DRAFTING CONTRACTS IN TURKEY, APPLICABLE LAW AND CHOICE OF JURISDICTION
Drafting Contracts in Turkey, applicable law and choice of jurisdiction
1. Which Language to Choose?
Options:
Single version in English: Most common solution in international contracts
Bilingual version (French/Turkish or English/Turkish): Each party in their language
Single version in Turkish: If required by law or Turkish party
Our Recommendation: Version in English with clause specifying that in case of dispute, the English version prevails.
Example clause: "This Agreement is drafted in English. In the event of any discrepancy between the English version and any translation, the English version shall prevail."
Beware of Turkish Translations: If a Turkish version is required (Turkish courts, registration), have it translated by a certified sworn translator to avoid interpretation errors.
Common Translation Errors:
Legal terms without exact equivalent
French/English law concepts not existing in Turkish law
Ambiguities created by translation
2. Structure of an International Contract
Recommended Standard Format :
> Preamble
> Presentation of parties
>Context and contract objective
> Definitions
> Contract subject
>Obligations of each party
> Price and payment terms
> Delivery / Performance
> Contract duration
> Warranties
> Liability and limitations
Intellectual property
Confidentiality
Force majeure and hardship
Termination
Applicable law and dispute resolution
General provisions
Annexes
Technical specifications
Price schedules
Document templates
Contact lists
Definitions: Crucial Section
Precisely define key terms to avoid any ambiguity:
Example:
"Products": means the [precise description]
"Territory": means the Republic of Turkey, excluding [any excluded zones]
"Price": means the price indicated in Annex 1, expressed in [currency], [excluding/including VAT], [Incoterm]
"Delivery": means the transfer of possession in accordance with [precise conditions]
"Intellectual Property Rights": means all patents, trademarks, copyrights, know-how, and other intellectual property rights
Choice of Applicable Law and Competent Jurisdiction
Applicable Law to the Contract
Principle of Party Autonomy
Parties are free to choose the law applicable to their contract (principle recognized by Turkish law and most legal systems).
Common Choices:
Turkish Law: Natural if the contract is mainly executed in Turkey
French Law: If the French party insists
English Law: Very common in international contracts (neutral, predictable)
Swiss Law: Compromise between civil law systems
Vienna Convention (CISG): For international sales
Recommended Choice of Law Clause:
"This Agreement shall be governed by and construed in accordance with the laws of [Country], excluding its conflict of laws provisions and the United Nations Convention on Contracts for the International Sale of Goods (CISG)."
⚠️ Important: Even if you choose foreign law, certain Turkish mandatory rules may still apply (labor law, consumer protection, competition law).
In Absence of Choice: Applicable Default Rules
If parties have not chosen applicable law:
Turkish courts will apply Turkish private international law rules
Generally: law of the country where the characteristic performance is located
For sale: seller's country
For services: service provider's country
Our Recommendation: Always explicitly choose applicable law to avoid uncertainty.
Choice of Jurisdiction: Courts or Arbitration?
Option 1: Turkish Courts
Jurisdiction Clause Example:
"The courts of Istanbul, Turkey, shall have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement."
Advantages:
Lower cost than arbitration
Enforcement in Turkey easier
Public proceedings (transparency)
Disadvantages:
Proceedings in Turkish (translation costs)
Longer delays (2-5 years)
Less predictable than arbitration
Difficulty enforcing abroad
When to Choose Turkish Courts:
Low-value contracts (< €50,000)
Disputes requiring interim measures in Turkey
Both parties comfortable with Turkish system
Option 2: International Arbitration
Arbitration Clause Example:
Any dispute arising from the relationships between the parties to this contract shall be determined by one arbitrator who will be chosen in accordance with the Arbitration and Internal Rules of the European Court of Arbitration being part of the European Centre of Arbitration having its seat in Strasbourg, and which are in force at the time the application for arbitration is filed, and of which adoption of this clause constitutes acceptance. The seat of arbitration shall be Geneva. The language of the proceedings shall be French. Applicable rules of substantive law shall be French Laws.
Advantages:
Neutrality: Neither party's home court
Confidentiality: Private proceedings
Expertise: Choice of specialized arbitrators
Enforceability: New York Convention (160+ countries)
Speed: Faster than courts (12-24 months)
Finality: Limited appeal possibilities
Disadvantages:
Cost: €50,000-€500,000+ depending on stakes
No interim measures (must go to courts)
Complexity: Sophisticated process
When to Choose Arbitration:
High-value contracts (> €100,000)
International parties from different countries
Need for confidentiality
Complex technical/commercial disputes
Desire to avoid local courts
Main Arbitration Institutions
ICC (International Chamber of Commerce)
Seat: Paris
Most prestigious
Highest costs
Duration : long
ECAM (European Court of Arbitration and Mediation)
Seat: Strasbourg
Excellent reputation
Neutral location
Moderate costs
Duration : short, optimized
3. SCAI (Swiss Chambers' Arbitration Institution)
Seat: Switzerland
Excellent reputation
Neutral location
Moderate to high costs
Duration : Medium
Essential Clauses in International Contracts in Turkey
Price and Payment Terms
Currency and Exchange Rate Risk
Challenge: Turkish Lira volatility (significant depreciation in recent years)
Solutions:
Option 1: Hard Currency (EUR, USD, GBP)
Protects foreign party from devaluation
Turkish party bears exchange rate risk
May require Central Bank approval for certain transactions
Option 2: Turkish Lira with Adjustment Clause "The price is set at [X] TRY. If the EUR/TRY exchange rate varies by more than 10% compared to the reference rate of [date], either party may request a price adjustment."
Option 3: Dual Currency "The price is [X] EUR, payable in TRY at the exchange rate published by the Turkish Central Bank on the payment date."
Our Recommendation: For significant long-term contracts, use EUR or USD to avoid exchange rate disputes.
Payment Terms
Common Terms:
Advance Payment: 10-30% upon order
Progress Payments: Based on milestones
Payment on Delivery: COD or against documents
Payment Terms: Net 30/60/90 days
Late Payment Interest: Always specify rate (e.g., "3-month EURIBOR + 5%") and cap it to avoid exorbitant Turkish commercial rates (30-40%).
"In case of late payment, interest shall accrue at the rate of [X]% per annum, not to exceed 15% per annum, from the due date until full payment."
Payment Security
For Turkish Buyer:
Letter of Credit (LC) - irrevocable confirmed
Bank guarantee
Documentary collection
Advance payment
For Foreign Seller:
Payment against documents
Letter of credit
Credit insurance (Coface, Euler Hermes)
Title retention clause
Force Majeure Clause
Purpose: Suspend or terminate obligations when unforeseeable events make performance impossible.
Turkish Law Position: Turkish Code of Obligations recognizes force majeure (Article 136: impossibility of performance releases debtor).
Essential Elements of FM Clause:
Definition of Force Majeure: "Force Majeure means any unforeseeable event beyond the reasonable control of a Party, including but not limited to: acts of God, war, terrorism, riots, strikes, epidemics, pandemics, government actions, embargoes, natural disasters, earthquakes, fires, floods."
Exclusions:
Economic hardship
Lack of funds
Supplier failure (unless FM)
Labor disputes (if controllable)
Consequences: *"Upon occurrence of Force Majeure:
Affected Party's obligations are suspended
Notice must be given within [X] days
Parties shall negotiate in good faith
If FM lasts more than [90] days, either party may terminate"*
Mitigation Obligation: "The affected Party shall use reasonable efforts to mitigate the effects of Force Majeure."
COVID-19 Lesson: After the pandemic, many contracts now explicitly include "epidemic" and "government-ordered lockdowns" in FM definitions.
Hardship Clause (Imprévision / Aşırı Ifa Güçlüğü)
Different from Force Majeure: Performance remains possible but becomes excessively onerous due to unforeseen circumstances.
Turkish Law: Article 138 TBK recognizes hardship - judge may adapt or terminate contract if:
Extraordinary circumstances arose
Unforeseeable at contract time
Not attributable to either party
Performance becomes excessively difficult
Recommended Hardship Clause:
*"If, after conclusion of this Agreement, unforeseeable extraordinary circumstances occur that fundamentally alter the economic balance of the contract (including but not limited to: exchange rate variations exceeding 30%, significant inflation, import/export restrictions, sanctions), making performance excessively onerous for one Party, that Party may request renegotiation.
The Parties shall negotiate in good faith within 30 days. If no agreement is reached, the matter may be submitted to [arbitration/courts] for contract adaptation or termination."*
Practical Application:
Turkish Lira devaluation > 30%
Dramatic commodity price increases
New taxes or customs duties
Import/export restrictions
Limitation of Liability
Purpose: Cap financial exposure in case of breach or damages.
Key Elements:
Cap on Damages: "In no event shall either Party's aggregate liability exceed [X]% of the total contract price, or [€X], whichever is lower."
Typical Caps:
Services contracts: 100-200% of annual fees
Sales contracts: 50-100% of contract price
Technology licenses: 12-24 months of royalties
Exclusions from Cap: Certain liabilities cannot be capped. Ex. Fraud or willful misconduct, personal injury or death, Intellectual property infringement…
