Turkey: Thoughts About Restrictions Imposed On Contracts In Foreign Currency In The Example Of Contract For Work Including Costs In Foreign Currency

Introduction

In the Communiqué (Communiqué No. 2018-32/51) regarding the Amendment of the Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency (Communiqué No. 2008-32/34) published in the Official Gazette dated 6 October 2018 and numbered 30557, and the Communiqué (Communiqué No. 2018-32/52) regarding the Amendment of the Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency (Communiqué No. 2008-32/34) published in the Official Gazette dated 16 November 2018, albeit partially, the application area of the ban on contracting in foreign currency amounts was changed. Pursuant to these amendments, many problems arose regarding the fate of the contract amendments made in accordance with Communiqué No. 2018-32/51 at the time of the entry into force of both Communiqués.

An Example to the Amendment made in the Communiqué

In order to give an example of the amendments that caused issues, which are set out, below, paragraph 6 of the cancelled Article 8 of Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency, as amended by the first Article of Communiqué numbered 2018-32/51, titled "Contracts in Foreign Currency or Foreign Currency-Indexed Contracts," on contracts for work, makes a regulation as "Turkish residents cannot determine a contract price and other payment obligations arising from the contract to be in foreign currency, or in a manner indexed in a foreign currency in contracts for work other than construction, repair and maintenance of ships as defined in the Turkish International Ship Registry Law dated 16/12/1999 and numbered 4490, and the Law on Amendment to Decree Law numbered 491".

In accordance with paragraph 8 of Article 8 of Communiqué on Decree No. 32 amended "again" by Article 1 of Communiqué No. 2018-32/52 on contracts for work, a regulation has been brought as "Turkish residents can determine a contract price and other payment obligations arising from contracts to be in foreign currency, or in a manner indexed in a foreign currency in contracts for work that include costs in a foreign currency".

"Contracts for work to be concluded by Turkish residents amongst themselves, and which include costs in foreign currency," which were clearly left out from the exemptions in accordance with the first Communiqué, in other words, the payment cannot be determined in a foreign currency, were included within the scope of the exemption through Communiqué No. 2018-32/52.

The Main Problem arising in Practice

Many controversies have arisen as to the fate of the contracts for work to be concluded by Turkish residents amongst themselves, and which include costs in a foreign currency that was converted to Turkish currency pursuant to the mentioned Regulation in the first Communiqué, upon including them within the scope of the exemptions in Communiqué No. 2018-32/52, although they were concluded before the date of publication of the First Communiqué, and the price has been determined as a foreign currency amount.

The job holders expressed the opinion that the contracts should continue in Turkish currency, while the contractors suggested that the contract prices should continue as foreign currency amounts.

Some Legal Arguments to solve the Problem

Before explaining our views on this subject, if we continue with the aforementioned example, it is necessary to state that it is not reasonable that the regulators of the said Communiqués consider that the contracts for work to be concluded by Turkish residents amongst themselves between the dates of 6 October 2018 and 16 November 2018, and which include costs in foreign currencies, are not within the scope of the exemption and other contracts, in other words, the ones concluded before 6 October 2018 and after 16 November 2018 are exempted. The regulators of the Communiqués concluded that some of the regulations they made in the first Communiqué were inaccurate and rectified this in short order.

Firstly, from this point of view, the demand of the job holder that the amended contract prices shall continue in the Turkish currency may be subject to the prohibition of abuse of right.

Furthermore, the contractor may cancel a contract that foresees an amendment to the contract in accordance with the provisions of error. In other words, the contractor may assert the argument of "I have accepted the amendment to the contract on the grounds that the contract must be in Turkish currency in error. If I knew that this obligation would not continue, I would not have accepted it." Although this thought can be criticized for the fact that the error is related to the facts at the time the contract is made; however, the obligation in the example is eliminated after the date of the amendment of the contract, and that in both the doctrine and the decisions of the Federal Court and the Court of Cassation, it is accepted that errors may be tolerated in future cases.

Conclusion

In our opinion, the said obligations in the contracts in which the payment obligations are converted to Turkish currency in accordance with the first Communiqué between the date of entry into force of Communiqué No. 2018-32/51, and the entry into force of Communiqué No. 2018-32/52, must be able to continue in a foreign currency.

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.

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