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Turkey’s desire to be in harmony with EU legislation has led it to innovate.

Ercüment Erdem Erdem & Erdem

The Turkish parliament has enacted a new Code on International Private Law and Procedures, which came into force on December 12 2007. The previous Code only regulated the basic issues and overlooked a number of issues relating to certain types of business transaction. These issues were dealt with by Supreme Court decisions and a wider range of doctrinal publications.

The Code followed a model adopted by most countries facing migration problems, focusing on personal status issues. However, with the increase in international relations, especially in business, this model is inadequate to solve the conflicts that arose.

International agreement

The previous Code had satisfactory regulations for civil law issues. Therefore, amendments in this field would only align the Code with the new Turkish Civil Code (which has been in force since 2002) and the international agreements enacted by Turkey, such as the Hague Convention on the Reciprocal Enforcement of Maintenance Orders.

On the other hand, fundamental amendments and improvements have been made in international business law. The Code takes a new approach, which gives more weight and wider application to the parties’ right of choice of law.

During the preparation stage, the drafting committee focused on (i) new approaches, theories and applications, (ii) international agreements in this field, whether or not enacted by Turkey, and (iii) EU legislation.

Turkey is a candidate for EU membership and strongly hopes to become a member. In this regard, many laws have been enacted to harmonize Turkish laws with EU law. Thus the conventions and regulations to harmonize the laws of EU countries, especially the Rome Convention on the Law Applicable to Contractual Obligations, the Council Regulation 44/2001 (on jurisdiction and the enforcement of judgments in civil and commercial matters) and the European Parliament and Council Regulation 864/2007 on the law applicable to non-contractual obligations (Rome II) have had a strong influence on the new Code.

Conflicting laws

A number of amendments and innovations regarding the rules on conflict of laws have been introduced. For instance, the first section of the new Code - with the title "general provisions" - does not have many alterations. Only the issue of referral, which caused much controversy in doctrine and application, has been re-evaluated. The opportunity for the parties to choose the applicable law has been granted a wider application in the new Code. This principle is also stated in the "general provisions" section in Article 2. Thus its fundamental nature has been explicitly set forth. Moreover, another sub-clause has been inserted into Article 2, clarifying which law should apply to countries comprising several territories or provinces, and where more than one legal system exists.

Section II regulating conflict of laws contains more fundamental amendments and innovations. Although the basic principles on real rights have been preserved under Article 21 of the new Code, a new provision has been included regarding the rights on carriage vehicles. Pursuant to Article 22, the ownership and other real rights regarding airways, sea-routes and railroads shall be subject to the law of the country of origin. The country of origin corresponds to the place where the real rights on carriage vehicles are registered. In the absence of this, the country of origin will be determined by taking the home-port of seaway vehicles or their place of licence into consideration.

Article 23 of the new Code regulates intellectual property rights. The applicable law for such rights is the law of the country where protection is sought. Once an infringement of the intellectual property rights occurs, parties may decide on the law to be applied by the court regarding any claims arising from the infringement.

Divergences

Regarding the law on obligations arising from contracts, the new Code adopts an approach far different from the previous Code. The basic principle of the previous Act was also to allow freedom of contract. However, this principle was only valid for cases in which parties explicitly chose applicable law. The new Code, in contrast, considers the implied choice of law as a valid clause if it can be shown with reasonable certainty by the terms of the contract or the circumstances of the case.

Moreover, the previous Code’s criteria of "performance place of the characteristic obligation", which were used to determine the applicable law in the absence of choice of law by parties, are relinquished. Instead, in such cases the new Code is based on the criteria of "the law of the country that is most closely connected". Pursuant to Article 24.4 of the new Code, it shall be presumed that the contract is most closely connected with the country where the party that is obliged to fulfil the contract’s performance criteria has its residence when the contract is concluded. But if the contract was entered into in the course of the party’s trade or profession, the country where the principal place of business is situated shall be considered the most closely connected.

If the party obliged to fulfil the performance does not have a principal business place or has more than one, then the law of the most closely connected business place shall be considered as the applicable law. These presumptions will be disregarded if circumstances as a whole indicate that the contract is more closely connected with another country.

Other new regulations included in Article 24 of the new Code are as follows:

• By their choice, the parties may select the law applicable to the whole or only a part of the contract.
• The parties may at any time agree to subject the contract to a law other than that which previously governed it. Any variation made by the parties of the applicable law after the conclusion of the contract will be retroactive as long as the third-party rights are reserved.

Innovations

Regarding the law governing obligations arising from contracts, there are other innovations. New connections are introduced for laws applicable to immovable property contracts, consumer contracts, employment contracts, contracts for carriage of goods and intellectual property contracts. There is a new provision on power of attorney, taking into consideration the need for an objective connection for determining the law applicable to tripartite relationships, where there is a voluntary proxy.

Another novelty occurs in mandatory rules. Pursuant to Article 31 of the new Code, when applying the law of a country, the mandatory rules of a third country with a close connection to the contract may have effect. In considering whether to give effect to these mandatory rules, the nature, purpose, contents and consequences of this rule should be considered.

Article 32 of the new Code regulates the laws applying to the existence and validity of the whole or a part of a contract. These shall be determined by the law that would govern the contract if such a contract or term were valid. Nevertheless a party that objects to the application of the law may rely on the law of the country in which it has a habitual residence, if circumstances show that it would be unreasonable to determine the effect of its conduct in accordance with the law specified in the preceding paragraph.

A new provision stipulates that the manner of performance and measures for protecting the goods shall be subject to the law of the country where performance is executed or the measures are taken.

The law applicable to product liability is another new issue dealt with in the new Code. The non-contractual obligations arising out of a damage caused by a product shall be subject to (i) the law of the country in which the persons exposed to damage had their habitual residence or business place when the damage occurred; or (ii) the law of the country in which the persons exposed to the damage acquired the product.

Unfair competition

The new Code also regulates the law applicable to unfair competition and acts restricting free competition under Article 37 and 38. The law on a non-contractual obligation arising from an act of unfair competition shall be the law of the country in which the market is directly affected by the act of unfair competition. Where that act affects the interests of a specific enterprise exclusively, then the relevant law is that of the country where the enterprise exposed to damage is situated.

The law applicable to a non-contractual obligation arising from restriction of competition is the law of the country where the market is directly affected. When a foreign law applies to restrictions of competition in Turkey, the compensation awarded will not exceed the amount that would be granted if Turkish law applied.

After the occurrence of unjust enrichment, the parties have the opportunity to choose the applicable law, in addition to the regulation in the previous Code.

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