Commercial Dispute Resolution under Turkish Law: Rules, Developments and Insights
Turkish civil litigation is a unique system where the concepts and practices of civil law meet with the ones originating from Turkish law. Along with the classical and common judiciary concepts and practices among civil law systems, Turkish law envisages a sui generis concept called "enforcement proceedings without judgment". This frequently-resorted type of enforcement action is native to Turkish law and differs from similar concepts in terms of its application and scope.
Turkish civil litigation system operated within two levels of judicial scrutiny with the first one applied at the first instance courts' level and the second one before the Court of Cassation. This was until 2016 when the Regional Appellate Courts entered into service as the third one situated in between the initial and the ultimate judicial scrutiny. This is a positive development in terms of legal security. However, it has deepened the ever-lasting problem of prolonged litigation before Turkish courts.
Indeed, mandatory mediation was introduced for labour disputes -which constitute the significant portion of the court's workload- on 1 January 2018 in order to address the problem. Commercial disputes have also been included in the scope of mandatory mediation as of 1 January 2019 after seeing that the mediation is a statistical success in resolving the labour disputes. The legislator plans to further expand the scope of mandatory mediation into other areas of law which also includes consumer law disputes. Along with mandatory mediation, a significant number of disputes are also resolved by arbitration as an alternative dispute resolution mechanism. In this respect, Istanbul Arbitration Centre ("ISTAC") -which is also supported by many official institutions- operates with regard to local and international disputes as an alternative dispute resolution mechanism, despite certain prejudices and criticisms.
Furthermore, the need for the rules regulating the economic life increases with the complex and progressive nature of today's business life. If the ones who violate these rules are at executive positions in the businesses, the types of crimes causing economic damages are named as "white-collar crimes". All these developments have led commercial penalties to become a more commonly used instruments.
1. Litigating the Disputes
a. General Overview
Judicial power is exercised by the independent and impartial courts (Article 9 of the Turkish Constitution). Disputes arising from the relations governed by private law are resolved by civil courts, which fall under civil jurisdiction amongst the main five judiciary branches (Constitutional Jurisdiction, Civil and Criminal Jurisdiction, Administrative Jurisdiction, Jurisdiction over Jurisdictional Disputes, and Court of Accounts) under Turkish judiciary organization. Civil courts at the first instance include the civil courts of first instance, civil courts of peace, family courts, civil courts of intellectual and industrial property rights, civil courts of enforcement, labour courts, cadastral courts, consumer courts, and commercial courts. In principle, judiciary proceedings of the civil courts are subject to Civil Procedure Code numbered 6100 ("CPC"), which entered into force on 01.10.2011.
Turkish Civil Law is influenced by the continental law systems. The reference laws to the Turkish Code of Obligations and Turkish Civil Code are respectively the Swiss Code of Obligations and the Swiss Civil Code, whereas the reference law for Turkish Commercial Code is the German Code of Obligations. Having said that, although the CPC is a national law, the reference law to the former procedure code whose fundamental concepts were adopted in the CPC, is the Swiss Code of Civil Procedure of Neuchâtel canton.
If parties to a commercial dispute have not concluded a valid arbitration agreement, nor preferred an alternative resolution method, they would resort legal remedies before courts. As explained in detail below, mediation has become prior mandatory step for commercial disputes to be heard before courts as of 01.01.2019 with an aim to relive the workload of the courts. This rule means that the courts shall reject the case on procedural grounds in the event that a lawsuit is filed without first applying to mediation. The disputes that involve foreign element are not exempt from this requirement.
Although the conclusion of mediation meetings -which can principally take up to a maximum of eight weeks as per law- must be awaited before filing a lawsuit, the creditor or the right holder can always apply (without carrying out the mediation process) to enforcement without judgment mechanism stipulated under the Turkish Enforcement and Bankruptcy Code ("EBC"), or to temporary legal protections such as provisional attachment. However, in any case, the aforementioned procedures fall within the authority and/or supervision of the courts.
The Court of Cassation and Regional Courts of Appeal supervise and scrutinize the decisions rendered by the commercial courts of first instance. The most important role of the Regional Courts of Appeal as the second-tier courts is to examine and evaluate the (non-final) decisions rendered by first instance courts, with regard to their compliance with the substantial facts and evidence in the case, along with law. At the third stage, the Court of Cassation, as a legal supervisory authority, examines the non-final decisions of Regional Courts of Appeal in respect of their compliance with law only.
b. Types of Lawsuits That Can Be Filed Before Commercial Courts
Lawsuits are examined under three main categories under Turkish law. These are determined based on the legal protection requested from the court and include actions for performance, declaratory actions, and constitutive actions.
- Constitutive actions appear in commercial disputes in the form of annulment of general assembly resolutions in joint stock companies, reduction of contractual penalties, or the use of pre-emptive purchase rights of shareholders over a joint property. These kinds of lawsuits are filed in order to construct the desired legal status where the parties are unable to form, change or end a legal status by their unilateral declarations.
- Declaratory actions aim to determine the presence or absence of a right or legal relation, or whether a document is forged or not. Declaratory actions are divided into two categories as positive and negative. Requests for determination of rental receivables would be an example for positive declaratory actions, whereas requests for determination that the person who faces a repetitive payment request for the debt that is already paid, would be an example for negative declaratory actions. One of the main differences between these two types of declaratory actions is that the statute of limitations period is interrupted when a positive declaratory action is filed, whereas the statute of limitations period is not automatically interrupted when a negative declaratory action is filed.
- Actions for performance is a type of lawsuit where the court is requested to order the defendant to give or do something or cease from doing something. As one of the most common types of lawsuits, compensation actions are classified as actions for performance.
Regardless of the value or amount of the disputed matter, the commercial courts of first instance are competent for hearing any commercial disputes. The need for specialization of the commercial courts is fulfilled by dividing these courts into chambers and determining the work distribution between the chambers "with respect to the nature and frequency of the dispute". Apart from that, there are also other courts established with special laws for the same purpose, such as the civil courts for intellectual and industrial property rights, labour courts, and consumer courts.
c. Proceedings before Commercial Courts
i. Filing of a Lawsuit
Parties are principally not required to appoint attorneys to represent them before Turkish courts. However, if an attorney is to be appointed, this person must be an attorney registered with a bar.
Litigation starts when the lawsuit petition is submitted to the authorized court of competent jurisdiction as per CPC. The plaintiff must deposit the litigation fees and advance on costs to the court's teller when filing a lawsuit. The most important fee of all is the upfront judgment and writ fee, stipulated under the Act on Fees. For the legal actions concerning monetary claims which are subject to proportional fee and for those declaratory actions which concern monetary claims, a judgment and writ fee by 6,831% of the disputed value subject to decision is charged. The plaintiff must deposit one fourth of this amount along with the lawsuit petition. In the event that the case is accepted for the requested amount, the defendant party deposits the remaining third fourths of the judgment and writ fee, whereas the court rules that the one fourths of the fee deposited previously by the plaintiff, shall be paid by the defendant to the plaintiff. If the case is rejected totally, the fee deposited by the plaintiff at the ratio of one fourths is decided to be returned to the plaintiff.
In principle, the lawsuit petition is followed by a response petition presented by the defendant, and rebuttal and rejoinder petitions submitted respectively by each party. Although a term of two weeks is stipulated as of the service of each petition, it is possible and common that this term is extended up to 1 month by the court upon request, particularly in commercial cases.
Some of the most important components of the lawsuit petition are the value of the disputed matter, the relief sought, explicit summaries of all of the incidents under sequence numbers, and specification of about what incidents will be proven with which evidence.
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