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04 September 2018
Under Turkish law, contracting parties should be bound by the terms and conditions of the contract under the sanctity of contract principle. However, following the conclusion of a contract, a change in circumstances may affect the performance of contractual obligations and applying the sanctity of contract principle could be against the principle of good faith.
Turkey has recently faced higher currency exchange rates, which has raised the question of whether this increase constitutes a change in circumstances that affects the fulfilment of contractual obligations.
Under Turkish law, if parties cannot agree on a revision of the terms and conditions of a concluded contract, they are entitled to apply to the courts and request the adaptation of the contract in view of the new circumstances as per Article 138 of the Code of Obligations, provided that the following conditions are met:
As per Article 138(2) of the Code of Obligations, the article also applies to foreign currency debts.
Pursuant to Supreme Court precedents, for a court to accept an adaptation request:
The party that requested adaptation must prove that the abovementioned conditions have been met. If the court determines that the conditions required for adaptation have been met, it may decide to revise the content or term of the contract. If these revisions are insufficient to balance the performances of the parties, the court may decide to terminate the contract.
Long-term lease contracts and foreign exchange loan agreements constitute the majority of the Supreme Court's precedents regarding adaptation requests. For adaptation requests based on the higher currency exchange rates, the Supreme Court has contradictory precedents. In some of its decisions, the Supreme Court overruled the decision of the first-instance court due to the insufficient examination of whether the exchange rate fluctuation had caused an unpredictable event. There are also precedents where the Supreme Court has refused adaptation requests by stating that the fluctuation in currency exchange rates is predictable when the economic structure and dynamics of Turkey are considered.
The contradictory nature of the Supreme Court's precedents has been criticised by scholars who argue that:
It appears that the recent higher currency exchange rates in Turkey will increase the number of adaptation requests before the courts. As there is no settled Supreme Court precedent regarding whether a fluctuation in currency exchange rates requires the adaptation of contracts, first-instance courts will need to examine the circumstances of each case.
For further information on this topic please contact Pelin Baysal, Beril Yayla Sapan or Ezgi Kut at Gün & Partners by telephone (+90 212 354 00 00) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Gün & Partners website can be accessed at www.gun.av.tr.
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