GILS Dispute Resolution: Turkey

TURKEY

CASE №1:

In 2018, our client (“Foreign Client”), a Liechtenstein-based investment company, granted a loan of USD 1 000 000 to a Turkish Company (“Turkish Company”), which has investments in the field of geothermal energy, to be used in energy investments. 

The Turkish Company did not use the loan received from the Foreign Client for energy investments in accordance with its purpose, furthermore, they did not repay the loan when it was due. 

During the negotiations of the Foreign Company with the Turkish Company officials regarding the repayment, the Turkish Company officials rejected the reimbursement requests without any reason and the matter was then referred to the GRATA International Turkey's Istanbul Office. 

When the lawyers of the GRATA International Turkey's Istanbul Office analysed the Loan Agreement, they found out that Vaduz (Liechtenstein) courts had jurisdiction in the agreement. Since it would take a long time to initiate the lawsuit in Liechtenstein due to the said jurisdiction clause and to have the judgement from there recognised in Turkey, the lawyers of the GRATA International Turkey’s Istanbul Office researched judicial precedents in order to find a way to bypass the jurisdiction clause in the Agreement and bring the case directly in Turkey. 

In their research, the lawyers of the GRATA International Turkey’s Istanbul Office found that, under Turkish law, bankruptcy proceedings may be initiated against a debtor (even if the debtor owes only 1 Turkish Lira and has the financial structure to pay it) and subsequently a bankruptcy case may be filed and that bankruptcy cases are subject to the rule of absolute jurisdiction (the courts at the headquarters of the debtor company are competent) and that this jurisdiction overrides the jurisdiction clause agreed in the contract. 

Thereupon, a bankruptcy case was filed against the Turkish Company on behalf of the Foreign Client. With the expert report received in the said Bankruptcy File, the Client's receivable has been calculated with interest and other costs, and it is foreseen that the case will be concluded in favour of the Client in the hearing to be held in June 2024.

Ali Ceylan.

CASE №2:

The client company (“Client Company”), which is engaged in the production of marble, has reached an agreement with a company (“Mining Company”), which has a mine in Turkey, for the purchase of marbles extracted from the mine which the Mining Company has an operating licence of, in a serious assembly annually and within the scope of this agreement, the Client Company has made an advance payment of USD 500 000 to the Mining Company. 

The Mining Company stated that they cannot obtain a letter of guarantee from the banks as a guarantee for the advance paid due to the costs incurred by the banks, but offered that they could issue a promissory note as a guarantee, and the Client Company accepted this offer and obtained a promissory note as a guarantee for the advance payment. 

After the advance payment was made, the Mining company started to send the raw marbles to the Client Company's production facilities. However, the incoming raw marbles did not meet the agreed specifications and the committed shipment tonnages could not be delivered by the Mining Company. 

Although the Client Company sent written warnings several times, the Mining Company failed to fulfil its contractual obligations regarding the marble specification and quantity, whereupon the Client Company terminated the contract with notice and demanded the return of the advance payment. 

The Mining Company claimed that the contract was unfairly terminated by the Client Company and refrained from returning the advance amount by stating that they are keeping it as compensation. 

The Client Company, upon receiving negative information about the financial situation of the Mining Company from the market, appointed GRATA International Turkey’s Istanbul Office lawyers to recover the advance payment from the Mining Company as soon as possible. 

The lawyers of GRATA International Turkey’s Istanbul Office, taking into account that the lawsuits related to the receivables are concluded in a long time in practice, quickly applied to the competent court and obtained a precautionary attachment decision, which is a type of precautionary measure, and with this decision, they secured the receivable of the Client Company during the lawsuit by having an injunction applied on all raw marbles in the mine belonging to the Mining Company.

Gökmen Başpınar.

CASE №3:

Within the scope of its real estate investments in Turkey, in April 2018, the client Company acquired a warehouse with a monthly rental income of approximately USD 500 000 from its tenant, an international logistics company, for USD 35 000 000. 

While making this purchase, the Client Company obtained USD 21 000 000 of the sales price from the bank as a loan. 

In October 2018, due to the increase in exchange rates due to the economic problems in the country, the state intervention took place and in this direction, with the Presidential Decree No. 32 on the Protection of the Value of Turkish Currency which was published on 13.09.2018 was amended and the obligation to determine the price in Turkish Currency in some contracts, especially lease agreements, was introduced and the obligation to convert the existing foreign currency contracts into Turkish Currency within 30 days was enforced. 

Due to the legal obligation of 30 days, the Client Company has organised an additional protocol with the Lessee Logistics Company and converted the rental fee from USD to Turkish Lira. Later on the day of the signing of the additional protocol, the Ministry of Finance issued a communiqué and granted an exception for the companies in which foreigners are directly or indirectly controlling shareholders to agree on the rental and other fees in foreign currency or indexed to foreign currency in the lease agreements to which they are a party as tenants. 

Thereupon, the authorities of the Client Company requested the cancellation of the aforementioned additional protocol on the grounds that the obligation to conclude the aforementioned additional protocol with the authorities of the Lessee Logistics Company had ceased. 

After the Client Company's negotiations with the other party for the cancellation of the additional protocol were concluded negatively, the matter was forwarded to GRATA International Turkey’s Istanbul Office by the Client Company for the legal process to be carried out.

The lawyers at GRATA International Turkey’s Istanbul Office requested the court to annul the additional protocol, claiming that the will of the Client Company's executives in the signing of the additional protocol was impaired due to errors in the legal regulation and the exception granted afterwards, and submitted an expert opinion from one of Turkey's leading private law professors in support of this claim. 

In the aforementioned proceedings, the Court ruled in favour of the Client Company and decided that the will of the Client was impaired due to technical errors in the legal regulation and the exemption granted afterwards, and therefore, the additional protocol signed with the impairment of will was deemed null and void as of the date of signature. 

The aforementioned decision was finalised at the beginning of 2024 after being reviewed by the courts of appeal and the Supreme Court. 

On behalf of the Client Company, following the finalisation of the decision, the lawyers at GRATA International Turkey’s Istanbul Office quickly collected USD 8 000 000 in Turkish Lira, which is the difference of the rent underpaid by the Lessee Logistics Company for 5 years, and also filed an eviction lawsuit against the Lessee Logistics Company on the grounds of underpayment of rent. 

Due to the risk in the eviction case, the Lessee Logistics Company officials have proposed a new lease agreement with higher rent and better conditions to the Client Company officials, and currently the Client Company is negotiating this new agreement with the lawyers of GRATA International Turkey’s Istanbul Office and it is expected that the Agreement will be finalised and signed in early June 2024.

Thanks to the aforementioned lawsuit filed by the lawyers of GRATA International Turkey’s Istanbul Office, the Client Company has been able to collect USD 8 000 000 of rent that it has been deprived of by cancelling the Turkish Lira based Lease Fee, and again, thanks to the eviction lawsuit filed, the Client Company has obtained new lease terms with better commercial terms and will bring approximately USD 15 000 000 of extra income to the Client Company in the next 5 years.

Kaan Gök.