, 73 Tapu sicili, 10 Tarh, 202 Tax(es), S, 8, 33, 36, 4S, 90, llO, 18S-206,237,2S4 act, 18S, 186, 189, 191-199 administration, 187, 190, 202-204, 206 advantages, 194, 198, 201 base, 190, 192, 193, 196-200,202 cases, 204, 20S courts, 203-206 credits, 19S debt, 190, 19S, 203 income, 18S, 187, 190-198 judiciary, 20S liability, 186, 189, 201 loss, 206 office, 189, 190, 200, 203, 204 rat~ 18~ 19~ 192-19~ 197,200,202 relationship, 18S, 189-190 responsibility, 190, 200 system, 18S, 186, 190-199 value added (see VAT) Taxable event, 190, 191, 19S, 199, 202 Taxation double, 187, 193, 19S, 198 or expenditures, 199-201 processes, 202

272

progressive, 192, 193 Tax law procedural, 186, 224, 247, 249, 2SO substantive, 186, 223, 224, 230, 2SO, 2Sl Taxpayers limited, 192, 194, 196-198 real, 190, 200 Tekeffiil, 22 Temerriit, 19-20, 2S Teminat ::}ahsi, S8-68 Ayni, 68-7S Temporary Agency Work Directive, 164, 166 Temporary employment, 166 Temporary Work Agency, 164, 166, 167 Temsilci, 48, S4 Temsil ili!'jkisi, 47 Tenfiz, 230 Termination of design rights, lSO of employment, 168-173, 218 of patent rights, 147 wrongful, 169, 170, 172 Territorial reach, 123-12S Third parties, 21, 47, 48, Sl-S4, 6S, 84, 96, 102, 112-llS, 117, 144, 14S, lSO, 1S2-1S4, 1S9, 180, 190 Ticaret sicili, 4, 9 Ticari i!'jletme hukuku, 11 Ticari miimessil, S4 Ticari senet. See Kambiyo senedi Ticari temsilci, S4 Tobacco, 40 Tortuous act, 92, 222, 227 Torts, 3, 89, 92, 103, 116, 222, 227, 229 TPI. See Turkish Patent Institute (TPI) Trade name, 3, 9, 74, 81, 90, 94-96, 100, 114, 141, 142, 1S2 profits, 191, 19S register, 90, lSl, 1S3, 1S4 unionism, l 7S union representatives, 171

Index Trademarks, 18, 21, 114, 141, 142, 151-154, 159 Examination Guidelines, 151 registration, 152 rights, 152, 154 exceptions to, 153 Traders, 9, 151, 194 Trade union authorized, 171, 175, 178, 181, 182 representative, 171 Trade unions authorised, 175, 178, 181, 182 signatory, 183 Transfer ownership, 15, 17-20, 87 real property, 3, 52, 54, 55 Treaties, 122, 142, 146, 151, 154, 182, 188,230,233,235 international, 2, 142, 187 Treaty on the Functioning of the European Union (TFEU), 122 Treaty on the Trade Related Aspects of Intellectual Property Rights (TRIPS), 142 Trust, 10, 56, 175 Tiiketici, 3 0 Turkish banks,208,214,217 business, 222 business law, 1-12 choice of law rules, 222 citizens, 189, 224, 236 companies, 196, 197, 222, 241 Competition Law, 121-138 Constitution, 2, 6, 121, 146, 234, 235, 246 corporations, 97, 100-105 court decisions, 231, 232 courts, 56, 119, 159, 218, 222, 223, 228-232,250,255 government, 30, 121, 162 High Court, 6, 221 legal system, 122, 202 legislation, 189, 195, 207, 214, 216 nationals, 192, 222, 224, 229, 236, 239

private international law, 221-232 public order, 223, 254 Republic, 1, 141, 149, 221, 246 Turkish Civil Code,3,69,233 High Court, 228 Turkish Competition Board, 128, 133-137 Turkish Confederation of Employers Association, 162 Turkish Economic and Social Council, 177 Turkish labor law, 162 Turkish Patent Institute (TPI), 142, 146, 150-153 Turkish tax law, 185-187, 189, 201, 203 system, 185, 186, 190-199 Turkish trade Unionism, 174

u UCITS, 198 Ultima ratio rule, 170 Undertakings, 21, 67, 90, 123-138, 151, 166, 169, 177-179, 196, 198, 214, 216, 218, 224 association of, 125-12 7 Unfair competition, 3, 40, 111-119, 142, 150, 196, 227 trade practices, 10, 111 Unions anti-union discrimination, 171, 176 authorized, 178, 182 customs, 141 employers', 174, 177, 182 formation of, 173-175 labor, 162 local, 174 majority, 178 membership, 170, 171, 175-177 most representative, 178 pluralism, 173, 174 regulation, 183

273

Index structure of, 175 Voluntary trade, 162, 167, 171, 174-179, unionism, 173, 183 181-183 Unionisation w rate, 175 Wage of workers, 175 earners, 162, 194 Unionism minimum, 194 compensation, 176, 177 supplements, 172 industrial, 173 , '"'"' multiunionisn ULUSLARARASI ,, 87 voluntary, 173 ANTALYA ONivERSiTESi KUTOPHANESi 6 Unions and Colli 34 Act, 161 Universal Deel (UDHR}, Unjust enrichmE Unlimited l i a b i l i - - - - - - t - - - - - - - 1 - - - - - - - - t u a l Property O) 103, 112 UN Model Conv User enterprise,------+------+-------l7, 198 Usufructs, 3, 21 ;-179, 182, Uzla:jma, 204

v Vade, 83-84 Vakif, 12

Valid suretyshiI Value Added T , - - - - - - - t - - - - - - - - - - 1 - - - - - - , 4 3 model, 185 of Foreigners, refund, 200 Value Added T , - - - - - - + - - - - - - - + - - - - - - - 1 r t y Organisation 199-201 Vekaletname, 1 - - - - - - + - - - - - - + - - - - - _ : _ _ m (WTO}, 2 9, 170

Vekalet sozlqm

47-49 Vekil, 55, 163 Venue,205 Vergi alacaklisi, 189-190 Verginin tarhi, 193-194, 200-201 Vergi sommlulugu, 190 Vergiyi doguran olay, 190, 191, 195, 199

Vertical agreements, 131 Vested rights, 98, 106 Vocational training, 177

YOnetim kumlu, 175 Yukumlu, 189, 190, 195-196

z Zaman a:jimi, 203 Zapttan sommluluk, 21

Zero-tolerance offense, 166, 170 274

Introduction to Turkish Business Law - Tuğrul Ansay - Eric C.schneider

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