Corporate and M&A

Introduction

Turkish Code of Obligations No. 6098 (“TCO”) that entered into force on 01.07.2012 has a provision entitled “hardship,” which was not found in the former Code of Obligations No. 818. It can be deduced from the limited number of Court of Cassation decisions that such provision has a rather controversial implementation. Such implementation shall be briefly evaluated, below.

TCO Art. 138 with regard to Foreign Currency Debts

As per the first paragraph of Art. 138 of the TCO, if an unexpected event occurs that was unforeseen and not expected to be foreseen during the execution of the agreement, due to reasons that are not caused by the obligor, the performance becomes excessively burdensome for the obligor because of such unexpected event in light of the principle of good faith, and the obligor performs his obligation by reserving the right of hardship, or has not yet performed his obligation, the obligor may request that the agreement be adapted in accordance with the circumstances, as changed, or may revoke the agreement, if adaptation is not possible.

The second paragraph of the aforementioned Article explicitly allows for such provision to be applied to foreign currency debts.

The Reason Underlying the Issue in Implementing TCO Art. 138 Regarding Foreign Currency Debts

TCO Art. 138/f.2 explicitly enables the hardship provision to be applied to foreign currency debts, as well. The underlying causes of controversial decisions regarding foreign currency debts, in spite of the existence of such explicit provision, are the other implementation conditions of the provision.

Indeed, in spite of the fact that this Article does not include detailed explanations on implementation conditions