RECENT LEGAL DEVELOPMENTS REGARDING THE MANDATORY USE OF TURKISH LANGUAGE IN CONTRACTS
As you may recall from our Newsletter dated 7 December 2021, we have informed you about the Law numbered 805 on Compulsory Use of Turkish Language in Commercial Businesses (in Turkish, “805 Sayılı İktisadi Müesseselerde Mecburi Türkçe Kullanılması Hakkında Kanun”, the “Law”) which was published in the Official Gazette numbered 353 on 22 April 1926 and entered into force as of the same date.
In brief, within the scope of the Law, all Turkish companies and establishments are obliged to keep all kinds of transactions (in Turkish, “muamale”), contracts (in Turkish, “mukavele/sözleşme”), correspondences (in Turkish, “muhabere/yazışma”), records and books (in Turkish, “hesap ve defterler”) in Turkish language.
In this Newsletter, we would like to inform you about recent developments in light of the Regional Court of Justice decisions. In this respect, Istanbul 43th Civil Chamber of Regional Court of Justice (1) rendered that conclusion of the contract in a foreign language signed between a foreign party meaning legal entities established and governed by foreign countries’ laws and a Turkish party shall not constitute violation of the Law due to the ground that one of the parties to the contract is foreign. This indicates that foreign companies may use a language other than Turkish language in their contracts with Turkish companies.
In the decision, it is stated that, « all kinds of companies and establishments of Turkish nationality are obliged to keep all kinds of transactions, contracts, communications, accounts and books within Turkey in the Turkish language in accordance with Article 1 of the Law.
Pursuant to Article 2 of the Law, this obligation, for foreign companies and establishments, is limited to (i) communication, transactions, and contacts with Turkish establishments and persons of Turkish nationality, and (ii) the documents and books that they are obliged to submit to the public institutions.
In accordance with Article 1 of the Law, it is mandatory to use the Turkish language in contracts concluded by Turkish companies in Turkey, and contracts drawn up without complying with this requirement shall be deemed invalid according to Article 4 of the Law. However, in accordance with Article 2 of the Law, if one of the parties to the contract is a foreigner, there is no obligation to use Turkish in their contracts with Turkish companies”.
In the preamble part of the decision, it is concluded that “…it is understood that one of the parties of the contract dated 2 June 2016 (the “Contract”), which was drawn up in English, and was submitted to lawsuit file is a foreign company originating from Luxembourg. In this case, due to the fact that one of the parties of the contract is a foreign company, the Court of First Instance may not apply Article 1 of the Law…”.
Subsequently, it is resolved that the Contract is valid, although it is signed in English; and the Court of First Instance should have evaluated the content of the dispute, and reconsider by resolving a new decision. It should be noted that this decision is final and definite; which means the parties do not have any appeal right.
In accordance with this decision, we are of the view that a contract performed in Turkey between two foreign legal entities, or a foreign company and a Turkish company may be executed in a language other than Turkish.
The second recent case of Istanbul 15th Civil Chamber of Regional Court of Justice (2) is related to the request for receivables arising from a contract of construction drawn up between two Turkish companies whose place of performance was within Turkey.
In the case at hand, the court evaluated the issues by referring to Article 2 of the International Arbitration Law (in Turkish, “Milletlerarası Tahkim Kanunu”), (i) the dispute does not contain a foreign element, (ii) both sides of the case are companies that are under the citizenship of the Republic of Turkey, (iii) the place of performance of the contracts between them without dispute is within Turkey, and (iv) the contractual arbitration clause must be in Turkish. However, it is drafted in English.”
In the preamble part of the decision, it is concluded that “Bearing in mind that the provisions of the contract between the parties are implemented by both parties and their invalidity has not been claimed, the penalty stated in Article 4 of the Law numbered 805 is not in the nature of a substantive law rule that results in absolute invalidity, but in the nature of a rule regarding law of evidence, therefore, although the Plaintiff did not object to the implementation of the contract, it means, it would be contrary to the rule of good faith in terms of article 2 of the Civil Code to claim that the contract is in English and therefore the arbitration clause in the contract should be deemed invalid.”.Subsequently, it is resolved that “the arbitration objection raised by the Defendant through considering the provisions of the contract between the parties regarding the arbitration and has therefore rejected the Plaintiff’s application for appeal from a substantive basis”. It should be noted the parties have right to appeal this decision.
In accordance with this decision, we are of the view that, a contract performed in Turkey between two Turkish companies, and if the objection is not claimed on the invalidity of the contract may be executed in a language other than Turkish. The most important issue will be the good faith rule under Article 2 of the Civil Code.
What these two recent court decisions demonstrate is that although it is mandatory to use the Turkish language in the contracts made by Turkish companies and performed in Turkey, the contracts drawn up without complying with this requirement may be deemed invalid according to the Article 4 of the Law. Having said that, if one of the parties to the contract is a foreign national, the courts tend to refer to the exception foreseen under Article 2 of the Law which enable contracts to be made in a foreign language other than Turkish. Similarly, the good faith rule regulated as per Article 2 of the Turkish Civil Code may, depending on the concrete facts of the case, override Article 4 of the Law and may be rendered valid and binding in the contract. Therefore, it is essential to observe the good faith rule when evaluating the implementation of a contract drawn up between two Turkish parties and in terms of disputes that may arise in such contract.
We would like to emphasize that although the recent court decisions indicate a tendency of evaluating the cases as each case on its own specifics, the Law is open to different interpretations both in doctrine and precedent. As there is not yet an established precedent by the courts, the current uncertainties may still cause concern to the involving parties. Therefore, in order to be on the safe side and avoid any loss of rights, the involving parties should abide by the relevant provisions of the said Law when entering into contractual relationship and decide the language of the contract accordingly.
Our Law Firm remains at your disposal for any further clarifications you may need.
(2) Decision of 15th Civil Chamber of Istanbul Regional Court of Justice numbered E. 2020/576 K. 2020/606 and dated 16 June 2020