Legal BriefingSharing the Club’s legal expertise and experience

Cargo claimsunder the TurkishCommercial Code

NOVEMBER 2017

Sharing expertiseThe UK P&I Club has collaboratedwith Advocate Sertaç Sayhan, to issuethis Legal Briefing on “Cargo Claimsunder the Turkish Commercial Code”.This is the fourth Legal Briefing in thisseries, providing guidance to Memberson the specific issues relating to cargoclaims in the jurisdictions covered.Other briefings in this series coverCargo Claims in China, Cargo Claimsin the United States, and Cargo Claimsin India.

If Members have any questions on anypart of the briefing, please get in touchwith your usual Club contact.

Our thanks to Adv. Sertaç Sayhan,ex-Senior Partner, Hatem Law Office,and now Senior Partner of Sayhan LawOffice, Büyükdere Caddesi PekinApt No: 5-3 Şişli / Istanbul / Turkey.

Legal Briefings Team

Jacqueline TanSenior Claims Executive

Jacqueline is a qualifiedbarrister and solicitor.She handles FDD andP&I cases and is theeditor of legalpublications for the

Club. Jacqueline speaks Malay,French and Hokkien. She is also amember of the Club’s Legal andEnvironmental Team working with DrChao Wu.

Direct +44 20 7204 2118jacqueline.tan@thomasmiller.com

Dr Chao WuLegal Director

Chao leads theClubs’ Legal andEnvironmental team.She is responsible forthe legal aspects ofClub documentation

and cover for Members’ contractualarrangements, the Club’s Rules andBye-Laws and general legal advice.

Direct +44 20 7204 2157chao.wu@thomasmiller.com

Previous issuesCopies of previous briefings areavailable to download as pdfs fromour website. Please visitwww.ukpandi.com

Legal Briefing November 2017 3

The Turkish Code of Commerce wasenacted on 14 February 2011 andentered into force on 1 July 2012. Thislatest legal briefing discusses the legaland administrative effect of the TCC.

Precautionary Arrests/liens on ships(application, obtaining and lifting ofsuch arrest/liens) – Maritime liensand Maritime claims – Securities

Turkey is party to the 1924 InternationalConvention for the Unification ofCertain Rules of Law relating to Bills ofLading (Hague Rules), but not to theHague-Visby, Hamburg or RotterdamRules. However, the Hague-VisbyRules and parts of the Hamburg Ruleshave been incorporated into theCommercial Code.

The TCC regulates maritime matters aswell as other areas of commercialtransactions. It has radically amended theregime and procedure for ship arrests.

The TCC has brought in a full andunified set of rules to deal with allaspects of ship arrests and also to tacklethe unique needs of the maritimetransport industry.

Even though Turkey is currently not partyto any arrest conventions, the provisionsadopted are similar to those of theInternational Convention on the Arrest ofShips 1999, as well as to certainprovisions of the InternationalConvention on Maritime Liens andMortgages 1993.

A precautionary measure leading to thearrest of the ship is the only

conservatory measure permitted underthe TCC. Other measures such as afreezing order or similar is not applicableto maritime claims.

The definition of “maritime claim” asprovided in the International Conventionon Arrest of Ships, 1999 has now beenadopted by the TCC, almost as a wordfor word translation. Under the TCC, aprovisional or preliminary arrest may onlybe requested for securing one of thelisted maritime claims1.

Application for arrestTo apply for an arrest order, the generalrule for ships, irrespective of their flags isthat “the court at the place at which theship has been anchored, moored to abuoy or piling, brought alongside or laidon the stocks” may award an order for

the arrest. If the ship is a non-Turkishflagged ship, the arrest order may onlybe awarded by this court.

In such cases, a jurisdiction or arbitrationclause incorporated into the relevantcontract is not taken into account andthese local courts shall award the arrestorder. This will not however mean theacceptance of Turkish Jurisdiction forthe underlying claim.

Unless proceedings into the merits ofthe case have been brought before thecompetent court in Turkey, objections tothe arrest would be handled by the samecourt that issued the arrest order. Thiscourt will also have jurisdiction to hearclaims for compensation brought againsta creditor whose claim is found to beunjustified.

Cargo claims under theTurkish Commercial CodeThe Turkish Code of Commerce (TCC) has brought in a full and unifiedset of rules to deal with all aspects of ship arrests and also to tackle theunique needs of the maritime transport industry.

1 Loss or damage caused by the operation of the ship, loss of life or personal injury, salvage, damage or threat of damage to environment, wreck removal,any agreement relating to the use or hire of the ship, any agreement relating to the carriage of goods or passengers, loss of or damage to or in connectionwith goods carried on board the ship; general average; towage; pilotage; goods, materials, provisions, bunkers, equipment (including containers) supplied orservices rendered; construction, reconstruction, repair, converting or equipping of the ship; port, canal, dock, harbour and other waterway dues and charges;crew wages disbursements incurred on behalf of the ship or its owners, including the loans obtained for the ship; insurance premiums; any commissions,brokerages or agency fees; any dispute as to ownership or possession of the ship; any dispute between co-owners of the ship as to the employment orearnings of the ship; a mortgage or a “hypothèque” or a charge of the same nature on the ship; any dispute arising out of a contract for the sale of the ship.

Legal Briefing November 2017 5

To enable an arrest order to be obtainedswiftly, the requirement for supportingevidence, the timing for presenting thesame and the procedures are notenforced very strictly. It suffices for thecreditor to furnish evidence that itsclaim is one of the maritime claims listed,and that will then enable the court toform an opinion as to the monetary valueof the claim.

Applicants are required to deposit alumpsum Special Drawing Rights(SDR)10,000 counter securityirrespective of the claim amount. Thecounter-security can be by way of a cashdeposit or a Turkish Bank Guarantee.Provision of counter-security is a vitalpre-condition of an arrest application.The court will not even review theapplication if the counter-security is notdeposited. It is possible for therespondent (owners) to apply to thecourt to increase the counter-security. Ifthe court accepts such application toincrease the amount of the counter-security, a deadline will be set for thearresting party to supplement thecounter-security. It should be noted thatarrest applications for crew wages areexempted from this requirement, and noprovision of security is necessary.

Upon the issuance of the arrest order,the requesting party should apply for itsexecution to the Bailiff’s Office in thesame territory as the court which hasawarded the order. Otherwise the arrestwill be automatically lifted. It is alsostated within the TCC that the arrest willbe effected immediately, even on officialholidays and out-of-office hours, ifnecessary.

A ship can be released from arrest:

• by providing the necessary security,

• if the objection against the arrest orderis accepted and the arrest order is setaside by the Court, or

• if a final Judgement dismissing themaritime claim is rendered.

The parties may freely decide on theform and the amount of security to befurnished.

Challenging an arrestThe owners may challenge the arrestorder immediately upon the execution ofthe arrest and in any event within sevendays of learning of the arrest order. Theowner and other parties such as the

mortgagee and the charterer may alsofile objections against the arrest order. Ifthe claimant has filed his claim on itsmerits before the competent court within30 days, then any objection will have tobe filed before this court, otherwise theobjection will have to be filed before thecourt which granted the arrest order.

An objection has to be filed in writingand it can be against the jurisdiction, thesecurity amount or the cause of the arrest.The objecting parties must disclose allthe evidence they rely on for theirobjections. The court must commence ahearing and invite the attendance of thearresting and the objecting parties. Thecourt generally makes its decision duringsuch hearing. Based on the validity ofthe objections, the court may uphold, setaside or modify the arrest order.

The owners should provide sufficientsecurity to cover the claim plus interestand the cost for the release of the ship.In practice, the security is provided in theform of a Turkish Bank Guarantee.However, other forms of security mayalso be accepted. The parties are alsofree to agree a P&I Letter ofUndertaking as security. Otherwise, thecourt will decide the form of the securitywhich will be either a Turkish BankGuarantee or a Cash Deposit.

If the maritime claim exceeds the valueof the ship, security covering the value ofthe ship will suffice to obtain the ship’srelease. The security must cover interestand costs.

Time bars

Claims against the carrier arising out ofthe loss of, damage to or delay in thedelivery of goods will lapse unless legalproceedings are commenced within oneyear. Commencing a legal action meanseither filing a formal claim before thecompetent court or issuing a paymentorder through the bailiffs.

This period may be extended if theparties so agree after the cause ofaction has arisen. An agreementbetween the parties to extend time issomething very new under Turkish law.

An action for recourse may be broughteven after the one-year period expires,provided that the proceedings arebrought within 90 days of the date onwhich the person bringing such recourseaction has settled the claim or beenserved with process in the actionagainst itself.

The time bar period for General Averageclaims is one year, and will commence torun from either the arrival of the ship todestination, or if the maritime expeditionends earlier than the destination, fromthe end of the expedition – and not fromthe publication of the averageadjustment. There is no time bar for theapplication of the adjustment.

An agreement betweenthe parties to extend timeis something very newunder Turkish law.

Legal Briefing November 2017 7

For claims arising from passengercontracts, the time bar is ten years.

The time bar in case of a collision is twoyears starting from the date of theincident. Any recourse action betweenthe owners due to the collision will betime barred one year after thesettlement is effected.

Limitation of Liability

The TCC stipulates that the liability formaritime claims can be limited inaccordance with the InternationalConventions to which Turkey is a party,the Convention on Limitation of Liabilityfor Maritime Claims of 1976 asamended by the Protocol of 1996 (theLondon Convention). The liability forclaims arising from oil pollution is to belimited pursuant to the Civil LiabilityConvention 1992.

Arbitration and Jurisdiction clauses

A jurisdiction clause or arbitration clause,provided they are expressly written, clearand comprehensible, e.g. “all disputesarising from… shall be resolved accordingto the law of… and handled by… courts” iseffective in Turkey. If such a clear clauseexists, then upon a jurisdiction objectionbeing raised by one of the parties at apreliminary stage, the Turkish Court willdismiss the same. A timely objection inthis case would be essential as the courtsdo not, on their own volition, make anyexamination of jurisdictions in agreements.

An arbitration clause in the charter partyor recap will be binding upon theconsignee if it is proven that the clausewas brought to the consignee’sknowledge at the time the bill of ladingwas delivered or endorsed to him.

Judicial Sale of Ships under Arrest

Under Turkish law, the judicial sale of aship is made by the Bailiffs’ Office. Ifquestions are raised relating to theobtaining of a precautionary judgementor decision, the court authorised tohear the case is the Admiralty Court. Inthe event that there is an objection to ajudicial sale, the court authorised todeal with the objection is theEnforcement Court.

The sale regime for Turkish flaggedships is related to the sale of immovableproperties. Foreign flagged ships areconsidered as movable properties underTurkish law.

To arrest a Turkish flagged ship, thecreditor will apply to the authorisedenforcement offices and the relevantenforcement office will commence theenforcement procedure urgently. Theonly way to sell a ship free of liens andprior claims will be by public auction.

The special procedure for public auctionsof foreign flagged ships is stated in article1384 of the TCC. Upon receipt of arequest for the sale of a ship registeredwith a foreign registry, the bailiff willnotify the consulate of the state whoseflag such ship flies and will request theregistry entry of the ship in order that alist of obligations can be prepared. Thecreditor may also submit to the Bailiff’sOffice a certified copy of the ship’s entry.In this case, the list of obligations will beprepared in accordance with whicheverlist is received first.

In order to form a valid public auctionwhich will free Turkish flagged shipsfrom liens and prior claims, the auctionshould be announced in a Turkishgazette, which has a circulationexceeding 50,000. The auction shouldalso be announced in a daily gazette onmaritime affairs published worldwide.The announcement should declare thatthe ship will be sold free from all legaland contractual limitations, includingmaritime liens and mortgages.

As for the sale of foreign flagged ships;it is obligatory for the announcement to bemade in accordance with Article 126 ofthe Bankruptcy and Enforcement Codeand the announcement is to be made to:

a) the authority responsible for keepingthe entry of the ship in the state wherethe ship is registered,

b) registered contractual mortgagees,

c) statutory lien right holders provided thatthey are notified to the Bailiff’s Office,

d) the registered owner of the ship, orpublished in a newspaper with acirculation exceeding 50,000 and has anationwide circulation within the countryin which the ship’s entry is actually kept,provided that the related costs are metby the interested parties.

The written notification mentioned abovewill be made by registered post orelectronic means of communicationsconfirming the delivery of thenotification to the recipient or by othersuitable means.

Otherwise, the new owner who buys aTurkish ship through a public auction maysubsequently be faced with lien basedclaims and arrests of the ship in Turkey.

If a short discharge of cargo is officiallydetermined, and despite the fact thatthere is no cargo shortage claim fromthe receivers, customs and the taxauthorities may still levy a fine by servinga customs fine notification, which willinitially be for an unknown amount.There may be a way to avoid paying thisfine, either in whole or in part, dependingupon the interpretation or positioncustoms adopt. A statement from theload port agents to the effect that theship was shortloaded by a quantityequivalent or near to the shortloadedquantity, signed by the agents at the loadport and legalised by the local chamberof commerce and the Turkish Consulateat the load port/country, also known as aShort Shipment Certificate, may beproduced upon request.

Usually, as a result of shortage, customswill serve a notice on the local agent.The notice will briefly state that therelevant cargo is short delivered and theagents are granted three months fromthe date of the notice to explain thereason for the shortage, or to present aShort Shipment Certificate.

On the expiry of this period, a fine isinevitable. The reason for the fine is tocompensate the government for its lossof customs tax, due to the shortage. Theagents, the owners, the ship and themaster are jointly and severallyresponsible for the customs fine. As theimposition of the customs fine is underpublic law, the authorities, in practice,collect it from the agents, by force of law,regardless of the fact that the agents wereacting on behalf of owners or charterers.

Different procedures areapplicable to the arrest ofa Turkish flagged ship anda foreign flagged ship.

Even if there is no cargoshortage claim from thereceivers, customs andthe tax authorities maystill levy a fine by servinga customs finenotification.

www.ukpandi.com

Shore figures or customs’ outturnweighbridge figures prevail over all otherfigures. It is therefore extremely difficultto defend a customs fine.

Customs accept a cargo shortageallowance rate of 3% for solid cargo, andof 0.5% to 1.0 % for liquid or petroleumproducts.

A customs fine is initially anadministrative, not a legal, pursuit. Whena customs shortage fine is served on theagents, if it is not opposed and is paidwithin 15 days, the agents will benefitfrom a 25% discount.

According to the regulations and torecent developments, in addition to theadministrative fines levied and collected,there will also be additional chargesunder two titles; (1) Loss of VAT, and(2) Loss of Special Consuming Tax(SCT). The apparent justification forthese charges is that the cargoshortage has deprived the governmentof these taxes.

Regarding these fines, if the party liable forthe fine applies to the tax administrationwithin 30 days of notification and statethat they will pay their taxes and relatedcharges and they provide the type ofguarantee stipulated in Law No. 6183(cash or security which can be encashedupon the first demand of the authority);then there will be advantages ofdiscounts to receive from the authorities.

If the fine is not paid within the specifiedtime limit or if a claim is filed against thefine, the party on whom the fine isimposed will not thereafter be able totake advantage of this provision.

The taxpayers can apply to thecommission of conciliation within 30 days

of notification of the tax or fine notice anddemand conciliation. If no conciliationcan be reached before the assessment,it will not be open to the taxpayers todemand conciliation thereafter.

If an objection to the charges and thefine is to be made, a court action mustbe brought before the tax court at theplace of discharge. In this case the stepsto be followed are as follows. As thecharges and fines are usually imposedon the local agent, the objection must befiled by the agent.

The court will not decide to defer thesettlement against the security but if theparty is right in its objection, it will bepossible to recover the sum paid backfrom the government. The tax office doesnot accept any security for the fine but willaccept either a cash payment in full orcash instalments may be agreed.However, in order to avoid paying theapplicable interest, the charges mayprovisionally be paid in full whilst attemptsare continued to oppose them. �

www.ukdefence.com

Customs accept a cargoshortage allowance rate of3% for solid cargo, and of0.5% to 1.0 % for liquidor petroleum products.