Turkish Contract Law Reform: Standard Terms, …...ARTICLE Turkish Contract Law Reform: Standard...

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ARTICLE Turkish Contract Law Reform: Standard Terms, Unforeseen Circumstances, and Judicial Intervention Erdem Bu ¨yu ¨ksagis 1,2 Published online: 20 September 2016 Ó T.M.C. Asser Press 2016 Abstract The aim of the present study is to analyse, in Turkish law, judicial and legislative interventions in the realm of freedom of contract, and to show how, and under what circumstances, contractual expectations depend upon a variety of non- contractual economic and social expectations. I particularly consider the role of good faith and the constitutional principle of protecting the vulnerable in contract interpretation, which first gained high prominence in the case law, and was then, to some extent, codified by the legislature in the 2012 Code of Obligations. I will start by presenting briefly the legal Westernisation process in Turkey as a result of the reception of Swiss private law at the beginning of the 20th century. This will make it easier to understand the organic evolution of judge-made contractual justice, an implicit factor having impact on consumers as well as businesses. I will then crit- ically evaluate the way the legislature codified the case law that had imposed certain fairness requirements reflecting the business environment in Turkey. Such an evaluation will allow me to assess whether the new law is fit for its purpose and prepared for the challenges of the future. Keywords Turkish contract law Á Contractual fairness Á Adaptation of contracts Á Unfair terms Á Battle of the forms Á Excessive penalties Á Economic exploitation E. Bu ¨yu ¨ksagis: Professor of Law and Dean of the Law Faculty at Antalya International University (Turkey); Partner at Law Firm Baur Hu ¨rlimann (Zu ¨rich). & Erdem Bu ¨yu ¨ksagis [email protected]; [email protected] 1 Antalya International University, Antalya, Turkey 2 Baur Hu ¨rlimann AG, Zu ¨rich, Switzerland 123 Eur Bus Org Law Rev (2016) 17:423–449 DOI 10.1007/s40804-016-0045-z

Transcript of Turkish Contract Law Reform: Standard Terms, …...ARTICLE Turkish Contract Law Reform: Standard...

Page 1: Turkish Contract Law Reform: Standard Terms, …...ARTICLE Turkish Contract Law Reform: Standard Terms, Unforeseen Circumstances, and Judicial Intervention Erdem Bu¨yu¨ksagis1,2

ARTICLE

Turkish Contract Law Reform: Standard Terms,Unforeseen Circumstances, and Judicial Intervention

Erdem Buyuksagis1,2

Published online: 20 September 2016

� T.M.C. Asser Press 2016

Abstract The aim of the present study is to analyse, in Turkish law, judicial and

legislative interventions in the realm of freedom of contract, and to show how, and

under what circumstances, contractual expectations depend upon a variety of non-

contractual economic and social expectations. I particularly consider the role of

good faith and the constitutional principle of protecting the vulnerable in contract

interpretation, which first gained high prominence in the case law, and was then, to

some extent, codified by the legislature in the 2012 Code of Obligations. I will start

by presenting briefly the legal Westernisation process in Turkey as a result of the

reception of Swiss private law at the beginning of the 20th century. This will make it

easier to understand the organic evolution of judge-made contractual justice, an

implicit factor having impact on consumers as well as businesses. I will then crit-

ically evaluate the way the legislature codified the case law that had imposed certain

fairness requirements reflecting the business environment in Turkey. Such an

evaluation will allow me to assess whether the new law is fit for its purpose and

prepared for the challenges of the future.

Keywords Turkish contract law � Contractual fairness � Adaptation of contracts �Unfair terms � Battle of the forms � Excessive penalties � Economic exploitation

E. Buyuksagis: Professor of Law and Dean of the Law Faculty at Antalya International University

(Turkey); Partner at Law Firm Baur Hurlimann (Zurich).

& Erdem Buyuksagis

[email protected]; [email protected]

1 Antalya International University, Antalya, Turkey

2 Baur Hurlimann AG, Zurich, Switzerland

123

Eur Bus Org Law Rev (2016) 17:423–449

DOI 10.1007/s40804-016-0045-z

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1 The General Reception of Swiss Private Law in Turkey

The accessibility of Swiss private law to ordinary citizens, its solutions which are

pragmatic rather than conceptual, as well as some additional historical facts and

circumstances played a key role in the adoption by the Turkish legislature of the

Swiss Civil Code and the Swiss Code of Obligations and, to some extent, of the

Swiss rules of international arbitration.1 The Swiss Codes had already proved that

they could be applied to different ethnic communities with different linguistic,

religious and cultural traditions. Moreover, even though some of their solutions are

not necessarily easy to apply because of their extremely fragmentary character

(for example, those concerning the time limits2 or the legal effects of a breach of

contract), the simplicity and clarity of most dispositions of the Swiss Codes make it

possible for laymen to understand them.3

Another advantage of the Swiss Codes is the considerable discretion granted to

the judge on the basis of the rules of equity, as well as the possibility for the judge to

strike down the contract or even decide in accordance with the rule that he would

make as legislature in the absence of a provision applicable to the legal issue. Thus,

the transplantation of the Swiss Codes offered the Turkish judges tools granting

them a certain flexibility in the intermediate period between the abandonment of the

old Ottoman system and the establishment of the new one.4 It gave them a chance to

find new solutions corresponding to the needs of a rapidly evolving society.5

Finally, despite hugely different socio-economic structures in the Swiss and Turkish

communities, an autonomous legal system whose administration does not depend on

a privileged group but on professional lawyers working independently of the

authority imposing the rule, facilitated the smooth enforcement of the newly

adopted law.6

In addition to the reception of the Swiss Civil Code and Code of Obligations, the

Turkish legislature enacted the first systematic Commercial Code, which had been

prepared by the German-born Turkish-naturalised law professor Ernst E. Hirsch on

the basis of, mainly, Swiss law and, to some extent, also German law.7 The adoption

of the Commercial Code in 1956 as well as that of the Swiss Codes in 1926 deeply

affected the life of every Turkish citizen and played a very significant role in the

Westernisation of the country. Since the Turkish legal institutions adopted not only

Swiss and German statutory rules but also, progressively, the academic opinion on

their interpretation in their own judgments, Turkish courts have not hesitated to rely,

among others, on the case law and academic knowledge of these countries.8

1 Buyuksagis (2014a), at no 14.2 Buyuksagis (2012a), at p. 44.3 Bucher (1999), at p. 222.4 Mardin (2006), at p. 266.5 Buyuksagis (2014a), at no 15.6 Alan Watson explains the success of legal transplants by a highly developed autonomy of the legal

profession. See Watson (1996).7 Hirsch (1956).8 Buyuksagis (2015a), at pp. 688 ff.

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2 The Role of Courts in the Law-Making Process

The introductory chapter to the Swiss and Turkish Civil Codes opens with the

statement that in cases where the Code does not provide applicable provisions the

judge should decide according to customary law, or if there is no applicable

customary law, according to the rule which he himself would formulate were he the

legislature (see Art. 1(2) Civil Code). In the latter case, the judge should follow

established doctrine and case law (see Art. 1(3) Civil Code).9

According to this hierarchy, although the judge is not given the main task in

creating the law, by way of interpreting existing statutory provisions he can, and

does, find creative solutions to complex problems.10 Indeed, Art. 1 of the Swiss and

Turkish Civil Codes offers the judge a democratic mandate to have the final say, a

solution which found a positive echo even among American judges. Benjamin

Cardozo noted that ‘the tone and temper in which the modern judge should set about

his task are well expressed in the first Article of the Swiss Civil Code of 1907’.11 In

a dissenting opinion in State Tax Commission v. Aldrich, Justice Jackson referred to

Art. 1 as a ‘candid recognition of what necessarily is the practice’ of courts.12

This point of view is particularly suited to Turkish case law, where, on the basis

of the Turkish version of Art. 1, courts often soften the legal consequences of a

possibly too rigid or simply unsatisfactory application of the statutory dispositions

without waiting for a legislative intervention. One case deserves special emphasis in

this regard. In the aftermath of the 1999 Izmit earthquake, people who had suffered

personal injuries as well as economic harm as a result of the collapse of their houses

claimed compensation from the builders. Although most of the damaged buildings

had been constructed before the 1980s, the Turkish Supreme Court accepted that

there had been no reason for the injured persons to bring an action at the time of the

(faulty) construction, and held that the ten-year time limit began to run only when

the claimants discovered the damage—in other words, from the date of the

earthquake.13 The Court overruled the pleas of prescription filed by the contractors

on the basis of contractual as well as extra-contractual statutes of limitations, which,

according to the first instance judgments, had both expired. In accordance with the

judicial trend also observed in other (European) jurisdictions,14 the Supreme Court

held that if the claim was not yet actionable, it would not be fair for the time limit to

start running from the date the act was committed. Until the judgments of the

Supreme Court, the rule was, in conformity with the wording of the Code of

9 For an analysis, see Steinauer (2009), at no 104.10 Buyuksagis (2014a), at no 23 and no 24. For a similar observation in Switzerland, see Pichonnaz

(2013), at pp. 47–48; Gauch (2013), at p. 15; Werro (2010).11 Cardozo (1921), at p. 140.12 316 U.S. 174 (1942).13 Y4.HD, 3.2.2005T, 2004/7039E, 2005/746K. See also Y4.HD, 30.6.2004T, 2004/2110E, 2004/8595K;

YHGK, 4.6.2003T, 2003/4-400E, 2003/393K; Y4.HD, 18.12.2002T, 2002/13842E, 2002/14290K. On

these cases, see Havutcu (2010), at pp. 586 ff. For a similar approach in bodily injury cases, see Y4.HD,

30.01.2009T, 2008/5440E, 2009/1354K (stating that the time limit begins when the plaintiff is aware of

his bodily injury and not when the traffic accident occurred).14 For these developments particularly in asbestos-related claims, see Karner (2014).

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Obligations, that the ten-year time limit began when harmful conduct occurred, and

not when the plaintiff was aware of the injury that might have happened a long time

ago.

The Turkish Supreme Court’s solution in latent damage cases shows its ability to

diverge from the text of the Codes to find new solutions, as well as its desire to

develop a law that better meets the needs of the legal community and public.15 This

solution nevertheless struck some authors as an inappropriately interventionist (or

even paternalistic) position for courts to adopt.16 It has been argued that, in line with

Art. 1 of the Civil Code, judicial interpretation should not be the primary vehicle of

change since, particularly in contract law, such judicial activism threatens to

undermine the security of transactions while reducing the predictability of risks not

taken.

These criticisms, which reflect the views of legal positivists who put the

emphasis on the necessity of the creation of law mainly by the legislature, give a

reader not familiar with Turkish system the impression that, in general, Turkish

judges prefer not to (or may not) assume the responsibility of acting modo

legislatoris, but rarely, like in latent damage cases, go beyond the mere

interpretation of the statutory provisions. However, as I show in the next Section,

there are many examples of cases in different fields of law—including contract

law—where judges seem willing to make a policy choice, and thus engage in

developing substantive law.17

3 Judge-Made Contractual Justice Prior to the 2012 Reform

As Roscoe Pound pointed out, in 1900, regardless of the school of legal theory, the

source of contractual obligation was primarily the convergence of the wills of the

parties.18 However, the fact that consumers, employees, lessees, travellers and

insured persons are progressively losing their bargaining power in the market and

are getting more and more economically dependent on the other party has given rise

to case law which considers all the environmental references of a contract in order

to establish some sort of relational justice which defines the interactions between

different social normativities.19 Prior to the 2012 reform, the case law of the

Turkish Supreme Court was particularly noteworthy as it was not limited to

exceptional situations where, on the basis of the constitutional principle of

protecting the vulnerable and the good faith principle, the judge was invited to

review the terms of the contract (3.1). The Supreme Court’s judicial power indeed

15 I think this phenomenon in Turkish contract law supports the findings of Godwin (2012), at p. 3: ‘The

popularity of judges does not arise from thin air by virtue of putting on their robes. Instead, judges’

popularity depends on how responsive they are to social needs.’16 Havutcu (2010), at pp. 590 ff; Erdem (2010), at p. 189; Baspınar and Altunkaya (2008).17 Buyuksagis (2015a), at pp. 683 ff; Orucu (2014).18 Pound (1917), at pp. 16–7; Eren (2015), at pp. 16–7; Zevkliler et al. (2013), at p. 106.19 Wielsch (2013), at p. 198.

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extended even to cases arising under the strict and explicit rules set out by the Code

(3.2).

3.1 The Constitutional Principle of Protecting the Vulnerable and the GoodFaith Principle as Grounds for Judicial Intervention

For our purposes here, it is not necessary to give an elaborate description of the

constitutional principle of protecting the vulnerable, or to go into lively controver-

sies about its scope. In the following I provide two examples to demonstrate the way

in which ‘relational thinking’ entered judge-made contract law through the

constitutional principle of protecting the vulnerable and the principle of good

faith. The first example illuminates the role of the principle of good faith that

underlies many facets of contract law.

During the economic crisis at the beginning of the 1980s, the Turkish Supreme

Court had to deal with the effects of fluctuation in the values of currencies in

circumstances that parties could not reasonably have foreseen at the time the

contract was concluded. In general, the stability of contractual relationships requires

that the judge does not adjust or terminate the obligation if the debtor assumed the

risk of the change of circumstances, or if the circumstances are such that the debtor

can be regarded as having assumed the risk of the change.20 According to the

Supreme Court, particularly if the contracting parties could reasonably have been

expected to foresee the possibility of the harmful event when entering into the

contract, no adaptation of the contract is possible.21

However, taking into account social expectations of fairness—and not only the

basic ethical notion of promise-keeping which supports the principle of freedom of

contract—the Turkish Supreme Court ruled that the occurrence of a supervening

event can, to some extent, discharge the aggrieved party from its obligations under

the contract, although the event does not make it impossible for the contract to be

performed.22 Accordingly, in case of an unforeseeable and insurmountable event,

which makes the performance much more onerous than anticipated, the aggrieved

party can demand adaptation of the contract so as to restore the initial balance

between the parties’ obligations. The Court justified its decisions, which were

confirmed in a number of cases arising out of the performance of long-term lease23

and foreign currency credit contracts,24 on the grounds of the principle of good faith

20 Although this was the general rule before the 2012 reform, an exceptional statutory provision

governing the amount of remuneration in the contract for work and services stipulates that where

performance of the work was prevented or seriously hindered by extraordinary circumstances that were

unforeseeable or excluded according to the conditions assumed by both parties, the court may, at its

discretion, authorise adaptation or termination of the contract. See Art. 365(2) of the previous Code of

Obligations and Art. 480(2) of the new Code.21 Y13.HD, 9.6.2005T, 2005/1874E, 2005/9749K.22 Y13.HD, 26.11.1982T, 1982/6186E, 1982/7199K.23 Y13.HD, 3.3.2005T, 14870E, 3171K; YHGK, 15.10.2003T, 13-599E, 599K; YHGK, 7.5.2003T,

13-332E, 340K; Y13.HD, 19.4.2001T, 3144E, 4167K; YHGK, 1.10.1997T, 13-493E, 764K. For more

cases, see Aydın (2005); Erturk (2005), at p. 475.24 YHGK, 19.2.1997T, 11-762E, 77K; YHGK, 17.9.1997T, 11-460E, 651K.

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and fair dealing.25 Since, in the absence of adaptation clauses, the actual common

intentions of the parties could not be established,26 the Supreme Court interpreted

such contracts in the light of the hypothetical intentions of the parties that are

adjusted to the unexpected event, and thus determined what the parties would have

done had they anticipated, at the time of contracting, the particular event that

precipitated litigation.27

The essential feature of this case law is that, when performance is rendered

excessively onerous by some dramatic change of circumstances, contractors can

expect judicial intervention in the contract, and thus, to some extent, can expect to

be released from their apparent contractual obligations, even if their claim does not

fall within the scope of the statutory provisions governing impossibility of

performance.28 Hence, the obligation is not deemed automatically extinguished

where, subsequent to the formation of a contract but prior to completion of

performance under the contract, performance is rendered excessively onerous by

some dramatic change of circumstances. According to the case law of the Supreme

Court, extinction of an obligation is possible only when an excusing impediment has

made performance completely and permanently impossible.29

Turkish case law in this matter is pretty much comparable to corresponding

German case law. The latter had originally been based on the good faith principle of

§ 242 BGB30 and was ultimately merged into § 313 BGB.31 Although reaching

similar conclusions, Swiss courts, unlike Turkish and German courts, often give

relief on the basis of another legal concept: abuse of right,32 which has received

some criticism in the literature as it cannot serve as a basis for gap-filling in contract

interpretation.33

25 It is worth noting that the Supreme Court applies the principle ex officio. See YIBK, 14.2.1951T,

17/1K; Oguzman (1988).26 Art. 19 (Art. 18 of the previous Code of Obligations): ‘When assessing the form and terms of a

contract, the true and common intention of the parties must be ascertained …’ (author’s translation).27 Y3.HD, 25.4.2011T, 2011/5539E, 2011/6984K; Serozan (2015), at pp. 10–11; Kaplan (2007), at

p. 109; Arat (2006), at p. 40.28 See Art. 117 of the previous Code of Obligations (and Art. 136 of the new Code): ‘An obligation is

deemed extinguished where its performance is made impossible by circumstances not attributable to the

obligor. In a bilateral contract, the obligor thus released is liable for the consideration already received

pursuant to the provisions on unjust enrichment and loses his counter-claim to the extent it has not yet

been satisfied’ (author’s translation).29 The Supreme Court rejected, for instance, the claims of a seller who argued that a massive increase in

the price of the goods subject to the contract made it impossible for him to perform. As a result, the Court

did not apply the statutory rule on impossibility of performance. See Y13.HD, 16.4.1996T, 1996/3653E,

1996/3920K.30 BGH 25 May 1977, NJW 1977, at pp. 2262–2263.31 Zimmermann (2013), at p. 30.32 BGE 122 III 97, c. 3a; BGE 107 II 343, c. 2; BGE 100 II 345, c. 2b; BGE 97 II 390, c. 6; Pichonnaz

(2011a), at pp. 25–26; Schwenzer (2009), at p. 730. In Turkish contract law it rarely occurs that the

Supreme Court refers to the notion of ‘abuse of right’. See, for example, Y3.HD, 30.5.2012T,

2012/8973E, 2012/13817K.33 Jaggi et al. (2014), at no 626; Pichonnaz (2011a), at p. 27; Gauch (2001), at pp. 234–235; Tercier

(1979), at p. 205.

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The second example, which illustrates the intervention of the judge in the

contract or even his decision in accordance with the rule that he would make as

legislature in the absence of a provision applicable to the legal issue, is the fairness

test of standard contract terms. In its decisions handed down before the 2012 reform,

the Turkish Supreme Court ruled that, to ensure the adequate protection of

economically disadvantaged persons, the judge may intervene in contracts to

exercise control over standard terms, notably when there is an imbalance between

rights and obligations of the parties along with a significant deterioration in the

economic situation of the debtor.34 The Court justified such interventions by

invoking the constitutional principle of protecting the vulnerable.

According to the Constitutional Court, the state’s constitutional duty to protect

the vulnerable arises from Art. 17(1) of the Constitution:35

‘Everyone has the right to life and the right to protect and improve his/her

corporeal and spiritual existence.’

One might think that, in Turkish law, this rule is given direct effect in

contractual relationships, and thus is used in the same way as in the state-

citizenship relationship. Though widely addressed in the European context, the

development of this kind of judge-made rule and its possible impact on the

autonomy of private law and private autonomy have not been discussed in depth in

the Turkish literature.

To my mind, such a development shares, to some extent, features with

constitutional jurisprudential re-creations of private law in Germany, where the

Constitutional Court has accepted that contract parties are directly bound by

fundamental rights (constitutionalisation of contract law).36 Indeed, in Turkey and

Germany, it seems that the contract as the parties’ private law that they have agreed

is applicable in accordance with the principle of good faith, only if its terms are in

line with a larger system that protects individuals’ basic liberties preserved by the

Constitution. The principle of protecting the vulnerable can therefore be considered

as a constitutional constraint on certain excesses of economic action. An imbalance

in the parties’ rights and obligations, along with a significant deterioration in the

economic situation of the debtor, creates, according to the case law of the Turkish

Supreme Court, a circumstance which causes such an excess and, as a result,

violates basic liberties.37 The existence of these two conditions makes it possible for

the judge to go beyond the formalistic dictates of contractual privity and interpret

the contract according to the substantive demands of social justice.

Overall, the Turkish Supreme Court has taken into account the relations between

rights and socio-economic order(s), has seen the law as a system within a particular

34 Y3.HD, 7.4.2008T, 5324E, 5974K. See also Y3.HD, 2.6.1998T, 4263E, 6098K; YHGK, 4.12.1996T,

3-717E, 850K.35 AYM, 3.4.2013T, 2012/97E, 2013/51K, RG (31 December 2013), 28868.36 BVerfG, 19 October 1993, BVerfGE 89, 214 (Burgschaft); NJW 1994, p. 36; Cherednychenko (2007),

at pp. 234 ff. For observations in other countries and at EU level, see Niglia (2015), at pp. 72 ff; Micklitz

(2014b); Wielsch (2014); Bruggemeier et al. (2010); Mak (2008).37 Y3.HD, 7.4.2008T, 5324E, 5974K.

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environment, and has sought to achieve fairness on these particular facts.38 The Court

has used different justifications, ranging from constitutional principles to the doctrine of

good faith, to find a balance between two distinct and fundamental values, i.e.,

contractual liberty and contractual fairness. In this context, the Supreme Court seems to

have given priority to fairness over instrumental goals such as efficiency and wealth

maximisation. A review of the case law, even on issues which are expressly covered by

statutory rules, lends support to this idea.

3.2 Extension of the Judicial Power

I illustrate the extension of the judicial power with two examples. The first one

concerns the judicial review of penalty clauses. According to Art. 182(3) of the new

Code of Obligations (Art. 161(3) of the previous Code), the judge may intervene to

strike down a purported penalty clause (which effectively overcompensates the

innocent party by stipulating a fine in the event of a breach) that he considers

extravagant. Art. 22 of the Commercial Code contains an exception to this rule: a

person who operates a commercial enterprise—wholly or partially under his

name—or the owner of a commercial enterprise may not request a review of the

penalty clause in a contract related to his commercial activity (commercial

justification).39 According to Art. 18(2) of the Commercial Code, a merchant must

indeed act as a prudent businessperson in all business activities. However, even in

commercial contexts, considering the nature of the relationship between parties

(e.g., the employer-employee relationship)40 or the possible economic impact of the

penalty on the merchant’s financial situation,41 despite the explicit wording of Art.

22, the Supreme Court has sometimes invalidated or struck down excessive

penalties on the grounds that the latter should be deemed immoral and, as such,

would infringe basic personality rights.42

The second example illustrating the extension of the judicial power relates to

economic exploitation. During the economic crisis of the early 2000s, numerous

commercial banks, which found themselves in big trouble as a result of rapidly

rising interest rates, were unable to pay interests accrued. After claiming that their

depositors were exploiting them, they declared that they could not honour the

contract on the basis of Art. 21 of the previous Code of Obligations (Art. 28 of the

new Code). According to this Article,

‘where there is a clear discrepancy between performance and consideration

under a contract concluded as a result of one party’s exploitation of the other’s

straitened circumstances, inexperience or thoughtlessness, the injured party

38 Buyuksagis (2014a), at no 89.39 Arkan (2013), at pp. 137 ff.40 YHGK, 15.10.1997T, 1997/9-486E, 1997/822K; YHGK, 2.10.2002T, 2002/9-596E, 2002/662K;

YHGK, 2.2.2005T, 2004/9-759E, 2005/9K.41 YHGK, 20.3.1974T, 1970/1053E, 1974/222K; Y15.HD, 4.7.2008T, 2007/3434E, 2008/4508K;

Y6.HD, 22.4.2010T, 2009/6629E, 2010/4835K.42 The case law of the Supreme Court is criticised by several authors. See, e.g., Yasaman and Poroy

(2012), at no 185; Ayhan (2013).

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may declare within one year that he will not honour the contract and demand

restitution of any performance already made.’43

At first instance, even where the court accepted that there was a clear discrepancy

between performance and consideration under the contracts concluded between banks

and their depositors, it refused to apply the statute governing unfair advantage (lesion;

lesion; Ubervorteilung) on the grounds that a bank cannot be in straitened circumstances,

inexperienced or thoughtless. The Supreme Court overturned this ruling without even

examining whether the depositors had the intention and ability to exploit the banks,

declaring that the latter had fallen into straitened circumstances because of their lack of

liquidity.44 According to the decision of the SupremeCourt, which extended the scope of

application of Art. 21, an imbalance in parties’ rights and obligations arising under the

contract is reason enough to oppose its strict legal enforcement, provided that socio-

economic factors (e.g., drastic economic conditions) justify such judicial intervention.

Turkish case law makes clear that the obligation of contractual fairness is tied up

not only with substantive policy requirements, but also with the substantive

demands of other social institutions such as markets and organisations, professions,

social security, etc.45 One of the most characteristic features of Turkish law is

indeed a variety of non-contractual social norms and expectations that surround

contractual agreements. The Supreme Court’s effort to complement these expec-

tations with parties’ formal contractual obligations has had a significant impact on

contract interpretation.

The fact that Turkish jurisprudence sometimes diverges from the text of the

Codes to find a solution more in line with the socio-economic reality finally

allowed, indeed encouraged, the Turkish legislature to revise the Code of

Obligations in 2012.46 The legislature merely codified the limitations on the will

theory,47 which was already faced with a truly vast number of exceptions in specific

statutes governing, for instance, consumer protection.48 One of the main goals of the

reform was to bridge the gap between judge-made law and the statutory

scheme, and thus to prevent case law from taking the upper hand.49

43 Author’s translation. For an analysis of this provision, which finds its roots in Art. 21 of the Swiss

Code of Obligations, see Gauch (1989).44 Y11.HD, 13.9.2004T, 2003/13707E, 2004/8148K; Y11.HD, 14.1.2003T, 2002/8654E, 2003/253K;

Y11.HD, 21.10.2003T, 2003/10420E, 2003/9650K; Y11.HD, 23.6.2003T, 2003/1229E, 2003/6784K;

Y11.HD, 25.4.2003T, 2002/10961E, 2003/3989K.45 A similar description can be found in Teubner (1998), at p. 23.46 Another goal of the legislature was, without changing the general structure of the previous Code

modelled on the Swiss legislative frameworks, to make a certain number of significant modifications

based on the provisions set out by the EU Directives. Indeed, accession negotiations with the EU brought

about an important breakthrough in the use of comparative law by Turkish courts. In October 2005,

negotiations started with the so-called screening process, which aims at determining to what extent

Turkey meets the EU’s rules and regulations known as the acquis communautaire.47 For the development of the will theory of contract over the 20th century in the US and Europe, see

Kennedy (2000).48 Istanbul Barosu Dergisi 2014(1) (Tuketici Hakları ve Rekabet Hukuku Ozel Sayısı); Terazi HukukDergisi 2014(11) (Yasar Universitesi Hukuk Fakultesi Tuketici Hukuku Sempozyumu Ozel Sayısı).49 This reason, however, was not mentioned in the Preamble to the new Code of Obligations.

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4 The Partial Codification of the Case Law in the 2012 Reform

Though having their roots in standards already established by the Turkish courts,

particularly by the Turkish Supreme Court, some of the new rules introduced by the

2012 reform were formulated on the basis of existing foreign legal structures. The

specific new rules governing the general and direct control of standard contract

terms (4.1) as well as the adaptation of contracts in view of changing circumstances

(4.2), for instance, were, to some extent, formulated on the basis of the German

Civil Code’s provisions (Burgerliches Gesetzbuch—BGB).50

4.1 Judicial Control of Standard Terms

I will first study the procedural and substantive control of standard contract terms

(4.1.1) and the problem of the so-called ‘battle of the forms’ (4.1.2). I will then offer

some criticisms of the new law and compare its scope of application to that of some

other national laws in Europe (4.1.3).

4.1.1 Towards More Contractual Fairness Through Procedural and Substantive

Control

The newly inserted long-winded rules in Arts. 20–25 of the new Turkish Code of

Obligations, which are, to some extent, modelled on §§ 305 ff. BGB, provide the

judge with the explicit tools granting him a certain flexibility in the judicial control

of standard terms. These detailed restrictive contract rules allow the judge to strike

down (apparently) voluntary contracts involving somewhat shady bargaining

practices, which are nevertheless not a violation of statutory rules governing duress

or fraud.

Art. 20 defines standard contract terms as

‘contract terms pre-formulated for use in several similar contracts which one

party to the contract (the user) presents to the other party upon the entering

into of the contract. It is irrelevant whether the provisions take the form of a

physically separate part of a contract or are made part of the contractual

document itself, what their volume is, what typeface is used for them and what

form the contract takes.

Pre-formulated terms that are drafted for the same purpose shall be considered

as standard terms, even if the text of the contracts is not exactly the same.

Clauses, either in the contract including general terms or in an individual

contract, expressing that standard terms are accepted upon negotiation, do not

change the qualification of these terms as general terms.

50 In the new Code, in addition to the innovations in the field of contracts, there are substantial changes in

tort law, which find their roots particularly in Swiss legislative proposals. See Buyuksagis

(2012b, 2014b).

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The relevant provisions governing standard terms shall be applicable to the

contracts drafted by a person or an authority providing its service with a

permission granted by law or competent authorities.’

By adopting a definition which is very similar to that of § 305 BGB,51 the

Turkish legislature aimed to expand the scope of the protection against unfair

clauses to all contractors, regardless of whether they are consumers or not, on the

one hand, and to establish a general rather than a merely sectoral solution, on the

other hand.52 This view was also held by the Turkish Supreme Court, which, in its

decision of 29 April 2014, applied Art. 20 to determine whether, by way of standard

contract terms, a bank had forced a merchant to accept the conditions of a loan

without knowledge or while depressed.53 Hence, in that case, the Supreme Court

recognised that a person who purchases goods and services for professional use

might be in a position to need the protection offered by Arts. 20 ff.

The specific rules of the new Code of Obligations and the case law relied upon by

the Supreme Court in this context have a broader scope of application than the 2013

Consumer Protection Act, which is merely modelled on EU Directives on unfair

commercial practices, sales contracts, product liability, unfair terms, timeshare,

package holidays, door-to-door and distance contracts, and consumer credit. Indeed,

according to Art. 2 of the Consumer Protection Act, only the trade in which a

consumer has been dealing and consumer marketing practices fall within the scope

of this statute.54

Art. 21(1) of the new Code of Obligations sets forth a two-prong test for

determining whether standard contract terms that are adverse to the other party have

been validly incorporated into the contract. According to the first paragraph of this

Article, in order for standard terms to be considered incorporated, during the

conclusion of the contract, (1) the user should expressly bring the existence of

standard terms to the attention of the other party, (2) he should give the other party,

in a reasonable manner, the possibility of gaining knowledge of their content, and

(3) the other party should agree to their inclusion. In addition, according to Art.

21(2), the judge determines whether in the given circumstances, in particular in

view of the outward appearance of the contract, provisions in standard contract

terms are so unusual that the contractual partner of the user could not be expected to

have to reckon with them. Standard terms which do not comply either with Art.

21(1) or with Art. 21(2) do not form part of the contract.

51 § 305(1) BGB: ‘Standard business terms are all contract terms pre-formulated for more than two

contracts which one party to the contract (the user) presents to the other party upon the entering into of the

contract. It is irrelevant whether the provisions take the form of a physically separate part of a contract or

are made part of the contractual document itself, what their volume is, what typeface or font is used for

them and what form the contract takes. Contract terms do not become standard business terms to the

extent that they have been negotiated in detail between the parties.’52 Preamble to the new Turkish Code of Obligations. See also Buyuksagis (2014a), at no 48; Atamer

(2013).53 Y13.HD, 29.4.2014T, 2014/13315E, 2014/13503K.54 On the new Act of 2013, see Istanbul Barosu Dergisi (2014(1) (Tuketici Hakları ve Rekabet Hukuku

Ozel Sayısı); Terazi Hukuk Dergisi (2014(11), (Yasar Universitesi Hukuk Fakultesi Tuketici Hukuku

Sempozyumu Ozel Sayısı).

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These provisions of Art. 21 are in line with the Consumer Protection Act, which

was enacted in 1995 (Law no 4077), updated in 2003, and then replaced by the 2013

Consumer Protection Act (Law no 6052). The 1995 Consumer Protection Act is the

very first Act that introduced requirements for the incorporation and content control

of standard terms into Turkish law (for business-to-consumer (B2C) transactions).55

That is why it is not surprising that the provisions of Art. 21 of the new Code

confirm the case law of the Turkish Supreme Court before the adoption of the new

Code. Indeed, before the enactment of the 2012 Code of Obligations, the Court had

developed a rule with respect to the incorporation of standard contract terms.56

According to that rule, such terms become part of the contract if the user gives the

other party the opportunity to take note of their contents.57 The Supreme Court also

held that unfair standard terms will have no effect on the remainder of the contract,

which will remain in effect and valid.58 Moreover, the user cannot argue that he

would not have entered into the contract if he had foreseen such partial

ineffectiveness. Today, the very same rule can be found in Art. 22 of the new

Code of Obligations.

‘Unclear provisions in standard contract terms will be interpreted against the

user’ is another rule which had first been developed by the Supreme Court59 and

which was then adopted by the new Code (Art. 23).

Art. 24 contains a specific provision prohibiting terms that permit, or have the

effect of permitting, one party—but not the other—to modify the terms of the

contract. Indeed, such unilateral variation clauses give the user the right to make

changes to the contract at his discretion and without liability. A similar prohibition

can be inferred from the Annex that supplements Directive 93/13 and provides an

indicative and non-exhaustive list of terms which may be considered as unfair.

Finally, Art. 25 declares invalid terms which, contrary to the requirement of good

faith, create an imbalance in the rights and obligations of the parties and place the

contractual partner of the user—whether he is a consumer or not—at a

disadvantage. Hence, unlike EU Directive 93/13,60 Art. 25 does not limit the

scope of application of the fairness test to standard terms in ‘consumer contracts’,

nor does it require that the imbalance caused by a standard term in the parties’ rights

and obligations be ‘significant’ in order to be considered abusive. Besides, the new

Turkish law does not contain an indicative list of terms that may be regarded

55 There are numerous studies on the 1995 Consumer Protection Act. See Kara (2012); Atamer and

Micklitz (2009); Zevkliler and Aydogdu (2004); Aslan (2004).56 Y3.HD, 2.6.1998T, 1998/4263E, 1998/6098K, YKD 1998 (July), p. 977.57 Y13.HD, 26.9.2007T, 2008/4345E, 2008/6088K.58 Idem.59 Y3.HD, 2.6.1998T, 1998/4263E, 1998/6098K, YKD 1998 (July), p. 977. YHGK, 4.12.1996T, 1996/3-

717E, 1996/850K.60 Art. 3(1) of Directive 93/13: ‘A contractual term which has not been individually negotiated shall be

regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the

parties’ rights and obligations arising under the contract, to the detriment of the consumer.’

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unfair.61 However, like the EU Directive,62 Art. 25 considers unfair an outcome

‘contrary to the requirement of good faith’, and limits the unfairness control to terms

that have not been individually negotiated.

4.1.2 The Problem of the ‘Battle of the Forms’

Parties sometimes bargain only on the essential points of the contract and leave the

details to standard pre-printed forms. Thus, it may happen that parties’ forms do not

coincide, and even contradict one another.63 Unlike various national statutes in

Europe (e.g., Art. 6:225(3) of the new Dutch Civil Code), the new Turkish Code of

Obligations does not expressly address this so-called ‘battle of the forms’

(conflicting general terms) problem. In the Preamble to the new Code, the

legislature does not provide any reason why the long-winded rules in Arts. 20–25 do

not contain a specific provision governing the issue, nor does it give any hint how

the latter should be dealt with.

Thus, it should be accepted that the problem of the battle of the forms is tackled

through the general rules of offer and acceptance and those on the validity of

contracts.64

Accordingly, despite a conflict between the two sets of terms, if a contract does

come into existence through the exchange of essential information, the conflicting

secondary terms knock each other out and simultaneously form a ‘gap in the

contract’.65 The contract is deemed concluded on the basis of the terms that are

common in substance, unless one party has stated—not by way of general terms—

that it will not be bound by a contract that alters the party’s terms.66 Indeed,

according to Art. 27(2) of the Code of Obligations,

‘where the defect pertains only to certain terms of a contract, those terms alone

are void unless there is cause to assume that the contract would not have been

concluded without them’.

More than one hundred years ago, Rene Demogue observed that this result is also

implicit in Art. 2 of the Swiss Code of Obligations, which has the exact same

wording as Art. 2 of the Turkish Code of Obligations.67 These provisions read that

61 In Commission v. Kingdom of Sweden, the CJEU ruled that there is no obligation for the Member

States to implement the indicative list. See CJEU, 7 May 2002, C-478/99, ECR I-4147, para. 20.62 Weatherill (2013), at p. 151.63 von Mehren (1990); Dannemann (2000); Ruhl (2003).64 Buyuksagis (2015b).65 On the gap in the contract, see Jaggi et al. (2014), at no 542 ff. It is worth noting that, in Swiss

literature, it is also argued that the ‘last-shot’ rule should be considered as the prevailing solution to the

battle of the forms. Accordingly, the party who transmits the last form controls the terms of the

agreement. This rule makes the counter-offer the operative document for determining them. See

Dessemontet (2003), at no 48.66 Kramer (2004), at p. 505.67 Demogue (1914). For a similar approach in Swiss law, see Kramer (2004), at p. 505.

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‘(1) where the parties have agreed on all the essential terms, it is presumed that

the contract will be binding notwithstanding any reservation on secondary

terms. (2) In the event of failure to reach agreement on secondary terms, the

court must determine them with due regard to the nature of the transaction.’

Art. 1 of the Turkish Civil Code provides general instructions on how to fill the

gap—left by conflicting terms—according to the nature of the transaction. Like in

Switzerland68 and Germany,69 the judge should in the first place make use of

applicable default rules of law as defined by the Code or customs in the relevant

trade.70 If there is no relevant default rule applicable in the relationship between

parties—which is often the case in the judicial interpretation of agreements that do

not fall under a specific classification, such as franchise agreements, exclusive

distributorship agreements, schooling contracts, etc.—the judge should fill the gap

by determining the hypothetical intentions of the parties.71 Alternative terms

supplied by the judge should support an outcome that is in accordance with the

nature of the transaction as well as the principle of good faith as defined by Art. 2(1)

of the Civil Code.

These solutions offered by the Turkish (and Swiss) system(s) take a pragmatic

view of the issue and seem similar to those offered in Europe by French,72

German73 and Austrian74 case law, Arts. 2:209 of the Principles of Contract Law

(PECL), II.-4:209 of the Draft Common Frame of Reference (DCFR), 2.1.22 of the

Principles of International Commercial Contracts (PICC) and 39 of the Common

European Sales Law (CESL),75 or in the US by Art. 2-207 of the Uniform

Commercial Code (UCC).76 A leading contract law scholar, Gerhard Dannemann,

has stated, in an elegant comparative law paper, that Swiss/Turkish law

‘is probably the only European codification which had the foresight to

formulate its general rules on formation of contracts in such a way that they

can deal directly with a ‘‘battle of the forms’’.’77

This explains, to some extent, why, by its 2012 reform, the Turkish legislature

did not intend to enact a specific rule on this particular issue.

68 BGE 115 II 484, c. 4b; 4C.189/2004 (30 July 2004), c. 2.5; 4C.41/2007 (28 Mars 2007), c. 4.2; Jaggi

et al. (2014), at no 523; Kramer (2004), at p. 505.69 BGH 1 February 1984, NJW 1984, p. 1180.70 YIBK, 18.11.1964T, 1964/2E, 1964/4K, cited by Nomer (2013), at p. 2060.71 Aksoy-Dursun (2008), at pp. 128 ff.72 Cass. com. 25 October 1994, Bull. civ. IV, no 316; Cass. com. 12 July 1994, Bull. civ. IV, no 268; Will

(1981), at p. 100; Delforge (2002), at pp. 492 ff.73 BGH 20 March 1985, NJW 1985, p. 1838; BGH 23 January 1991, NJW 1991, p. 1606; Ruhl (2003), at

pp. 201 ff.74 OGH 22 September 1982, Sz 55/135; OGH 7 June 1990, JBL 1991, p. 120; Rummel and Lukas

(2014), at § 864a.75 Lando (2014), at p. 240.76 Howard Jenkins (2015), at pp. 277 ff.77 Dannemann (2000), at p. 204.

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The solutions that the Swiss/Turkish Code of Obligations provides for the

problem of the battle of the forms are nevertheless different from those of the UN

Convention on Contracts for the International Sale of Goods (CISG), which entered

into force in Switzerland on 1 March 1991 and in Turkey on 1 August 2011.78

Indeed, although no one sees this as good, Art. 19 CISG is mainly based upon the

general theory reflecting the ‘mirror image’ rule and ‘last-shot’ rule79: the last

person to send his form is considered to control the terms of the contract although

the contractual parties did not have a true meeting of the minds on the terms being

incorporated into the contract.80

Consequently, in Switzerland and Turkey, the answer to the question as to which

standard terms are applicable to a sales contract seems to depend upon the domestic

or international character of the contract. Indeed, a difference in the language of the

two laws—Art. 2 of the Code of Obligations and Art. 19 CISG—might lead to

different outcomes.81 That said, the judicial interpretation of the CISG is not yet

completely settled in Turkey. Therefore, a clearer answer will emerge once more

cases have been judged. At present, whereas the ‘last-shot’ rule of Art. 19 CISG

seems to ‘provide for outcomes that may be predictable for the courts and tribunals,

but are merely coincidental for the parties’,82 the ‘knock-out’ approach of Art. 2 of

the Code of Obligations asks judges to put themselves into the shoes of the parties

when constructing the contract.

4.1.3 Some Criticisms and Problems

The new Turkish rules on standard contract terms offer considerable advantages

over some other national laws (i.e., Swiss83 and French84 laws) which have not yet

introduced such rules in their general codes, but limited, in specific legislative

frameworks, the control of standard terms to consumer contracts. Indeed, it can be

78 On the entry into force of the CISG in Turkey, see Tarman (2013).79 Schroeter (2015), at no 31 ff; Davies and Snyder (2014), at p. 119; Schlechtriem and Schroeter (2013),

at no 287; Honnold and Flechtner (2009), at no 170.3; Forte (2006), at p. 115; Kroll and Hennecke (2001),

at pp. 737 ff.80 Art. 19 CISG:

‘(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other

modifications is a rejection of the offer and constitutes a counter-offer.

(2) However, a reply to an offer which purports to be an acceptance but contains additional or different

terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror,

without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not

so object, the terms of the contract are the terms of the offer with the modifications contained in the

acceptance.

(3) Additional or different terms relating, among other things, to the price, payment, quality and

quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the

settlement of disputes are considered to alter the terms of the offer materially.’

For a general commentary on this statute, see Zeller (2014).81 Buyuksagis (2015b), at pp. 138 ff.82 Schwenzer and Mohs (2006), at p. 244.83 Stockli (2011); Pichonnaz (2011b).84 Jauffret-Spinosi (2006).

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inferred from the Turkish Supreme Court’s statement in a 2014 decision that the

introduction into the new Code of rules aiming at eliminating unfair standard terms

defends the interests of all parties concerned (e.g., merchants in commercial

contexts) and not only those of consumers.85 Therefore, Turkish judges do not have

to deal with the practical questions related to the distinction between consumer and

professional, particularly in situations where such a distinction is difficult to pin

down.

In addition, since the new Turkish dispositions extend unfair terms protection to

non-consumers, they provide a broader protection compared to EU law, which seeks

an unfairness test only for B2C contracts. In the field of consumer contracts, the

Court of Justice of the European Union based its recent judgments on the weakness

of consumers. In Oceano, for instance, the Court stated that

‘the system of protection introduced by the Directive is based on the idea that

the consumer is in a weak position vis-a-vis the seller or supplier, as regards

both his bargaining power and his level of knowledge. This leads to the

consumer agreeing to terms drawn up in advance by the seller or supplier

without being able to influence the content of the terms.’86

In my opinion, this rationale of weaker party protection that the European Court

has confirmed in a number of other decisions87 provides a compelling reason not to

limit the scope of such protection to B2C contracts, but to extend it to contracts

where at least one party is a small or medium-sized enterprise (SME). Since dealing

with a multitude of national systems requires more time and funds than they have at

their disposal, SMEs are vulnerable to the difficulties associated with cross-border

trade, particularly in their relations with larger companies.88 That is why, like the

Belgian, French, Spanish and Dutch legislatures89 and the drafters of the

Commission Proposal for a Regulation on a Common European Sales Law (see

Art. 86 of the Proposal), the Turkish legislature has extended, in the new Code of

Obligations, the scope of the protection to SMEs.

The practical outcome of this extension is increased protection for the weaker

party, regardless of whether the latter acts inside or outside the scope of a

professional activity. According to Art. 2 of the Turkish Consumer Protection Act,

the notion of ‘consumer’ is a key concept delimiting the application of consumer

protection rules. Art. 3(1)(k) defines consumer as ‘a natural or legal person, who is

acting outside the scope of a commercial or professional activity’.90 The

transactions of any person who operates a commercial undertaking, even only in

85 Y13.HD, 29.4.2014T, 2014/13315E, 2014/13503K.86 CJEU, 27 June 2000, Oceano Grupo Editorial SA v. Murciano Quintero, C-240/98, ECR I-04941,

para. 25.87 CJEU, 26 October 2006, Mostaza Claro, C-168/05, ECR I-10421, para. 25; CJEU, 6 October 2009,

Asturcom Telecomunicaciones, C-40/08, ECR I-09579, para. 29; CJEU, 14 June 2012, Banco Espanol de

Credito, C-618/10 ECR I-0000, para. 39; Opinion of Advocate General J. Kokott in Aziz (8 November

2012), C-415/11, para. 39.88 Eidenmuller et al. (2011), at p. 1087.89 Schulte-Nolke et al. (2008), at pp. 458 ff.90 See also Y11.HD, 23.2.2015T, 2015/1071E, 2015/2341K.

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part, under his own name do not fall within the scope of the Consumer Protection

Act.91 However, according to most authors on the subject, a merchant (e.g., an

SME) can still benefit from the protection offered by the new Arts. 20–25 of the

Code of Obligations.92

Despite the fact they are preferable to some other national laws in Europe, the

new Turkish provisions on the control of standard terms are not free of criticism.

First, their consistency with the Turkish Code’s overall structure that is based on

terse and general provisions is quite disputable.93

Moreover, and more importantly, Arts. 20 ff. of the new Code address the

problem of the incorporation of non-individually negotiated standard terms into the

contract, as well as the problem of their validity while totally neglecting the control

of seemingly negotiated terms.94 Even though the narrow scope of Arts. 20 ff.,

which is limited to non-negotiated terms, seems consistent with the aim of

protecting the weaker party against the information asymmetry, it is hardly in line

with the aim of the new Code to protect citizens and SMEs against the risk that an

economically powerful trader will exploit them—asymmetry in bargaining power.95

Besides, the limitation of control to terms that have not been individually negotiated

raises the issue of practicability. Sometimes, it is not easy to determine whether the

more vulnerable party was able to influence the substance of the term, which was

often imposed by the user in very subtle ways. So, it is not always possible for

courts to determine whether a contractual term was negotiated or not.96

Finally, closer judicial scrutiny of the new statute reveals that its scope and thus

the degree of protection for weaker parties are not being equated with those of the

Supreme Court’s case law I have studied in the previous section. Indeed, the

Supreme Court has taken into account not only contractual expectations, but also

non-contractual social expectations such as policy expectations and their meaning in

the context of the contract.

In order to avoid the problems associated with the distinction between negotiated

and non-negotiated terms as well as to better protect their citizens against inequality

of bargaining power, the legislature of some European countries (e.g.,

91 On the scope of the Consumer Protection Act, see Havutcu (2014).92 See Eren (2015), at p. 217; Oguzman and Oz (2013), at p. 165; Aydogdu (2013), at pp. 573 and 605;

Yeniocak (2013), at p. 88. For contra, see Antalya (2012), at p. 296 (according to this author, Arts. 20–25

of the Code of Obligations do not apply to transactions between merchants).93 Buyuksagis (2014a), at no 53.94 According to Art. 3(2) of Directive 93/13, a term shall be considered as not individually negotiated,

‘where it has been drafted in advance and the consumer has therefore not been able to influence the

substance of the term, particularly in the context of a pre-formulated standard contract’. The Turkish

Supreme Court defines the blurry demarcation line between negotiated and non-negotiated terms using

very similar criteria to those of the Directive, although the new Turkish Code of Obligations does not

provide a definition for the notion of non-negotiated contract term. See Buyuksagis (2014a), at no 51 ff.95 Buyuksagis (2013), at pp. 699–700. For similar criticisms at EU level, see Micklitz (2014a), at

pp. 146–7.96 Micklitz (2014a), at p. 147.

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France,97 Belgium,98 Finland, Denmark, Sweden and Norway99) empowered the

judge to assess the abusive character of any contractual term, whether it has been

negotiated or not.100 In England, the scope of the application of the Unfair Contract

Terms Act is also, for the most part (see sections 2, 4, 5, 6, 7 and 8), not limited to

non-negotiated terms.101 Hence, although it aims to defend the interests of all

parties concerned and not only those of consumers, the new Turkish law is narrower

in scope than the legislation of many European countries, which extend the control

of unfair terms to abuse of power.

Another problem with the formulation of Art. 25 of the new Code of Obligations

is that it causes confusion as to its scope of application. Indeed, just like EU

Directive 93/13 and the CJEU case law,102 it does not clarify under what

circumstances a clause that generates an imbalance in the parties’ rights and

obligations is contrary to the principle of good faith.103 Should a term not always be

regarded as contrary to the requirement of good faith when it causes such an

imbalance?104 It is difficult to imagine a situation where there is both contractual

evidence of an imbalance in favour of the user and evidence which justifies such

imbalance.105

To my mind, there is reason to think that the case-specific fairness test has

already eliminated the need to perceive good faith as a blank cheque for judicial

discretion.106 The test alone is actually able to enforce norms of substantive

fairness, safeguard individuals’ basic economic liberties protected by the Consti-

tution, and promote other social goals.

97 See Art L. 132.1 of the French Consumer Act; Mazeaud (2010b), at p. 106.98 See Art 31(1) of the Belgian Consumer Protection Act.99 § 36 of the Nordic Contracts Act: ‘(1) An agreement may be amended or set aside, in whole or in part,

if its enforcement would be unreasonable or contrary to principles of fair conduct. The same applies to

other legal transactions. (2) In applying subsection 1 of this provision, consideration shall be given to the

circumstances at the time of the conclusion of the agreement, the content of the agreement, and later

developments.’ See Wilhelmsson (2010), at p. 583.100 Kotz (2015), at pp. 204 ff (the author argues that, in consumer contracts, the extension of the control

to individually negotiated terms would not be inappropriate, see at p. 206).101 Beale et al. (2010), at p. 797.102 Most recently, see CJEU, 14 March 2013, Aziz, C-415/11, ECR I-0000, para. 69: ‘With regard to the

question of the circumstances in which an imbalance [in the parties’ rights and obligations] arises

‘‘contrary to the requirement of good faith’’, … the national court must assess … whether the seller or

supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer

would have agreed to such a term in individual contract negotiations.’103 On this question, see Buyuksagis (2012c), at p. 1406; Schulte-Nolke et al. (2008), at p. 227; Tenreiro

(1995), at p. 279; Roppo (1999), at p. 135.104 Buyuksagis (2012c), at p. 1406; Tenreiro (1995), at p. 279.105 For contra, see von Bar and Clive (2009), at p. 365: ‘… the question is whether the contract term in

question significantly disadvantages the consumer in comparison with the default rule which would be

applicable otherwise. If the answer to this question is yes, the next question is whether this is contrary to

good faith and fair dealing or whether there is a justification for this significant disadvantage.’106 Buyuksagis (2013), at p. 707.

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4.2 Modification and Adaptation of Contracts

Unlike the previous Code, the new Code of Obligations contains a specific provision

setting forth the conditions for a party to be released from its apparent contractual

obligations by supervening events. To some extent, these conditions are similar to

those in other European national laws and allow the judge to consider the impact of

social norms in restoring the contractual equilibrium (4.2.1).107 However, in Turkish

law, the role of the judge in determining the termination or adaptation of the

contract due to changed circumstances and in establishing how this should be done

is somewhat different (4.2.2).

4.2.1 The Impact of Social Norms

Parties are masters of their bargain.108 This principle was applied in the most

formalistic sense in the famous Canal de Craponne case, where the French Cour de

cassation ruled that

‘the courts shall not, under any circumstances and even if the decision might

seem equitable, take into account the time and the circumstances to modify the

agreements entered into by the parties and substitute new clauses for the ones

freely accepted by the contracting parties’.109

This extreme formalist approach to contract interpretation, with reference only to

the contractual text, has changed over the years to a more flexible approach

according to which the stability of the bargain requires that the judge does not adjust

or terminate the obligation if the debtor assumed the risk of the change of

circumstances or if the circumstances are such that the debtor can reasonably be

regarded as having assumed the risk of the change.110 With a strict interpretation, it

is incumbent on the debtor to expand the resources necessary to convince the court

that there was a change in the significance of the obligation to the effect that the

thing undertaken would, if performed, be a different thing from that contracted for.

This argument put forth by some courts and commentators was challenged in

various ways particularly by legal realists, two prominent ones among them being

Karl Llewellyn and Ian Macneil, who claimed that sometimes powerful social

norms play a greater role in regulating contracts than the law does.111 Contracts

occur within relationships, and the latter reflect a variety of influences, including

social norms and the norms of conduct that develop within the relationship.112

107 For a comparative approach, see Hondius and Grigoleit (2011b); Gordley (2004).108 Schwartz (1998); Epstein (1999); Scott (2003).109 Cass. civ., 6 March 1876, D. 1876, jurispr., p. 196, note Giboulot A, translated by Behar-Touchais

(2013), at p. 70. It is worth noting that, since then, the French Cour de cassation has given up that strict

position. See Cass. com., 3 November 1992, RTDciv 1993, p. 124; Mazeaud (2010a), at p. 10.110 Pichonnaz (2011a), at p. 22.111 Llewellyn (1931); Macneil (1978).112 Macneil (2003).

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Recognising this interaction, before the 2012 reform, the Turkish Supreme Court

took into account ex officio the complexity of such a relationship in its broader

sense, and attached importance to social context. This was particularly the case

when performance of a contractual obligation, although not completely impossible,

had become so excessively and disproportionately onerous as a result of the changed

circumstances which the parties to a contract could not reasonably have foreseen

when they made the contract that it would be against the principle of good faith to

require them to fulfil their obligations.113

On the basis of this case law, Art. 138 of the new Code of Obligations introduced

in Turkish law a general clause whose wording is very similar to § 313 BGB and

which gives the judge the power to intervene in the contract in cases where the

contracting parties have made no provision for the risk:114

‘When an extraordinary event not foreseen and not foreseeable by the parties

at the conclusion of the contract occurs without being caused by the debtor and

alters the circumstances existing at the conclusion of the contract to the

detriment of the debtor so that the performance would be contrary to the

principle of good faith and fair dealing, provided that the debtor did not yet

perform his obligation or executed it after reserving his rights resulting from

performance becoming excessively onerous, the debtor can request that the

judge adapt the contract to the altered circumstances or, if this reveals to be

impossible, he can revoke the contract. In the contracts involving a continuous

obligation, the debtor shall, in principle, exercise the right of termination of

the contract instead of revoking the latter.’115

So, judicial intervention in contracts is reserved for exceptional cases, not for the

routine ups and downs of market dealing.116 The following four conditions should

be satisfied. Firstly, an unexpected event occurring after the obligation was incurred

should have led to a change of circumstances which the parties could not reasonably

have foreseen at the time of the conclusion of the contract. If, unknown to either

party, circumstances making the contract excessively onerous for one of them

already existed at the conclusion of the contract, the rules on change of

circumstances do not apply—although those on mistake might. Secondly, because

of a change of circumstances, the contract should have become so burdensome that

it would be against the principle of good faith to hold the parties to their obligations.

Thirdly, the change of circumstances should not be attributable to the debtor. Lastly,

the debtor should not have performed the contract yet.

The new rule can be seen as the codification of the courts’ efforts, during the

economic crisis, to interfere with the initial contract terms in order to adjust the

contract price to take account of the effects of fluctuation in the values of

113 Y13.HD, 4.2.1999T, 1999/22E, 1999/524K.114 Ince (2015), at pp. 309 ff. On § 313 BGB, see Doralt (2012). For a comparative analysis of clausula

rebus sic stantibus, see Hondius and Grigoleit (2011a); Kadner Graziano (2010), at pp. 320 ff.115 Author’s translation.116 YHGK, 7.5.2003T, 2003/13-332E, 2003/340K; Y13.HD, 9.6.2005T, 2005/1874E, 2005/9749K;

Kılıcoglu (2013), at p. 256; Yılmaz (2010), at p. 139.

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currencies.117 Since such situations did not cause an insurmountable obstacle to

performance—but were ruinous for the debtor—Turkish courts gave the debtor a

second chance to perform before the creditor terminated the contract or claimed his

performance interest118—regardless of whether the parties were professionals or

consumers.119

In case of termination of the contractual relationship due to the impossibility to

make an equitable and fair adjustment to the contract, according to Art. 138 of the

new Code of Obligations, the judge may not reallocate the risks agreed to in the

contract. On the one hand, such an all-or-nothing solution provides legal certainty.

On the other hand, however, it might not fit all situations, since the termination has

the potential to shift the burden of the loss resulting from the unexpected event to

the party less able to bear it.

4.2.2 Judicial Discretion

The Turkish Supreme Court has often applied the doctrine of changed circum-

stances (clausula rebus sic stantibus) to long-term contracts such as long-term

leases,120 but it has not limited the cases where the debtor can be excused from such

kind of contracts, nor has it taken into account whether the debtor had attempted in

good faith to achieve a reasonable and equitable adjustment by negotiation before

resorting to the court.

When the legislature determined the legal effects of changed circumstances in

Art. 138 of the new Code, following this judge-made law, it did not make any

distinction between long and short-term contracts, and thus left wide-ranging power

to the judge. Taking into account all the circumstances of the specific case, in

particular the contractual and/or statutory allocation of risk, and determining ex post

whether the parties would not have concluded the contract or would have done so

upon different terms if they had foreseen the change, the judge decides in

accordance with the requirements of good faith whether the conditions for the

debtor to be excused are met. Pursuant to Art. 138, the only restriction is that, if it is

possible to maintain the contract with no substantial inconvenience or expense, the

debtor may not require termination of the contract, but only revision of the terms

regulating the obligation.

In accordance with the case law developed by the Turkish courts, the legislature

did not impose an obligation on contracting parties to enter into negotiations in case

of a change of circumstances with a view to modifying the contract or ending it.

117 Y13.HD, 6.4.1995T, 1995/145E, 1995/3339K.118 YHGK, 11.11.2009T, 2009/14-456E, 2009/496K; Y3.HD, 10.22.2002T, 2003/1941E, 2003/2097K;

YHGK, 02.19.1997T, 11-762E, 77K; Y13.HD, 10.24.1994T, 6791E, 9014K. On this issue, see also

Serozan (2000), at p. 1028; Kocayusufpasaoglu (2000).119 It is worth noting that this has been clearly established in the case law. See Y13.HD, 20.3.2003T,

2003/512E, 2003/3169K. The Supreme Court’s ruling is not limited to claims against the creditor. In

some exceptional cases, the Court adjusted the contract (price) to the detriment of the debtor as well.

Therefore, the wording of Art. 138 seems narrower than the approach adopted by the Supreme Court. See

Buyuksagis (2014a), at no 94.120 Y13.HD, 13.3.1995T, 1995/02077E, 1995/02418K; Y13.HD, 21.11.1991T, 8374E, 10619K.

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However, the PICC (Art. 6.2.3), the PECL (Art. 6:111) and the CESL (Art. 89(1))

foresee that, only if parties fail to reach an agreement (within a reasonable time), the

judge may adjust or terminate the obligation.121 The idea to impose an obligation to

negotiate, which has gained supporters122 as well as critics among European

scholars,123 is based on the principle of good faith.124

Adding such a requirement to a statutory provision might turn the whole process

into an empty formality,125 complicate the debtor’s access to justice and even create

some conflict of interest, particularly when the creditor acts in a fiduciary

capacity.126 For these reasons, the Turkish legislature’s choice not to impose on the

parties an obligation to renegotiate in case they overlooked the need for a hardship

clause or for a clause to cover the circumstances which actually arose seems

appropriate, even if such a solution is not necessarily in conformity with the recent

developments in European contract law.

The new rule indeed places great confidence in the courts. Without imposing on

the parties an obligation to renegotiate, it presumes not only that courts will be able

to grasp the nature of the dispute, but also that they will be able to do a kind of

socio-economic analysis of the parties’ relationship in the given context.127

5 Conclusion

Turkish contract law has developed in a pragmatic rather than a strictly logical way.

Whereas the latter assumes that contract is concerned with the enforcement of the

parties’ expectation-based obligations, the former considers all the environmental

references of a contract in order to establish some sort of relational justice which

defines the interactions between different social norms shaped by the interests and

power dynamics of various social forces. Turkish case law has made clear that the

obligation of contractual fairness is tied up with the socio-cultural context in which

it exists.

Where the legislature has not provided a clear answer, in order to provide for the

outcomes expected by the legal community and public, the Supreme Court has

regularly interpreted the existing statutes so as to give priority to fairness over the

principle of efficiency and that of maximising the sum of advantages. For example,

the Court ruled that the occurrence of a supervening event can, to some extent,

discharge the aggrieved party from its obligations under the contract, even if the

event does not make it impossible for the contract to be performed. Besides, the

Supreme Court has not hesitated to incorporate constitutional values, such as

121 Doralt (2012), at pp. 782–3.122 Serozan (2015), at p. 30; Babusiaux (2013), at p. 77; Pichonnaz (2011a), at p. 37.123 von Bar and Clive (2010), at p. 711; Urich-Erber (2008), at pp. 95 ff; Martinek (1998), at p. 376.124 See Ollerenshaw (2013), at pp. 219–220; Babusiaux (2013), at p. 77; Pichonnaz (2011a), at p. 37.125 Kotz (2015), at p. 424.126 von Bar and Clive (2010), at p. 711.127 In the US, Eric Posner argues, on the contrary, that ‘courts are radically incompetent given the

demands that are placed on them by relational contracts’. See Posner (2000), at p. 754.

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protecting the vulnerable, in individualistic private law structures. The Court has,

for instance, decided that an imbalance in the parties’ rights and obligations, along

with a significant deterioration in the economic situation of the debtor, creates

circumstances which violate basic social rights protected by the Constitution.

Even on issues expressly covered by statutory rules, the Supreme Court has taken

into account the relations between rights and socio-economic order(s), and softened

the legal consequences of a possibly too rigid or simply unsatisfactory application of

statutory dispositions without waiting for legislative intervention. The judicial

intervention in contracts and their modifications in case of economic exploitation at

the time of the economic crisis, for instance, can be interpreted as an intention by

the Court to moderate tendencies that lead to socio-economic (and political)

instability.

It is generally believed that, in continental European systems, the judge is given

the main task of interpreting existing statutory provisions, but not of creating law.

Contrary to myth, in Turkey, the judge has done more than simply apply law. The

court’s role in finding normative solutions has gained so much importance in

Turkish contract law that it has reversed the roles of the judiciary and the legislature.

To bridge the gap between judge-made law and the statutory scheme, in the 2012

reform of the Code of Obligations the legislature provided judges with the explicit

tools that enable them to exercise a certain flexibility regarding judicial intervention

in a voluntary transaction, thereby recognising that they are institutionally capable

of engaging with the internal norms of the business relationship. The general clause

in Art. 138 giving the judge the power to intervene in the contract in cases where the

contracting parties have made no provision for the risk is a good example of this

new trend.

It seems, nevertheless, that although the legislature has, to some extent, taken

into account the judicial trend towards more contractual fairness, the new Code

suffers from a lack of vision, without which contract law cannot develop in a

comprehensive way. More importantly, the new Code has some potential to stifle

the organic development of the case law. The limitation of the (un)fairness control

to terms that have not been individually negotiated is perhaps one of the best

examples illustrating this problem.

Acknowledgments I wish to thank the anonymous reviewer for the careful reading of my manuscript and

the valuable comments. If not otherwise specified in the footnotes, the Turkish Supreme Court decisions I

cited can be found at http://www.kazanci.com.tr (Kazancı data bank).

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