Within the existing business practices, it is common that the contracts and other documents executed in relation to a work or project that have Turkish parties and/or that is carried out in Turkey are issued in foreign language or it is deemed that English version prevails in the documents that are issued both in Turkish and English languages. However, such a choice may cause severe problems for the parties to such contracts and documents due to the "Law No. 805 on Obligation to Use Turkish in the Economic Enterprises" ("Law") adopted on 10.04.1926 and the recent Supreme Court decisions regarding the same.
Whilst the Law has been in force for a long time, most people are not aware of the provisions of the same and the penalties imposed therein. In consideration of a number of recent decisions of Supreme Court that have arisen on contrary to the general opinion that was applicable in the doctrine in relation to implementation of this Law, it is crucially necessary for the business people, especially the local companies of the foreign investor companies, who are dealing with projects in Turkey which cost excessive amounts, to be aware of such Law for the protection of their rights and interests.
I) Obligation of Turkish Companies to Use Turkish Language
In accordance with Article 1 of the Law, "Any type of companies and enterprises which have Turkish nationality shall use Turkish language in all kinds of transactions, agreements, correspondences, accounts and books within Turkey".
In the light of the provisions of the above mentioned Article 1; every company and enterprise with the Turkish nationality is obliged to keep any kind of transaction, calculation and books and execute all contracts and make all communications with each other in Turkish language within the territory of Turkey.
Accordingly, the only exclusion for the obligation of the use of Turkish language in transactions and communications of Turkish companies and enterprises is the case where such transactions and communications are executed/performed outside the territory of Turkey.
In that respect, it is clear that an agreement to be executed between two or more Turkish companies (including the local companies which are affiliated by foreign parent companies) should be prepared and signed in Turkish language, or if it is preferred to be executed in a foreign language, to be accompanied with a Turkish version which shall prevail in the event of discrepancy.
II) Obligation of Foreign Companies to Use Turkish Language
In accordance with Article 2 of the said Law, "This obligation applies to foreign companies and enterprises only in their communications, transactions and relations with the Turkish institutions and persons and for the documents and books which must be submitted to governmental offices and government officers."
As stated above, although Article 1 of the Law obliges the Turkish companies to keep their, book, calculations, agreements and communications in Turkish language, Article 2 of the same provides an exception for the agreements of the foreign companies and merely obliges the same to keep their communications to be delivered to the Turkish companies or Turkish institutions in Turkish language. Although some lawyers claim that the expression of "communication" also should include the "agreements", we share the common view of doctrine that this Article is imposed to limit such obligation for the usage of Turkish language. In that respect, it is not mandatory for a foreign company to execute all the contracts with the Turkish companies in Turkish, but it is obliged to have the communication with them in Turkish or, if it is preferred to be made in a foreign language, then accompanied with a copy in Turkish which shall prevail in the event of discrepancy.
III) Legal consequences of the Breach of the Law
A) Ignorance of the provisions of the relevant papers and documents which are in favor of the issuing parties:
As per Article 4 of Law, the papers and other documents issued which are not in compliance with Articles 1 and 2 shall not be taken into account in favor of the companies and enterprises that issue these documents.
Indeed, according to Article 4 of the Law, in the event of any dispute that is referred to the judiciary, the papers and documents (and relevant parts thereof) issued in contradiction with the obligation to use Turkish language that is applicable for the Turkish companies and enterprises cited in Article 1 of Law and the foreign companies and enterprises cited in Article 2 shall not be interpreted in favor of the party that makes a claim on the basis of these papers and documents and the said party shall likely be subject to some loss of rights. As a matter of fact, it is emphasized as follows in a decision no. 2009/2051 E & 2009/5292 K of 11th Chamber of the Supreme Court: "... as per Article 4 of the same law, the companies and enterprises cited in Article 1 cannot rely upon the said contracts and documents if they do not issue their transactions in Turkish language..."
On the other hand, it will be legally invalid and void to get a waiver (in advance) that any claim will not be made on the basis of "contradiction of said document with the Law".
In this context, it is obvious that the requirements mentioned above have to be observed in almost any kind of documents and particularly the project contracts executed or to be executed especially by the foreign invested/affiliated companies by virtue of their activities.
B) Imposition of judicial fine:
There is also a penalty provision included in Article 7 of the Law which states that "Any person that acts in contradiction with the provisions of this Law shall be imposed with judicial fine that is not less than one hundred days" (Amended Article: 23.10.2008-5728).
C) Impact of contradiction with Law on the validity of related document:
The documents and agreements issued in contradiction with the Law cannot be deemed invalid in respect of Turkish Code of Obligations. However, given the legal consequences of contradiction described above, it is clear that it will cause significant economic troubles for the trading companies. In this respect, save as the documents and contracts already issued and executed in contradiction with the Law so far, the companies and entities should act in compliance with the provisions of the respective Law as described above in terms of the contracts and other documents to be issued hereafter, in order not to confront severe losses and damages in relation with the same.
As is explained above, although the said Law is in force and completely valid, in practice almost all of the companies and even governmental institutions breaches the same and carry out their communications and execute their agreements in English language in several projects. Especially foreign investment companies which are established in accordance with Turkish Laws and which prefer to use foreign language in their contracts and transactions are not aware of the risks of executing the agreements in foreign language. Since such companies are also regarded as Turkish companies, there is no doubt that the communications and the agreements of the same shall be subject to the provisions of Law No. 805.
Since it is a general practice to execute the agreements with foreign investors and the local subsidiaries of the same in English language under the Projects to be performed within Turkey; the parties to such agreements or communications may overrule the consequences of the said Law by attaching a Turkish translation of such documents indicating that such Turkish version shall prevail in the event of discrepancy. Hence, both parties may enjoy the benefits included in such agreements and may not be subject to any loss of right in relation with the same.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.