Financial Institutions and Markets

Introduction

A bank is an institution of trust whose fields of activity, foundation, management, internal auditing systems, financial reporting, equity, capital sufficiency ratios and auditing is determined by Banking Law numbered 5411 (“Banking Law” or “BL”). The legal liability of banks for their actions are determined within the scope of several legislations, the first of which is the general provisions enshrined in the Turkish Code of Obligations numbered 6098 (“TCO”). In addition, the Turkish Commercial Code numbered 6012 (“TCC”) sets forth under Art 18(2) that all merchants shall act prudently in all matters relating to their commercial activities. The second basis for banks’ stricter legal liability as merchants arises from this provision. Banks, as institutions which generate public trust, shall act with a level of prudence that is required specifically in their field of activity. In other words, such generation of trust in the public eye results in the obligation of banks to act with even more prudence when compared to a common merchant.

However, the primary reason behind the trustworthiness of banks is the fact that they operate under state supervision, and their activities are subject to certain permissions granted by the Banking Regulation and Supervision Agency (“Agency”) in accordance with Art. 6 of the Banking Law. The trustworthiness of banks usually results in the aggravation of their legal liabilities; however, to the contrary may also be the case.

The Notion of Trustworthiness

Even before the conclusion of a contract, a relation of trust is formed between the (at the time, “future”) parties. This relation finds is roots in Art. 2 of the Turkish Civil Code numbered 4721, and is also known as the principle of good faith. Accordingly, the principle of protection of trust requires that the trustee, who brought into existence a notion of trust in the eye of the trustor, shall not betray such trust and shall comply with the consequences thereof[1].

This principle shall be utilized for the interpretation, completion, limitation, correction and concretization of obligations in a contract. The Court of Cassation ruled in one of its decisions that the application of Art. 2 of the Turkish Civil Code is mandatory with respect to banking transactions and the contracts concluded with banks[2]. The decision reads:

“The compliance with the principle of good faith within the meaning of Art. 2 of the Turkish Civil Code is mandatory when using of the authority to increase the interest rates that was granted to the respondent bank. (…) In other words, it has to be determined whether or not the bank has violated the trust of the trustee. In such case, the court shall, in accordance with the above-stated explanations, determine any unjust behavior of the bank since it is its obligation to oversee the implementation of Art. 2 of the Turkish Civil Code.” (19^th Civil Chamber, Decision numbered 6-2976 and dated 26.03.1996).

The reflection of the notion of the protection of trust in the banking law is the state supervision on banking, and the fact that the banks can only operate if they are granted certain permissions by the Agency, and comply with certain criteria laid out under the Banking Law. A state-granted permission shall be the indicator of the existence of the minimum qualifications and minimum sufficiency for the continuation of the operations of the bank in question, since to the contrary shall require the suspension or cancellation of the permission. Although this may seem to be a burden on the banks’ part, Banking Law Art. 74 is in favor of the banks, and prohibits knowingly causing any impairment of a bank’s prestige, fame and fortune, or any unfounded news to be reported to this end. Hence, the trustworthiness (in other words, the prestige) of the banks are legally protected.

The Scope of the Banks’ Liability

Primarily, the scope of the banks’ contractual liability is determined within the auspices of the mandate agreement. Regulated under Art. 502 et seq. of the TCO, the mandate agreements require a certain level of trust between the attorney and its client; however, this level of trust is particularly heightened when it comes to mandate agreements concluded with banks. The banks shall act with objective diligence when fulfilling their contractual obligations[3]. The objective diligence obligations of banks has been subject to many Court of Cassation (“Court”) decisions, where the Court has determined that consequently the banks shall also be liable for their minor faults. Many of these decisions relate to unintended money transfers from the accounts of deposit holders, where the Court has found the existence of a causal relationship between the damage, and the violation of the objective diligence obligation sufficient for liability[4]. In doing so, the Court makes reference to TCO Art. 115(3) that reads:

“Article 115(3) – Any prior non-liability agreements regarding the non-liability of the debtor from its minor fault shall be null and void provided that the debtor offers a service, occupation of craft requiring expertise that can only be engaged in with a permission granted by law or an official authority.”

In a recent judgment of the General Assembly of Civil Chambers, reasons are summarized for banks’ objective diligence obligation, as follows:

“In the case at hand, it should be stated since one of the parties is a bank; banks are institutions which operate under heavy supervision and intervention of the state and in compliance with some special principles laid out for them. This peculiar characteristic of the banking sector results in a sense of special trust in the eye of the general public in their transactions with the banks.

(…)

Such undertaking was provided by a bank which shall act as a prudent merchant and comply with its objective diligence obligation. The bank’s signature under this undertaking shall be binding.”(Decision numbered 2013/11-2426 E. 2015/1540 K. and dated 10.6.2015)

Although the general trend in the consequences of the banks’ special position is the aggravation of their liabilities, the contrary may be the case, as well[5]. On the other hand, the aggravation of liabilities may not always be a negative for the banks. For example, their liability as to the protection of the secrets of their clients results in trust for such safekeeping, making the clients more prone to easily share information with their trusted banks.

On the other hand, under certain instances, expecting the banks to comply with an especially heightened level of diligence may not be the case. In particular, when the bank informs its client of its routine internal operations and systems, this shall be binding on the parties, and the client may not expect a higher level of diligence than what is agreed to in the agreement. The Court decided in one of its unannounced decisions that the client shall not expect the bank to perform a transaction after the hour duly announced to be latest time in a given day in which to perform such transactions; therefore, the client was held liable for the penalty of the delayed transaction[6]. In a similar fashion, the banks’ trust in their long-term clients may also be a reason for a decrease in its liability[7].

Conclusion

The banks operate under state supervision and control and in compliance with strict principles. This makes them trustworthy institutions by creating a special trust in the general public’s eye towards them being reliable and diligent. Consequently, they must act with objective diligence, as it is also consistent with the Court of Cassation’s approach. Most importantly, they may not waive liability for their minor faults as their activities require permission from the Agency and special expertise. However, the clients may not rely on the banks’ aggravated liability, provided that the bank duly notifies its internal rules regarding certain transactions.