This article is about the applicability of force majeure under Turkish law for liabilities arising from non-performance due to the Coronavirus disease 2019 (the “COVID-19”).
First reported in Wuhan, China, in December 2019, the World Health Organization declared the COVID-19 outbreak a pandemic on 11 March 2020. It was reported that, by that time, there were 118,000 cases, more than 4,000 deaths (which was doubled in around one week) and the virus, SARS-CoV-2, had been found worldwide.
Many countries including Turkey have taken strict and immediate measures such as travel bans, closure of schools, restaurants, blocking eviction of renters, imposing extra border controls, restricting free movement, quarantining citizens and isolating the infected persons. While effects of such measures over commercial contracts have started to be seen in certain countries such as China and Italy, the full impact of the COVID-19 remains uncertain. It seems the full impact of the COVID-19 over commercial contracts will come to light in the long run, in particular for some sectors.
Specific measures taken by the Turkish government:
First of all, President Erdoğan said, “There will be serious economic consequences […] We are facing the necessity to prevent the virus from spreading and keep alive production, trade and employment in the economy.” Erdoğan also said Turkey would postpone debt payments for a minimum of three months and reduce the tax burden on various sectors as part of a TL 100 billion ($15.4 billion) package of new measures to support the economy. He added that value-added tax and social security payments for various sectors will also be deferred.
Here are some of the measures that have been taken by the Turkish government so far:
- Flights to 20 countries were halted with more to come.
- Border gates with various neighbouring countries, including Iran and Greece were closed.
- Many businesses were gradually shut down. These include tea houses, restaurants, cafeterias, clubs, bars, pubs, nightclubs, wedding halls, sports halls, internet cafes, as well as cinemas, theatres, concert halls, museums, libraries, indoor children’s play areas, pools and baths.
- On the law enforcement front, all non-urgent court hearings were postponed, and notary services were suspended. More recently, enforcement and bankruptcy proceedings were halted, and provisional attachment decisions will not be enforced.
- Schools and military schools were temporarily shut down, and dormitories were emptied to serve as potential quarantine centres.
- The citizens traveling from Europe were urged to stay at their homes for a 14-day self-isolation as doing otherwise may constitute an “offense.”
As stated, these are only a part of the measures and the number of the measures that may affect commercial contracts is likely to increase in the short run. The Turkish government, at some point, may even declare a state of emergency and issue emergency decrees. In that case, the commercial contracts and the performance of obligations regulated under these contracts would be affected more than expected.
All these measures may unavoidably cause non-performance of certain obligations. The answer to the question whether and how the liabilities arising from non-performance due to the COVID-19 can be averted with the application of force majeure under Turkish law is discussed below:
Force majeure under Turkish law:
Under Turkish law, if a party to a contract can prove that they are not negligent for non-performance, they cannot be held liable for non-performance anymore. This is because Article 112 of the Turkish Code of Obligation no. 6098 (“TCO”) principally stipulates the negligence of obligor for liability and assumes that the obligor is negligent unless proved otherwise. Even though the burden of proof for non-performance lays on the obligor, the parties are free to agree otherwise and, in that case, the obligee must prove that the obligor is negligent for non-performance.
In light of the above explanation, the obligor shall in principle be held liable if they (i) are negligent, or (ii) cannot prove that they are not negligent. One way the obligor can prove that they are not negligent is to prove that the non-performance was resulted from an unexpected circumstance (i.e. force majeure, höhere Gewalt or mücbir sebep). In case force majeure is applied, then the obligor cannot be held liable anymore. This is because force majeure may break the required causal link between the act of the obligor and liability.
Force majeure is an external and unforeseeable event that affects the obligor unavoidably and in an objective and absolute way, leaving them unable perform the obligation. As stated in the doctrine, force majeure must happen outside of the operation and enterprise of the obligor. The General Assembly of Civil Chambers of Turkish Court of Cassation stated in its ruling numbered E. 2017/11-90 K. 2018/1259 and dated 27.6.2018 that natural disasters such as earthquakes, floods, fires and epidemics are accepted as force majeure. Therefore, as an external and unforeseeable reason which may cause non-performance unavoidably and in an objective and absolute way, the COVID-19 should be considered under the concept of force majeure.
Since force majeure makes the undertaking of obligations impossible, Article 136 of the TCO which regulates impossibility of performance would apply to the cases of force majeure. Article 136/1 of the TCO states that the obligation ceases to exist if performance becomes impossible due to the reasons for which the obligor cannot be held liable. In case the obligor declares force majeure, as per Article 136/2 of the TCO, the other party may (i) request return of counter-performance according to the provisions of unjust enrichment if they have already performed their obligation by that time, or (ii) refuse performing their counter-obligation if they have not performed yet by that time.
Declaration of force majeure does not discharge the obligor from their all obligations. Pursuant to Article 136/3 of the TCO, the obligor who declared force majeure must (i) notify the other party without any delay that the performance of obligation is not possible anymore and (ii) take all the required measures to avoid increase of damages. Otherwise, they will be held liable for the damages caused by late notification and not taking the required measures.
As stated, the burden of proof that the obligor is not liable for the damages caused principally lays on the obligor themselves. Therefore, it is the obligor who has to prove that (i) the event constitutes a force majeure, and (ii) such event caused non-performance of the obligation unavoidably and in an objective and absolute way. The obligor should therefore show that there was nothing they could have done to avoid non-performance of the obligation and therefore are not liable. For the avoidance of doubt, the COVID-19 does not discharge obligors from all their obligations by default. The obligor must establish a causal link between the COVID-19 and the performance of their particular obligation which they claim is not possible anymore. Accordingly, application of force majeure should be evaluated on a case-by-case basis.
Applicability of force majeure in case of non-performance due to the COVID-19 would require professional attention and care for both parties during the negotiations in order to avoid any potential dispute before the Turkish courts. If the dispute is unavoidable, then both parties need to be well advised and the court well guided. We stand ready for the clients who need any such assistance either without any dispute or before the Turkish courts.