Turkey: How In Practice Does (i) A Turkish Company And (ii) A Foreign Investor Or Lender Sue The Turkish Government Or Any Turkish State Entity?

Last Updated: 17 September 2018
Article by Mehmet Taş, Aybike Bayraktar and Burak Dülgeroğlu

The legal nature of contracts of administration is determined either according to jurisprudence or by positive law/legislation/statutes. Contracts in which the Administration is a party, cannot be always deemed as administrative contracts.

Administrative contracts are contracted by Public Institutions on the grounds of administrative law. Disputes arising from the government's public law contracts are subject to administrative jurisdiction and disputes arising from private law contracts are subject to civil court jurisdiction. The Council of State defines the distinctive features of the administrative contract as its subject being public service and interest and having a superior and privileged position against the other party.

Administrations contracts which made according to the provisions of private law are legally deemed as identical with the contracts concluded between individuals. Administration, as a Party to these contracts, has no superior or privileged position against the other party.

As an example, until the law no. 4735 clarified the Public Procurement Contracts to be private law contracts, contracts regarding works indicated in article 1 of State Procurement Law No. 2886. were deemed as private law contracts with judicial decisions even though they were not explicitly stated in the law. Article 5 of the Law No.3995 explicitly stated that Implementation Agreements subject to herein code are private law contracts.

Electricity production transmit and distributions contracts were deemed as administrative contract, however by the legislative changes started on 1999, mentioned contracts are transformed as private law contracts and disputes arising from these contracts are subject to civil court judgment.

Law on Assignment of Enterprises Other Than Turkish Electricity Administration To Produce, Transmit, Distribute And Trade Electricity No.3096 regulates assignment of domestic and foreign corporations subject to private law provisions to produce, transmit, distribute and trade electricity.

However with the annexed provision dated 20.12.1999 of Law on Construction of Some Investments and Services on a Build-Operate-Transfer Model No.3996, scope of the provision regarding assignment of domestic and foreign corporations subject to private law provisions is extended for the subject "electricity production, transmission, distribution and trading, mines and businesses, factories" and also Article 5 of the Law titled as "Agreements" has been revised as "agreement, concluded between the administration which determined by High Planning Council and equity company or foreign company is subject to private law provisions."

Thus, build-operate-transfer agreements conducted as concession agreements with administrative characteristics regarding electricity produce, transmit, distribution and trade are transformed to private law contracts.

According to the Article 2 of the amending Statute which headed as types of administrative suits and administration court's jurisdiction, dated 18/12/1999 No.4492 "Cases relating to disputes arising from administrative contracts signed to carry out public services except disputes arising from conditions and contracts under which concessions are granted and for which arbitration is stipulated" are inferred as administrative lawsuits and disputes subject to arbitration are excluded from administrative court's jurisdiction.

In this respect, agreements made according to abovementioned provision namely HGA and IA for Sinop NPP are subject of administration's private law contracts and disputes arising from these agreements will be subject to civil court jurisdiction.

In respect of the cases to which the State is party, Ministries do not have a legal personality distinguishing from the State. Since they have capacity to sue as an executive organ of the State, the cases in which the Ministries are parties, are followed by the State (Treasury). Lawsuits of State means the lawsuits belonging to State institutions, not having a legal personality distinguishing from the state and included in general budget.

With regards to the agreements subject to private law by codes, lawsuit shall be filed before the civil courts.

According to the decision of Court of Cassation 23. Civil Chamber E. 2016/2138 K. 2017/1913 dated 21.6.2017, "...due to the reason that the state economic enterprises subject to Decree Law No.233 shall be deemed as merchants which being subject to private law provisions, it is inferred that both Parties are merchants and the dispute is regarding to Parties' commercial enterprises and the dispute shall be resolved in commercial courts. Therefore, first instances courts written justifications has not been found appropriate." it is ensured that Public Economic Enterprises are merchants within the scope of commercial code and shall be judged before the civil courts corresponding with its activities.

Court of Cassation 13. Civil Chamber's decision dated 09.11.2017 numbered E. 2017/7509 K. 2017/10856' as follows: "Public Economic Entities, except provisions reserved within the Decree Law numbered 233, are subject to provisions of private law, but not subject to General Accounting Law and audition by Court of Accounts."

According to the decision dated 20.12.2004 E.2004 / 3420 K.2004 / 12593 of the Court of Cassation 11. Civil Chamber, regarding Public Economic Enterprises' activities in the field of private law, ASKI which is a Public Economic Enterprise shall be deemed as merchant in the sense of Article 18 subsection 1 of the Turkish Commercial Code due to its conduct of business under private law provisions although its operations are public services.

Lawsuits filed against Public Economic Enterprise (PEE);

(i) It is possible (legally permissible) for the Turkish Company to file either an administrative proceeding before the administrative courts against an administrative action, an administrative act or administrative contract established by the State or Public Economic Enterprise or a civil law proceeding for private law contracts before the civil courts. In civil court proceedings the competent court shall be a commercial court and the provisions of the procedural law applying to private legal entities shall be applied herein and lawsuits are filed regardless of any specific condition or restriction.

(ii) As regards to administrative proceedings filed before the Turkish courts by foreign investor or lender against State or Public Economic Enterprises, there is no regulation in procedural law requiring a preliminary examination, permission requirement or any other restriction. As regards to capacity to sue, no restrictions have been regulated in Administrative Jurisdiction Procedures Law. According to Article 31 of Administrative Jurisdiction Procedures Law with reference to Article 84, foreign individuals or legal persons who file lawsuit before the civil court, as distinct from Turkish companies, shall be required to provide a security whose amount shall be determined by the court, in the event claimant has no property in Turkey, however the court may exempt the plaintiff from providing a security, on a reciprocity basis. As distinct from Turkish companies, Foreign legal persons are subject to provisions of Article 48 of IPPA stating "Foreign individuals or legal persons who file a lawsuit, intervene in a lawsuit, or initiate execution proceedings before a Turkish court shall be required to provide a security whose amount shall be determined by the court to cover the expenses of the legal procedures and proceedings as well as losses or damages of the other party." Pursuant to the provision, the court may exempt the plaintiff, intervener, or applicant for execution from providing a security, on a reciprocity basis. Within the scope of Turkish Private International Law, reciprocity shall be established statuary, contractually or de facto.

Accordingly, legal persons with administrative head-offices located outside of Turkey shall be deemed as foreign legal persons and shall be required to provide a security. Foreign persons or asset groups that do not have such legal personality but who have standing to sue in court are also obliged to provide guarantees.

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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