Use of Turkish Language and Turkish Currency in Contracts
Due to the recent fluctuations in the economy, questions such as the currency in which the debts will be paid and the language requirement of the contracts have gained importance for Turkish companies that do business internationally and whose contact with foreign companies is increasing day by day.
If the companies that have a presence in commercial life do not follow the current legal developments, disputes and victimisation may arise between the parties. For this reason, as GRC Legal, we respectfully present to your information a guide for the use of Turkish language and Turkish currency in contracts in the light of the communiqué issued to protect the Turkish currency, the law issued in the name of the language to be used in contracts and various Supreme Court decisions.
Turkish Language in Contracts:
As it is known, pursuant to Article 26 of the Turkish Code of Obligations (“TCO”), the principle of freedom of contract applies in Turkish law and it is stated that the parties may freely determine the content of the contract as long as they do not exceed the limits of the law.
However, in order to protect the public interest and prevent disruption of commercial life, the legislator has imposed certain restrictions on contracts with various provisions. For example, pursuant to Article 27 of the TCO, it is stated that contracts that are impossible, immoral and contrary to mandatory provisions shall be null and void.
When the language of the contract is in question, a special law comes into play: Law No. 805 on the Compulsory Use of Turkish in Economic Enterprises (“Law No. 805”)
Law No. 805 has been criticised in the doctrine on the grounds that it is outdated and not compatible with the rapidly changing commercial life since it is dated 1926.
Although various international treaties (New York Convention of 1958 and European Convention of 1961) have stated that the fact that the language of an international agreement is in a foreign language does not invalidate the agreement, there are also decisions of the Court of Cassation and the Regional Courts of Appeal (“BAM”) in accordance with Law No. 805 and there is an inconsistency in this regard.
1) Cases where both parties to the contract are Turkish
Law No. 805 stipulates that all companies and establishments of Turkish nationality are obliged to keep all their accounts and books in Turkish.
The majority opinion in the doctrine is that the phrase “every company and establishment” should also include ordinary companies and other enterprises. Law No. 805’s use of the word “nationality” suggests that even if all of the shareholders of the company are foreigners, they will be subject to the provisions of this law if they are subject to Turkey. The dominant view in the doctrine is that the expression “within Turkey” refers to the place of contract.
We understand from this article that in cases where the parties are Turkish and the contract is concluded in Turkey, the language of the contract must be Turkish. In cases where the parties to the contract are Turkish, there is no confusion, and the obligation to arrange the contract in Turkish is certain.
2) In cases where one party to the contract is a foreigner
This is where the wording of Law No. 805 creates confusion, as the legislator has not explicitly stated what the language of the contract will be if one party is foreign. Law No. 805 introduced the obligation for foreign companies only in the context of communications with institutions and other persons of Turkish nationality.
Although there are decisions of the courts reaching two different conclusions with respect to the language of the contracts, the recent case law is united in the direction that the Turkish language is not obligatory in contracts. (E. 2020/883 K. 2020/5293 T. 23.11.2020) (E. 2021/3004 K. 2021/2309 T. 7.12.2021)
3)Comment
Nevertheless, since the case law is not yet settled and the Law No. 805 is still in force, the majority opinion is that it would be appropriate for the parties to act cautiously and sign the contract in both languages.
In today’s practice, the contracting parties find it useful to prepare and sign the contracts in two columns, both in foreign language and in Turkish, when preparing the contracts of companies that are within the scope of international trade intensively
Considering the dominant position of the parties, we are of the opinion that it would be beneficial for Turkish companies to include a clause stating that in the event of any conflict between the languages in the contractual clauses, the meaning of the Turkish language will be accepted.
Turkish Currency in Contracts
Article 99 of the TCO determines the currency in which the payment shall be made in contracts. Accordingly, it is stated that the debts, the subject of which is a money debt, shall be paid in the national currency, but the contrary may be agreed. Here, there is an optional authorisation granted by the law. This means that the contracting parties have the freedom to choose between the national currency or foreign currency.
If the contract does not stipulate that the obligation shall be paid “in kind” in a foreign currency, the debtor shall pay in the national currency, since payment in the national currency is essential. The reason for this situation is that the legislator wants to protect the value of the national currency.
1)Cases where both parties to the contract are Turkish
The Communiqué (Communiqué No: 2018-32/51) Amending the Communiqué (Communiqué No: 2018-32/51) on the Decree No: 32 on the Protection of the Value of the Turkish Currency (Communiqué No: 2008-32/34) (“Communiqué No: 2018-32/51”) is an exception to Article 99 at this point.
Communiqué No. 2018-32/51 states that the contract price and other payment obligations arising from these contracts cannot be determined in foreign currency or indexed to foreign currency in all kinds of movable and immovable leasing, leasing, including movable and immovable purchase and sale, vehicle and financial leasing, leasing, and employment, service and work contracts of persons residing in Turkey.
As can be understood from the provision, if both parties to the contract reside in Turkey, the parties cannot determine the price of the specified contract types other than the local currency.
In the Communiqué No. 2018-32/51, it is stated that the contract price and other payment obligations arising from these contracts cannot be determined in foreign currency or indexed to foreign currency in all kinds of movable and immovable leasing, leasing, including movable and immovable purchase and sale, vehicle and financial leasing, leasing, and employment, service and work contracts of persons residing in Turkey. As can be understood from the provision, if both parties to the contract reside in Turkey, the parties cannot determine the price of the specified contract types other than the local currency.
There are various exceptions to the Communiqué No. 2018-32/51. Within the framework of the exceptions, situations where Turkish currency is not obligatory are determined: Real estate sale and lease agreements to which Turkish residents who are not Turkish citizens are parties, licence and service agreements for hardware and software produced abroad, sale and lease agreements other than those relating to vehicles, creation, issuance and trading of capital market instruments and transactions on these instruments, and service agreements to be concluded with persons who are not Turkish citizens.
In this context, there are different opinions in the doctrine regarding the fate of the contracts to be concluded by persons in violation of the Communiqué No. 2018-32/51. While one opinion argues that the contract will be null and void pursuant to Article 27 of the TCO, the other opinion argues that the action will be subject to administrative fines for violation of administrative order.
2) Cases where one party to the contract is a foreigner:
As seen in Communiqué No. 2018-32/51, this Communiqué is valid only if both parties reside in Turkey. In other words, if one of the parties to the contract is not domiciled in Turkey, this provision will not apply.
However, there is no optional authorisation regarding the currency in real foreign currency debts. What should be understood from the real foreign currency debt is that the parties explicitly agree on the foreign currency when determining the price to be paid. If the parties agree to perform a foreign currency debt “in kind”, the debtor may not offer to pay in the debtor’s national currency.
For example, if the parties have agreed to pay “in kind”, “in real terms” in 1000 US dollars, there is a foreign currency debt in kind, but there is no foreign currency debt in the contract established in Turkish lira, which will correspond to 1000 US dollars on the day of performance.
If the debt is not paid on the due date, it is debatable whether the creditor will be granted an optional right here
One opinion argues that the optional powers granted by the legislator to the creditor in case of non-payment of the debt on the date of performance also cover foreign currency debts. This view argues that the legislator aims to protect the creditor while granting the creditor the optional powers, and therefore, pursuant to Article 99/3 of the TCO, the creditor may demand payment of the debt in Turkish Lira at the exchange rate on the date of payment. Another opinion, on the other hand, argues that the wording of the TCO in real foreign currency debts implies that the creditor does not have any optional powers
3)Exception
Within the framework of Communiqué No. 2018-32/51, the types of contracts whose prices cannot be determined in foreign currency have been regulated, as well as the situations that will not be subject to the obligation to determine in Turkish currency by being within the scope of the exception.
The main exemptions include real estate sale and lease agreements to which non-residents of Turkey who are not citizens of the Republic of Turkey are parties as buyers or lessees, sale and lease agreements for movable property, except for those related to vehicles, sales agreements for software produced abroad within the scope of information technologies, licence and service agreements for hardware and software produced abroad, creation/acquisition/transfer/trade of capital market instruments and transactions made on these instruments, and service agreements to be concluded with non-residents of the Republic of Turkey.
Pursuant to the Communiqué No. 2018-32/51, this obligation will not be applied for the receivables that have been collected or delayed in the contracts whose prices cannot be agreed in foreign currency or indexed to foreign currency, deposits given within the scope of real estate lease agreements and negotiable instruments that have entered into circulation within the scope of the performance of the contracts. Accordingly, there is no obligation to determine the aforementioned issues in Turkish Lira.
In accordance with the Communiqué, it is possible for the parties to make arrangements with their free will regarding the prices of the contracts to be organised in Turkish currency. However, in the event that a mutual agreement cannot be reached, the effective selling rate of the Central Bank on 02.01.2018 will be taken as basis and increases will be made according to the monthly rate of change in the Consumer Price Index (“CPI”).
CONCLUSION:
When the above-mentioned issues are analysed, although there are exceptions and ambiguous situations regarding the language in which the agreements will be drafted and the currency of the country in which the money debts will be paid, it will be appropriate to prepare an additional Turkish version to the original agreement until the case law is completely in common, and in the case of money debts, it is important whether the subject of the agreement falls within the scope of Communiqué No. 2018-32/51 and whether the phrase “in kind” is used.
As always, the parties should be careful and attentive in the selection of the currency at the stage of agreeing on the price of the contract.
