The Effects of COVID-19 on International Contracts in Turkey

“Force Majeure” means non-performance that is not attributable to the party obliged to perform.  A clear-cut definition of Force Majeure is not made in Turkish Codes.

Turkish Court of Cassation’s General Assembly of Civil Court Chambers defined Force Majeure as follows, “Force Majeure is an extraordinary event that takes place outside of the business and operation of the liable party or debtor, which was impossible to be foreseen and prevented, and leads to an absolute and inevitable violation of a general norm of behaviour or obligation. Natural disasters such as earthquake, flood, fire and epidemic or pandemic are considered as Force Majeure.”

Every case has its own merits and the Force Majeure must be assessed for each case individually.

“Hardship” is a situation in which the circumstances make it excessively difficult for one of the parties to perform its obligations in a contract.  According to Article 138 of the Turkish Code of Obligations (“TCO”), when an unexpected event that is not foreseen and not expected to be foreseen by the parties at the moment of conclusion of the contract arises and causes an excessive difficulty in performing the obligation, the debtor shall be released from its obligation and there will be no breach of contract in case such event does not derive from negligence of the obliged party.

If demanding performance from the obliged party under the changed circumstances would violate the principle of good faith, the obliged party shall be entitled to demand the court to modify / adapt the contract to the new circumstances, or to terminate the contract where such adaptation is not possible.

The wording of the Force Majeure clause in the contract plays an important role to decide if it is possible to invoke Force Majeure.

A Force Majeure clause which would work in COVID-19 pandemic, for instance, would read as follows: “A circumstance which is independent of the will and control of the parties, as a result of which performance of the contract cannot reasonably be required from the parties at a certain time period or permanently be classified as Force Majeure. Such circumstance shall be including but not limited to; unrest, war, civil war, terrorism, natural disaster, epidemic, strikes, extreme weather conditions, fire, lack of raw materials, any government measures that disables the performance, import and export prohibitions”.

Rather than using standard (so-called “boiler plate”) clauses, it is advisable that the Force Majeure clause should be drafted in a way to cover the possible events which may affect the contract at hand and render impossible performance of a certain obligation.

Parties should first review the Force Majeure clauses in their contracts and evaluate whether epidemic or pandemic diseases are within the scope of the clause. Generally, the possible events that may be deemed as Force Majeure are listed in the contracts with an indicative (open) or exhaustive (closed) list.

As a matter of fact, in the sample Force Majeure clause published by the International Chamber of Commerce (ICC) in 2003, it is recommended to add epidemic diseases to the contracts in the list of events indicated as Force Majeure.

The fundamental elements of a Force Majeure event are listed below:

• The event that triggers Force Majeure must take place out of control of the parties due to an external event,
• It must be impossible for the parties to foresee this event at the date of execution of the contract, or to predict the effects of the event,
• it is impossible to perform the obligation affected by the event and
• the event is indicated in the Force Majeure clause of in the contract.

Accordingly, pursuant to Turkish Law, epidemic or pandemic diseases which could not be foreseen, occurred outside of the control of the parties and caused the impossibility to perform are deemed as a Force Majeure as long as it is stipulated in the contract and relevancy is proven. The party that cannot perform its obligations due to Force Majeure is not be liable for these unperformed obligations.

In the event that epidemic or pandemic diseases are not included in Force Majeure Clause in the contract, a judge will decide whether the unexpected event can be deemed as a Force Majeure or not, in case of dispute. The Judge will ascertain this matter by analysing  the specific circumstances such as the obligations of parties, features and effects of the unexpected event, supply chain of the debtor etc. In the case that COVID-19 is not evaluated as Force Majeure, then Debtor has another option of adaptation of the contract due to Hardship.

Pursuant to the Turkish Code of Obligations, if the performance of a bilateral contract becomes impossible due to reasons that cannot be ascribed to the debtor, the debtor is released from his obligations and cannot be held liable for compensation. Yet, in a bilateral contract, the debtor must return the consideration received from the creditor pursuant to the provisions on unjust enrichment and loses his right to counterclaim to the extent it has not yet been satisfied.

The creditor is not obliged to prove that non-performance was not resulted from Force Majeure, he has the burden of proof that there is non-performance and the damages suffered as a consequence. On the other hand, the debtor has the burden of proof that his non-performance was the result of a cause that cannot be attributed to him by agreement or law.

It is important to mention that the debtor has an obligation to notify immediately the creditor of the impossibility of performance and to take all necessary precautions to mitigate the resulting damages. If he does not fulfil this obligation, he is liable to pay compensation for damages. In this case the debtor has also the burden of proof that he did immediately notify the creditor regarding the event of Force Majeure.

• Results of Force Majeure in different legal structures and agreements may differ. In this regard, it is very important to review the agreement carefully to determine if there is a Force Majeure clause and which is the governing law.
• The affected party must timely inform the other party about the non-performance and must seek possible alternatives to perform the contract.
• Take all necessary precautions to minimize the possible damages and inform the counterparty.
• Check which damages are insured, either with the debtor or the creditor.

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