The COVID-19 pandemic, emerged in Wuhan, China in December 2019, which spread rapidly and affected the entire world, also shows its effects within the borders of Turkey. While the pandemic changes daily life completely, it also had significant effects and consequences in commercial life. As a result, the concepts of force majeure and impossibility of performance became even more important.
There is no clear and specific regulation under Turkish Law regarding force majeure. Although events that will be accepted as force majeure were listed in the relevant articles of the Tax Procedure Law, there is no other regulation defining clearly or specifically "force majeure" in the Turkish Law system. Thus, it is necessary to look at judicial decisions for the definition of force majeure in the Turkish Law system. Accordingly, the Supreme Court Assembly of Civil Chambers defined force majeure in its decision dated 27.06.2018 and numbered 2017/90E.-2018/1259K. as follows:
“Force majeure is an extraordinary event that occurs beyond the activity and organization of debtor or obligator, which leads to the breach of a general norms of behaviour or a debt in an absolute and inevitable manner which cannot be foreseen and resisted. Natural disasters like earthquake, flood, fire, pandemic etc. are counted force majeure.”
By examining the decisions of the Supreme Court and Supreme Court Assembly of Civil Chambers it is possible to list the elements of force majeure as follows:
- Existence of an extraordinary cause/event that is compelling, unforeseen/unpredictable, and irresistible that leads to a breach of the debt,
- The force majeure event must be beyond the effected party's activity and company and, must be beyond the control of effected party,
- Existence of the causal link between force majeure event and breach of debt/non-performance of contractual obligation,
- Force majeure must lead to a breach of contractual obligation inevitably.
More clearly, force majeure may be generally defined as inevitable events not existing as of the date of signature of the contract, not reasonably foreseeable as of such date, and not reasonably within the control of either party which prevents, in whole or partly, the performance of the contractual obligations by the effected party.
In the light of this definition, as a rule, it is possible to say that COVID-19 is a force majeure event because it is unforeseeable/unpredictable, out of parties’ control and it prevents, in whole or partly, the performance of the contractual obligations by the effected Party. So, as a rule, it is also possible to say that effected party is discharged from contractual duties due to COVID-19 when it is defined as a force majeure event. However, it should not be forgotten that every single contract must be evaluated specifically within the frame of its provisions.
Accordingly, in order to protect the interests of the parties to the highest degree, contracts need to contain a force majeure clause which covers at least:
- a general definition of force majeure event and the events counted as force majeure,
- legal results of an event counted as force majeure,
- an obligation to report the event, details of notification and consequences,
- in case of extending of the force majeure event, how to terminate the contract
So, it is highly recommended to add force majeure provisions in connection with COVID-19 to the contracts if there is not any and/or review the existing force majeure provisions in line with the COVID-19. Sample force majeure clauses prepared by international institutions and organizations might be useful at this point.
When considering continuous amendments of measures and new regulations, it may still require adding protective provisions to contracts in line with the dynamics of COVID-19 and necessities of the obligations in the contract.
After the force majeure situation is determined as stated above, as a second stage it shall be determined whether the performance of the contract becomes completely or partly impossible due to force majeure. Based on this answer, obligations of the parties and termination of the contract will be determined according to the articles about “impossibility of performance” of the Turkish Law of Obligations.
Although there is no specific force majeure provision under Turkish Law, Turkish Law of Obligations has three articles regulating impossibility of performance (Articles 136, 137, 138). The legal evaluation will be made based on these articles in case of impossibility of performance of contractual obligation completely or partly due to a force majeure event.
Article.136 of Turkish Law of Obligations regulates the situations complete impossibility of performance of contractual obligation. According to Article.136, if the performance of the obligation becomes completely impossible to perform due to reasons which lie beyond the debtor, the debtor will be released from the contractual obligation. In such case, the debtor is obligated to return the earnings that she/he received, due to unjust enrichment provisions, as well as she/he loses the right to demand an act that has not been performed yet. However, if the debtor does not notify the creditor about situation causing the impossibility of performance without any delay and does not take the necessary measures to prevent further damage the debtor will be liable for all damages that may occur.
Article.137 of Turkish Law of Obligations regulates the situations when the performance of the contractual obligation becomes partly impossible. According to this article, if the contractual obligation becomes partially impossible to perform due to reasons which lie beyond the debtor, the debtor will be released from only the impossible part of the obligation. However, if the circumstances of the situation clearly show that the contract would not be signed if the parties could foresee the part that becomes impossible than contractual obligation will disappear completely.
On the other hand, if a part of the contractual obligation becomes impossible and the creditor consents the debt to be fulfilled as is, the counter act is decreased proportionally with the debt and the contractual obligation is performed as is. But if the creditor does not consent partly perform of debt or if the counter act is not severable, the contractual obligation disappears completely, and the regulations on the complete impossibility of performance will be implemented.
Besides the explanations made, it should also be evaluated whether the impossibility of performance is constant or temporary. The debtor will be discharged from the contractual obligations under conditions stated above if the situation/event/reason that prevents and/or makes impossible to perform the contractual obligation is constant and persistent.
In the temporary impossibility of performance, the impediment that makes impossible the debtor’s performance is temporary and the parties are aware that it will disappear at a certain time. The question at this point is, will parties be bound by the contract during the time of temporary impossibility of performance? According to the Supreme Court decisions it is accepted that the parties are bound by the contract during the time of temporary impossibility of performance as a rule due to pacta sund servanda principle.
However, in some temporary impossibilities, being bound by the contract can both eliminate the parties’ economic freedom and cause serious loss of earnings by eliminating the opportunity to make other contracts. So, being bound by the contract at the time of temporary impossibility of performance may create great damages and loss of earning in some cases. Therefore, it is necessary to decide whether the parties are bound by the contract or not by examining the bearable time for being bound by the contract in each case.
In the Article.138 of Turkish Law of Obligations; regulates the situations that the debtor may claim the contract to be adapted to the new situation from the judge or if this is not possible use the right to rescission of the agreement. These situations are as follows:
- Existence of an extraordinary event that is unforeseen, and impossible to expect from parties to foresee, which occurs out of the control of the debtor,
- This extraordinary event should change the existing facts at the signature date of the contract in such a way against the debtor, which makes the right to demand performance to be contradict to good faith,
- The debtor must not have fulfilled his contractual obligation yet or must have fulfilled his obligation by reserving his rights arising from hardship.
The High Court evaluates the adaption of the contract due to hardship by considering (i) existence of an unforeseeable event, (ii) collapse of the legal transaction completely and (iii) acting as a prudent merchant for a tradesman. In this direction, the High Court rejected an adoption claim for a foreign currency indexed mortgage loan contract because shock rises are usual according to economical standards of Turkey and it is foreseeable by a prudent merchant; so the conditions causing the claim does not meet the existence of an extraordinary and unforeseeable event.
As a conclusion, due to spreading speed and destruction of COVID-19 that causes uncertainty and problems in commercial life and contracts, it is highly recommended to review and update the contracts constantly by keeping in mind to act as a prudent merchant.