17 March 2020

The recent coronavirus (Covid-19) outbreak in the world and in Turkey has been affecting all aspects of our daily lives which obviously includes the severe disruption of economic and commercial life. In these extraordinary times, it is important to understand how the legal regulations approach to these circumstances with the aim to ensure sustainability of commercial activities. For this reason, it would be useful to consider the potential impacts of the outbreak on commercial contracts under Turkish laws, particularly within the framework of the Turkish Code of Obligations ("TCO").

Compare to the risks existing in the ordinary course of life, circumstances of "force majeure" are envisaged as exceptions to the basic principle of sanctity of contracts (pacta sunt servanda), under contracts law.

As known, the current situation has been declared as "pandemic" by the World Health Organization. Within the scope of contractual relations, the coronavirus outbreak stands as an inevitable and unpredictable situation. Considering the severity of the outbreak, under contracts law; this situation may certainly be considered as an external event, a force majeure that may lead to breach of a debtor's obligations beyond its control.

Commercial contracts often contain "force majeure" provisions which basically aim to address suspension of certain obligations, non-liability of the party who fails to perform its obligations and under certain conditions termination of contract, and these provisions generally include epidemics together with other specific unexpected events. The parties may agree on the list of events that will be considered as force majeure in their contracts.

If a contract does not adequately address the events and consequences of force majeure or in cases where a force majeure provision is not included in the contract, the general provisions of the TCO shall be applied.

Depending on the nature of the obligations under the contract in question, an epidemic may be recognised as a circumstance leading to temporary or permanent impossibility to perform. For example; in regions where the epidemic is widespread, due to risks associated with the epidemic or as a result of governmental measures such as travel, free movement, export or import restrictions, it may truly become impossible to perform obligations related to certain goods or services. Especially in the case of an obligation with a definite due performance date (i.e. if the postponed/delayed performance of an obligation would not satisfy the expectations of the purchaser of goods or services or if late performance is not possible), the force majeure will be deemed to have made it permanently impossible to perform the obligations and therefore the debtor's obligation to perform will cease immediately and au tomatically without resorting to any judicial procedure (TCO Art. 136).

However, if a postponed/delayed performance is acceptable for the other party and if this is practically possible; so that if the force majeure causes only a temporary impossibility in terms of the performance of that contract, it will be accepted that the debtor is in temporary default without fault. In this case, the debtor will not be obliged to pay any compensation due to this delay (TCO Art. 112). However, following the disappearance of the force majeure event, the debtor will be obliged to perform the due obligation in question. Existence of permanent impossibility can also be argued in cases where it is not possible to foresee when such impossibility will come to an end (for example, in continuous contractual relations) and that in good faith it is not possible to expect the debtor to be bound by the contract for an unforeseeable period of time.

On the other hand, it should be noted that an epidemic may not always result in impossibility of performance in relation to certain goods and services (i.e. services of online advertising, broadcasting and some other goods and services). In such cases, if performance of the obligations would still be exceptionally costly and burdensome, due to unexpected developments or as a result of changes in the financial market conditions, the adversely affected party may request adaptation of the contract from the court due to hardship in performance and if not possible, may withdraw from the contract (TCO Art. 138) (provided that the obligations in question have not been fulfilled yet or fulfilled with reserving the rights arising out of such events).

If you have any questions regarding our above note, please do not hesitate to contact us.