2011 - English

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2011 - English
2011 / I
A YEAR OF CHANGE:
WHAT’S LAW GOT TO DO WITH IT?
2011
This is the first Bulletin of the
recently-arrived 2011. When we
look back for a moment, one can
say that last year was a busy year
indeed. The financial turmoil
swept away many enterprises
throughout the world and while some countries
had no choice but to apply for bail-outs, it was
a breeze for Turkey. In the meantime, the Turkish economy has shown remarkable performance
with steady growth while the entire world has
gone through many changes politically, economi-
cally and regulatory-wise. Then came the blasting
leaks to shake up the order…
Moving on to the facts, early this year, IMF
ranked Turkey as the 15th largest economy in the
world and according to GDP figures (at PPP) and
in 2009 Turkey was the 6th largest economy when
compared to EU countries. As the GDP levels increased to USD 618 billion in 2010, GDP per capita
soared from USD 3,500 to USD 12,392 (2010) in 8
years and is estimated to become approximately
Continued on page 3
13,870 for 2011.
IN THIS ISSUE
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Corporate
New Turkish Commercial Code – In General
Joint Stock Companies under the New
Commercial Code
Share Capital Increase in Joint Stock Companies
in terms of the New Commercial Code
Important Innovations Regarding
Incorporation of Limited Liability Companies
in the New Commercial Code
Dos and Don’ts in Shareholders’ Agreements
Exit Rights under Shareholders Agreements
Code of Obligations: Law to Change the
Country
Banks in Alert: New Musts for Brand New
Protection beyond Swiss Law – Contracts of
Surety by New Code of Obligations
Termination of Exclusive Distributorship
Agreements
The Importance of International Factoring in
International Trade and Applicable Law
A Sensational Investment: Use Permits
Granted by the National Estate
Latest Dilemma of Private Healthcare Sector:
Are Amendments to Private Hospitals
Regulation “Malpractice”?
A New Era in Media
The New Renewable Energy Law
Litigation
39 Legal Professional Privilege Rules Under
Turkish Law
41 Exemptions from Public Tender Law
42 An Overview of FIDIC Silver Book
44 Solicitation of Employees as an Event of
Unfair Competition
45 Providing GSM Services in Turkey and an
Ongoing Discussion: Share Payments
47 Dispute Boards in Construction Projects
48 The United Nations Convention on Contracts
for the International Sale of Goods
50 Legal Aspects of Unlicensed Software Use
52 The Liability of the State Arising from
Enforcement and Bankruptcy Offices
54 Legal Implications and Importance of Control
in International Joint Ventures From The
Turkish Law Perspective
55 Multi-Step Dispute Resolution Clauses
56 New Claim/Counterclaim
58 Role of Local Courts in International
Arbitration: Preliminary Injunctions
Project and Finance:
60 Real Estate Investment Companies In Turkey
61 Recent Developments in Public Offerings
63 Banking Regulation and Supervisory Agency
Control of Factoring Transactions in Turkey
64 Privatization of Motorways
66 Sukuk and Its Emergence in the Turkish
Capital Market
67 The Public Offering of Foreign Capital
Instruments in Turkey
69 The consolidation of the infrastructure market
in Turkey and its legal framework
Competition
71 Turkey Welcomes its New Merger Control
Regime
73 Intellectual Property Rights versus
Competition Rules: Parallel Imports
IPT
75 Turkey’s Signing the Convention on
Cybercrime
76 Combatting Counterfeit Healthcare Products
78 Reform of the Turkish Constitution & Privacy
Rights
79 Public Discounts in Reimbursement of
Pharmaceutical Products
81 Clinical Trials
83 Loss Compensation Funds
84 Copyright Infringements on Internet
85 E-Commerce Gateway to The World
86 Misleading Advertising
Employment
88 Obtaining Work Permits for Foreign
Employees in line with Recent Changes in the
Law
90 Impact of Certain Events that May Occur in
the Course of Lawsuit for Reinstatement to
Work
92 Disclosure of Business Malpractice
(Whistleblowing) under the Turkish Labour
Law & Duty of Fidelity
94 Execution of Contracts on Cessation of
Employment In Light of Job Security
Provisions of Turkish Labour Law
97 Recent Changes in Favour of Female
Employees and Inclusion of Maternity Leave
in Service Periods as Per Recent Changes in
the Law
No. 3
Disclaimer
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in this bulletin is not intended to be nor does it
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Previous page to continue
Intro
Turkey is definitely expected to continue to
improve during the years to come. Meanwhile,
credit rating agencies such as Fitch, Moody’s and
S&P all gradually upgraded their credit ratings
for Turkey in the last two years, but still have
not satisfied the country’s expectations. It is anticipated that the rating agencies must upgrade
their rankings to investment grade after the general elections of June 2011. Now that transactions
in Turkey have regained leverage and pace, the
magnetic competition in various sectors is attracting the investors. The Turkish market is accommodating more and more investors and their
deals lately. In the final quarter of 2010, the total
value of 203 M&A deals in Turkey exceeded USD
30 billion. A significant portion of this amount
was privatization (e.g. Başkent Gaz). The most
leveraged deal of the year was the acquisition of
25% of Garanti Bank’s shares by Spanish BBVA
at USD 5.8 billion. After the general elections of
summer 2011, Turkey is expected to attract lots of
foreign investment.
Most recently, Turkey entered into a memorandum of understanding with the Japanese
government for constructing the controversial
nuclear plant to be located in Sinop (Black Sea
region). Earlier in 2010, the country had come
to terms with Russia for the other nuclear plant
to be built in Mersin, Akkuyu (Mediterranean
region). On the privatization agenda, it was recently announced that Turkish Airlines, the 4th
largest airline company of Europe is to be privatized. The upcoming days will host debates as to
whether there will be a secondary public offering or a sale. Privatization of motorways is a top
transaction regarding which you will find an article in this edition. There is also the current media
blast with the prospective sale of major television
networks and publications where we will see the
impact of the new media law allowing a higher
percentage of foreign ownership going up to 50%
(which was 25%) and indirectly 100%. You will
find further information about it in this 3rd issue
of Bulletin Turkey. Furthermore, private equity
deals in various other sectors such as health and
pharmaceuticals, energy, food and beverages, IT,
leisure and travel etc. are a hit this year both on
the multinational and local arenas.
It is worth mentioning here that we have illustrated this issue with the top legal events that
keep Turkey’s agenda busy. A selection of over
50 articles has been put together in a readerfriendly manner with the intention of keeping
our readers busy and on full alert. To give a few
other examples, new regulations introduced on
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public offerings, registration of capital markets
instruments, health sector, and Competition Authority notification rules for M&A transactions
are topics we have covered in this issue. We have
written a variety of articles on dispute settlement
and bankruptcy matters as well as data protection, counterfeiting and electronic communications. Popular employment law matters such as
foreign work permits, job security and whistleblowing are interesting articles which you may
find helpful.
In the meantime, YKK not only developed
its practice but it has welcomed new faces to its
dynamic team and we have grown to 65 lawyers
with around 40 support staff making the total
more than 100. Taking up more office space in
the Astoria building, we now occupy 5 floors.
Although it can only be a myth that lawyers will
rule the world one day, constant advice has become part of many clients’ daily routine which
only used to be a practice followed by foreigners
in the past. Now, national companies are also eager to retain these services which keep us busy.
Legislative-wise, the New Year is all about
change, change, change in Turkey. You can find
several articles on the amendments that will be
introduced in terms of corporate governance,
corporate transactions and others matters in this
issue of Bulletin Turkey. The major changes introduced to the Commercial Code (including the
companies act) and Code of Obligations will definitely change our lives. They will enter into force
in July 2012, hence giving us more than a year
of transition/warm-up period and we are preparing ourselves for these changes through intense
training programs.
More on the changes, in order to improve the
functioning and efficiency of its judiciary in line
with the European standards, the law regarding
judicial reform strategy was enacted on 14 February 2011. The reform was established mainly with
the purpose of reducing the courts’ workload by
making fundamental changes with regard to restructuring Constitutional Court and redefining
its tasks, restructuring High Council of Judges
and Prosecutors, establishment of Union of Judges and Prosecutors, providing operation of the
Supreme Court in civil and criminal judiciary,
merging courthouses, completing UYAP (National Judicial Network Project), enlarging the
Forensic Medicine Institution, adopting the new
Civil Procedure Code. The European Commission had also considered this a positive step in its
progress report regarding Turkey.
Furthermore, a new Bag of Laws was enacted
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on 26 February 2011. This new package amends
numerous types of laws, which will radically
change people’s lives. As would be significant for
corporations, the bag of laws provides for several types of tax amnesties enabling restructuring taxes and social security premium fees that
were not paid until 31 December 2010. The Bag
of Laws foresees that the two authorities, Turkish
Banking and Regulation and Supervision Agency
(BDDK) and the Capital Markets Board (SPK) are
going to be moved to Istanbul. This is an important step in making Istanbul a financial center.
Now that our Bulletin Turkey has become
yours, there is no doubt that it will provide you
with highlights from the top legal agenda of the
country tailored in the best possible way to address your interest. Expect to receive future issues which will continue to offer you interesting
insights with a business approach about new legal developments in the country.
***
Should you have any suggestions about matter you would like us to address in the next issue
please contact us at [email protected]
av.tr and we should be delighted to make sure
that they are attended.
2011/I
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Increase in share capital through issuance of
convertible bonds and bonds with warrants:
Under this newly introduced method by the
New TCC, joint stock companies do have the option to issue convertible bonds and bonds with
warrants (hybrid securities), the exercise of which
would lead to increases in the share capital.
In this respect, joint stock companies can issue convertible bonds and bonds with warrants
to compensate their funding needs. So, the holders of such bonds are entitled to exercise conversion and call option rights attached to these
bonds. Under this method, in case these rights
are exercised by the holders, the share capital of
the company would automatically increase at the
same time as these rights are exercised and relevant amounts for the acquisition of new shares
have been paid by the bondholders without any
further action. As a result of the exercise of these
rights, either the bonds would be converted into
equity shares in the company or the exercising
bondholder would receive equity shares in the
company through the exercised call options, in
both cases upon the payment of considerations
to be paid by the holders for the acquisition of
equity shares in the company.
There are certain safeguards set out in the
New TCC for increase in share capital through
issuance of hybrid securities as summarized below:
●● The amount of share capital increase to be
made through issuance of convertibles and
bonds with warrants is limited by half the
amount of share capital of the company.
●● Existing shareholders at the time of the issuance of these hybrid securities are entitled to
pre-emption rights to acquire such. However,
only in the presence of justified reasons, the
pre-emption rights could be subject to restriction.
●● Unless stated otherwise in the AoA of the
company, in case registered shares are underlying securities in hybrid securities, rights of
the holders of the bonds cannot be rendered
dysfunctional due to the transfer restrictions
imposed on registered shares of the company.
●● Convertible bonds and bonds with warrants
cannot be eroded with further increases in
share capital and issuance of new conversion
rights and call options.
Preemption Rights:
As per the New TCC, existing shareholders
at the time of the issuance of new shares resulting from increases in share capital are entitled to
acquire these new shares pro rata to their shareholding in the share capital of the company.
Under the New TCC i pre-emption rights can
be restricted only in the presence of justified reasons and with the affirmative vote of the shareholders representing 60%of the share capital of
the company in the general shareholders’ assembly. What constitutes a justified reason has not
been confined to a limited number of cases in the
new law, but public offering and acquisition of
subsidiaries have been illustrated as what could
be a justified reason. Stipulating clearly the conditions required for the restriction of preemption
rights, the New TCC put an end to this contentious issue leading to disputes under the current
TCC.
Conclusion:
Having preserved the current methods for
share capital increase, the New TCC has brought
new methods to increase share capital of joint
stock companies, which can facilitate and expedite the functioning of joint stock companies. So,
introducing radical changes into Turkish commercial law and practice, these amendments
should bring joint stock companies into alignment with the international standards in terms
of corporate finance and governance. In addition, with the new concepts and institutions introduced, Turkish commercial law and practice
has been also updated in light of the EU law and
legislations.
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A New Era in Media
Burçak ÜNSAL
T
Introduction
urkey is striving to grow even faster
than the last decade which made it the
world’s 15th largest GDP-PPP and 17th
largest nominal GDP economy. Among
the many dynamic industries of Turkey, broadcasting draws “special” attention due to the fact
that foreign investment has not really had the
chance to step in.
Radio broadcasting started in Turkey in 1927,
with a private company owned by the state. In
1964 Turkish Radio and Television Corporation
(“TRT”) was established for TV broadcasting
and TRT had a monopoly in radio and TV broadcasting until 1994.
T
he Law on Establishment of Radio
and Television Enterprises and their
Broadcast Services numbered 6112,
which significantly encourages
foreign investment, has been enacted
on 15 February 2011 (the “New
Law”) and entered into force on 3
March 2011.
Currently there are around 24 national, 16 regional and 215 local television stations; and there
are around 1100 radio channels, 100 of them on
cable.
According to a TV viewing survey conducted
by the Radio and Television Supreme Council
(“RTÜK”), average daily TV viewing time per
person is 5.09 hours on weekdays and 5.15 hours
on the weekend.
Legal Infrastructure
Until very recently, the main piece of broadcasting legislation was the “Law on Establishment of Radio and Television Enterprises and
their Broadcasts” numbered 3984 (the “Law”), as
amended from time to time.
However, since the Law fails to address the
requirements of the developing technology and
global capital movement in the broadcasting
world, the Law on Establishment of Radio and
Television Enterprises and their Broadcast Services numbered 6112, which significantly encourages foreign investment, has been enacted on 15
February 2011 (the “New Law”) and entered into
force on 3 March 2011.
RTÜK is the autonomous body that regulates
and monitors radio and TV broadcasts, as well
as granting licenses for such broadcasts. RTÜK
has issued various secondary legislation within
the framework of the Law among which the Administrative and Financial Conditions Regulation for Private Radio and Television Enterprises*
(the “Administrative and Financial Conditions
Regulation”), the Regulation on Broadcasting
Licenses and Permits, the Radio and Television
Corporations Channel Allotment Conditions and
the Relevant Tender Methods** (the “License Regulation”), the Regulation on Satellite Broadcasting Licenses and Permits*** (the “Satellite Regulation”), and the Regulation on Cable Broadcasting
License and Permit**** (the “Cable Regulation”)
can be named as the most important legislation
in terms of foreign ownership and licensing matters.
The Law prohibits political parties, associations, labor unions, cooperatives, foundations,
local governments and companies established or
partially owned by local governments, unions,
and organizations and enterprises dealing with
* Announced in the Official Gazette dated 16 March
1995 and numbered 22229.
** Announced in the Official Gazette dated 10 March
1995 and numbered 22223.
*** Announced in the Official Gazette dated 10 November 2004 and numbered 26669.
**** Announced in the Official Gazette dated 28 March
2002 and numbered 24709.
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by the Ministry of Industry and Trade.
Shares in joint stock companies can be issued in consideration of cash or assets. There
is no lock-up period provided for in New TCC,
whereas under the current TCC a lock-up period
of two years for shares issued in exchange of assets exists.
Under the New TCC, it is set out that the minimum nominal value of shares could be TL 0,001.
As per the provisions of the New TCC the issuance of preferred shares in joint stock companies is permitted. However, further restrictions
are stipulated for preference in voting and consequently, shares having preference in voting are
not capable of preventing share capital increases
under the New TCC. The reason behind this
amendment is to mitigate the blocking effect of
preferred shares in the functioning of companies.
In comparison with the current TCC boundaries
of privileges attached to preferred shares in convocation and meeting of General Shareholders’
Assembly and adoption of decisions in General
Shareholders’ Assembly are clearly delineated
and narrowed.
D. Repurchase of Shares from Shareholders by
the Company
In terms of the current TCC, the creation of
treasury shares is strictly prohibited. In other
words, a joint stock company is neither allowed
to repurchase nor take as collateral its own shares
from its shareholders. However, this strict prohibition has been relaxed to a great extent under
the New TCC for the sake of bringing Turkish
commercial legislation into alignment with EU
legislation. Thus, listed companies are protected
against manipulative practices and also private
companies would not have to bear the burden of
useless statutory restrictions.
Such restriction remaining in force and being applicable even in the event that subsidiary
companies acquire the shares of their parents,
several exemptions are set out in the New TCC,
in which case such repurchase by the companies
is allowed.
E. Board
Amending qualifications for being a board
member, the New TCC has abolished the precondition of being a shareholder in the company.
Moreover, legal entities can become board members under the New TCC in contrast to the current TCC.
The said amendments are so vital that they
pave the way for the introduction of professionalized boards in companies. Election of board
members outside the company, requirements
as to the education levels of the board members
are such provisions that serve to professionalize
management in companies.
F. General Shareholder’s Assembly
In a succinct and restrictive manner, the New
TCC defines the duties which cannot be delegated to third parties and are solely ascribed to
the General Shareholders’ Assembly. However,
exemptions are regulated such as share capital
increases in the public joint stock companies or
issuance of securities.
The New TCC has also introduced amendments as to who can convene the General Shareholders’ Assembly for meetings. Moreover, the
statutory auditor is no longer authorized to make
calls for General Shareholders’ Assembly meetings. Furthermore, minority shareholders are
subject to shorter periods to make calls for General Shareholders’ Assembly meetings. In addition to that, joint stock companies are under an
obligation to set out and put into force their internal regulation regarding the conduct of General
Shareholders’ Assembly meetings.
G. Share Capital Increase
Having maintained the current methods in
share capital increase, the New TCC introduces
certain new methods in share capital increase,
to bring more functionality to joint stock companies.
In addition to the share capital increase via
subscription by shareholders, registered capital
system and transformation of assets into share
capital are newly introduced methods for share
capital increase in joint stock companies. Another
alternative under the New TCC is increasing the
amount of share capital through issuance of convertible bonds and bonds with warrants.
Under this newly introduced method by the
New TCC, joint stock companies have the option
of issuing convertible bonds and bonds with warrants (hybrid securities), the exercise of which
would lead to increases in the share capital. The
terms and conditions relating to the issuance of
convertible bonds and bonds with warrants are
to be set out in the articles of association of the
companies.
H. Liability
The New TCC stipulates provisions imposing
legal and criminal liability applicable to certain
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and the public authority shall be entitled to liquidate the relevant securities with reference to the
breach/failure of the contractor. However, when
the tender is exempt from the Law, then the public authority shall not be entitled to liquidate the
securities unless it has been granted such right
under the relevant agreement. Consequently,
falling within the scope of the exemptions from
the Law is a major issue for the public authorities as they would like to freely enjoy the right
to liquidate the securities in case of breach/failure
of the contractor. Furthermore, no preliminary injunction or attachment can be exercised over securities provided to the public authority for a tender subject to the Law. This provision of the Law
cannot be applied to tenders that are exempt from
the Law. Accordingly, a contractor may obtain
from the court a preliminary injunction ensuring
that the liquidation of the relevant securities is
prohibited in case a conflict arises with the public
authority. However, if the relevant agreement in
question is an agreement governed by the Law, it
shall not be possible for the contractor to obtain a
preliminary injunction on the securities.
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with respect to penal sanctions and prohibition
from public tenders are also applicable to the
tenders exempt from the Law. Namely, although
a tender organized by a public authority is not
subject to the public tender legislation, the penal
sanctions set forth in the Law are applicable to a
contractor if the latter rigs bidding or does not enter into the relevant agreement (except for circumstances where an event of force majeure occurs)
even it has been awarded the tender. Furthermore,
the reasons to be prohibited from participating
tenders are also stipulated in the public tender legislation and if a contractor commits any of these
acts requiring to be prohibited from the tenders,
although such act is not performed within the
scope of a tender organized under the Law, the
prohibition provisions shall also be applicable.
In light of the foregoing, although at a first
glance, a tender exempt from the Law seems to
have no relevance with the implementation of
the public tender legislation, there is no doubt
that the provisions of the Law that are of major
importance are applicable to the tenders exempt
from the public tender legislation.
On the other hand, the provisions of the Law
An Overview of FIDIC
Silver Book
Selen SÜMER
I
nternational Federation of Consulting Engineers (“FIDIC”) issues forms of model
contracts for construction projects. One of
these model contracts is the Conditions of
Contract for EPC/Turnkey Projects, First Edition 1999, so called FIDIC Silver Book. EPC refers
to Engineering, Procurement and Construction.
Silver Book is a standard form of contract setting
forth that the contractor performed the whole
project as turnkey.
FIDIC has adopted a different approach in
the Silver Book compared to the other books
previously issued by FIDIC, the Red and Yellow
Books. The points for which a different approach
has been adopted in the Silver Book are summarized in this article.
Under the Red and Yellow Books, a risk sharing approach has been adopted, namely there is
a balanced risk sharing mechanism whereas the
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but also introduced new sales methods and market instruments in an attempt to promote and
streamline the process.
As regards the amendments; first and foremost, the requirement to meet the minimum
initial public offering rates and comply with the
mandatory underwriting requirement is lifted.
With derogation from these rules the issuers are
afforded an important degree of flexibility in determining the volume of their initial public offerings as well as freedom to agree on the terms and
conditions of underwriting of their shares with
intermediary institutions.
Secondly, the new legislation provides for
electronic application process whereby registration of shares and submission of draft prospectus
and circular are made online and published on
the CMB website and public disclosure platform.
The obligation to prepare and submit pre-prospectus throughout the book building process
and requirement to obtain the CMB approval for
book building through announcement method
are also annulled. In addition, the format of prospectus is enhanced to provide extensive information to investors. Another notable innovation
is that the new communiqué allows companies to
make advertisements and announcements prior
to obtaining the CMB’s approval for registration
of shares subject to fulfilment of certain criteria.
In addition to the above, several requirements provided under the former Communiqué
were abolished to make the procedure simpler
and more efficient; for instance requirement for
all consortium members to sign the prospectus,
submission of price determination report to CMB
(in case the sale price is different than the nominal value) and provision of 3 months interim financial statements are lifted.
These amendments are considered to be important initiatives fostering effectiveness, standardization, transparency and expediency in
public offerings.
The shelf registration system had already
been introduced by the former communiqué
however in limited scope. The principles governing the system and implementation thereof are
clarified. According to the current provisions,
companies registered with the system may offer
their shares at any time during the calendar year
commencing from the date of registration without the need to go through the full and lengthy
legal procedures once again.
The newly introduced method of sales to eligible investors is another remarkable innovation
of the new legislation whereby issuers may sell
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their shares to a particular target of investors defined as domestic and foreign investment funds,
investment trusts, intermediary institutions,
insurance companies, portfolio management
companies etc., without the need to prepare and
publish prospectus and circular. Likewise, the
obligation of submission of prospectus and circular is also annulled in allocated sales of listed
companies granting the companies dynamism
and freedom to sell the shares to particular investors with great ease. There is no qualitative or
quantitative restriction as to sales to eligible investors, nevertheless targeted investors must not
exceed 100 in allocated sales method.
Communiqué Serial VIII, No. 66
The most significant amendment introduced
by Communiqué Serial VIII, No. 66 is the liberalisation of determination of price, sale and distribution methods. In order to ease the sale and
disposition requirements to the benefit of companies and investors several other amendments are
introduced as well.
First of all, the minimum allotment rate requirement, namely mandatory offering to domestic individual and corporate investors is
reduced to 10% for each group whereas the
former communiqué, was requiring 30% or 50%
depending on the total sale amount.
The new communiqué also provides that
minimum allotment rate requirement would
not be applied if stock exchange selling method
is used. In addition to above companies are afforded the facility to amend the allotment rates
in 20% margin provided that they reserved their
right to exercise this right in the prospectus.
There are also new incentives for payment
of sale of stocks and new payment methods are
introduced. Cash and non-cash promotions can
be allocated to certain investor groups upon approval of CMB provided that the implementation
thereof is explicitly explained in the prospectus.
As regards payment methods, CMB enabled the
requests to be placed through deposit of liquid
funds, government debt securities and foreign
exchange etc., as long as the responsibility is
borne by issuer, selling shareholder or intermediary institution.
The important changes in the legislation are
very much welcomed by the companies, investors as well as the intermediary institutions. These
amendments are expected to increase the volume
of public offerings and create the synergy and dynamism to accelerate the development of market.
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According to the New Code, the Board
may authorize a director or directors or a
third party with the authority to manage,
whereas the TCC does not allow third parties
to take over the authority of management.
The New Code states that the Board
should draft an internal regulation concerning the principals and procedures of the GA,
the grounds of which shall be determined by
the Ministry of Industry and Commerce.
In order to avoid a conflict of powers between the administrative bodies of a JSC, the
New Code has clearly stated the non-transferable powers of the Board which are, inter
alia, establishing company organization, giving instructions to the upper management,
establishing financial planning system, appointment of directors, recording the share
ledger and activity report.
S
ignificantly, the New Code abolishes
the requirement for the members of
the Board to be a shareholder in the
JSC and enables non-shareholders
and the legal entities to become
members of the Board in the JSC
●● Meeting Quorum for Board Resolutions:
The New Code alters the meeting quorum
required for Board Meetings and stipulates
that the Board shall convene with the presence of the majority of the Directors of a JSC
whereas the TCC requires the presence of one
more than half of the number of the Directors.
Such amendment will result in a difference in
terms of the Boards of the JSCs having a total
of odd and even numbered Directors. Also,
Board Meetings may be held on-line.
●● Number of Statutory Auditors: According to
the TCC a minimum of one and a maximum
of five statutory auditors are mandatory for
a JSC, whereas the New Code precludes that
a JSC should appoint one independent auditing company as statutory auditor. However,
under the New Code it is sufficient for small
JSCs to employ at least two independent financial advisors.
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●● GA: Although no amendment has been made
by the New Code with respect to meeting and
decision quorum for a GA, for the amendments to the Articles of Association of a JSC,
the New Code requires majority vote of the
participants in the GA who represent at least
half of the JSC capital.
In order to avoid conflict of powers between the administrative bodies of a JSC,
the New Code has clearly stated the nontransferable powers of the which are, inter
alia, amendment of the Articles, appointment
of Directors, determination of their terms of
duty and salaries, their release, appointment
and release of statutory auditors, rendering
resolutions concerning dividends, reserve
funds and financial reports, and the dissolution of the JSC.
●● Meeting and Decision Quorum for GA
Meeting Resolution: The New Code provides that for the issues that do not require
weighted quorums, the meeting quorum is
the presence of the shareholders holding ¼ of
the capital and the decision quorum is the majority of the affirmative votes of the present
shareholders. These quorums apply to capital increase, change of form, and resolutions
concerning mergers and spin-offs. Whereas
except for the latter, the aforementioned are
subject to a meeting quorum which requires
the presence of the Shareholders holding 2/3
of the capital and a decision quorum of the
majority of the affirmative present votes. In
addition, according to the New Code, changing the subject of activity of a JSC requires the
affirmative votes of the Shareholders holding
at least 75% of the company shares. But, the
TCC requires the affirmative votes of the majority of the Shareholders holding at least 2/3
of share capital.
●● Online Corporate Information: The New
Code aims to secure transparency which is
required for the corporate governance. Therefore under the New Code, JSCs are required
to maintain a corporate website where they
will publish official corporate announcements, important explanations for shareholders, audit reports and financial statements.
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its shares have been traded on the ISE since December 2, 2010. The public offering took place
just after the execution of the new Communiqué
on Principles regarding Registration of Foreign
Capital Instruments and Depository Receipts
(Serial No. III and No. 44) (the “Communiqué”)
which is more flexible than the previous one.
The Communiqué is applicable to (i) initial
public offering of foreign capital instruments
(“FCI”) and depository receipts; (ii) private
placement of FCIs and depository receipts and/or
sale of such to qualified investors; and (iii) issuance of gratis shares of foreign partnerships that
are listed on the ISE. Please note that public offering of foreign investment funds is not covered by
this Communiqué.
Pre-Conditions for Listing of Foreign Capital
Instruments
T
FCIs may be offered to the public by a foreign
investor, representative or depository agent. In
he Communiqué aims to facilitate
integration of the Turkish capital
markets with global markets and
to increase offering of more FCIs in
Turkey.
case a representative is used a written contract has
to be executed. A written contract is also a must
between representative and depository agents in
case of issuance of depository certificates. If a depository institution qualifies as a representative as
defined in the Communiqué, it could also act as
representative. A representative must be an intermediary institution based in Turkey or banks that
do not accept deposits. A representative should
ensure that financial and administrative rights attached to foreign capital instruments are used in
accordance with the laws of the state where the
foreign partnership is incorporated. A representative is responsible for accuracy of the information disclosed in the offering circular, it should
also fulfill the disclosure requirements pursuant
to Turkish capital market legislation, and disclose
daily close price of listed shares.
The pre-conditions that need to be satisfied
prior to public offering of FCIs are as follows:
●● FCIs must be listed on at least one a stock exchange. In case a FCI is not listed, being not
listed shall not be due to protection of investors.
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foreign currencies for which daily exchange
rates are announced by the Central Bank of
the Republic of Turkey.
●● There must be no restrictions over FCIs regarding their sale or attached rights or payment conditions in Turkey;
●● There must be no restrictions regarding transferability and circulation of FCIs or restrictions prevent its owners to dispose his rights.
Furthermore, there should be no usufruct
right attached to such shares.
●● Foreign partnership issuing such shares must
have an investment grade among the long
term credit ratings from a rating agency that
are approved by the Capital Market Board of
Turkey (“CMB”).
The Communiqué does not discriminate local
shares and FCIs regarding registration process
with the CMB, preparation of prospectus and circular, and offering and sale of FCIs, accordingly
same rules will apply. The application for quotation at the ISE and registration application to the
CMB must be completed simultaneously .
What’s new in the Communiqué?
The Communiqué aims to facilitate integration of the Turkish capital markets with global
markets and to increase offering of more FCIs in
Turkey. The main developments introduced by
the new Communiqué could be listed as follows:
●● It is no longer mandatory to realize the public offering of FCIs via depository receipts.
●● In case of public offering of FCIs via depository receipts, the requirements pertaining to
foreign partnership (such as being incorporated at least two years before offering and
making profits in its last year’s audited financial statements) have been lifted.
●● The FCIs do not need to be listed on a stock
exchange.
●● The initial application procedure (to verify
whether the FCIs, depository receipts and the
issuers comply with the CMB’s regulations)
set forth under the old communiqué do not
exist in the new Communiqué.
●● Financial statements of foreign partnerships
need to be prepared in accordance with the
standards set forth for the listed companies
by the CMB regulations or, if approved by
the CMB, in accordance with international accounting standards.
●● The value of FCIs must be denominated in
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plicable to joint stock companies under the TCC
provisions and has been kept by the new law as
well.
Under the ordinary share capital system,
share capital increases are consummated by contributions from current and/or new shareholders.
Such contributions are made either in form of
AoA amendments or undertakings undersigned
by the shareholders.
Under the TCC, the registered capital system
was only applied to companies subject to capital
markets legislation and Capital Markets Boards
(“CMB”) regulations. However, under the New
TCC the registered capital system is now also applicable to privately held companies.
Under this system, the board of directors in a
privately held company shall be authorized by a
provision in the AoA of the company to increase
the amount of the share capital up to a predetermined amount, by simply taking a board of directors` resolution without any need to convene
a general shareholders` assembly to amend the
AoA of the company. Such authority can be entrusted to the board of directors for a maximum
period of 5 years.
Having been duly authorized in the AoA, the
board of directors can restrict preemption rights
and issue premium shares and preferred shares
in increasing the amount of the share capital of
the company in registered capital system.
The provisions brought by the amendments
do not make any change in the application of
capital markets legislation and CMB regulations
with respect to share capital increase. Capital
markets legislation will continue to be applied to
public companies or companies to launch IPOs,
in addition to the New TCC provisions.
Capital markets legislation and CMB regulations aim to regulate the offerings through increase in share capital conducted by public and
privately held companies launching IPOs. As
per the current system set forth under the capital markets legislation, private companies can
launch IPOs after having amended their AoA
and increased the share capital accordingly upon
getting relevant approvals from CMB for such
increase and the IPO. In the alternative, private
companies to launch IPOs are allowed to change
to the registered capital system with the approval
of CMB before launching their IPOs. Companies
which already have public floatation are allowed
to change to the registered capital system from
the ordinary share capital system under the current capital markets legislation and CMB regulations following the approval of CMB to do so.
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However, these companies may elect to stay with
the ordinary share capital system. So, the New
TCC does not repeal any authority entrusted to
official agencies under capital markets regulations. Consequently, public companies and private companies to launch public offerings may
change to the registered capital system from ordinary share capital system, only after acquiring
the approval of CMB for such change, whereas
ordinary private companies may change to registered capital system with an amendment in their
AoA in terms of the New TCC, as capital markets
legislation is not applied to these companies.
Summarizing the foregoing, companies subject to capital markets legislation which have
not changed to the registered capital system and
are functioning under the ordinary share capital
system shall be subject to the provisions of the
New TCC when increasing their share capital
with an AoA amendment; however, any offering
launched by these companies should be regulated by the capital markets legislation. Companies
subject to capital markets legislation and having
changed to the registered capital system are regulated by the provisions of capital markets regulation, in which case the New TCC should not be
applied to such. So, the New TCC is to be applied
to ordinary private companies with respect to the
registered capital system without the provisions
of capital market legislation being applied, which
means that no CMB approval is required.
Transforming assets into share capital:
This method has been introduced as a new
method for share capital increases under the
New TCC. Accordingly, secondary reserves and
part of the statutory reserves which are allowed
to be disposed of under the TCC and certain
funds on the asset side of the balance sheet of the
company can be added to the existing share capital of the company in order to increase the share
capital. Depending on the system adopted by
the company, the ordinary share capital or registered capital, the general shareholders’ assembly decision or the board of directors’ resolution
regarding the increase and the amended version
of the AoA of the company need be registered
with the Trade Registry for the consummation of
the increase in share capital under this method.
Simultaneously with the registration, existing
shareholders in the company become entitled to
acquire the ownership of the new shares without paying any consideration, pro rata to their
shareholding in the share capital of the company.
The right to acquire such new no-par shares can
neither be restricted by the company nor relinquished by the shareholders.
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Increase in share capital through issuance of
convertible bonds and bonds with warrants:
Under this newly introduced method by the
New TCC, joint stock companies do have the option to issue convertible bonds and bonds with
warrants (hybrid securities), the exercise of which
would lead to increases in the share capital.
In this respect, joint stock companies can issue convertible bonds and bonds with warrants
to compensate their funding needs. So, the holders of such bonds are entitled to exercise conversion and call option rights attached to these
bonds. Under this method, in case these rights
are exercised by the holders, the share capital of
the company would automatically increase at the
same time as these rights are exercised and relevant amounts for the acquisition of new shares
have been paid by the bondholders without any
further action. As a result of the exercise of these
rights, either the bonds would be converted into
equity shares in the company or the exercising
bondholder would receive equity shares in the
company through the exercised call options, in
both cases upon the payment of considerations
to be paid by the holders for the acquisition of
equity shares in the company.
There are certain safeguards set out in the
New TCC for increase in share capital through
issuance of hybrid securities as summarized below:
●● The amount of share capital increase to be
made through issuance of convertibles and
bonds with warrants is limited by half the
amount of share capital of the company.
●● Existing shareholders at the time of the issuance of these hybrid securities are entitled to
pre-emption rights to acquire such. However,
only in the presence of justified reasons, the
pre-emption rights could be subject to restriction.
●● Unless stated otherwise in the AoA of the
company, in case registered shares are underlying securities in hybrid securities, rights of
the holders of the bonds cannot be rendered
dysfunctional due to the transfer restrictions
imposed on registered shares of the company.
●● Convertible bonds and bonds with warrants
cannot be eroded with further increases in
share capital and issuance of new conversion
rights and call options.
Preemption Rights:
As per the New TCC, existing shareholders
at the time of the issuance of new shares resulting from increases in share capital are entitled to
acquire these new shares pro rata to their shareholding in the share capital of the company.
Under the New TCC i pre-emption rights can
be restricted only in the presence of justified reasons and with the affirmative vote of the shareholders representing 60%of the share capital of
the company in the general shareholders’ assembly. What constitutes a justified reason has not
been confined to a limited number of cases in the
new law, but public offering and acquisition of
subsidiaries have been illustrated as what could
be a justified reason. Stipulating clearly the conditions required for the restriction of preemption
rights, the New TCC put an end to this contentious issue leading to disputes under the current
TCC.
Conclusion:
Having preserved the current methods for
share capital increase, the New TCC has brought
new methods to increase share capital of joint
stock companies, which can facilitate and expedite the functioning of joint stock companies. So,
introducing radical changes into Turkish commercial law and practice, these amendments
should bring joint stock companies into alignment with the international standards in terms
of corporate finance and governance. In addition, with the new concepts and institutions introduced, Turkish commercial law and practice
has been also updated in light of the EU law and
legislations.
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Important Innovations
Regarding Incorporation
of Limited Liability
Companies in the New
Commercial Code
Berat HAMZAOĞLU - Merve ÇIKRIKÇIOĞLU
T
I
urkey is on the eve of a new era in the
field of Company Law pursuant to new
regulations which recently entered into
force with the new Commercial Code
(“New TCC”). The previous Turkish Commercial Code (“TCC”), which has been drafted by
Prof. Hirsch has been in force for more than 50
years. Now, considering Turkey’s position as the
“Negotiating State” for full membership of the
EU, technological developments, Turkey’s critical role and wish to become an important part
in the international trade market; it is clear that
a new commercial code is in need to blend in
with the new order of the trade market. In this
t appears that upon the enactment
of the new TCC, the incorporation of
LLCs will be subject to strict control.
article, innovations and amendments in the field
of limited liability companies (“LLC”), more specifically incorporation of LLCs according to New
TCC will be thoroughly examined and discussed.
To begin with the most significant change in
the incorporation of LLCs is that the New TCC
allows LLCs to be incorporated with a single
founder unlike the previous TCC which requires
at least 2 founders. Therefore, pursuant to the
New TCC Article 504/1, LLCs may be incorporated with only one real person or legal entity. The
“one man company” system has been designated
in order to comply with EU’s 12. Council Company Law Directive 89/667/EEC of 21 December
1989. The purpose of this regulation is to protect
small and medium size enterprises (“SME”).
Thus SME’s will be able to break through from
unlimited liability as a single-member company.
However, as in the previous TCC, the New TCC
has also limited the number of members. Accordingly, a LLC may have a maximum of 50 members.
One other issue is that the New TCC sets
forth that registered capital shall be a minimum
of TL 25,000. This registered capital may be
raised by the Council of Ministers up to 10 times
of this amount. (Article.580/ 2) One of the most
significant amendments in this regard is that the
previous system which did not allow registered
capital share to be represented by certificates has
been abandoned. Instead, it has been stated in the
New TCC that registered share certificates may
be issued. It has been stipulated in Article 583
of the New TCC that the certificates to be issued
shall be at least in the value of TL 25.
The New TCC lists the documents required
for the incorporation of LLCs as “application
petition, articles of association, founders’ declaration, report of the operational auditor (işlem
denetçisi raporu), nomination of the auditor and
a document which provides the names and domicile addresses of the persons authorized to
represent the company”. It appears that upon the
enactment of the New TCC, the incorporation of
LLCs will be subject to strict control.
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Copyright Infringements
on Internet
Özge YURDAL
D
ue to the accelerated trend of sharing intellectual and artistic works on the Internet, copyright infringements in the digital
world are increasing. In Turkey, copyright on intellectual and artistic works is governed by
the Law on Intellectual and Artistic Works with no.
5846 (“Copyright Law”). Although there are certain
provisions in the Copyright Law that address the
rights of copyrightholders, the Law is not sufficient in
finding solutions to prevent and cease the copyright
infringements, as such infringements are committed
by using advanced technological tools.
Like the other rights on intellectual and artistic
works, rightholders have a monopoly over the right
to distribute and publish their works in the digital
world. Article 25 of the Copyright Law clearly stipulates that rightholders are entitled to present their
works to the public and they have the authority to
prevent presentation of their works to the public
without their consent.
A
special notice & take down procedure
was introduced to the Copyright Law
with the 2004 amendment, which allows
rightholders to obtain quick removal of
infringing content from the Internet.
A special notice & take down procedure was
introduced to the Copyright Law with the 2004
amendment, which allows rightholders to obtain
quick removal of infringing content from the Internet. Pursuant to Supplemental Article 4 of the Law,
rightholders first apply to content providers with the
request of removal; and if such do not react positively then they have the right to proceed to the public
prosecutor to cease services provided by the service
provider to the content provider which continues to
publish infringing content.
The Ministry of Culture, who is in charge of
improving the copyright legislation, has plans to
amend Supplemental Article 4. One of the proposed
changes is that the rightholders should submit certain information, such as the details of the allegedly
infringing content and a copy of rightholdership
certificate. The reason for such change is to prevent
groundless applications. Further, if the Supplemental Article 4 is amended, it will be necessary to obtain
approval from the relevant criminal court to process
the decision of the prosecutor.
The Copyright Law does not contain definitions
of content provider, service provider, hosting provider etc. For this, the definitions stated in the Law
on Regulating the Transmission on Internet and Fight
Against Crimes Committed Through These Transmissions w. no. 5651 should be taken into account.
Furthermore, there is also another procedure stipulated in Law No. 5651 to prevent access to websites that
contain certain criminal content. However, this Law is
only for certain offences which in practice are called
“catalogue crimes”, such as obscenity, provision of
narcotic drugs etc. Therefore, such procedures cannot
be applied in copyright infringement cases.
Pursuant to Law No. 5651 and the Regulation
published for its implementation, content, access
and hosting providers who act with commercial or
economic purpose should display certain identification information on their websites. In practice, as
most of the websites do not contain such information, some rightholders skip the phase of informing
the content provider and directly apply to the prosecution offices. This results in website being unnecessarily ceased. Therefore, it is debated in the relevant
circles that the content providers should be properly
informed before applying for cease of their websites.
Once the public prosecutor decides restriction,
such is mostly applied by IP or DNS restrictions.
However, as a matter of global approach, these sorts
of restrictions are limited within domestic borders;
therefore do not provide an effective solution as they
will not be binding on content providers in other
countries. For this reason, instead of IP or DNS restrictions, URL restrictions would be more effective
which will also provide restriction only to the alleged content instead of whole website.
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Dos and Don’ts in
Shareholders’ Agreements
Gizem GÖKER
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&A transactions in Turkey are regaining speed with the opening
of 2010. They have started to gain
leverage compared to the previous year which was rather big on acquiring
small enterprises. In acquiring a certain stake in
a company or in merger transactions, the share
purchase agreement or the merger agreement
takes the leading role. However, the terms and
conditions on the target company’s control and
governance are mainly subject to the shareholders’ agreement (“SHA”) (same applies to joint
I
n other words, the future is governed
by the SHA. Therefore, it is essential
to enter into a comprehensive SHA in
order to establish the grounds of a wellgoverned partnership and to avoid any
doubts on control issues in the future.
venture agreements). In other words, the future
is governed by the SHA. Therefore, it is essential
to enter into a comprehensive SHA in order to
establish the grounds of a well-governed partnership and to avoid any doubts on control issues in
the future.
In Turkey, companies are governed by their
articles of association which is a registered and
publicly available document. The practice allows
for a major part of the SHA to be reflected in the
articles of association or in certain cases the SHA
remains contractual where the parties choose to
draft a simpler version of the articles of association either for non-disclosure purposes or for
other corporate matters. This article aims to offer
preliminary guidance on what points to consider
in negotiating an SHA.
●● DO display a solid corporate governance
portrait.
In determining control of an enterprise corporate governance provisions are key.
In Turkey, joint stock companies are governed by a board of directors, whereas limited
liability partnerships only have a partners’ assembly (equivalent to a shareholders assembly
in joint stock companies and corporate decisions
are taken at this level). However, limited liability
partnerships may also establish a supervisory or
management committee to which the corporate
decision making process is delegated (subject to
the approval of the partners’ assembly).
For instance, where a party appoints the majority of the directors of the board such shareholder can render any decisions by itself at board
level. However, should the minorities have strategic veto rights (to give a few examples, appointing the CEO, CFO, approving the budget
or business plan are considered strategic board
matters), then this may mean that there is joint
control regardless of the board composition or
the shareholding percentage.
One should make sure that general matters,
reserved matters or strategic matters are specifically identified under the SHA (such as how the
signatories will be appointed, taking in financing
and loans, increasing the capital, carrying out related party transactions, approving the business
plan and budget etc.)
●● DO consider the legal identity of your
counter parties.
An SHA may be between legal entities or individuals or a mixture of both.
One should pay attention in drafting provisions tailored to the personality of the relevant
shareholder. For instance, a termination clause al-
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lowing for termination should there be a liquidity
event or winding up would not work for an individual. Whereas, an individual who is a merchant
may file for bankruptcy, bankruptcy protection
(meaning that the person is about to go into bankruptcy but is trying to survive) as a result of which
a supervisory or administrator trustee would be
appointed to control his assets. Furthermore, a
change of control clause (meaning that should
one shareholder sell the control in his company
to a third party – share transfers and transferring
voting rights above 50% or granting veto rights to
other persons that result in a shift of control, etc.)
would be applicable for a legal entity.
●● DON’T forget the change of control scenario.
You are taking a partner (where the partner
is a legal entity) who is very well known to you.
Should there be a major change in the shareholding structure of that entity, you would want to be
informed and prepared in advance. Suppose you
have signed a SHA and established a partnership
with an Incorporated Limited and the next day
the majority of the shares of Incorporated Limited are sold to an Alien PLC which belongs to
a corporate group that is known to be laundering money or a major competitor. There has been
an indirect change of shareholding in the partnership to which you have made a commitment.
Therefore, a change of control clause triggering a
default event is definitely a recommended clause
in a SHA in order to avoid any surprises.
●● DO determine your exit strategy.
Knowing your way out in advance is a quite
strategic in transactions. Aside aiming for achieving certain economic goals, the legal consequences of an exit should also be regarded primarily.
There could be a lot of reasons (voluntary or otherwise) leading to an exit.
In exiting a company, it is important to make
sure that you are welcoming the new investor
to a desirable environment. Therefore, in drafting the SHA certain points must be considered,
for instance, whether (i) the new investor will
be forced to sign a joinder agreement or not; (ii)
the minority shareholders will retain their major
rights such as veto rights, etc.; (iii) exit is likely
to be achieved via either a transfer of the partnership shares or the shareholder’s shares itself
(in what percentage) or an IPO of the partnership
shares; and, (iv) a certain portion of shares be
sold and so on if there is a shift in control.
●● DON’T allow for uncontrolled share
transfers.
Share transfer restrictions as well as rights of
first refusal or rights of first offer should be carefully addressed. In this respect, tag along (right to
sell with the selling party) and drag along (right to
force another shareholder to sell with you) rights
are also strategic. It is essential that no share transfers take place without offering those shares to an
existing shareholder first. Tagging onto a sale is a
benefit for a minority shareholder and dragging
along is a benefit for the majority shareholder.
Furthermore, if your partner is a strategic one for
the business (which is the case in many JVs) the
parties may consider locking in share transfers for
a certain period of time for sustainability.
●● DO negotiate your way to dilute a nonparticipating shareholder in case of a
capital increase.
A well-funded shareholder aims to contribute
to capitalization of the company and its financial
improvement. Unless there is an appropriately
determined mechanism in the agreement, capital
increases can be approved by the shareholders
easily, but afterwards a contributing shareholder
may default in paying such capital. In such cases,
it is a very long process to expatriate a defaulting
shareholder. For avoidance of such unwanted
circumstances, a persuasive mechanism for capital increases could possibly be governed under
the SHA.
●● DON’T render a useless deadlock
resolution mechanism.
Deadlocks mainly occur (i) where board decisions cannot be adopted due to split votes between the directors; (ii) where board meetings or
shareholders’ meetings (general assembly) cannot
be convened due to absence of quorum (mainly
occurs when a shareholder intentionally refrains
from discussing the subject) and (iii) where a
decision at shareholder (general assembly) level
cannot be reached due to split votes between the
shareholders or due to a minority shareholder exercising its veto right. Depending on the complexity of the deadlock, the parties may first attempt
to resolve the issue by (i) appointing mediators or
senior management, (ii) referring the matter to an
arbitrator, (iii) shoot-out (where the shareholder
who offers the highest price will buy the shares
of the other shareholders and they will be obliged
to sell to such highest bidder), or, (iv) Russian
Roulette where one shareholder can require other
members to choose whether to sell their shares of
the first shareholder or buy the shares of the first
shareholder at a price and on terms offered by the
first shareholder. Since the first shareholder does
not know what the other shareholders will elect
(i.e., buy or sell), it will have to specify a reasonable price and terms. Even as a final resort, wind-
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ing up a company is not a recommended considering how long it takes to wind up a company in
Turkey (about a year).
Remember that such buy/sell mechanisms
can be tricky when it comes to bidding. The
shareholder with the biggest financial strength
can take over the company or insider information
can cause having to sell the shares. Harsh solution methods (such as winding up) can be intimidating thus forcing the parties to act consciously
in order to avoid any unwanted obstruction.
●● DO take into account the near future and
the new Turkish Commercial Code.
The renowned Turkish Commercial Code
amendment that has been on the agenda for
years was recently ratified by the Turkish parlia-
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ment and is to come into force in July 2012. While
entering into a contract today, you should envisage the changes that could affect your contractual relationship or that may render certain provisions useless and hence should be taken into
careful consideration.
***
This article sets out a selection of shareholder
matters. There are of course many other important aspects of a shareholding relationship to
consider. There is no doubt that a concretely established and strong legal partnership founds the
grounds of a successful future and business. We,
corporate lawyers are always here to efficiently
guide you to success.
Exit Rights under
Shareholders Agreements
Nihan PALTA
M
ost financial and strategic investors’ main objective in a company
acquisition is taking over absolute control of the target company
with minimum liability. In share purchase deals
where ownership of all shares of the target company is transferred from the seller to the purchaser, the purchaser steps into the seller’s shoes and
the legal entity’s operation continues in an uninterrupted manner. Unless specifically agreed
through representation and warranty clauses
and/or specific indemnity clauses inserted in the
share purchase agreement, subsequent to the
share transfer, the seller has no ongoing interest
or obligation with respect to the assets, liabilities
or operations of the legal entity in question.
On the other hand, in share purchase deals
where less than 100% of the shares are acquired,
apart from the share purchase agreement, the
seller and the purchaser execute a shareholders’ agreement for the purpose of recording their
mutual agreement concerning the shareholding,
financing, operation and management of the
company and their mutual rights and obligations relating to the company. The purchaser/
investor’s main concern should be to enable the
purchaser/investor to cash out of the investment
to be made in the target company at the end of a
prescribed term with maximum profit and under
the best conditions. For that purpose, new business terms and instrument models in corporate
law (emanated from common law system) have
been created so as to facilitate the investor to exit
their portfolio company investment by exercising
certain rights inserted in the shareholders’ agreements. Even though these are not statutorily
implemented under the current Turkish Commercial Code numbered 6762 or the new Turkish Commercial Code numbered 6102 which has
been approved on 13 January 2011 and will be
entered into force on 1 July 2012, they are commonly used in practice in Turkey while drafting
shareholders’ agreements especially when the
purchaser is a private equity investor. Exit rights
are related to two most important exit channels:
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(i) trade sales (including drag-along rights, tagalong rights and right of first refusal/right of first
offer) and (ii) initial public offerings (including
demand rights and piggy back rights).
It should be stressed that the most important
clauses which are commonly subject to discussion and negotiation are drag-along rights and
tag-along rights clauses. A drag-along right gives
its holder the right to force all other shareholders
in the company to sell their shares to a (outsider)
buyer at the same price at which the right holder
sells his shares. The tag-along right allows the
holder to include his shares in a sale at the same
price as all other shareholders. Thus these rights
possess option-type characteristics.
Right of first refusal/Right of first offer
Right of first refusal (“ROFR”) allows the
right holder to force any selling shareholder to
firstly offer all or a portion of the shares to the
right holders (other shareholder(s) in the company) at a price offered by the intended transferee.
In brief, the right of first refusal is similar in con-
F
or that purpose, new business terms
and instrument models in corporate
law (emanated from common law
system) have been created so as to
facilitate the investor to exit their
portfolio company investment by
exercising certain rights inserted in
the shareholders’ agreements.
cept to a call option. In general, a written notification is sent by the relevant selling shareholder
to other shareholder(s) so as to inform them
on the number of shares subject to transfer, the
proposed offer price and name, identity and description of the intended transferee. This avoids
a shareholder selling his/her shares to an unwanted third party which may alter the balance
of power in the company. Unfortunately, since a
ROFR is a contractual right, if there is no contractual penalty determined under the contract the
right holder’s remedies for breach are typically
limited to compensation for damages. In other
words, if the selling shareholder transfers his/her
shares to a third party without offering the holder the opportunity to purchase it first, the holder
can then sue the selling shareholder for damages,
but may have a difficult time obtaining a court
order to stop or reverse the sale.
The right of first offer (“ROFO”) differs from
ROFR as ROFO merely obliges the owner to undergo exclusive good faith negotiations with the
right holders before negotiating with other parties. A ROFR is an option to enter a transaction
on exact or approximate transaction terms. In
other words a ROFO is merely an agreement to
negotiate.
Drag-along clauses
If a deal has been struck with a buyer, dragalong rights enable the right holder to force all
other shareholders to sell their shares under the
same conditions to the buyer and join the sale of
company’s shares in question. This avoids an exit
being prevented by one party who is unwilling
to transfer his/her shares. Since these clauses are
generally inserted to the advantage of the majority shareholder so as to ensure an exit channel,
this right is exercised for all the shares held by
such shareholder via dragging all the shares held
by other shareholders. Please also note that especially in fifty-fifty partnerships, a floor price
for dragged shares may also be stipulated with
reference to a formula agreed by the parties. It
should be noted that if structured and implemented properly, drag-along clauses can provide
important protection for the private equity investors when it is time to exit portfolio company investments.
Tag-along clauses
Tag-along clauses preclude that one of the
parties transfers his/her shares to an outside investor without giving the right holder the chance
to follow suit. It gives right holder the right to
include his/her shares in the sale at the same
price as offered to the intended transferee. Thus,
the tag-along clause constitutes a put right for
the right holder enabling him/her to transfer the
shares at a price determined in the negotiation
between the selling shareholder(s) and a third
party. A tag-along clause may avoid one party
being excluded from a value-increasing sale of
the company to a buyer who only acquires a portion of the shares. Value increases may be caused,
for example, by synergies created or by a sale to
a direct competitor and the associated increase
in market power. In addition, it denies the other
party the ability to sell company’s shares to a
third party who has the ability and incentive to
undertake measures to reduce the value of the
company, i.e. via asset-stripping or transfer-pricing, without compensating the other shareholders.
These first three rights are directed towards
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the possibility of a trade sale as an exit channel.
The following two exit rights are especially important in the course of an initial public offering
being used as the main exit channel for the initial
owners of the company.
Piggy-back rights
Piggy-back rights allow each party to include
their shares in an initial public offering pro rata
to their company’s shares. Thereby, the exclusion
from an IPO can be avoided. This right avoids
that some shareholders can threaten to exclude
other shareholders from the IPO. The right holder can sell his/her shares at the same price as all
other parties whose shares are sold via an IPO. It
is in this sense that piggy-back rights constitute
a put option with the IPO price being the endogenous strike price. Thereby, the close similarities
between the piggy-back rights and the tag-along
rights which both constitute a put option with
endogenous strike prices become obvious. The
main difference lies in the exit channel, whereas
piggy-back rights become effective with an IPO,
tag-along rights refer to situation in which the
company is sold to a trade buyer.
Demand rights
Demand rights allow the right holder to force
other shareholders to agree to join the public offering. Thereby, denying other shareholders the
chance to prevent or threaten to prevent a valueincreasing IPO. Preventing shareholders that
threaten to block a value-increasing IPO reduces
ex-post bargaining power and therefore the ability to capture a larger share of the entire payoff.
This reduction in the bargaining power is also
present in the case of drag-along clauses. Both
rights are call options with endogenous strike
prices. The difference is, once again, the exit
channel; demand rights are associated with IPOs,
while the drag-along clause is directed towards
the trade sale.
It should be underlined that even if exit rights
ensure a certain degree of comfort to both majority and minority shareholders, in case of breach
of these clauses, their enforceability may only
be alleged before arbitration, if contractually
agreed, or court. In other words, if no mechanism is sought in order to compensate one party’s damages in case of breach of these clauses,
the non-breaching party should claim his/her
negative and/or positive damages by proving
(i) contractual breach, (ii) occurrence of damage
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and (iii) a causal link between the damage and
contractual breach. Therefore, until the arbitration court or national court renders its decision,
he/she may not be compensated for his/her damages. Apart from the damages, especially due to
contractual breaches by local shareholders and
breach of drag-along clauses by the local shareholders, investors cannot exit their portfolio and
evaluate a bona fide offer of a third party until
the final decision is awarded by the arbitration
or the court. In order to save time and create an
efficient solution to the exit of the investor, in
practice, there are certain mechanisms such as
payment of a penalty amount or appointment
of an escrow agent to keep the shares that will
be dragged or tagged by the investor. Penalty
clauses are regulated in a manner so as to enable
one party to request a certain penalty (generally
in daily basis) from the other party, when the latter breaches provisions of the agreement, starting
from the date of breach. These clauses are merely
sought for drag and tag along clauses as well as
put and call option rights and aim to force shareholders to comply with their obligations inserted
in the agreement in relation to procedural process such as sending the notifications or delivering the shares to a third party offeror. The second mechanism being appointment of an escrow
agent is not a mechanism usually come across,
however, the aim here is to enable the right holder to request (i) the other shareholder to deliver
its shares to the escrow agent (to be dragged or
tagged) and (ii) the escrow agent to deliver the
shares that he/she is required to keep when the
right holder requests the delivery. Therefore, the
escrow agent is a third party protecting ownership of shares in its possession under the terms
and conditions and until the time inserted in the
escrow agreement.
To sum up, it is obvious that the market
which is growing day by day is signalling investors to give more emphasis to insert exit rights in
the shareholders’ agreements in the most structured manner. Since certain exit rights as well as
mechanisms aiming to facilitate their enforceability are only dedicated to protect one party’s interest, they can create deal-breaks during the negotiation process. Therefore, it is crucial the right
advice is sought from the right lawyer to ensure
balance while inserting these clauses by taking
into consideration general common practice and
the party’s real interests in the transaction.
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Code of Obligations: Law
to Change the Country
Hazal KORKMAZ
T
he long-awaited amendments to modernise the old-fashioned Code of Obligations (“TCO”), which has been in force
since 22 April 1926, were enacted on 11
January 2011 with full cooperation of Turkish
Parliament. The new TCO, which will not be in
force until 1 July 2012, will introduce comprehensive changes to social life and redefine it from
tip to toe. Most of the provisions of the old TCO
are incorporated into the new TCO. However, we
are going to summarize some of the significant
amendments in this article.
1. Form of the Contracts
T
Parallel to modernization of the old TCO,
one of the most significant amendments made
to TCO that enables the parties to sign contracts
by electronic signature, upon enactment of these
amendments the “written form” requirement is
he new TCO, which will not be in
force until 1 July 2012, will introduce
comprehensive changes to social life
and redefine it from tip to toe.
compliant with the Electronic Signature Law no.
5070. As per the Articles 14 and 15 of the TCO,
texts sent/received via fax or other electronic devices shall meet the written form requirement
provided the contracting parties confirm and
sign the texts with electronic signature in compliance with the said law. Thus, the new TCO recognizes that electronic signatures are equivalent to
traditional handwritten signature while executing contracts in written forms.
2. General Transaction Conditions
The social and economic developments of our
day have created a requirement for mass-orient-
ed services and a new contract model, which contains pre-drafted and non-negotiable provisions,
have emerged. Such pre-determined standard
contract conditions and terms are called “general transaction conditions”. Articles 20-25 of
the new TCO regulate general transaction conditions which only gives the individual contracting
party the options “yes” or “no” against the predrafted, standardized text offered and drafted
for commercial contracts executed with banks,
insurance companies etc.
Article 20 of the new TCO has defined “general transaction conditions.” As per this article,
in order to be considered as general transaction
provision, one party shall (i) for the purposes of
using the same text and format in a great number of similar other contracts and (ii) unilaterally draft the agreement. However, it should
be mentioned that even though there are little
differences between the texts of the pre-drafted
agreements that do not change the characteristic
of the agreement, the criteria of being considered
general transaction conditions are met.
Further, pursuant to Article 21 of the new
TCO in case a general transaction provision had
been drafted to the detriment of the counter
party the party who drafts it (issuer party) shall
(i) explicitly inform the counter party regarding
this detrimental provision (ii) enable the counter
party to learn the content of the provision and the
counter party shall accept this condition. Otherwise, the general transaction provision is considered non-existent. In such cases, the agreement
will continue to be in effect.
3. Interest and Default Interest
The new TCO amended the provisions regarding calculation of contractual interest rate
and default interest rate on behalf of the debtor
and prevented the debtor from high interest rates.
One of the major changes regarding this subject
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is restricting the contractual and default interest
rates to be determined under the contract.
Accordingly, as per Article 87 of the new TCO
in case contracting parties do not specifically
determine interest rates under the contract, the
interest will be paid as per the applicable legislation. However, the contractual interest rate cannot be more that 50% of the interest rate determined by legislation. Further, as per the Article
119 of the TCO annual default interest rate cannot be more than 100% of the default interest rate
determined by the legislation. The provisions of
the Law on Legal Interest and Default Interest no.
3095 are taken into consideration.
4. Peril Liability
The new TCO introduced “peril liability” with
Article 70 according to which in case working
areas of a company are highly dangerous and
caused damage to someone, both owner and
the manager of the company will be held jointly
and severally liable. Therefore, people who are
controlling the activities of these types of companies can be held liable if they have acquired
necessary licenses. Furthermore, the criteria of
categorizing as highly dangerous working areas are
set forth under the second paragraph of the same
article according to which materials, equipments
or sources used in company’s activities are taken
into consideration.
5. Judge’s Discretion to Rule Monetary Interim
Relief
Article 73 of the TCO regulates that taking
into consideration the injured party’s financial situation the judge has discretion to decide
whether the defendant is required to make a temporary payment upon the injured party’s request
before stating its final verdict provided that the
injured party supports his/her allegations with
evidence and. It should be mentioned that this
payment would be deducted from the final compensation amount or in case the judge decides
against the injured party; the injured party may
be required to repay the said amount with legal
interest. With this article, lawmakers intend to
protect the injured party who needs immediate
financial support.
6. Excessive Distress of Performance
Article 137 of the TCO titled “excessive distress
of performance” enables the debtor to terminate
the contract or negotiate alternative contractual
terms in the event that circumstances specified
under the contract creates an unreasonable or
disproportionate burden or obstacle. Excessive
distress of performance may exist (i) in circum-
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stances which will not be incurred by the debtor
(ii) performance of the debtor has become excessively burdensome due to an event which could
not reasonably have been expected to have taken
into account and (iii) and the debtor has not yet
performed his obligation or has performed his
obligation by reserving and retaining his rights
of claim arising out of the excessive distress of
performance.
7. Registration of Pre-emption and
Repurchase Rights in Land Registry
Article 237 of the new TCO provides that
the rights of pre-emption and repurchase may
be agreed upon by and between the sides for a
maximum period of twenty-five years, and the
right of purchase may be agreed upon by and
between the parties for a maximum period of
ten years, and may be registered in land registry
only for the periods envisaged in the applicable
laws. Moreover, as per the new TCO, the rights
of pre-emption, purchase and repurchase cannot
be transferred and assigned, but can be inherited.
8. Lease Contracts
Integration of the provisions of Law on Lease
of Real Estate (“Law no. 6570”) with the old provisions regarding lease the old provisions of the
TCO to the new TCO had radically changed the
lease of real estate. Thus, Law no. 6570 will be
revoked and the new TCO will be applied.
Similar to Law no. 6570, the new TCO is also
in compliance with the protection of the lessee principle against to the financially strong lessor. Accordingly, pursuant to the Article 301 of the new
TCO unless otherwise agreed, compulsory expenses like insurance, tax, etc. will be paid by the
lessor. Further, according to Article 302 the lessor will pay expenses regarding use of the leased
property.
Furthermore, pursuant to the new TCO, provisions pertaining to the securities given to the
lessor are stipulated. According to Article 341
for the residence and workplace leases, security amount cannot exceed the rental fees corresponding to 3 months.
Article 343 provides that, the increase in rental fees cannot be more than the producer index
rate of the previous year. In addition to this, in
the case parties did not determine any adjustment clauses, the judge may rule an appropriate increase rate provided that this rate shall not
exceed producer index rate of the previous year.
Additionally, in case the rental fees are determined as foreign currency, the rental fees may
not be adjusted for five years.
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According to Article 345, the lessee shall not
undertake to pay any amount except the rental
fees and subsidiary expenses. In this context, the
penalty clauses will be considered non-effective.
Pursuant to Law no. 6570, the lessor may terminate the lease contract for its spouse’s or children’s residence or workplace needs, however
the new TCO extends the provisions enabling
the lessor’s grandchildren and great grandchildren’s needs may enable the lessor to terminate
the lease contract.
9. Guarantee Agreements
The new TCO aggravated the form requirements of the guarantee contracts. Accordingly,
according to Article 538, guarantee will not be
effective if (i) execution of the agreement is not
in compliance with the requirements of the written form and (ii) the guarantor does not stipulate
the guarantee amount and the guarantee date
with its own handwriting. The amendments that
increase the burden of the guarantor shall comply the said requirements. Additionally, pursuant to Article 584, in order to execute a guarantee
contract as a guarantor, a married person needs
a clear and explicit consent of his/her spouse unless they are legally separated. The spouse may
give his/her consent on the execution date at the
latest however the spouse’s consent is not required for amendments that increase the burden
of the guarantor.
Most importantly, as per Article 598, starting from the execution date of the agreement the
guarantee given by a real person will be automatically revoked at the end of ten years.
The abovementioned requirements will be
applied to all contracts regarding personal securities whether they are titled guarantee agreements or not.
Banks in Alert: New Musts for
Brand New Protection beyond
Swiss Law – Contracts of Surety
by New Code of Obligations
Dilek ÇOLAKEL
T
he new Turkish Code of Obligations
(the “New Code”) has been agreed by
the Turkish Parliament to be in effect
as of 1 July 2012 annulling the current
Turkish Code of Obligations (the “TCO”) and
has been published on the Official Gazette dated
4 February 2011. Welcoming the New Code, legal form standards, standardized terms of contracts, sales contracts, and lease contracts, default
interest and finally contracts of surety are areas
requiring a broad review in order to be ready for
first day of July 2012.
By way of definition, a contract of surety is a
unilateral contract that the surety undertakes liability of the original debtor. A contract of surety
can be validly formed without the participation
of the debtor provided that terms of surety are
agreed upon by the surety and the creditor. The
general principle of Turkish law practice adopts
the approach that formation requirements are
basic condition of validity if they are envisaged
in a mandatory manner. The New Code orders
further form standards mainly aiming to provide an equal protection for both parties of a
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contract, specifically for the contracts of surety
as prescribed below. The validity requirements
for a contract of surety set out under the TCO are
solely (i) to be in written form and (ii) to have the
maximum amount of liability stated in the contract. These requirements have been enhanced
in New Code which has been based on articles
492- 494 of Swiss Code of Obligations, namely,
the date of the contracts of surety must be indicated as a term of the contract in addition to the
amount of surety. Considering the general approach of banks and financial institutions incorporated in Turkey tend not to specify the date,
such renovation will require changing their previous practices.
is an individual, it is subject to the form requirement of a notarised public deed (The role of the
notary public is to ensure that the guarantor understands the scope of its guarantee undertaking) under
the Swiss system. A surety that does not comply
with this form requirement is null and void. By
contrast, validity of a contract of guarantee is not
subject to any specific form requirement as per
Swiss practice. At this point, it is crucial to note
that the Turkish legislator avoided applying this
freedom in regard to formation requirements
with respect to the contracts of guarantee. This
avoidance aimed to prevent the non-application
of the protection of sureties stipulated for the
contract of surety.
The New Code also forces surety to put pen to
paper stating (i) maximum amount of liability, (ii)
date of the surety and/or (iii) any expression intending to refer the meaning of joint surety. These
insertions performed by the surety represent a
“real” test whether the surety is aware of the basic
items of the suretyship he is entering into.
In regard to the term of contracts of surety,
the New Code limits the validity term to 10 years
as of their date of execution. This limitation
comes from the understanding that no surety
should be titled as liable under the amount of
surety for an indefinite period. In other words, a
contract of surety will be terminated per se, without the necessity of taking any action by parties
to the contract. The term of a contract of surety
may be extended for another period of 10 years
provided that the form standards for the execution are exactly applied for such extension. In every account, the extension of the contract must
be realized one year before the termination date
provided by the New Code.
ooking ahead to the New Code,
banks and financial institutions
will be required to perform a good
job in order to save the effect of the
contracts of sureties as of 1 July 2012.
Another reformist climax favouring protection of sureties is the compliance with new form
standards while amending a contract of surety. This departure also aspires to prevent any
amendments to be made without ensuring the
awareness of the surety.
The last but not least important condition to
form a contract of surety is if one of the spouses
intends to enter into a contract of surety in the
role of a guarantor, the prior written consent of
his or her spouse is required, regardless of the
guaranteed amount (based on Art. 494 Swiss
Code of Obligations). This provision only applies
if the spouses are not legally separated.
Although adopting all general principles for
contracts of surety under the Swiss Code Obligations, the comfort provided for contracts of guarantee under Swiss Law is not provided by the
New Code. The distinction between both types
of personal guarantee has given rise to abundant
case law from Swiss Federal Tribunal. Similar to
the New Code, if the guarantor under a surety
At a glance of new limitations regarding formation, amendment and term of the contracts of
surety, we see that Turkish Parliament pushes
a more strict approach towards the New Code.
This approach favours a balance between real
person sureties and banks or financial institutions that are not equally powered by means of
economical, educational, and occasional terms.
Looking ahead to the New Code, banks and
financial institutions will be required to perform a good job in order to save the effect of the
contracts of sureties as of 1 July 2012. The announced version of the Draft Law on the Enforcement and Implementation of the Turkish Code of
Obligations in the agenda of the Parliament rules
the implementation of provisions stipulated for
contracts of surety for contracts executed before
1 July 2012 excluding the legal tests questioning
their binding character, default penalty and termination. These implementation rulings, explicitly determines the necessary actions to be taken
by banks for the continuity of contracts of surety
in order to refrain from any crisis endangering
validity of contracts of surety.
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Termination of Exclusive
Distributorship Agreements
Merve ÇIKRIKÇIOĞLU
T
he increase of foreign products and
services in the Turkish market as part
of the globalization process has led to
notable growth in the number of agency
and distributorship relations with foreign companies. However, within the last decade, foreign
investors have started to sell their products and
services directly, rather than through a distributor or an intermediary. Consequently, terminations of agency and distributorship agreements
along with the compensation claims arising from
such have become frequent and thus draw significant attention.
Despite their common use in commercial life,
distributorship agreements are not specifically
stipulated under the Turkish Commercial Code
(“TCC”). Therefore, the provisions regarding
agency agreements under the TCC and the general provisions of sale contacts provided in the
Turkish Code of Obligations (“TCO”) are applied to certain aspects of distributorship agreements and relations by way of analogy.
When the provisions regarding agents and
agency agreements in the TCC are reviewed, it
is noted that the TCC defines an “agent” as “a
person who, without the titles of representative, trade
agent, sales officer or employee, is contracted to negotiate or enter into contracts on behalf of a commercial
enterprise in a specific place or region.” Nonetheless, considering the aforesaid definition, there
is a significant difference between an agency and
a distributorship agreement: A distributor purchases, imports and undertakes the risk of the
product subject to sale, whereas an agent only
acts as the intermediary in the name of and on
behalf of her/her principal.
Turkish scholars generally accept that distributorship agreements are of a sui generis nature,
and since the legislation lacks specific statutory
provisions in this regard it is believed that they
are mostly governed by general principles applicable to similar types of contracts, such as “agency” and “sale-purchase” contracts.
One other difference between distributorship
agreements and agency agreements is that agency agreements may be executed for definite or indefinite periods. An agency agreement having a
definite term will automatically terminate on the
expiry date, unless otherwise is specifically provided in the agreement. On the other hand, if the
agency agreement is executed for an indefinite
period, either party may terminate the agreement
at any time by providing three months notice to
the other party.
Unlike agency agreements, exclusive distributorship agreements are often executed for
indefinite periods. Such agreements may involve
a specific termination procedure. In cases where
there is no article in the agreement regulating the
termination thereof, the court will apply the principles of fairness and equity.
As mentioned above, the parties are entitled
to terminate agreements at any time. However,
the important point in the event of such termination is the manner in which the parties terminate
the agreement. Distribution agreements are of a
sui generis nature thus notice periods may differ
depending on the merits of each case. The abovementioned three months notice period may fall
short considering the distributor’s contribution
to the principal’s business, as well as the duration of the commercial relationship and volume
of business.
Continuing on the termination of contracts in
general; Turkish legislation divides the legal action of termination in two sub-types, one being
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termination with just cause whereas the other is
without just cause. This distinction is made in order to determine whether the terminating party
has a just cause under law to terminate the agreement, or has no just cause enabling the other
party to claim for damages. The general principle
adopted in connection with the termination of
exclusive distributorship agreements is that these
contracts can be terminated with or without just
cause, subject to the provisions of the TCC. The
court has the discretion to determine the nature
of the cause. Under Article 20/3 of the TCC, in
all commercial agreements, termination notices
must be made in writing and sent via registered
mail, notary public or telegram. Moreover, if
the termination is based on just cause, the cause
should be explicitly indicated in the termination
notice. Upon such notice, the parties may terminate the agreement with immediate effect. This
is a basic procedure that companies acting without legal counsel commonly tend to neglect. Neglecting this statutory formality invalidates the
termination, thereby leads to potentially higher
compensation payable to the agent or distributor.
Upon the termination of a distributorship
agreement, the distributor may seek certain types
of remedies. The most common type of damages
claimed in such cases is “portfolio/goodwill compensation”. The Court of Appeals has developed
a case law approach in relation to portfolio compensation claimed following the termination of
exclusive distributorship agreements. Accordingly, the distributor is entitled for damages provided that the following requirements are met:
(i)The supplier must have substantial benefits after termination, from the new customers
gained by the distributor for the supplier during
the term of the agreement.
(ii)The distributor must suffer certain losses, i.e.
deprivation of profit which would have been received from the new customers.
(iii)The fairness principle. This principle plays a
significant role on determining whether the distributor is entitled to damages. The calculation
of such indemnity is also affected by the fairness
and equity of surrounding circumstances. In line
with this rule, the maximum indemnity payable
is the average yearly profit gained by the distributor over the past five years.
(iv)The claim shall be asserted no later than one
year after termination. It may be asserted verbally or in writing, as there are no format requisites.
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It has to be kept in mind that the payment
of the aforesaid compensation does not obstruct
the distributor from claiming damages based on
other causes of action. Therefore, the distributor may claim compensation for non-pecuniary
damages upon termination of the agreement. The
legal grounds for this type of compensation are
described in the general provisions of the TCO.
A common example in this regard would be the
damages for the distributor’s business reputation. Some distributors claim that their commercial reputation is destroyed following the termination of their agreements. There is no method
set forth under the Turkish law to determine the
amount of this type of compensation. Therefore,
the court evaluates the damages on a case-bycase basis, based on the nature of each relationship. However, as a general rule, the compensation granted for the damages must not exceed the
incurred losses.
The approach developed by the Turkish
Court of Appeal with respect to the portfolio
indemnification is in favour of the exclusive distributor. By protecting the distributor, the Court
of Appeal entitles the distributor to portfolio indemnification based on the rule of fairness. The
amount for the portfolio compensation in this
respect may not exceed the distributor’s average
earning for the last five years. In doing so, the
Turkish Court of Appeal has paved the way for
portfolio indemnification following the termination of exclusive distributorship agreements under Turkish Law.
As mentioned above, nowadays foreign investors prefer to sell their products directly,
without using an intermediary or distributor. Accordingly, they tend to terminate the distributorship agreements previously executed with certain distributors in order to eliminate them and
take over their businesses. As a result of such
terminations, the distributors’ claims for damages lead to a complicated process. Recent practises have shown that agreeing on a method in
advance which regulates the termination and the
following procedures accelerate the termination
procedure and reduce the costs the parties may
suffer. In light of the foregoing, it appears that
negotiating the termination and the subsequent
process in advance, rather than taking legal action after the termination, may be more favourable for both parties.
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The Importance of
International Factoring in
International Trade and
Applicable Law
Berat HAMZAOĞLU
I
Introduction
F
nternational factoring which may be defined
as the sale or assignment of short-term receivables arising from an international sale of
goods or supply of services, is utilized to finance the exchange of goods or services between
buyers and sellers in the international market. In
many cases, the seller (“Client” or “Supplier”)
will assume the foremost economic risk of the
sales transaction as the buyer of goods or services
(“Debtor”) may be unable to make the payment.
At this point, the financial institutions (“Factoring Company”) can remove this risk for the seller
with factoring and enable international commercial
transactions to operate on a credit basis, making
irst of all it eliminates the buyer’s
financial burden of premature
payment, as well as the seller’s risk of
non-payment.
international trade an attractive alternative to domestic sales. With this piece of work, international
factoring will be discussed briefly after pointing out
the history of factoring in Turkey while making references to relevant legislation.
Factoring in Turkey
The term Factoring has been used in Turkey
for the first time in the Statutory Decree regarding Loan Transactions in 1983. Despite factoring
being a new financing model, it has developed
rapidly and has recently become an irreplaceable
instrument in Turkey’s finance market. At the
moment, 75% of factoring in Turkey consists of
domestic factoring where the rest consist of ex-
port and import factoring, meaning international
factoring. Factoring transactions in our country
are governed by the Turkish Commercial Code,
Law of Obligations, Banking Law and Protection of the Value of Turkish Currency Law. To
develop international factoring in our country,
the most significant requirement is to become a
party to the International Institute for the Unification of Private International Law (“Unidroit”)
Convention on International Factoring (“Convention”) and thus overcome lack of regulation
in domestic law and the conflict of laws problem.
How does International Factoring Work?
In a factoring transaction, the Factoring Company serves the Client through providing advance payment, investigating the Debtor’s credit,
collecting the debt, and maintaining the Client’s
receivable ledgers. A written factoring agreement
between the Client and the Factoring Company
defines the terms and scope of these services and
traditionally includes the following: (1) the nature of the book debt assigned; (2) duration and
termination provisions; (3) financial arrangements; and (4) a description of the administrative
functions assumed by the Factoring Company r.
International factoring can finance the export
of goods or services from a Supplier to a buyer
when their places of business are in different
countries. Factoring is also internationalized
when a Supplier sells or assigns his or her accounts receivable to a factoring company in his or
her own country (“Export Factoring Company”),
who then assigns the accounts to a Factoring
Company in the debtor’s country (“Import Factoring Company”). Under this type of financing,
the Debtor is notified of the assignment and is
obligated to pay the Import Factoring Company.
Since the Import Factoring Company in a non-
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recourse arrangement assumes the credit risk of
the debtor’s non-payment, he or she assumes the
administrative duties associated with the evaluation of the Debtor’s credit standing and the collection of the outstanding debt. In international
transactions, these services are invaluable to Suppliers, who are frequently ignorant of the foreign
law and language of the Debtor’s country and
who do not want to assume the risk of the purchaser’s financial inability to pay at maturity or
risks associated with the political and economic
stability of the Debtor’s country.
Why Choose International Factoring?
T
The benefits of international factoring can
be easily demonstrated when it is compared to
transactions using a letter of credit. Traditionally,
a letter of credit is the method by which most international commercial transactions are financed.
A letter of credit is issued by the buyer’s bank
(in the buyer’s country), containing its promise
to make payment to the seller if the seller submits specified documentation. Despite being
hus, the endorsement of this sector
has been 100 million dollars in 1990
and has increased to 5.9 billion
dollars in 2000.
commonly used, its cumbersome functioning, especially in respect of the buyer cannot be denied.
To start with, although the seller indemnifies
the bank against the risk of currency fluctuation
during the extended period between the opening of the letter of credit and the receipt of goods
by the buyer, the buyer’s capital, which is held
by the bank in its own or a restricted account, is
unusable. Moreover, if the buyer obtains a loan
to open the letter of credit, the buyer is required
to make interest payments on the loan prior to
receipt of the goods. These financial burdens
make it more advantageous for buyers to purchase goods and services domestically whenever
available. Many sellers cannot compete in foreign
markets because they are unable to offer attractive financing options.
By contrast, there are many benefits to recourse to international factoring for international
sales both in respect of the seller and the buyer.
First of all it eliminates the buyer’s financial burden of premature payment, as well as the seller’s
risk of non-payment. This increases sales in the
foreign market, accelerates cash flow and expands purchasing power. Besides this, compared
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to aggregate charges of a letter of credit, international factoring has lower costs and its orders can
be placed swiftly without increasing delay.
Legal Regime of International Factoring
In respect of the Factoring Company , the fact
that there is an absence of uniform international
law and lack of regulations in domestic law that
govern the validity of assignment and the rights
of the assignee make the international arena a
risky place for Factoring Companies to conduct business. As an answer to these questions,
Unidroit published the International Factoring
Convention on 28 May 1998. As of today 7 states
have ratified the Convention: France, Germany,
Hungary, Italy, Latvia, Nigeria and Ukraine. In
the preamble, the significant role of international
factoring in international trade has been emphasised. Accordingly, the purpose of the Convention has been set forth as “recognising the importance of adopting uniform rules to provide a
legal framework that will facilitate international
factoring, while maintaining a fair balance of interests between the different parties involved in
factoring transactions.” The Convention’s provisions concerning the legal relationships between
the Client and the Import and Export Factoring
Companies have the potential to greatly advance
the unification of private international law.
Conclusion
Today, one of the greatest problems faced by
exporters is whether the payment will be made
on time or whether the payment will be made at
all. The increasing insistence by importers that
trade be conducted on open account terms and
exporter’s concern about the payment is one of the
most significant obstacles that hinder growth of
international trade. In this respect, it is very important to critical to increase the use of international
factoring. In Turkey, banks have been providing
factoring service since 1988. Especially with the
establishment of private Factoring Companies, recourse to factoring institution has spread in a very
short period of time. Thus, the endorsement of this
sector has been 100 million dollars in 1990 and has
increased to 5.9 billion dollars in 2000. The most
important factor for this rapid growth may be
explained by Turkey’s convenient economic and
commercial environment. The fact that Turkey’s
economy is mainly based on export and that the
majority of these transactions are able to be paid
by factoring, along with the fact that the international trade is now grounding on an open account
system and the decrease in payment with letter of
credit, the need for factoring continues to rise.
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A Sensational Investment:
Use Permits Granted by
the National Estate
Mine ALTEN
E
ntrepreneurs willing to invest in tourism, cultural activities, energy or operations within the forests such as defense,
transportation, energy, telecommunication, sewage, petroleum, substructure, sanitarium, dams or cemeteries now have an opportunity to build their chosen investment on areas
that are under the order and possession of the
State. This investment opportunity is available to
investors under Use Permits granted by the General Directorate of National Estate (the “National
Estate”), which is under control of the Ministry
of Finance.
T
his sensational investment
opportunity is not to be missed. The
procedure for obtaining a Use Permit
is quite simple and the area on which
the investment is established is a
piece of land that cannot be acquired
or be encumbered by anyone,
including even the State.
Use Permits are granted for a period of up to
49 years for areas under the order and possession
of the State. There is no restriction on the type of
investment, however, some investment types are
subject to additional specific rules in order to be
granted Use Permits. The investment types that
require certain additional procedural steps to be
taken are tourism, shore, build-operate-transfer,
natural gas, energy, organized animal breeding,
technologic and geothermal greenhouse cultivation and organic agriculture investments. Since
areas that are under the order and possession of
the State are not considered land, their registra-
tion to the title deed is not possible and therefore
no title deed transactions such as the sale or the
establishment of rights in rem can be established
on these areas. Nevertheless, investment on such
areas is still possible if entrepreneurs obtain Use
Permits from the National Estate by completing
the necessary procedural formalities and entering Use Permit Agreements.
How Use Permits are Obtained
The National Estate grants entrepreneurs Use
Permits by negotiated tendering, which is a simplified means of tendering. A natural person or
a legal entity may request the Natural Estate to
grant a Use Permit. Upon such requests, the National Estate makes a determination of the value of
the area and whether the requested area is suitable
for such investment. Use Permit specifications are
prepared and the tender notice is announced.
Some entrepreneurs are granted Use Permits directly without the need of a tender notice, these
include (i) investors that will make an investment
pursuant to their license granted by the Energy
Market Regulatory Authority, (ii) institutions
within the scope of privatization, entrepreneurs
who undertake to invest at least the minimum
amounts and to provide employment to at least
minimum number of people determined by the
laws for 10 years investing in organized animal
breeding, the technological or geothermal greenhouse cultivation and organic agriculture and in
the shores , (iii) entrepreneurs that request a Use
Permit for a shore investment, already benefiting
from ownership rights, rights in rem or a Use Permit on an area where the common utilization of
both areas is compulsory and their projects are in
plenitude, and (iv) certain institutions, donations,
corporations and professional organizations determined by relevant laws.
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Upon approval of the tender by the Ministry
of Finance, the investor shall convert the temporary guarantee to a performance guarantee, sign
a Use Permit Agreement and submit the notarized copy to the National Estate within 15 days
of the notification of the approval of the tender.
The Use Permit Agreement is a standard form annexed to the relevant laws.
Prior Permit
Under certain circumstances, a Prior Permit
is required to be granted to the investors who
already possess a Use Permit. A Prior Permit is
required in cases where the actual utilization of
the area is not possible due to the preparation or
amendment of the construction plans, preparation or approval of the application projects, or obtaining necessary licenses and permits from the
relevant public bodies. A Prior Permit’s validity
cannot exceed 4 years and in order to be granted
a Prior Permit a Prior Permit Agreement is concluded which is drafted in consideration of the
tender price. If the investor satisfies all of its obligations under the Prior Permit Agreement the
Use Permit Agreement is concluded for a term of
49 years at most.
Transfer of Use Permits
The transfer and assignment of a Use Permit
is possible, however, the investor should obtain
the approval of the National Estate before the
transfer. If the investor holding the Use Permit
is a legal entity, any transactions that lead to
the transfer of 50% or more of its shares shall be
considered as transfer of the Use Permit by the
National Estate and therefore require the same
approval. The National Estate requires the below
conditions to be satisfied before consenting to the
transfer of a Use Permit:
1. Payment of debts owed by the investor to the
National Estate including the accrued default
interest
2. Breaches of the investor under the Use Permit
Agreement should be remedied within the
time period granted by the National Estate
3. The investor should waive any lawsuits initiated against the National Estate arising from
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any disputes regarding the Use Permit and
pay for all of the litigation expenses, and
4. The transferee should accept the new conditions of the Use Permit Agreement, which is
in most cases the consideration of the Use
Permit.
The Use Permit Agreement is transferred
upon determination of the new price by the National Estate considering the going rates of the
Use Permit prices in neighboring areas and the
transferred agreement shall be valid for the remaining term.
Investors should be careful while benefiting
from the Use Permit. When an application is filed
for the transfer of the Use Permit Agreement, the
National Estate takes into consideration trivial
distinctions in determining breach of the Use
Permit Agreement. For instance, if the investor
makes any additions such as fill areas to a shore
investment or a different use of the investment
area which is not in compliance with the plans attached to the Use Permit Agreement and the National Estate determines such incompliance, this
could result in cancellation of the Use Permit. In
such cases (i) the date of 19.07.2003 and (ii) the
consistency of the added area with the original
plan are crucial. The incompliant amendment
should be consistent with the original plan in
order the use permit to cover this amendment.
However, if the incompliant amendment is made
after 19.07.2003, it will not be added to the plan
even though it is consistent with the original
plan. This can even result in the termination of
the Use Permit Agreement by the National Estate. If investors act in conformity with their Use
Permit Agreements, they will not face the risk of
termination of the agreements.
This sort of investment offers a very profitable business opportunity to entrepreneurs if it is
well-operated. Therefore, this sensational investment opportunity is not to be missed. The procedure for obtaining a Use Permit is quite simple
and the area on which the investment is established is a piece of land that cannot be acquired
or be encumbered by anyone, including even the
State.
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Latest Dilemma of Private
Healthcare Sector: Are
Amendments to Private
Hospitals Regulation
“Malpractice”?
Hazal KORKMAZ
“It is health that is real wealth and not pieces of
gold and silver.”
G
andhi once said. Turkish citizens
should also have great faith in this
quote since lawmakers in Turkey entitle private hospitals to implement
additional charges of up to 70% and the number
of private hospitals in Turkey has increased approximately 80 % to 458 in last two years and is
anticipated to rise to 475 in 2011. Accordingly,,
Ministry of Health (“MoH”) has already started
rejecting new applications for operation licenses
in Istanbul because of private hospital boom in
T
he crucial point for all service
providers and lawmakers should be
regulating private healthcare services
and maintaining the best conditions
for patients.
Istanbul. According to recent data provided by
the MoH, 1 out of 3 private hospitals is located
in Istanbul.
Furthermore, given the extent of the past
and future expansion of the private healthcare
sector in Turkey, competition is inevitable. The
increasing popularity of encouraging competition among healthcare service providers raises
important questions about how these issues
can or should addressed by lawmakers. Consequently, changes in the structure of Turkey’s
private healthcare sector have forced lawmakers
to look for ways to become more productive and
cost effective. On 23 September 2010, lawmakers implemented comprehensive amendments to
the Private Hospitals Regulation (“PHR”) with
regard to subjects including but not limited to
hospital cadre, working conditions of doctors,
pharmacy obligations, outsourcing laboratory
health services and on 14 January 2011 further
amendments regarding issues such as transfer
of hospital cadre to another district, expansion of
permitted cadre, issues for increasing the quality
of healthcare, expiry date of preliminary permit
were introduced.
However, considering the increasing needs
of healthcare service providers and the patients
these amendments have raised eyebrows. Many
people working for the private healthcare sector
argued against these amendments stating that
working conditions of staff and the quality of the
services are deteriorated. Thus, on 23 September 2010 the Turkish Medical Association (Türk
Tabipler Birliği) (“TMA”) filed for annulment of
certain amendments, such amendments and arguments of the TMA are elaborated below:
●● Pursuant to the amendment stipulated under
Article 6 of the PHR, instead of determining
objective criteria “cadres of the private hospitals will be appointed by the MoH”. This
amendment is considered illegal since it is
inconsistent with both the Law of Health Services (Sağlık Hizmetleri Temel Kanunu) (“Law
no. 3359”) and security principle of law (hukuki
güvenlik ilkesi) which means that lawmakers
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should respect the public’s dependence on
existing laws.
●● Furthermore, upon enacting the article “Private Hospitals may start and continue their operations for two years with at least half of their
appointed clinician specialist cadres.” The PHR
enables private hospitals to operate without
completion of their cadre, which will evidently negatively affect the quality of services and
patient care.
●● The PHR allows private hospitals to transfer their doctor cadres or exchange medical
branch departments to another private hospital or medical centre located in the same
district. A private hospital may be permitted to take over extra cadre of up to 10% of
one third of the total number of beds. Cadre
transfers to medical facilities to other districts may be implemented upon affirmative
opinion of the Planning and Employment
Commission (Planlama ve İstihdam Komisyonu) and approval of the MoH. Furthermore, according to a recent amendment
dated 14 January 2011 in case a private hospital wants to transfer its doctor cadres or
exchange medical branch departments to another private hospital or medical centre located in another district, this request will be
evaluated by the Planning and Employment
Commission and will be implemented upon
MoH’s approval. Implementing this system
will constitute release of the MoH’s exercise
power with regard to cadres to private hospitals, and consequently this change of exercise power will harm permanency of health
services and worsen the employee rights of
the relevant cadres subject to transfer or exchange within the same district.
●● The PHR amended the procedure regarding
leave and recruitment of doctors, according
to which registration certificate of the TMA
is not required, this certificate is mandatory
for recruitment of doctors pursuant to Law
of Turkish Medical Association (Türk Tabipler
Birliği Kanunu) and relevant rulings of Council of State. Therefore, non-requirement of
this TMA certificate constitutes inconsistency.
●● As per PHR, in cases that the number laboratory specialists are inadequate for the relevant
district, together with the affirmative opinion
of Planning and Employment Commission
outsourcing laboratory services from other
licensed laboratories is permitted. However,
TMA argued that this provision is contradicting; (i) Law of Hospitals (Hususi Hastaneler
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Kanunu), (ii) nature of the healthcare services,
(iii) the purpose of the regulation of PHR, (iv)
patients’ rights and (v) relevant court decisions contradicting this amendment. On the
other hand, bearing this in mind, in practice,
private hospitals are commonly outsourcing
the laboratory services from licensed laboratories and because of the common practice of
MoH, these activities of them were not subject to any fines during both MoH and Social
Security Institution (Sosyal Güvenlik Kurumu)
(“SSI”) inspections.
●● Pursuant to the PHR, “Payment of consultancy
services is required to be paid to the service provider institution.” However, the TMA argues
that consultant doctors are entitled to receive
payment of consultancy services.
●● On 23 September 2010 an amendment was
introduced which decreased the minimum
required number of nurses or other medical
staff. Accordingly, before the amendment,
the minimum required number of nurses or
other medical was one fifth of total number
of beds and as a result of the amendment has
decreased to one seventh of total number of
beds. Evidently, the minimum required number of nurses or other medical staff had been
deteriorated with the amendment of PHR.
Furthermore, it is noteworthy to mention
that according to previous court decisions the
minimum required number of staff needs to
be determined on the basis of the number of beds.
However, the PHR established a fixed number of all specialists and especially anesthesiology and reanimation specialists.
●● Before the amendment, gynecology and obstetrics specialists were required to be educated about neonatal resuscitation (actions
taken to establish normal breathing, heart rate and
response in an infant with abnormal vital signs
within 20-30 seconds of birth) however, this criterion has been removed. The TMA argues
that this education is crucial for patients’
care and removal of these criteria will harm
healthcare services and the relevant article
should be annulled.
In line with the foregoing, whether arguments
of the TMA will heard and the above-mentioned
articles will be annulled or not, expansion of the
private healthcare sector shows us each day that
more people are seeking treatment at private
hospitals; therefore, the crucial point for all service providers and lawmakers should be regulating private healthcare services and maintaining
the best conditions for patients.
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A New Era in Media
Burçak ÜNSAL
T
Introduction
urkey is striving to grow even faster
than the last decade which made it the
world’s 15th largest GDP-PPP and 17th
largest nominal GDP economy. Among
the many dynamic industries of Turkey, broadcasting draws “special” attention due to the fact
that foreign investment has not really had the
chance to step in.
Radio broadcasting started in Turkey in 1927,
with a private company owned by the state. In
1964 Turkish Radio and Television Corporation
(“TRT”) was established for TV broadcasting
and TRT had a monopoly in radio and TV broadcasting until 1994.
T
he Law on Establishment of Radio
and Television Enterprises and their
Broadcast Services numbered 6112,
which significantly encourages
foreign investment, has been enacted
on 15 February 2011 (the “New
Law”) and entered into force on 3
March 2011.
Currently there are around 24 national, 16 regional and 215 local television stations; and there
are around 1100 radio channels, 100 of them on
cable.
According to a TV viewing survey conducted
by the Radio and Television Supreme Council
(“RTÜK”), average daily TV viewing time per
person is 5.09 hours on weekdays and 5.15 hours
on the weekend.
Legal Infrastructure
Until very recently, the main piece of broadcasting legislation was the “Law on Establishment of Radio and Television Enterprises and
their Broadcasts” numbered 3984 (the “Law”), as
amended from time to time.
However, since the Law fails to address the
requirements of the developing technology and
global capital movement in the broadcasting
world, the Law on Establishment of Radio and
Television Enterprises and their Broadcast Services numbered 6112, which significantly encourages foreign investment, has been enacted on 15
February 2011 (the “New Law”) and entered into
force on 3 March 2011.
RTÜK is the autonomous body that regulates
and monitors radio and TV broadcasts, as well
as granting licenses for such broadcasts. RTÜK
has issued various secondary legislation within
the framework of the Law among which the Administrative and Financial Conditions Regulation for Private Radio and Television Enterprises*
(the “Administrative and Financial Conditions
Regulation”), the Regulation on Broadcasting
Licenses and Permits, the Radio and Television
Corporations Channel Allotment Conditions and
the Relevant Tender Methods** (the “License Regulation”), the Regulation on Satellite Broadcasting Licenses and Permits*** (the “Satellite Regulation”), and the Regulation on Cable Broadcasting
License and Permit**** (the “Cable Regulation”)
can be named as the most important legislation
in terms of foreign ownership and licensing matters.
The Law prohibits political parties, associations, labor unions, cooperatives, foundations,
local governments and companies established or
partially owned by local governments, unions,
and organizations and enterprises dealing with
* Announced in the Official Gazette dated 16 March
1995 and numbered 22229.
** Announced in the Official Gazette dated 10 March
1995 and numbered 22223.
*** Announced in the Official Gazette dated 10 November 2004 and numbered 26669.
**** Announced in the Official Gazette dated 28 March
2002 and numbered 24709.
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investment, import, export, marketing, and financial affairs to establish or hold shares in radio
and television enterprises.
Private radio and television corporations
should be established as joint stock companies
(anonim şirket) and the shares of such companies
should be issued in the form of registered shares.
A single joint stock company may establish only
one radio and one television enterprise. RTÜK
is entitled to have one representative present at
general assembly meetings held by broadcasting
companies.
Licensing
Based on the technology used and the targeted geographical scope, currently there are five
types of licenses by virtue of which an entity can
carry out TV broadcasting: a) regional terrestrial,
b) national terrestrial, c) satellite, d) cable and e)
Internet Protocol TV (IPTV).
Companies granted a national broadcasting
permit must geographically reach at least 70% of
Turkey and broadcast at least 80 hours per week.
With respect to the terrestrial broadcasting
right, although it is generally referred to as “license”, actually this term it is used incorrectly
due to the fact that to date RTÜK has never granted any license to any entity.
Although the national terrestrial broadcast
by private companies started at the beginning of
the 90’s, RTÜK has never granted national or regional terrestrial broadcast licenses to companies
which have applied for it.
Instead, based on the legal ground provided
by Provisional Article 6 of the Law, RTÜK treated
such applications which were filed before 1995,
as a “license” and granted the “right” to such
companies to continue their broadcast services.
RTÜK is projecting to launch tenders to award
national terrestrial broadcast licenses within a
maximum of two years after the enactment of the
Draft Law. Since, Provisional Article 6 of the Law
stipulates that national terrestrial broadcast right
of relevant companies is not a “vested right”, the
companies enjoying this right today will not be
able to continue to do so in near future unless
they prevail in the tenders.
Pursuant to the Cable Regulation, a Cable
Broadcaster is required to obtain a cable broadcasting license (valid for 5 years from issuance)
and broadcast permit (valid during the term of
the cable broadcasting license) from RTÜK. A
company may be granted a cable broadcasting
license for a single city or multiple cities.
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In Annex A-10 of the Regulation on Authorization of Telecommunications Services and Infrastructure*, the cable platform service is defined
as “a telecommunications service covering the transmission of any kind of data and voice, image, coded/
uncoded (şifreli/şifresiz) radio/TV signals to the subscribers and establishment and operation of any infrastructure of the said network.”
Pursuant to the said annex, corporations intending to perform cable platform services are required to obtain a 2nd Type Telecommunications
License from the ITC Authority. The term of authorization is 20 years from the date of issuance.
Following the submission of a cable platform operator certificate obtained from the ITC to RTÜK,
RTÜK grants a certificate evidencing that the
cable TV platform operator is entitled to transmit
radio and television programs. Accordingly, a
cable TV platform operator shall be subject to the
provisions of both the Authorization Regulation
and Cable Regulation.
The Law and Satellite Regulation provide
that all Satellite TV Broadcasters should obtain a
satellite broadcast license and satellite broadcast
permit. The term of a satellite broadcast license is
5 years from the issuance date of the license and
the permit is valid during the term of the satellite
broadcasting license.
In Annex A-3 of the Authorization Regulation, the satellite platform service is defined as
“conversion of data and voice signals (except telephony services) acquired from different transmission
media in the digital satellite platform with the help of
encoders and multiplexers, and transmission of such
signals to the satellite via earth stations and transmission of digital signals from the satellite to the subscribers via appropriate terminal.”
Pursuant to the said annex, corporations intending to perform satellite platform services are
required to obtain a 2nd Type Telecommunications License from the ITC Authority. Following
submission to RTUK of the satellite platform operator’s certificate obtained from the ITC Authority, RTUK grants the satellite platform operation
permit. Accordingly, a satellite platform shall be
subject to the provisions of both the Authorization Regulation and Satellite Regulation.
Foreign Ownership Restriction
Until the New Law has been enacted, under
Article 29 of the Law, the total foreign ownership
of the share capital in a broadcasting company
shall not exceed 25%. A foreign entity or a foreign real person who is already a shareholder in a
*
Published in the Official Gazette, dated 17 April 2007.
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broadcasting company cannot be a shareholder,
regardless of the share holding percentage, in
another broadcasting company. Customarily,
RTÜK has been conducting rather detailed research with regards to shareholding structures
of broadcasting companies. Moreover, RTÜK
is entitled to terminate the license of a radio or
television broadcaster in the event the enterprise
fails to fulfill the said obligation.
Article 19(f) of the New Law stipulates that
direct foreign ownership in the share capital shall
not exceed 50%. Compared to foreign ownership
restrictions in the Law which has been intimidating foreign investors and hindering entrance of
foreign investment into the Turkish broadcasting
industry, the New Law significantly encourages
the foreign investment, but the investors are still
skeptical as to whether a foreign shareholder
may maintain control in a broadcasting company. Nevertheless, Article 19(f) is now criticized to
for creating doubt as to whether it permits indirect foreign ownership.
Shareholders, whether Turkish or foreign
may not under any circumstances hold privileged shares. The private radio and television
companies after obtaining a broadcasting permit
and license are required to notify RTÜK of any
changes with respect to their shareholders or in
the share percentages of their shareholders, exceeding 10% of the paid-in share capital within 30
days following the date such change takes place.
Acquisition by an individual or legal entity of
the shares representing 10% of the paid-in share
capital is subject to the permission of RTÜK.
However, as the platform operators technically allow third parties to broadcast via their
platforms and are not considered “broadcasters”,
in line with the Satellite Regulation and Cable
Regulation, satellite and cable platform operators
are not subject to the requirements applicable for
the broadcasters under RTÜK regulations, hence
the foreign shareholding restrictions under the
Law.
Restriction on Shareholding in More than One
Broadcasting Company
Another provision which has remained and
causes interested parties to pause before investment is Article 19(d), which stipulates that “the
total commercial transmission revenues of more
than one media service provider in which a le-
gal entity or a real person is a shareholder, shall
not exceed 30% of total commercial transmission
revenues of the sector. A person or a legal entity
who directly or indirectly own shares in more
than one media service provider, total annual income of which exceed such limit should transfer
its shares within ninety days after the notification
of RTÜK.”
We need to further elaborate on certain terms
in this provision, to interpret it accurately.
The lawmaker defines commercial communication as (i) broadcasting of audible and nonaudible images which are created for promotion
of goods and services, or (ii) images of a real person or legal entity placed to appear in programs
in consideration of a fee or with the intention
of self promotion. Commercial communication
is, among others, radio and television advertisements, program sponsorship, teleshopping,
product layout and etc. Departing from this definition we can interpret that “commercial communication” basically covers various forms of
commercial advertisements and promotion.
Another issue which we have to emphasize about this provision is the fact that being a
shareholder in a single media service provider
which exceeds the 30% limit does not breach
this provision. Instead, being a direct or indirect
shareholder in more than one media service provider, total commercial communication revenue
of which exceeds 30% of the sector calls for the
requirement for such shareholder to transfer its
shares to fall beneath the 30% threshold.
There is a hot debate as to how to interpret
this provision as the text of the provision requires
the share transfer regardless of the amount of the
shares held by one person or entity in the relevant media service providers.
In addition to the foregoing ambiguities, the
New Law does not specify exactly how the commercial communication revenues of the media
service providers or the “sector size” will be determined. Instead, the relevant article stipulates
that “the procedures and principles with respect
to implementation of Article 19(d) shall be determined by RTÜK”. Thus, entitling RTÜK to determine the specifications of the implementation of
this Article and removing all doubts cast on this
important matter.
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The New Renewable
Energy Law
Fatih YİĞİT - Merve ARSLAN
T
he law supporting electricity production
from renewable energy resources has
been adopted by the Turkish Parliament
and will be in force on December 29,
2010. In order to diversify energy resources and
limit energy production’s negative impact on the
climate, production from renewable resources has
been globally encouraged. In Turkey, the Renewable Energy Law (the “New Law”) awaited for a
long time was drafted in line with contemporary
laws supporting renewable energy. With the New
Law, the Turkish government aims to remove all
uncertainties and to provide specific metrics for
investors. In this article, we summarize and analyze the changes introduced by the New Law.
The Definition of Renewable Energy
Resources has been Expanded
The New Law has expanded the definition of
renewable energy resources. Accordingly, biogas
has been removed from the definition of the renewable energy resources and gas derived from
biomass (including landfill gas) has been added
to the revised definition.
A New Price Mechanism has been
Introduced
The main purpose of the New Law is to provide incentives supporting renewable energy investors. In this respect, the New Law increases
the guaranteed purchase price and accepts additional price increases upon using specific parts
manufactured in Turkey in the construction and
erection of power plants. According to the New
Law, the prices indicated in Table 1 below are applied for a period of 10 years for generation license holders who are subject to the Renewable
Energy Resources Support Mechanism (“RER
Support Mechanism”), and for power plants that
have been operating since May 18, 2005 or will be
in operation by December 31, 2015. The Council
of Ministers is authorized to determine the prices
for power plants in operation after December 31,
2015. Additionally, the New Law has adopted
“dollar cent” instead of “euro cent” for prices to
be applied for energy purchased within the scope
of RER Support Mechanism. In this respect, the
following prices have been introduced by the
New Law:
Table 1
Type of Generation Plant based on Renewable Energy
Resource
Exercise Prices
(USD cent/kWh)
Hydroelectric Energy Generation Plant
7.3
Wind Energy Generation Plant
7.3
Geothermal Energy Generation Plant
10.5
Biomass Energy Generation Plant
13.3
Solar Energy Generation Plant
13.3
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Table 2*
Type of Generation Plant
Hydroelectric Energy
Generation Plant
Wind Energy Generation
Plant
Additional Price to be
Added. (USD cent/kWh)
Parts Manufactured in Turkey
1. Turbine
1.3
2. Generator and power electronics
1.0
1. Sail
0.8
2. Generator and power electronics
1.0
3. Turbine Tower
0.6
4. All mechanical equipments in rotor and nacelle
1.3
1. PV panelling integration and manufacturing solar
mechanics
0.8
2. PV modules
1.3
Solar Photovoltaic Generation
3. Cells forming the PC modules
Plant
Geothermal Energy
Generation Plant
*
3.5
4. Inventor
0.6
5. The equipment which focuses sun ray over PV
modules
0.5
1. Steam and gas turbine
1.3
2. Generator and power electronics
0.7
3. Steam injector and vacuum compressor
0.7
This table does not include Intensive Solar Energy Generation Plant and Biomass Generation Plant.
The most important aspect of the New Law
is that it provides additional incentives for the
usage of locally manufactured parts in power
plants. In the event the power plant commissioned by December 31, 2015 is constructed and
erected using specific parts manufactured locally, the prices specified in Table 2 below will be
added to the prices indicated in Table 1 above.
The facilities willing to participate in the RER
Support Mechanism for the following calendar
year shall obtain a Renewable Energy Resources
Certificate. The applications shall be submitted to
Energy Market Regulatory Authority (“EMRA”)
by October 31 of the relevant year preceding the
year for which the facility intends to participate.
The participation to the RER Support Mechanism
is voluntary; however, once a generation license
holder participates, it will be obliged to sell the
energy under the RER Support Mechanism.
Applications for PV Energy Production
Licenses
Apart from the above, the New Law intro-
duced the following restrictions on license applications for solar energy:
●● The total installed power of the solar energy
plants to be interconnected to the national
grid by December 31, 2013 is limited to 600
MW. The Council of Ministers is authorized
to determine the total installed power of the
solar energy plants to be interconnected with
the national grid after December 31, 2013.
●● If the owner of the specified area has already
applied for a license, EMRA will not accept
any additional application for the same area.
●● In case of multiple applications for the same
area, a tender will be conducted based on decreasing incentive prices proposed in Table 1
above. The tender rules shall be set forth under a regulation to be issued by Turkish Electricity Transmission Company
Other Provisions
The New Law extended the date by which
operations of s a power plant qualifying for the
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incentives granted to renewable energy producers to December 31, 2015. Accordingly, the energy producers may benefit from 85% reduction
in the fees to be paid for the lease or easement of
the government land allocated to the renewable
energy project if the subject power plant will be
operational by December 31, 2015.
A
fter its last minute withdrawal from
the Parliament in 2009, investors
have been looking forward to the
enactment of the New Law. Although
the guaranteed prices introduced for
wind, hydro energy, and geothermal
energy are encouraging, solar
investors found the prices and the
total cap to be insufficient.
It is also important to note that State Hydraulic Works changed its process with respect to obtaining water usage permits. Under the New Law
water usage permits will be granted by the Special Provincial Administration provided that the
positive opinion of the State Hydraulic Works
has been obtained.
The most criticized provision in the New Law
is that renewable energy plants are allowed to be
erected in National Parks, Nature Parks, Nature
Monument and Nature Protection Areas, Con-
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servation Forests, Wildlife Development Areas,
Private Environment Protection Zones and Natural SIT (Conservation) Areas. Recently, many
hydro energy project constructions have been
suspended by court decisions based on Natural
and Cultural Heritage Preservation Board decisions declaring the project area as natural sit
area. These declarations have been issued by
the Board very easily due to the environmental
groups’ high pressure supported by the media.
Under the New Law, declaration of a sit area will
not be a sufficient ground to refuse a renewable
energy project unless supported by other factors.
The impact of the project to the sit area will be
evaluated by the Ministry of Environment and
Forestry positive certification will be issued if it
complies with the general standards set forth for
environmental impact assessments.
Conclusion
After its last minute withdrawal from the
Parliament in 2009, investors have been looking forward to the enactment of the New Law.
Although the guaranteed prices introduced for
wind, hydro energy, and geothermal energy are
encouraging, solar investors found the prices and
the total cap to be insufficient. Apparently, predominantly, the New Law aims to attract solar
investors who are willing to bring technology
and contribute to national employment by manufacturing the components of the power plants in
Turkey.
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Legal Professional
Privilege Rules Under
Turkish Law
Serpil DOĞAN
L
egal Professional Privilege (“LPP”) may
be defined as a set of rules which aims
to protect communications or documents exchanged between a lawyer/
professional legal adviser and his/her client from
being disclosed without the permission of the client.
There is no specific provision regarding legal
professional privilege under Turkish Law. In the
absence of specific regulation, the Attorneys Act
and the Turkish Code of Criminal Procedures
provide some guidance as to protection of cli-
I
n the absence of specific regulation,
the Attorneys Act and the Turkish
Code of Criminal Procedures provide
some guidance as to protection of
client’s confidential information.
ent’s confidential information. In this respect,
Article 36 of the Attorneys Act provides a general obligation of confidentiality. As per the said
article, lawyers are under an obligation to keep
confidential all information received or obtained
in the course of ascertaining the legal position of
the client or defending the client. The Attorneys
Act stipulates disciplinary sanctions for lawyers
who act in breach of this provision.
Similarly, Article 130 of the Turkish Code
of Criminal Procedures provides protection for
documentation relating to a client as it sets forth
strict requirements for obtaining a search warrant
for a lawyer’s office. The procedure is also more
stringent given that the prosecuting authorities
need to obtain a search warrant from the relevant
Court. The same article also provides that “In
the course of the enforcement of the search warrant,
the lawyer is entitled not to permit the confiscation
of a document in respect of client-lawyer relationship. In this case, the document claimed to be covered
by a client-lawyer relationship should be placed in a
sealed envelope and the Court will decide if the said
document should be considered to be protected by the
client-lawyer relationship. In the event that the Court
considers the document to be protected, it is returned
to the lawyer.”
In practice, this is a common issue in investigations on anti-competitive activities. The position adopted under Turkish law contains overtones of the position adopted by the Court of
Justice of the European Union and therefore, it
would be useful to firstly take a look at the leading precedent concerning LPP.
In the Akzo-Nobel case the Court of Justice of
European Union determined conditions for documents exchanged or correspondence between
client-lawyer to be covered by LPP. Akzo Nobel
Chemicals and its subsidiary Akcros were subject
of an investigation by the Commission aimed at
seeking evidence of possible anti-competitive
practices. The issue in the case was whether copies of two e-mails exchanged between the managing director of Akzo Nobel and Akzo Nobel’s
coordinator for competition law, a lawyer of the
Netherlands Bar and a member of Akzo Nobel’s
legal department employed by the company
were covered by LLP.
The Commission decided that the documents
were not covered by LLP and they were submitted as evidence. Upon the Commission’s and the
General Court’s decision rejecting arguments
that the e-mails were covered by LPP, Akzo Nobel and its subsidiary Akcros appealed the deci-
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sion. While examining this case, the court ruled
that LPP is subject to two cumulative conditions:
The documents exchanged or correspondence
with their lawyer should be connected to “the client’s right of defense” and at the same time the
exchange/correspondence should emanate from
“independent lawyers” that is to say “lawyers
who are not bound to the client by a relationship
of employment.”
The Turkish Competition Authority also
faces the issue of LPP during investigations on
anti-competitive activities. In such cases, due to
the lack of specific legislation pertaining to LPP,
T
he Turkish Competition Authority
held that written communications
exchanged between an independent
lawyer (who is not employed under a
contract of employment) and his client, made for the purpose of the client’s right of defense were protected
by LPP.
the above-mentioned articles are taken into consideration while case law of Court of Justice of
European Union has a significant impact on administrative practices and Turkish Competition
Authorities decisions as stated above.
The Turkish Competition Authority dealt
with LPP in CNR Exposition Services v./NTSR
Exposition Services case. This case concerned the
Competition Authority’s ability to gain access
to communications between an undertaking,
suspected to be engaging in anti-competitive behavior, and its lawyers. The Turkish Competition
Authority held that written communications exchanged between an independent lawyer (who is
not employed under a contract of employment)
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and his client, made for the purpose of the client’s right of defense were protected by LPP.
Thus, the same two conditions mentioned above
were adopted. It should also be noted that, in order to benefit from LPP during a dawn search,
the lawyer must challenge the confiscation of client-lawyer communication and assert that they
are covered by LPP.
As can be seen, in order to be considered under these provisions the lawyer must be independent from his client. Therefore, exchanges/correspondence between in-house lawyers and their
clients are not considered to be covered by LPP.
Besides, LPP does not encompass the documents
or communications produced with a reason other
than the purpose of the legal profession. As for
the expression of “relevance for client’s right of
defense”, it is possible to say that in the event of a
search warrant performed in an undertaking/client premises, interpretation of this concept tends
to be much narrower. The reason for this is that
documents in a lawyer’s office are most likely to
be considered relevant to client’s right of defense.
In a nutshell, it may be stated that in order for
an exchange/correspondence to be considered to
be within the scope of LPP, the following conditions should be satisfied:
●● the exchanged document or correspondence
should be produced with the purpose of client’s right of defense,
●● the exchanged document or correspondence
should be exchanged between an independent lawyer and his/her client,
●● the lawyer should claim LPP in the course of
an inspection and object to the confiscation of
such document or correspondence.
By Serpil Dogan
Litigation&Regulatory
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Exemptions from
Public Tender Law
Selen SÜMER
T
enders organized by public authorities
are subject to the Law on Public Tenders
no. 4734 dated 4 January 2010 (“Law”).
The construction and the implementation of the agreement to be entered between the
relevant public authority and the contractor to
which the tender is awarded are governed by
the Law on Public Tender Agreements no. 4735
dated 22 January 2010. The Law sets forth provisions with respect to the applicable rules and
procedures regarding the organization of and
participation to public tenders.
A
lthough at a first glance, a tender exempt from the Law seems to have no
relevance with the implementation
of the public tender legislation, there
is no doubt that the provisions of the
Law that are of major importance
are applicable to the tenders exempt
from the public tender legislation.
However, all tenders organized by public authorities do not fall within the scope of the public
tender legislation and the Law expressly provides the categories of tenders which are exempt
from being governed by the public tender legislation. Some of the key categories of tenders that
are exempt from the scope of the public tender
legislation are the following: tenders relating to
defence, security or intelligence; tenders that are
determined to be confidential; tenders organized
for projects to be realized with a foreign loan
under international agreements; tenders with re-
spect to consulting and credit rating services for
borrowings to be made in international capital
markets; tenders organized for procurement of
consulting services within the scope of privatization; tenders organized by air transporters for
procurement of any kind of service or good; tenders organized by the subsidiaries of the public
authorities which are located abroad.
In addition to the above stated exempt categories, (i) Saving Deposits Insurance Fund and
banks of which shares held by the latter, (ii)
banks within the scope of the Law no. 4603 (Ziraat Bankası, Halk Bank and Emlak Bank which
is to be liquidated) (except for the procurement
of construction works) and (iii) enterprises that
are active in energy, water, transportation and
telecommunication do not fall within the scope
of the Law.
One of the most import exemptions are tenders that are subject to project financing with a
foreign loan under international agreements.
This exemption covers any tender organized by a
public authority, financed under an international
loan agreement provided that the relevant agreement sets forth implementation of rules and procedures for the tender to be organized other than
the Law.
One of the critical consequences of being exempt from the Law is related to securities provided by the contractor to the public authority.
In case the tender and the contractual relation
between the contractor and the public authority
is governed under the public tender legislation,
then the public authority shall not be obliged to
return any security given by the contractor if the
contractor breaches its obligations under the relevant agreement or the public tender legislation
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and the public authority shall be entitled to liquidate the relevant securities with reference to the
breach/failure of the contractor. However, when
the tender is exempt from the Law, then the public authority shall not be entitled to liquidate the
securities unless it has been granted such right
under the relevant agreement. Consequently,
falling within the scope of the exemptions from
the Law is a major issue for the public authorities as they would like to freely enjoy the right
to liquidate the securities in case of breach/failure
of the contractor. Furthermore, no preliminary injunction or attachment can be exercised over securities provided to the public authority for a tender subject to the Law. This provision of the Law
cannot be applied to tenders that are exempt from
the Law. Accordingly, a contractor may obtain
from the court a preliminary injunction ensuring
that the liquidation of the relevant securities is
prohibited in case a conflict arises with the public
authority. However, if the relevant agreement in
question is an agreement governed by the Law, it
shall not be possible for the contractor to obtain a
preliminary injunction on the securities.
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with respect to penal sanctions and prohibition
from public tenders are also applicable to the
tenders exempt from the Law. Namely, although
a tender organized by a public authority is not
subject to the public tender legislation, the penal
sanctions set forth in the Law are applicable to a
contractor if the latter rigs bidding or does not enter into the relevant agreement (except for circumstances where an event of force majeure occurs)
even it has been awarded the tender. Furthermore,
the reasons to be prohibited from participating
tenders are also stipulated in the public tender legislation and if a contractor commits any of these
acts requiring to be prohibited from the tenders,
although such act is not performed within the
scope of a tender organized under the Law, the
prohibition provisions shall also be applicable.
In light of the foregoing, although at a first
glance, a tender exempt from the Law seems to
have no relevance with the implementation of
the public tender legislation, there is no doubt
that the provisions of the Law that are of major
importance are applicable to the tenders exempt
from the public tender legislation.
On the other hand, the provisions of the Law
An Overview of FIDIC
Silver Book
Selen SÜMER
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nternational Federation of Consulting Engineers (“FIDIC”) issues forms of model
contracts for construction projects. One of
these model contracts is the Conditions of
Contract for EPC/Turnkey Projects, First Edition 1999, so called FIDIC Silver Book. EPC refers
to Engineering, Procurement and Construction.
Silver Book is a standard form of contract setting
forth that the contractor performed the whole
project as turnkey.
FIDIC has adopted a different approach in
the Silver Book compared to the other books
previously issued by FIDIC, the Red and Yellow
Books. The points for which a different approach
has been adopted in the Silver Book are summarized in this article.
Under the Red and Yellow Books, a risk sharing approach has been adopted, namely there is
a balanced risk sharing mechanism whereas the
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risks to be borne by the contractor under the Silver Book is increased. In other words, allocation
of risks is not set forth in a balanced way in the
Silver Book but in such way that the contractor
assumes responsibility for a wider range of risks
with a fixed contract price. In Sub-Clause 4.12,
it is clearly stated that “by signing the Contract,
the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully
completing the Works.” Despite a wider range of
risks, under the Silver Book the contractor is also
granted an exit right in Sub-Clause 19.7 whereby
it is discharged from further performance: “if an
event or circumstance outside the control of the Parties ... arises which makes it impossible or unlawful for
either or both parties to fulfil its or their contractual
obligations...”
T
he Silver Book is characterized with
less risk allocated to the employer,
full understanding and acceptance
of a wider range of risks by the
contractor and more certain contract
price
The contractor is given the opportunity before the contract is signed to examine requirements set out by the employer in order to cover
the wider range of risks. The contractor should
then verify all relevant information and data stated in the employer’s requirements and carry out
any necessary investigations prior to the execution of the contract in order to ensure the project
can be completed entirely by the completion date
in consideration of the fixed contract price to be
offered at the tender. As stated in the Introductory Note of the Silver Book, if there is insufficient
time or information for the contractor to verify
the employer’s requirements or to carry out design tasks and risk assessment studies, the standard form of FIDIC contract to be opted is not the
Silver Book.
Bearing in mind that the contractor shall assume a wider range of risks with a fixed contract
price, the employer should realize that the contractor being aware of the increased risks will increase the tender price under the Silver Book. It
should also be underlined that the responsibility
of design shall solely be borne by the contractor
under the Silver Book save for certain exceptions.
Pursuant to Sub-Clause 5.1 of the Silver Book,
“the Contractor shall be responsible for the design of
the Works and for the accuracy of such Employer’s Requirements”. Furthermore, in Sub-Clause 4.10, it
is also stated that “the Contractor shall be responsible for verifying and interpreting all such data” (such
data being, site data in the possession of the employer).
Differently from the Red and Yellow Books,
engineer is not set forth in the Silver Book. In lieu
of the engineer, it is stipulated that the employer
may appoint employer’s representative who shall
act on his behalf. The employer’s representative
shall be deemed to have the full authority of the
employer under the Silver Book, except the right
to terminate the contract.
As to the Determinations, under the Red and
Yellow Books the engineer shall make a fair determination if the parties do not reach an agreement whereas it is the employer under the Silver
Book. However, departing from the Red and Yellow Books, under the Silver Book if the contractor
gives notice of dissatisfaction with the determination within 14 days, he is not bound by the determination. At this stage, both parties may refer
the matter to the Dispute Adjudication Board.
In light of the foregoing, the Silver Book is
characterized with less risk allocated to the employer, full understanding and acceptance of a
wider range of risks by the contractor and more
certain contract price (higher than the ones under
the Red and Yellow Books).
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Solicitation of Employees
as an Event of Unfair
Competition
Derya TAŞDEMİR
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rticle 56 of the Turkish Commercial
Code (“TCC”) defines unfair competition as “...the abuse of economic
competition in any manner by means
of deceptive acts or other acts incompatible with
good faith.” The said article enforces good faith,
provided for under Article 2 of Civil Code, in the
economic territory. The economic system based
on free competition that individuals are engaged
in commercial activities through their own efforts. Consequently violation of this principle,
such as, taking advantage of third person’s efforts is illegal. In this sense, good faith is seen as
a criterion that serves to distinguish fair competition from unfair competition.
A
Although Article 56 of the TCC which has
general application, the legislative in Article 57
under 10 paragraphs sets forth everyday acts
trade secret does not need to
be absolutely new and original;
information which could be obtained
only after a long and expensive study
is also a trade secret.
deemed to be unfair competition. Thus, as a first
step, Article 57 determines whether an activity
constitutes unfair competition, in case that none
of the listed acts apply, then the general concept
provided for in Article 56 will be applied.
Solicitation of an employee can be defined as
“encouragement and incitement of employee by a third
person to terminate his/her contractual relation with
his/her employer in order to draw up a new contract
with the solicitor company”. As is also understood
from the definition, activities intended to cause
an employee to quit his/her job , for example by
encouraging an employee, that had no intention
to quit, to leave by offering an overtly attractive
job offer is accepted as solicitation. As a result
of the solicitation, the solicited employee quits
without respecting any notice period or without
any just cause.
Solicitation of an employee to obtain trade secret of rival employer company and use of trade
secret of ex-employer by a solicited employee
are two of the acts listed under Article 57(b)(7)
and 57(b)(8) of TCC. A trade secret does not need
to be absolutely new and original; information
which could be obtained only after a long and expensive study is also a trade secret. In this aspect,
lawsuits listed below could be filed against both
the solicited employee and the solicitor employer
in view of unfair acts stated in Articles 57(b)(7)
and 57(b)(8).
If a company, solicits an employee who has
no trade secret with the intention of damaging a
rival company, this act of solicitation is regulated
under Article 56 of TCC.
The intention behind the solicitation is taken
into consideration to appraise whether an act
of solicitation constitutes unfair competition, in
other words, whether it is an act against good
faith. If the solicitor’s intention in soliciting an
employee is to lessen the competitive power of its
rival or to damage the rival rather than augment
performance of its own company, this constitutes
an act of unfair competition.
For example, if an employer hires employees
it needs by soliciting employees from the same rival company although there are other employees
available to be hired with the same qualifications,
it is accepted that the solicitation aims to destroy
the rival company and is therefore an act of unfair
competition. Solicitation can have serious impacts,
for instance, if a director of rival company in a key
position is solicited this may evoke the rival company to cease its commercial activities. Addition-
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ally, in case o many employees are solicited, the
production process of the company will cease.
In the event of solicitation, as the employee
is solicited without the employer’s knowledge,
the employer is not given the chance to offer the
solicited employee better working conditions.
This kind of solicitation has no correlation with
free competition, and such solicitor cannot be
deemed an honest trader.
The solicitation of an employee does not only
mean the loss of know-how, but also the loss of
the employer’s investment, time and effort in order that the training the employees to provide
this know-how and experience. The company
also suffers loss of good-will that has huge benefits to the value of the company and management. In replacing the solicited employee the
employer will spend as much money and time to
educate the new employee.
In the event of solicitation of an employee, the
TCC affords the aggrieved employer the right to
bring compensation lawsuits. Besides, Article 64
of the TCC stipulates a prison sentence from 1
month to 1 year in the event that the employee
has been solicited by a company to obtain the
trade secrets of a rival company.
Providing GSM Services
in Turkey and an Ongoing
Discussion: Share Payments
Seteney Nur ÖNER
I
I. Background
n line with the liberalization trend of the
day, in 1993 it was decided telecommunication services were to be provided by private companies. After various attempts to
make due changes in the relevant legislation and
mainly in Telegraph and Telephone Law No. 406
(“Law No. 406”), the General Directorate of Turkish Post, Telegraph and Telephone was divided
into the General Directorate of Post and Türk
Telekomünikasyon A.Ş. (“Türk Telekom”) to be
incorporated as a state owned enterprise, under
Law No. 4000. According to this new regulation,
Türk Telekom would be authorized to conduct all
kinds of telecommunication services and operate
the telecommunication infrastructure, whereas
the General Directorate of Post would be in
charge of post and telegraph services.
In 1994, revenue sharing agreements were
executed between two GSM operators and Türk
Telekom. According to these agreements the GSM
operators were paying 67% of their total revenue
to Türk Telekom as a kind of royalty payment.
The remaining 33% belonged to the GSM operators together with all the operational costs.
While Türk Telekom was operating like a
regulatory body and making revenue agreements with GSM operators, studies for privatizing Türk Telekom were also continuing as the
government did not give up despite the Constitutional Court’s decisions to annul regulations
for privatization of Türk Telekom. Within this
scope, Law No. 4107 was published in the Official Gazette No. 22279 dated 6 May 1995, certain
provisions of which was again annulled by the
Constitutional Court on 28 February 1996. The
government relaxed after enacting the Law No
4161 published in the Official Gazette No. 22718
dated 5August.1996, which was not challenged.
As the ultimate aim was to privatize Türk
Telekom and make it a player in the telecommunication sector, there was an evident need for two
things: making new agreements with the GSM operators where Türk Telekom would not be a party
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and establishing a regulatory body for telecommunication sector. In 1998, the Ministry of Transportation signed licence agreements which will be
in effect for 25 years with the two GSM operators
in consideration of USD 500 million, according to
Article 4 of Law No. 4161, inserting Permanent
Article 6 to Law No. 406. The article was providing
that the Council of Ministers may decide to convert the revenue sharing agreements signed with
the General Directorate of Turkish Post, Telegraph
and Telephone into licence agreements, within the
scope of the telecommunication services, before
the effective date of the Law No. 4000.
It took two more years to establish a regulatory body, and finally in 2000, the Telecommunication Authority (“Authority” – the name was then
changed as Information Technologies and Communication Authority by Electronic Communication
Law No. 5809 published in the Official Gazette
No. 27050 dated 10November 2008- second edi-
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ross income was an ambiguous concept
without any legal definitions and this
ambiguity led to so many disputes between GSM operators, the Treasury and
the Authority as the parties could not
agree whether or not certain amounts
- i.e. roaming fee, stamp tax, VAT- fell
within the scope of the gross income.
tion) was established by Law No. 4502 published
in the Official Gazette No. 23948 dated 29 January 2000. 2000 was a fruitful year for the sector
as two more GSM operators were welcomed after
March 2000.
After introducing the regulatory body to the
sector, it was deemed that the Authority should
be the party to the licence agreements with the
GSM operators. Therefore, licence agreements
were renewed with GSM operators as concession
agreements according to Temporary Article 4 of
the Law No. 4673 published in the Official Gazette No. 24410 dated 3 May 2001. Under these
concession agreements, GSM operators were
paying shares to the Republic of Turkey Prime
Ministry Undersecreteriat of Treasury (“Treasury”) and the Authority, in ratios of 15% and
0.35% respectively, over their gross income.
However, gross income was an ambiguous concept without any legal definitions and this ambiguity led to so many disputes between GSM
operators, the Treasury and the Authority as the
parties could not agree whether or not certain
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amounts - i.e. roaming fee, stamp tax, VAT- fell
within the scope of the gross income.
II. The Milestone: 10 March 2006
Considering that the term of the licences is 25
years, finding a solution to such disputes was inevitable. There had been discussions and negotiations between the Authority and the GSM operators which then resulted in executing protocols
for resolution of the ongoing disputes in certain
cases, but ultimately in a consensus to amend the
existing concession agreements. Therefore, Additional Article 12 and Temporary Article 36 were
inserted to the Law No. 406 by the Law No. 5398
published in the Official Gazette No. 25882 dated
21 May 2005. Article 36 replaced gross income with
gross sale as the basis for calculation of shares to
be paid to the Treasury and the Authority. However, this amendment did not have a direct impact on the concession agreements and according
to Permanent Article 12, GSM operators should
have requested the amendment of their concession agreements in line with Temporary Article
36 within 1 month. All GSM operators requested
the amendment in due time and all concession
agreements were amended on 10 March 2006 after completion of the necessary formalities.
III. The Ongoing Discussion on Share
Payments
Choosing gross sale as the basis for calculation of shares was intentional as gross sale refers
to “60. Gross Sales” account of the income statement accounts and is therefore an accounting
concept defined by the relevant legislation. In
theory, replacing the ambiguous term gross income with an accounting concept would have the
effect of a magic wand.
Unfortunately, it was not so happily ever after.
After the amendment, the Authority and the
Treasury claimed that shares must be calculated
on the amounts obtained as a result of any and
all operations and activities of the GSM operators
without distinction between GSM services provided within the scope of the concession agreements
or daily operational activities of the operators as
being legal persons. This attitude of the Authority
and the Treasury was challenged by GSM operators and everything went back to the beginning.
Now there are pending arbitration cases about the
share payments. Whether or not the Authority will
try to find a solution to this battle is a matter of
concern for the sector. However in the short run
it seems that the Authority is determined to fight
instead of finding a middle ground.
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Dispute Boards in
Construction Projects
Seda EREN
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nvolvement of Dispute Board may be time
and cost effective as it may allow the parties
to set more effective procedural rules and
timetable to deal with the dispute through
the arbitral proceedings.
Disputes arising from construction contracts
generally cause outsized claims which deserve
not only a proper dispute resolution mechanism
but also a mechanism enabling settlement of disputes in shortest possible period. In anticipation
to properly deal with the problems in a construction project, many institutions aimed to establish
practical mechanisms. In that regard, FIDIC introduced dispute boards in its dispute resolution
provisions. Provisions including this mechanism
were set in the Orange Book in 1995 which have
later been inserted in the Fourth Edition of the
Red Book (1992) by its supplement published in
1996. 1999 Red Book, 1999 Yellow Book and 1999
I
nvolvement of Dispute Board may
be time and cost effective as it may
allow the parties to set more effective
procedural rules and timetable to
deal with the dispute through the
arbitral proceedings.
Silver Book have all established such mechanism
as a pre-arbitral step for settlement of disputes.
The ICC established Dispute Board Rules in
2004 to serve for all business disputes as an intermediary step before settlement of disputes
by arbitration or by the court of competent jurisdiction. The type of dispute board chosen by
FIDIC is dispute adjudication board whereas the
ICC Dispute Board Rules provides three types of
boards, being the dispute review board, dispute
adjudication board and combined dispute board.
According to the Dispute Board Rules, parties to
a construction contract may establish a Dispute
Board at the time of entering into the contract,
unless otherwise agreed by the parties. Except
for the Silver Book of FIDIC 1999, FIDIC dispute
resolution provisions likewise provide appointment of a Dispute Board at the beginning of the
construction project.
In general, Dispute Boards are considered to
set a balance between the parties to construction
contract. Where the Dispute Board is assigned by
the parties at the beginning of the construction
project, it is anticipated that the board becomes
familiar with the project, relevant parties and the
practices within the scope of the construction contract. Hence, in case of any disagreement, relevant
facts may be better understood and quickly addressed by the Dispute Board due it is familiarity
of the project. The Dispute Board’s knowledge and
information in relation to the construction contract
gained as from the beginning may promote parties’
trust in the determinations of the board. As a result,
parties may achieve time and cost effective resolution in short period of time to the satisfaction of the
contracting parties without losing their primary focus on the construction work performed.
Enforcement of Dispute Board’s decision is
indeed a matter of contractual obligation and will
be admissible as evidence. Considering that the
Dispute Board’s decision/determination has been
drawn up by persons who are accepted to be familiar with the construction project, who have
been appointed by the parties and who are specialized in construction projects, determinations/
decisions thereunder may have great impact on
the determinations of the tribunal. In respect of
secondary determinations in relation to the dispute, Dispute Board’s review of the circumstance
may spare the parties to put additional efforts to
identify the factual circumstances. Also, having
reviewed Dispute Board’s decision, parties may
have a clearer awareness about the issues to be
addressed and established through the arbitral
proceedings. As a result, involvement of a Dispute Board may be time and cost effective for the
purpose of arbitral proceedings since it may allow the parties to set more effective procedural
rules and timetable to deal with the dispute.
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The United Nations
Convention on Contracts
for the International Sale
of Goods
A. Simel SARIALİOĞLU
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T
he yearly progress reports on Turkey’s
alignment with the European Union
prepared and published by the European Commission forms an important
part of the news during the month of November
in Turkey and also the headstone of the discussions about Turkey’s accession adventure to the
EU. In Turkey’s 2010 Progress Report, among
other things, Turkey’s capacity to cope with
competitive pressure and market forces within
the EU was evaluated. Quoting from the Report,
“overall, trade and economic integration with the EU
remained high. Turkey was able to diversify part of its
his is a call for all those who trade
goods internationally: your rights,
obligations and liabilities are now
regulated under the CISG.
trade towards new markets, thereby partly alleviating
the impact of crisis.”
Whilst the world’s economic stability still
fluctuates due to the most severe economic crisis
the world has ever encountered, no wonder Turkey’s economic integration with the EU has been
defined as high and Turkey is said to have partly
alleviated the impact of the crisis since Turkey
has been taking the necessary measures to struggle with the worldwide effects of the collapsing
banking systems and economies. Aside from the
measures in the finance sector, Turkey started to
adopt a more global approach in order to cope
with the market forces and ratification of the
United Nations Convention on Contracts for the
International Sale of Goods in 2010 was only one
of the global steps Turkey has taken on the way
to the integration with the global trade dynamics.
What is CISG?
The United Nations Convention on Contracts
for the International Sale of Goods, which is commonly known as the Vienna Convention on International Sale of Goods or the CISG, applies to
contracts of international sale of raw materials,
commodities and manufactured goods between
parties whose places of business are in different
states that are contracting states to the CISG or
when the rules of private international law lead
to the application of the law of a contracting state.
Currently there are 74 contracting States to
the CISG including Austria, Belgium, China,
France, Germany, Greece, Italy, the Netherlands,
Spain and the United States. Turkey became a
contracting state to the Convention on 7 April
2010 without any reservations, upon the decision
of the Council of Ministers, followed by the publication in the Official Gazette.
Scope of application - Is it a law?
Under Turkish law, the obligations and liabilities of the seller and buyer in an ordinary
sale contract are regulated in the Turkish Code
of Obligations. As for commercial sales between
merchants, the relevant provisions of the Turkish
Commercial Code, commercial customary rules
and general provisions of the Code of Obligations apply. In contracts of consumer sales, the
Consumer Protection Law and general provisions of the Code of Obligations apply and for
overseas sale contracts (CIF, FOB, etc.) the relevant provisions of the Commercial Code, general
provisions of the Code of Obligations and commercial customary rules regulate the obligations
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and liabilities of the seller and buyer.
The CISG itself governs all of the above relationships as long as they fall within the Convention’s sphere of application. As per Article 90 of
the Turkish Constitution, all the duly enacted international agreements have the force of national
law. Therefore, as of April 7, 2010, the CISG has
become a part of the Turkish legislation.
This is a call for all those who trade goods
internationally: your rights, obligations and liabilities are now regulated under the CISG.
What does the CISG bring?
The CISG is divided into four parts: Part I sets
out rules on its sphere of application and general
provisions; Part II deals with the formation of
contract; Part III relates to the rights and obligations of the parties, remedies for breach of contract, passing of risk, damages, interest; and, Part
IV with the public international law provisions. It
does not introduce major differences when compared to the current applicable legislation to the
contracts of sale, however, there is a more flexible
approach in respect of the liabilities of the parties.
For instance, under the Code of Obligations,
in case there is breach of contract, the seller/buyer has optional rights. To illustrate, in case the
buyer breaches a contract of sale, the seller may
declare the contract avoided but may not ask for
positive damages, such as loss of profit and damages arising from the breach of contract. Only the
negative damages may be sought such as the expenses incurred during the contract negotiations.
Under the CISG, the seller has broader rights. In
case the seller declares a contract avoided due a
breach of the buyer, he may ask for damages for
both breach of contract and loss of profit.
Another difference brought by the CISG relates to the notification and time limitation periods. Under the Code of Obligations, in case there
is a lack of conformity with the goods sold, the
buyer should give a notice to the seller immediately after finding out about it. The notification
must be made within 1 year. The time limit is
even shorter in commercial sales. Pursuant to
the Commercial Code, the notification period is
2 days for explicit defects; for defects which cannot be detected without making an inspection,
the notification period is 8 days; and, finally, the
limitation of time is 6 months.
Under the CISG, in case there is a lack of conformity with the goods, the buyer should notify
the seller within reasonable time after he has discovered it or ought to have discovered it and in
any event the buyer loses the right to give a notice relying on a lack of conformity after 2 years.
Examples of differences between the Turkish
legislation and the CISG on the liabilities and obligations of the parties may vary.
Do you have to apply it?
The CISG does not deprive sellers and buyers of the freedom to mold their contracts to their
specifications. The parties are free to modify the
rules established by the Convention or to agree
that the Convention is not to apply at all.
Concluding remarks
The CISG has been ratified by most of the
major trading nations of the world and it exerts considerable influence over sales law across
the world. As a common legal text, it also try to
bring a uniform legal solution in resolving differences arising from different national laws of
states; however, the different interpretation of
the Convention provisions may lead to an inconsistency in the creation of case law. For lack of
court precedents, the application and interpretation of CISG in Turkey remains to be undiscovered territory. Therefore, special thought should
be given before excluding or including the CISG
to contracts of international sale of raw materials,
commodities and manufactured goods.
For CISG text in English:
http://www.uncitral.org/pdf/english/texts/
sales/cisg/V1056997-CISG-e-book.pdf
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Legal Aspects of
Unlicensed Software Use
Levent BELLİ - Can GEÇİM
A
Computer programs have been taken under
protection under the Code of Intellectual and
Artistic Works (FSEK) No.5846, amended by law
No.4110 which took effect on 12 June 1995. According to the Article 1 of the mentioned law;
fer, Counterfeiting of Computer Software
without Permission and against Law: Duplication, sales and distribution of original
computer software through illegal ways and
without permission.
Computer program: Computer program
means preparatory works that will provide the
computer order system, which is set out in a way
to enable the computer system to perform a specific procedure or duty, and the formation and
development of this order system.
●● Installation of the Software to More than
One Computer by the Final User: The final
user, who purchased the original software,
backs up the program in accordance with the
law and uses it by installing to more than one
computer, although not permitted by the license agreement.
Unlicensed use of computer programs occur
when software protected by the Code of Intellectual and Artistic Works (FSEK) and international
agreements to which Turkey accedes are duplicated, reproduced, distributed, used or generated without permission and authority.
s a result of the effective and
comprehensive efforts, unlicensed
software use declined in 2009
compared to 2008.
Unlicensed use of computer programs usually occurs in the following ways;
●● More Users Than the Number Stated in the
Agreement: The software is used by more users than the number agreed in the agreement,
which is concluded with regard to the original software.
●● Installing Copies of the Original software
to Computers by the Dealer: Copies of the
original software are installed to computers
and then sold to final user, generally by the
firms selling computers.
●● Duplication, Distribution, Sales, Trans-
●● Internet Distribution of the Software: Generally occurs when the full version or the
cracked file of the software is offered via current forum websites on internet.
●● Leasing or Lending the Original Software:
In case the computer program purchased via
license agreement is leased or lent to third
persons, the third persons copying the program to their computers.
When the aforementioned circumstances occur, unlicensed software use will come into question. Such acts, also described as pirated software use, mean violation of copyrights and are
covered by legal and penal protection as per the
Code of Intellectual and Artistic Works, the Code
of Criminal Procedure and international agreements to which Turkey accedes.
Turkey, a member of World Trade Organization (WTO) with the participation of 150
countries in total, is a party to the TRIPS (TradeRelated Aspects of Intellectual Property Rights)
agreement which is one of the main agreements
establishing this organization. In the Article 7
of Annex 1/C of the TRIPS agreement acknowledged with the Regulation Indicating the Mode
of Administration on Protection of Trademarks
dated 29.1.1995 No.4067 and No.556, importance
of taking intellectual property rights under pro-
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tection is underlined by giving place to the following statements; “Protection and application of
intellectual property rights should contribute to the
progress of technological innovations, and the transfer
and propagation of technology, and assist to social and
economic welfare, as well as the balance of rights and
responsibilities.” and the purpose of this agreement is expressed as to ensure that both producers and users mutually benefit.
unlicensed use of computer program is detected
as a result of the examination made on the computer and the computer records, perpetrators are
sentenced to prison or get fined. As per the said
regulation, it is stated that 1 year to 5 years in
prison or judicial fine will be imposed to those
processing, duplicating or distributing a work
without a written permission from the rightholder.
On the other hand, in the Article 4 of the
“WIPO Copyright Treaty” to which we are a
party by means of the Law on Eligibility for
Acceding to the WIPO Copyright Treaty dated
2.5.2007 No.5467; it is regulated that computer
programs are required to be protected as literary
works pursuant to the Article 2 of the Bern Convention and that such protection will apply to
computer programs used without license under
any circumstances whatsoever. As it is observed,
Turkey, as a party to those agreements, has been
endeavoring to take all precautions required on
international basis to prevent unlicensed software use.
However, it has been resolved that, if an unlicensed use of computer program according to
the article 68 of FSEK is in question, the right
holder can only claim a compensation amounting to maximum threefold of the price it may demand in case an agreement is concluded or the
current price to be determined pursuant to the
provisions of FSEK.
Various arrangements have also been made
in the national law to hinder unlicensed use of
computer programs.
As per Article 52 of FSEK: “Agreements and
acts regarding financial rights must be in writing
and the rights subject thereof must be pointed separately.” and, accordingly, lawful take-over of the
right of use of an intellectual and artistic work
can only be proved by submitting a written
agreement separately indicating the taken-over
rights. According to the regulation of the Article
76 of FSEK, if usage of any intellectual or artistic
work is in question, the burden of proving such
usage’s compliance with law shall be mandatory
upon the user of the work.
Detection of unlicensed use of a computer
program may only be possible by carrying out an
examination on the computer to which the program is installed and on the computer records.
In line therewith, making researches on the computer and computer records, taking copies, and
decoding and textualizing the taken records are
allowed by the Article 134 of the CMK where
there is no other means of finding evidences. If
Besides, there are other consequences of unlicensed software use imposing legal and penal
sanctions. Accordingly, duplication, distribution, transfer of and giving a commercial status
to the unlicensed software constitute offense and
crime of unfair competition as required by Turkish Commercial Code. In the event that selling
unlicensed software is detected upon court order, both dealers and buyers may confront with
the accusation of “Tax Evasion” in accordance
with the provisions of Tax Law.
As a result of the effective and comprehensive efforts, unlicensed software use declined
in 2009 compared to 2008. In order to prevent
unlicensed software use, awareness-raising campaigns towards final users yield significant results. Because, works carried out in recent years,
together with official authorities, private institutions and consumers, with a view to reduce the
negative effects of software theft and pirated
software use on technological development and
economy in Turkey also play an important role
for licensing software. Serious increases are observed in Licensed Software sales, through raising the awareness of final users about the results
of using Unlicensed Software. If the aforementioned awareness-raising campaigns continue, it
is expected that the Unlicensed Software use will
considerably decline in the following years.
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The Liability of the State
Arising from Enforcement
and Bankruptcy Offices
Gözde ERDOĞAN
As there are debtors who fail to fulfill their
obligations creditors have been granted legal
remedies to seek assistance from the State in order to protect the creditors against the debtors.
In this context, the enforcement and bankruptcy
office which is the enforcing body of the State
consisting of an Enforcement Officer, assistants,
clerks, bailiffs and other civil servants and which,
upon application of the creditor against the debtor who defaults in fulfilling its obligation, enforces the debtor to fulfill its obligation.
This duty fulfilled by the enforcement and
bankruptcy office is not an ordinary public law
duty, therefore the enforcement and bankruptcy
offices should act impartially and they should
not act as a representative of debtor or creditor
T
he losses and damages to be
incurred due to the negligent acts
of the officers of the enforcementbankruptcy office shall be material
or non-pecuniary. In order to rule for
non-pecuniary.
in performing their duties because these offices
should execute the specific provisions Execution
and Bankruptcy Law and when they perform
their duties, they should aware of that they secure the justice and they should keep on the right
side of the law. In other words, the bailiffs of the
enforcement-bankruptcy office should assess the
compliance of their actions with the interests of
the concerned parties, laws and regulations and
act accordingly. Otherwise, they shall be responsible of their negligent acts for any losses and
damages suffered by the parties of the proceedings and third parties
The losses and damages to be incurred due
to the negligent acts of the officers of the enforcement-bankruptcy office shall be material or nonpecuniary. In order to rule for non-pecuniary
damages, it is merely sufficient that the personal
rights be attacked unjustly and grievously and
it is not necessarily mandatory that the officers
act in gross negligence. For this reason, seizing
goods from a house or workplace known not to
be owned by the debtor is considered as a “grievous attack” to the personal rights of the actual
owner of the house or workplace and in this case,
the governmennt liability will arise regarding the
non-pecuniary compensation therefore the government should compensate the non-pecuniary
damages of the actual owner of the house .
The Ministry of Justice (State) is the primary
responsible for the losses and damages incurred
by the parties of the proceedings and third parties affected of the negligence acts of the officers
of enforcement-bankruptcy office in performing
their duties. This fact is stated in Article 5 of the
Enforcement and Bankruptcy Law as follows:
“The actions for damages as arising from the faults
of the officers of the Enforcement-Bankruptcy Office
may only be taken against the Administration. The
States reserves its right to recourse to the officers for
the damages caused by their faulty acts. Such actions
are heard before justice courts”.
The responsible authority is the Ministry of
Justice due to the negligence acts committed by
these officers, it is also in line with the the Article
129 of the Constitution of the Republic of Turkey
states “Actions for damages arising from negligence act committed by government officer and
other public employees in the exercise of their
duties shall be brought against the administration only”.
In this context, first of all, it is required to ascertain under which circumstances the officers of
the Enforcement-Bankruptcy Office are held responsible before questioning of the responsibil-
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T
ity of the Ministry of Justice. The first criteria in
determining the responsibility is whether or not
the officers have acted negligently in exercising
their duties. Whereas, as a benchmark in determining whether or not the transaction performed
by the officers of enforcement-bankruptcy office
are negligently, whether or not the officer has
performed his/her duties as an officer of enforcement-bankruptcy office having “regular qualifications” is taken into consideration.
cer’s negligent act, firstly, they should be apply
the execution offices to request compensation.–
Please note that, if the aggrieved person shall not
complain the officer because of his/her negligent
act to the relevant authority, it is deemed as a
concurrent negligence .
However, the fact that the act or transaction
performed is negligently is not sufficient for the
emergence of the responsibility. In addition to
●● The seized goods are left with the debtor
without the consent of the creditor,
hat it is impossible that the aggrieved
person appeal the government
directly to request compensation
because of the government officer’s
negligent act, firstly, they should be
apply the execution offices to request
compensation
the negligently act, it is also required that creditor, debtor or third parties suffer losses and damages due to such faulty act and there is a causal
link between the damages incurred and the
faulty acts. In other words, the losses incurred
by the concerned parties due to the faulty acts of
the bailiffs of the enforcement-bankruptcy office
should be an expected outcome of the faulty act
on the basis of objective probabilities and their
experience in real life.
Another aspect that should be highlighted
herein is that it is impossible that the aggrieved
person appeal the government directly to request
compensation because of the government offi-
In light of the above mentioned explanations,
the following examples shall be given for the liabilities of Execution and Bankruptcy Officer :
●● Seizing goods from a house or workplace
known not to be owned by the debtor,
●● The Enforcement Officer finalizes the proceedings and seizes the property and the
property is sold despite the improper notice,
●● The property is auctioned unjustly despite
the improper notification of the sales announcement and the property is not repurchased despite the termination of the auction.
Therefore, in case where there is a negligent
transaction and where there are losses and damages arising from such negligent transaction, the
suffering creditor, debtor or any third parties
not involved in the proceedings may file an action for damages before general courts against
the Ministry of Justice. However, the action for
damages to be filed shall be statute-barred one
year after the date on which the suffered party
is informed of the losses but in any case in ten
years after the date when the transacting giving
rise to the losses has been carried out. The Ministry of Justice may recourse to the negligent officer of the enforcement-bankruptcy office after
it has indemnified the suffering party due to the
negligent acts of such officers.
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Legal Implications and
Importance of Control
in International Joint
Ventures From The
Turkish Law Perspective
Onur YALÇIN
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ontrol is an important concept for successful management and performance
of international joint ventures. With
continued and rapid globalization
of the world’s economies, joint ventures have
become an important element of many multinational corporations’ global strategies. These
ventures involve two or more legally distinct
organizations (which are often called “parents”)
each of which actively participates in the decision
making activities of the jointly owned entity. If
at least one parent organization is headquartered
I
nsufficient or ineffective control over
an international joint venture may
limit the parent company’s ability to
coordinate its activities, to efficiently
utilize its resources, to effectively
implement its strategy and more
importantly, to take appropriate legal
actions in case of a dispute.
outside the joint venture’s country of operation,
or if the joint venture has a significant level of
operations in more than one country, then it is
considered to be an international joint venture.
An alternative to wholly-owned subsidiaries,
international joint ventures are commonly used
by firms as a tool within today’s highly competitive and globalised economic activities. International joint ventures also represent an effective
way of dealing with the increasing competitive
and technological challenges of today’s environment. Indeed, it is also a very common practice
in today’s business approach to set up the special
purpose vehicles in the form of international joint
ventures. A special purpose vehicle is a financial
entity created for the purpose of fulfilling a very
specific and limited use and to isolate the parent
company from various risks such as tax liability
or bankruptcy. Therefore, it is obvious that the
more role of joint ventures and special purpose
vehicles increase in today’s globalized world, the
more the management of these entities becomes
an important issue to be dealt with.
The term of control refers to the process by
which one entity influences the behaviour and
output of another entity through the use of power and authority. There should be also no doubt
that control plays an important role in the capacity of a firm to achieve its goals. Insufficient
or ineffective control over an international joint
venture may limit the parent company’s ability
to coordinate its activities, to efficiently utilize its
resources, to effectively implement its strategy
and more importantly, to take appropriate legal
actions in case of a dispute. In turn, exercising
control over some or all the activities of an international joint venture helps protect the firm from
facing unexpected and undesirable setbacks in its
investment through the joint venture and/or the
special purpose vehicle.
It is widely accepted that there are three types
of ownership regimes in the joint ventures which
are (i) joint control (50-50), 50 plus one share (50-
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plus) and outright majority control. A variety of
mechanisms are available to firms for exercising
effective control of a joint venture: Right of veto,
representation in management bodies and special intercompany arrangements related to the
management, namely, how the joint venture will
be engaged and what will be the degree of representation. Further, among these control options,
the nomination of the joint venture board of directors, the appointment of key personnel, the
reporting relationships and a variety of informal
mechanisms can be particularly cited.
Turkish corporate law, like many other jurisdictions in either civil or common law, attribute
significant importance to the concept of majority. Save for exceptional circumstances where a
unanimous vote is required, the decision quorum
in the shareholders meetings of joint stock corporations is the majority of the attending shareholders. Likewise, the decision quorum in the board
meetings is also the majority of the attending
directors. Therefore, holding a majority stake in
an international joint venture set up in Turkey
which is subject to the Turkish law would lead
absolute control over the entire activity of the
company accordingly. However, unexpected implications of the concept of “control” may arise
even in case where the international joint venture is established abroad. In particular, a special
purpose vehicle incorporated in the form of an
international joint venture and having an interest
in Turkey is a significant example demonstrating
how the concept of control might play an important role in the event of a dispute. To illustrate,
if the interests of one of the parties of the special
purpose vehicle in the form of an international
joint venture under the joint control are damaged
requiring immediate action related to the investment in Turkey, the degree of representation of
the joint venture entity would have vital importance. In other words, if the interests of one party
are damaged by its own joint venture partner
and if the joint venture itself needs to take actions
under the strict requirements of the Turkish law,
it could lead to total inactiveness of the joint venture vehicle thereby resulting in the total loss of
the entire interests. The only means to overcome
such a deadlock between the joint venture partners is to create the necessary mechanisms allowing the joint venture to take the required actions
in a dispute.
Therefore, the concept of absolute joint control should not be a preferable and viable option
for any operation in Turkey or even anywhere
else to be handled through an international joint
venture and/or a special purpose vehicle given
the potential risks of the legal circumstances
requiring the joint venture to take action on its
own.
Multi-Step Dispute
Resolution Clauses
Seda EREN- İdil KURT
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ulti-step clauses (also referred to as
multi-tiered or escalation clauses)
provide a sequence of multi-levels
of dispute resolution processes.
Along with the fact that arbitration is preferred
relying on its fast and cost-effective nature, parties may give preference to other dispute resolution methods as a preliminary step before arbitration.
The parties often draft the agreement with a
wording as to set forth the first step as an option
to have the dispute resolved by the mentioned
methods. Under these circumstances, this system provides an alternative for the resolution of
the disputes as a right, yet, does not require the
parties to execute such methods as an obligation.
This approach may be based on many different
reasons such as avoiding costs of all proceedings
or the intention not to threaten the commercial
relationship between the parties mostly in longterm business deals. The difference between
these methods to be regarded as a right or an
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obligation arises out of the “agreement to agree”
and “agreement to negotiate” approaches that was
given rise in the Channel Tunnel Case. Therefore,
the wordings of the concerned articles are of extreme importance regarding the revealing of parties’ intentions with respect to the binding nature
of the preliminary dispute resolution methods.
In the event that the preliminary dispute resolution methods are fix ADR methods, as per Article 6.2 of the International Chamber of Commerce
Rules of Arbitration, ICC International Court of
Arbitration has the power to determine that the
arbitration cannot proceed. If the agreement executed by and between the party’s sets forth an
obligatory ADR procedure and if a party raises an
objection, the Court must determine whether Article 6.2 requires it to prevent the arbitration from
proceeding or it must direct this question to the arbitral tribunal in order for it to render its decision.
Following the mentioned procedure, the arbitral
tribunal will be under the obligation to decide on
the effect of the multi-step clause.
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No doubt that each case shall be determined
on its own merits diligently and the same key
does not unlock all doors. Yet again, it is worthwhile to mention that the following elements are
of importance in multi-step clauses referring to
ADR Rules: (i) nature of the dispute, (ii) reasonable attempt to initiate ADR proceedings (intention to fulfill the obligation arising out of the
agreement in good faith with respect to contractual fidelity principle), (iii) whether costs of the
ADR methods would be unreasonably high, (iv)
whether ADR methods have a reasonable prospect of success and also tests the good faith of the
parties.
Turkish law approach does not have clear-cut
jurisprudence regarding this specific issue hereof
and again interpretation of parties’ intentions is
the key to determining whether preliminary dispute resolution methods constitute a right or an
obligation.
New Claim/Counterclaim
Seda EREN - Tuğçe Aslı TURÇAL
P
arties may not go beyond to the scope
of arbitration agreement and may not
bring a claim or counterclaim which
does not fall within this scope
One may not have all necessary components,
calculations or data to set the exact claim/counterclaim at the initial course of arbitral proceedings. Hence, it is of great importance to identify
until when or whether new claim/counterclaim
may be raised during pending arbitral proceedings. The determination of this issue rests on the
arbitration agreement, applicable rules and the
rules adopted in course of the proceedings.
According to the ICC rules, the parties may
raise a new claim/counterclaim by the approval
of the court against the other party arising out of
the transaction in a pending arbitration case, as
per Article 4/6 of ICC Rules of Arbitration; provided that the terms of reference have not been
signed or approved by the court yet. Once the
terms of reference have been signed or approved,
those claims/counterclaims may only be included to the pending case subject to Article 19 of the
same set of rules. Article 19 sets out the prohibition applicable to both parties of bringing new
claims/counterclaims falling outside the limits of
the terms of reference unless the party has been
authorized to do so by the Arbitral Tribunal. According to this article, the Arbitral Tribunal shall
consider the nature of such new claims/counterclaims, the stage of the arbitration and other relevant circumstances to decide on the issue. New
claims/counterclaims falling out of the terms of
reference requested for submission after signing
are prohibited in principle. However, as stated
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above, the Arbitral Tribunal may authorize the
party to bring those claims; if not, then the party
may make such claims in a new case.
I
The Japan Commercial Arbitration Association (JCAA) rules provide a more strict cutoff
date to submit counterclaims compared to Article 19 of the ICC rules. According to the JCAA
rules, further claims/counterclaims amending or
t is of great importance to identify
until when or whether new claim/
counterclaim may be raised during
pending arbitral proceedings.
extending the main claims of parties are subject
to the approval of the arbitral tribunal as regulated under Article 20 of the JCAA Rules stating
that the application of the party is required to be
in writing and the claim/counterclaim shall be
covered by the same arbitration agreement.
London Court of International Arbitration
(LCIA) Rules provide in Article 22 a less strict approach stating which write that unless the parties at any time agree otherwise in writing, the
Arbitral Tribunal shall have the power, on the
application of any party or of its own motion,
but in either case only after giving the parties a
reasonable opportunity to state their views: (a) to
allow any party […], to amend any claim, counterclaim, defense and reply.
In relation to the arbitral proceedings subject
to the Turkish International Arbitration Law No.
4686, Article 10/D-2 provides a more lenient approach stating that the parties, unless they have
agreed otherwise, may amend or extend their
claims and defenses during the course of arbitral
proceedings. That is, in the arbitration process,
extending or amending a claim is not prohibited
in principle; it is rather up to the will of parties.
Nevertheless, this leisure approach should
not be considered an unlimited and left to the
will of parties in full. The arbitrator or the tribunal may bring limitation to these extensions and
amendments under the equality of arms principle by opposing amendments that place the other
party in a difficult position. It is worthwhile to
note that the amendment or extension of claim
or defense so as to exceed beyond the scope of
arbitration agreement is not permitted.
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Role of Local Courts in
International Arbitration:
Preliminary Injunctions
A. Simel SARIALİOĞLU – Seteney Nur ÖNER
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ecent arbitration figures of the International Chamber of Commerce (“ICC”)
International Court of Arbitration indicate that, slowly but surely, Turkey
is to become an arbitration country. The number
of Turkish parties in the ICC arbitration during
1998-2009 had a concrete increase. Whilst the
total number of Turkish parties in the ICC ar-
T
he local court order regarding a preliminary injunction should explicitly
state that the injunction is granted
pursuant to the International Arbitration Law. This is important because a
preliminary injunction granted pursuant to the Code of Civil Procedure becomes ineffective automatically by the
end of the trial process unless explicitly
otherwise stated in the court’s decision.
Whereas, an injunction granted according to the International Arbitration
Law remains in effect until the arbitral
award becomes enforceable.
bitration was 8 in 1998, the number increased
to 36 in 2008 and to 62 in 2009. Triggered by the
adoption of the Turkish International Arbitration
Law, based on the UNCITRAL Arbitration Rules,
known as the Model Law, the arbitral breeze is
likely to pick up pace in the future. Being a civil
law country with its convenient location and
considerably cheap accommodation opportunities, Turkey is no different to big brothers such as
Geneva, Zurich, Vienna, London, etc. in terms of
being an arbitration friendly country.
The welcoming approach of Turkish courts
towards arbitration is also an undeniable factor in the growing tendency. The assistance of
national courts has always been a popular topic
of debate in international arbitration but in the
big pool of various themes, this article intends to
give brief information on obtaining preliminary
injunctions from Turkish courts during or before
arbitration. Talking of arbitration in Turkey, noting the difference between domestic arbitration
conducted according to the Turkish Code of Civil
Procedure and international arbitration subject
to the provisions of the Turkish International
Arbitration Law is important. Within this framework, this article is concerned with granting of
preliminary injunction by local courts in international arbitration.
Why obtain an injunction?
From the perspective of international arbitration, preliminary injunctions are granted for a variety of reasons such as to prevent irreparable harm,
preservation of evidence, to facilitate the enforcement
of the award and production of evidence. However
the Turkish approach to the need of the preliminary injunction is limited in comparison to the
general international attitude.
In general terms, Turkish courts can be requested to grant preliminary injunctions to prevent
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irreparable harm or significant loss that may arise
until an award is given by the arbitral tribunal.
Obtaining a preliminary injunction is of paramount importance especially when the other
party may impose sanctions in case the requested
disputed amount is rejected to be paid. Evidently
the party requesting an injunction should convince the court of the existence of the irreparable
harm or significant loss which is in fact quite perceptual rather than being objective.
How to do it?
In principle, the International Arbitration
Law is applied if there is a foreign element and
the place of arbitration is Turkey. However,
preliminary injunctions may be requested from
Turkish courts where necessary, even when the
place of arbitration is not Turkey.
Both the national court and an arbitral tribunal may grant a preliminary injunction before or
during the arbitration. For domestic arbitration,
it seems that the parties will no longer have this
option, since the new Code of Civil Procedure
which shall be enforceable as of 1 October 2011
provides that the parties may apply to the courts
to obtaining a preliminary injunction if the arbitral tribunal will fail to take the relevant action
in due time or effectively. Other circumstances
when parties can request a preliminary injunction from the courts are if permission is granted
by arbitral tribunal and relevant agreement of
the parties in writing.
The courts’ intervention to the arbitration is
possible when and only if permitted by law but
in Turkish practice, this intervention should not
be contrary to the arbitration agreement between
the parties.
According to Article 10/A of the International
Arbitration Law, if a party obtains a preliminary
injunction before a local court prior to the arbitration, the arbitration should be initiated within 30
days. Otherwise, the preliminary injunction will
automatically become ineffective. This period is
different from and longer than the 10 days period
provided in the Turkish Code of Civil Procedure.
It suits the complex structure of the international
arbitrations.
In case a party seeks a preliminary injunction
in Turkey, he should do it before the competent
courts at the venue of domicile or habitual residence or workplace of the respondent and if the
respondent does not have a domicile, habitual
residence of workplace in Turkey, Istanbul Civil
Court of First Instance.
If a preliminary injunction is granted for a
limited period of time or until the fulfilment of
certain conditions, it automatically becomes ineffective when the determined time expires or the
conditions are fulfilled. If the preliminary injunction was granted before initiating arbitration, the
arbitration should be initiated within 30 days.
Otherwise the preliminary injunction becomes
ineffective.
What should be in it?
The local court order regarding a preliminary injunction should explicitly state that
the injunction is granted pursuant to the International Arbitration Law. This is important
because a preliminary injunction granted pursuant to the Code of Civil Procedure becomes
ineffective automatically by the end of the trial
process unless explicitly otherwise stated in the
court’s decision. Whereas, an injunction granted according to the International Arbitration
Law remains in effect until the arbitral award
becomes enforceable.
Having said the above, in practice it may
take longer than expected for an arbitral award
to become enforceable. Especially for arbitrations
governed by the International Arbitration Law,
the parties may apply to Turkish courts for the
annulment of the arbitral award.
Therefore, when requesting a preliminary
injunction pursuant to International Arbitration
Law, it should be made clear that the injunction
is requested under this relevant law. The request
should also explicitly list the items for which a
preliminary injunction is requested and should
also be mentioned in the relief sought because the
courts base their decisions on the relief sought.
What about the practice?
In international practice, all of the important
international arbitration rules allow the parties to
seek judicial recourse for purposes similar to those
available in Turkish law. The ICC Arbitration
Rules have long recognized the right of the parties to apply to the courts for preliminary injunctions. It is no different with the LCIA Rules which
accepts that the power of the Arbitral Tribunal shall
not prejudice howsoever any party’s right to apply to
any state court or other judicial authority for interim or
conservatory measures before the formation of the Arbitral Tribunal, and in exceptional cases, thereafter. The
1961 European Convention on International Commercial Arbitration also favors having the parties
apply to the courts for provisional measures.
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Finance:
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Real Estate Investment
Companies In Turkey
Mustafa Yiğit ÖRNEK
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urkey adopts its capital market regulations in conformity with worldwide
developments. Among others, Real Estate Investment Companies (“REICs”)
became capital markets’ players as of late 90s
and they have developed gradually; thus investors now have a more secure and liberal environment to invest in real estate through REICs. In
Turkey there are currently thirteen REICs which
have obtained permission of establishment and
twenty-one REICs which have been offered to the
public. The value of their collective assets as of
June 30, 2010, is TRY 4.524.117.679. This shows
the intention of the investor to make investments
in real estate sector through REIC, which has also
been incentivized by Turkish laws.
R
eal Estate Investment Companies (“REICs”) became capital markets’ players
as of late 90s and they have developed
gradually; thus investors now have a
more secure and liberal environment
to invest in real estate through REICs.
REICs are principally governed by the Capital
Market Law no.2499 (“Law”) and Communiqué
on Principles Regarding Real Estate Investment
Companies Serial VI No. 11 (“Communiqué”).
Establishment and Share Capital
REICs may be established as a new joint stock
companies or may be established through the
conversion of an existing joint stock company
into a REIC by amending their Articles of Association (“AoA”). The formation of a REIC is subject to the Communiqué as well as the approval
of Capital Market Board (“CMB”) and Turkish
Ministry of Industry and Commerce. In both cases REICs are required to have a minimum capital of TRY 20,000,000 and must adopt registered
capital system.
If issued share capital of a REIC is less than
TRY 50 million, at least 10% of its issued shares
should be issued with cash consideration, and if
the issued share capital of the REIC is equal to or
more than TRY 50 million, shares representing at
least TRY 5 million of its issued shares should be
issued with cash consideration.
Another requirement for REIC is that at least
one of the current shareholders should be a leading shareholder which is defined under the Communiqué as a shareholder/s having at least 20% of
the total capital who have fulfilled the conditions
stipulated under the Communiqué. If the leading
shareholder is a person, the total current value of
his assets shall be at least TRY 10,000,000, if there
is more than one leading shareholder in the company, the total value of their whole assets should
be at least TRY 20,000,000.
In addition to the above, the company shall
not sell out any privileged securities and real
estate certificates other than shares permitting
nomination of candidates in election of members
of board of directors. Besides, once the shares of
a REIC have been offered to the public , no privilege can be issued including the privilege enabling its holder to nominate a candidate to the
board of directors It is also stated under the Communiqué that the privileged share ratio which
would enable management control, may only be
owned by the leading shareholders during the
incorporation or conversion process and until the
expiry of two (2) years from the date of completion of sale of shares that is required to be offered
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to public under the Communiqué. The transfer of
privileged shares is subject to the CMB approval.
Please also note REICs shall in no way aim to
control the capital and management of any company that they participate in and their shareholding in subsidiary company may not exceed 5%
of the capital and voting right of such company.
Public Offering
At least 25% of issued capital of REICs have
to be offered to public. REICs must apply to the
CMB for public offering within 3 months after
their incorporation if it is a newly established
company or within 3 months after the registration of the amendment of AoA with the Trade
Registry if it has converted into a REIC. REIC status will be cancelled in case a public offering is
not realized with the permitted period. Longer
periods are permitted for REICs which were established prior to 31 December 2009.
Management and Asset Structure
According to Article 17 of the Communiqué,
members of Board of Directors and auditors
should have graduated from a higher educational
institution of four year term and have experience
of minimum three years in fields such as law,
construction, banking and finance which are di-
rectly related to real estate investments. At least
1/3 of the board members have to be independent
and they should not represent shareholders.
At least 50% of the assets of REICs are required
to be invested in real estate or rights to real REICs
are required to invest at least 50% of their portfolios
in real estate, real estate backed rights or real estate
projects. The sum of a REIC’s investments in capital markets instruments, deposits, share certificates
and participations in subsidiaries is permitted by
law to constitute up to 50% of its portfolio, while
investments in time and demand deposits may
constitute up to 10% of its portfolio. Furthermore,
REICs may invest up to 49% of their portfolio in
foreign real estate and foreign real estate backed
rights. REICs cannot invest more than 10% of their
portfolios in idle land which remains vacant for a
period of at least five years.
Tax benefit
As an important advantage, all profits of REICs are exempt from corporate tax. Although
there is tax exemption for corporate tax, a 15%
internal withholding tax, regardless of whether
or not the profits of the REIC are distributed, is
applicable. Nevertheless, currently, the rate of internal tax withholding rate is 0%.
Recent Developments in
Public Offerings
Ferda DUMRUL
C
apital markets facilitate fund raising
opportunities which generate investment to achieve sustainable growth.
Public offerings play a pivotal role in
ensuring that goal and offer a wide range of opportunities for companies, including low-cost
funding, institutionalization, liquidity for shareholders, and credibility.
Having noted that only a small proportion
of the major companies in Turkey are listed at Istanbul Stock exchange (“ISE”), Capital Markets
Board (“CMB”) enacted the Communiqué on
Principles Regarding Sales and the Registration of
Shares (Serial I, No. 40) and the Communiqué on
Principles regarding Sales Methods in Public Offerings (Serial VIII, No. 66) to ease burdensome
public offering procedures and to make necessary alignments with European Union standards.
These communiqués came into force as of 3 April
2010 and overruled the former communiqués.
Communiqué Serial I, No.40
The Communiqué Serial I, No.40 not only
made crucial amendments to former provisions
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but also introduced new sales methods and market instruments in an attempt to promote and
streamline the process.
As regards the amendments; first and foremost, the requirement to meet the minimum
initial public offering rates and comply with the
mandatory underwriting requirement is lifted.
With derogation from these rules the issuers are
afforded an important degree of flexibility in determining the volume of their initial public offerings as well as freedom to agree on the terms and
conditions of underwriting of their shares with
intermediary institutions.
Secondly, the new legislation provides for
electronic application process whereby registration of shares and submission of draft prospectus
and circular are made online and published on
the CMB website and public disclosure platform.
The obligation to prepare and submit pre-prospectus throughout the book building process
and requirement to obtain the CMB approval for
book building through announcement method
are also annulled. In addition, the format of prospectus is enhanced to provide extensive information to investors. Another notable innovation
is that the new communiqué allows companies to
make advertisements and announcements prior
to obtaining the CMB’s approval for registration
of shares subject to fulfilment of certain criteria.
In addition to the above, several requirements provided under the former Communiqué
were abolished to make the procedure simpler
and more efficient; for instance requirement for
all consortium members to sign the prospectus,
submission of price determination report to CMB
(in case the sale price is different than the nominal value) and provision of 3 months interim financial statements are lifted.
These amendments are considered to be important initiatives fostering effectiveness, standardization, transparency and expediency in
public offerings.
The shelf registration system had already
been introduced by the former communiqué
however in limited scope. The principles governing the system and implementation thereof are
clarified. According to the current provisions,
companies registered with the system may offer
their shares at any time during the calendar year
commencing from the date of registration without the need to go through the full and lengthy
legal procedures once again.
The newly introduced method of sales to eligible investors is another remarkable innovation
of the new legislation whereby issuers may sell
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their shares to a particular target of investors defined as domestic and foreign investment funds,
investment trusts, intermediary institutions,
insurance companies, portfolio management
companies etc., without the need to prepare and
publish prospectus and circular. Likewise, the
obligation of submission of prospectus and circular is also annulled in allocated sales of listed
companies granting the companies dynamism
and freedom to sell the shares to particular investors with great ease. There is no qualitative or
quantitative restriction as to sales to eligible investors, nevertheless targeted investors must not
exceed 100 in allocated sales method.
Communiqué Serial VIII, No. 66
The most significant amendment introduced
by Communiqué Serial VIII, No. 66 is the liberalisation of determination of price, sale and distribution methods. In order to ease the sale and
disposition requirements to the benefit of companies and investors several other amendments are
introduced as well.
First of all, the minimum allotment rate requirement, namely mandatory offering to domestic individual and corporate investors is
reduced to 10% for each group whereas the
former communiqué, was requiring 30% or 50%
depending on the total sale amount.
The new communiqué also provides that
minimum allotment rate requirement would
not be applied if stock exchange selling method
is used. In addition to above companies are afforded the facility to amend the allotment rates
in 20% margin provided that they reserved their
right to exercise this right in the prospectus.
There are also new incentives for payment
of sale of stocks and new payment methods are
introduced. Cash and non-cash promotions can
be allocated to certain investor groups upon approval of CMB provided that the implementation
thereof is explicitly explained in the prospectus.
As regards payment methods, CMB enabled the
requests to be placed through deposit of liquid
funds, government debt securities and foreign
exchange etc., as long as the responsibility is
borne by issuer, selling shareholder or intermediary institution.
The important changes in the legislation are
very much welcomed by the companies, investors as well as the intermediary institutions. These
amendments are expected to increase the volume
of public offerings and create the synergy and dynamism to accelerate the development of market.
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Banking Regulation and
Supervisory Agency
Control of Factoring
Transactions in Turkey
Mustafa Yiğit ÖRNEK - Ferda DUMRUL
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actoring, meaning an assignment of due
or future receivables which must be evidenced by an invoice or similar records,
is a financial tool introduced in Turkey
in the late 1980s. Factoring terminology entered
banking legislation with the enactment of the Decree Regarding Loan Transactions published in
the Official Gazette on 6 October 1983 No. 18183
. In line with developments in the finance sector,
more detailed provisions came into force with the
Regulation on Principles Regarding Incorporation and Activities of Financial Leasing, Factoring
and Finance Companies published in the Official
Gazette on 10 October 2006 No. 26315 (“Regula-
actoring sector has a rapid progress
in financial markets and has
succeeded to be one of the popular
financial instruments in recent years.
tion”). Factoring sector has a rapid progress in
financial markets and has succeeded to be one of
the popular financial instruments in recent years.
Many sectors especially textile, apparel, metal,
machinery, food, plastic, automotive, and furniture benefit from factoring services.
With the experience of several financial crises in the past, strict provisions are stipulated
regarding establishment of factoring companies.
Currently, incorporation and activities of factoring companies are regulated by the Banking
Regulation and Supervision Agency (“BRSA”).
Incorporation of a factoring company is subject
to the BRSA permit and operations are inspected
by the BRSA as well. Factoring companies must
be established as a joint stock company with a
minimum paid capital amount of TL 5,000,000,
shares must be registered. In addition the BRSA
examines whether or not shareholders have sufficient financial capacity. Factoring companies
cannot undertake assignment and collection of
receivables lacking the evidentiary background
of a sale such as an invoice. Breach of such requirement may lead to cancellation of the factoring license.
Within the scope of its supervision duty on
factoring transactions, the BRSA recently enacted
the Circular Regarding Factoring Transactions
dated 8 July 2010 (“Factoring Circular”) which
draws attention to some irregularities and introduced certain measures to avoid illegal practices
adopted in market.
Throughout the inspections of the BSRA, it
has been determined that certain factoring companies have acted without carrying out necessary
due diligence to ensure the accuracy of invoices
or other relevant records submitted by their
customers; they omitted to control whether the
invoices are forged or false as a result of which
forged and copied invoices have deliberately
been used to provide financing. The BRSA also
determined those factoring companies illegally
provided financing against cheques or promissory notes issued/endorsed to factoring companies which are to be considered as security rather
than the subject matter of the transaction itself.
In its Factoring Circular, the BSRA requires
that finance shall only be provided to customers who provide respective invoices issued for
sale of goods or services and factoring amount
and interest or commission generated as factoring revenue shall not exceed the total amount of
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invoices. In case of international factoring where
the factoring coverage is 100%, commission and
interest may be charged additionally.
With respect to the cheques/promissory notes
provided as security of the collection of due receivables, the chain of endorsement must be controlled assuring that the endorser is actually the
creditor and endorsee is the debtor as per the invoice issued for receivable. A cheque/promissory
note which is independent from the underlying
contract may also be requested, nevertheless, no
financing shall be utilized for such negotiable instruments, financial records should annotate that
negotiable instruments are kept as security and
they may not be pursued in the absence of default under the factoring transaction.
The Circular stipulates that factoring companies should work on “know your client” basis and
refrain relying on “statements” or “verbal confirmation” of clients in respect of respective factoring transaction. Accordingly, factoring companies have to carry out necessary investigations on
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customers and monitor compliance and accuracy
of information stated in invoices. Internal control
systems have to be established in order to verify
the accuracy of invoices/documents and to analyze financial status and reputation of customers.
Necessary checks should also be undertaken in
respect of debtors of invoices.
Invoices should be kept properly with a
sticker stating the amount assigned to factoring
company and customer should seal such sticker
with company seal. The assignment list has to
be signed by customers. In order to avoid negative impacts of cancellation of invoices factoring
companies must act prudently and an undertaking must be obtained from customers regarding
notification of cancellation or reissuance of invoices. As factoring companies are responsible
of identifying whether invoices are forged or not,
they should keep relevant records with respect to
inquiries and investigations that they have conducted and submit such investigation report to
the BRSA if requested.
Privatization of
Motorways
Ahmet ÖZTÜRK - Ferhan KARADENİZ
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he first attempt to privatize eight toll
motorways and two bridges (which are
under the responsibility of the Turkish Highways General Directorate
(“THGD”)) via transfer of operating rights was
made by the Privatization Administration (“PA”)
with its decision dated April 19, 2007 and numbered 2007/25. The PA resolved that the privatization proceedings would be finalized by December 31, 2008.
Upon application of the Association of Protection of Consumers (“APC”), on August 4, 2008
the Council of State, rendered a stay of execution
decision since underlying legislation was missing. The Council of State stated that scope and
limits of privatization of motorways and bridges
should be clearly regulated with relevant legislation the Council of State further underlined the
necessity of regulating the rights and obligations
of the government and private sector pertaining
to the post-privatization era. Based on the foregoing, the Council of State ruled that motorways
and bridges may not be privatized unless the legal framework regarding proceedings for priva-
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tization stipulated under the Privatization Law
No. 4646 is reflected in the legislation concerning
motorways. The PA objected to such decision of
the Council of State; however such objection was
rejected on April 16, 2009 and accordingly the
privatization of motorways and bridges had to
be postponed.
On June 25, 2010, the Turkish Grand National
Assembly adopted the Law on the Establishment
and Duties of Turkish Highways General Directorate (“Law No. 6001”). The rationale behind this enactment was to fill the legislative gap identified by
the Council of State. Some of the new arrangements
introduced by the Law No. 6001 are as follows:
●● The THGD is clearly entitled to transfer its
operational rights over motorways to private
operating companies pursuant to Privatization Law No. 4646;
●● Maintenance, repair and operation facilities
and service facilities in connection with the
roads and motorways are defined;
contract executed by and between the government and operating company.
Following the enactment of the Law No.
6001, the PA cancelled its previous decision (dated April 19, 2007) and adopted a new decision
(dated October 15, 2010 and numbered 2010/88)
in which it ruled that operation of all motorways
and bridges within the scope of the privatization
would be transferred to one operator only and
for a period of 25 years (the “Second Attempt”).
The motorways under of the privatization program are as follows:
1 Edirne-İstanbul-Ankara Motorway
2 Pozantı-Tarsus-Mersin Motorway
3 Tarsus-Adana-Gaziantep Motorway
4 Toprakkale-İskenderun Motorway
5 İzmir-Çeşme Motorway
6 İzmir-Aydın Motorway
7 Bosphorus Bridge
8 Fatih Sultan Mehmet Bridge
9 Gaziantep-Sanlıurfa Motorway
T
he Council of State ruled that motorways and bridges may not be privatized unless the legal framework
regarding proceedings for privatization stipulated under the Privatization Law No. 4646 is reflected in the
legislation concerning motorways.
●● Toll rates will be calculated each year as per
the methods stipulated under the concession
contract executed between the government
and operating company;
●● The motorways will be kept as toll motorways during the privatized period;
●● In case of need for expropriation in relation to
privatized motorways, the THGD will carry
out such expropriation procedures. Costs of
expropriation may be partially collected from
the operating company pursuant to the contract executed by and between the government and operating company;
●● The penalty fees for unpaid tolls will be collected by the operating company and 60% of
the penalty fees will be transferred by the operating company to the Treasury;
●● The issues pertaining to infrastructures (such
as construction and transfer of water, gas and
oil pipelines and electricity lines) over the
privatized motorways will be governed by
10 İzmir, Ankara and Fatih Sultan Mehmet Bridge Ring Roads
Although Law No. 6001 was enacted to
avoid further cancellation attempts, the APC announced on its website that it has initiated another lawsuit against the Second Attempt of the PA
on October 25, 2010; however, the details of the
APC’s arguments have not been disclosed yet.
The new deadline for the completion of proceedings has been envisaged as December 31,
2012. The maintenance, repair and operation facilities, service facilities and toll collection units
and other service areas located over the aforementioned motorways, ring roads, connection
roads and bridges are also included in the scope
of privatization. When compared to the previous
attempt of the PA, the scope of the privatization
remained the same except for inclusion of “other
units relating to production of equipment and
services”.
Timing for the launch of tender is not stated
in the recent decision of the PA. It is expected that
the tender shall be launched in 2011.
As local press indicates international investors such as Australian Macquarie, Spanish Abertis, Portuguese Brisa, French Bouygues, Japanese
Ithochu Corp and Italian Autostrade are interested in privatization of motorways. The PA is also
keen to have a very competitive tender and it has
recently contacted 15 firms.
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Sukuk and Its Emergence in
the Turkish Capital Market
Ferhan KARADENİZ
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R
ccording to the conservative estimates of the ten-year framework and
strategies, Islamic investment principles govern more than $1.2 trillion
of assets. Such principles form part of Shari’ah,
which is often understood to be ‘Islamic Law’,
but it is actually broader than this as it also embodies general spiritual and moral obligations in
Islam. In the Persian Gulf and Asia, Standard &
Poor’s estimate that 20% of banking customers
would now spontaneously choose an Islamic financial product over a conventional one with a
similar risk-return profile.
ecently, a new capital instrument
has been introduced in the Turkish
capital market which is similar to
sukuk representing ownership in
tangible assets.
Islamic capital markets are expected to grow
in line with the development and deepening of
the financial markets generally, the increased
issuance of new Shari’ah-compliant stocks and
sukuk. Sukuk (legal instrument, deed, check), the
plural of sakk, is the Arabic name for financial certificates and commonly refers to a financial paper
demonstrating entitlement of the holder to the
amount of money shown on it. It is the Islamic
equivalent of bonds. Since fixed income and interest bearing bonds are not permissible in Islam,
sukuk securities are structured to comply with the
Islamic law and its investment principles, which
prohibit charging, or paying interest.*
The central merit of sukuk structure is that it
is based on real underlying assets. This approach
discourages over-exposure of financing facility
* http://www.ibisonline.net/En/Policy_Dialogue/TenYearFrameworkAndStrategies.pdf
beyond the value of the underlying asset, given
that the issuer cannot leverage in excess of the asset value. Types of sukuk are basically as follows:
sukuk representing (i) ownership in tangible assets (ii) usufruct or services (iii) equity share in
a particular business or investment portfolio and
(iv) receivable or future goods. The sukuk markets are expected to receive a huge boost from
the dynamism of real estate markets, sovereign
needs to finance infrastructure projects, and corporate needs for stable income-generating financial instruments.
Recently, a new capital instrument has been
introduced in the Turkish capital market which
is similar to sukuk representing ownership in tangible assets.
Turkish Capital Market Welcomes Lease
Certificates
The Communiqué on Principles Regarding
Lease Certificates and Asset Leasing Companies
with the serial III, no: 43 (the “Communiqué”)
entered into force upon its publication in the Official Gazette on April 1, 2010. The Communiqué
enables private sector companies to provide funds
from capital markets through issuance of lease
certificates. A new type of company has been introduced with the enactment of the Communiqué,
namely, Asset Leasing Company (“ALC”).
What a lease certificate is and how it is
structured?
A lease certificate is an instrument which
is very similar to sukuk securities. By means of
lease certificates, companies may generate funds
through ALCs. Basically, the system works as
follows; owner of leasable assets, which is a joint
stock company (Transferor) transfers such assets to an ALC, the ALC leases such assets to
the Transferor and generates rental revenue,
the ALC issues lease certificates based on rental
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revenue and the ALC transfer assets back to the
Transferor company. Rental revenue is distributed among the lease certificate holders pro rata
with their shares. Lease certificates are therefore
regarded as a genuine alternative to the conventional interest-based banking system.
Under the Communiqué, a Transferor transfers its own assets or leased assets from third
parties to ALCs for the purpose of leasing these
assets back from ALCs. An ALC is structured as
a special purpose vehicle in the form of a joint
stock company and minimum requirements for
G
iven the widening range of debt
instruments in capital markets,
Islamic bonds further support
development in financial markets
and extend investors’ choices.
incorporation are stipulated under the Communiqué. ALCs may only be incorporated by intermediary institutions, banks or Transferors as
a joint stock company solely for the purpose of
issuance of lease certificates. Articles of association of ALCs should be drafted in line with the
provisions of the Communiqué and approved by
the Capital Market Board.
An ALC may only deal with assets owned
by one Transferor and each time only one type
of lease certificate may be issued. ALCs may not
obtain loans of whatsoever nature and may not
engage in any other activity.
Payment dates under lease certificates are determined by the board of an ALC and such information has to be disclosed in the offering circular.
The offering circular should include the details
required by the Capital Markets Board. In case of
allocated sale or sale to qualified investors, there
is no need for an offering circular. ALCs should
comply with public disclosure requirements.
Lease certificates have to be registered with the
Central Registry Agency. Lease certificates may
be traded at stock exchange. Redemption of lease
certificates is regulated in a contract.
Given the widening range of debt instruments
in capital markets, Islamic bonds further support
development in financial markets and extend investors’ choices. The new practice of the Capital
Market Board presents a favourable opportunity
for investors to play a more pro-active role in the
real estate market. In order to enhance the use of
lease certificates, Turkish Republic Central Bank
very recently executed an agreement with International Islamic Liquidity Management Corporation (IILM). Accordingly, participation banks
may purchase certificates from IILM via Central
Bank and in consideration of certificates they
could satisfy their liquidity needs. This is a really
important development for participation banks
since they are trade conventional bonds.
The Public Offering
of Foreign Capital
Instruments in Turkey
Ahmet ÖZTÜRK
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he first public offering of a foreign
company on the Istanbul Stock Exchange (“the ISE”) was launched in
the last quarter of 2010. The Vienna-
based DO&CO Restaurants & Catering AG (“
Do&Co”), a catering company having a joint
venture in Turkey with Turkish Airlines (“THY”)
named THY DO&CO İkram Hizmetleri A.Ş, received a record demand of 1.14 billion Turkish
Liras (approx. USD 730 million) and 28.90% of
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its shares have been traded on the ISE since December 2, 2010. The public offering took place
just after the execution of the new Communiqué
on Principles regarding Registration of Foreign
Capital Instruments and Depository Receipts
(Serial No. III and No. 44) (the “Communiqué”)
which is more flexible than the previous one.
The Communiqué is applicable to (i) initial
public offering of foreign capital instruments
(“FCI”) and depository receipts; (ii) private
placement of FCIs and depository receipts and/or
sale of such to qualified investors; and (iii) issuance of gratis shares of foreign partnerships that
are listed on the ISE. Please note that public offering of foreign investment funds is not covered by
this Communiqué.
Pre-Conditions for Listing of Foreign Capital
Instruments
T
FCIs may be offered to the public by a foreign
investor, representative or depository agent. In
he Communiqué aims to facilitate
integration of the Turkish capital
markets with global markets and
to increase offering of more FCIs in
Turkey.
case a representative is used a written contract has
to be executed. A written contract is also a must
between representative and depository agents in
case of issuance of depository certificates. If a depository institution qualifies as a representative as
defined in the Communiqué, it could also act as
representative. A representative must be an intermediary institution based in Turkey or banks that
do not accept deposits. A representative should
ensure that financial and administrative rights attached to foreign capital instruments are used in
accordance with the laws of the state where the
foreign partnership is incorporated. A representative is responsible for accuracy of the information disclosed in the offering circular, it should
also fulfill the disclosure requirements pursuant
to Turkish capital market legislation, and disclose
daily close price of listed shares.
The pre-conditions that need to be satisfied
prior to public offering of FCIs are as follows:
●● FCIs must be listed on at least one a stock exchange. In case a FCI is not listed, being not
listed shall not be due to protection of investors.
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foreign currencies for which daily exchange
rates are announced by the Central Bank of
the Republic of Turkey.
●● There must be no restrictions over FCIs regarding their sale or attached rights or payment conditions in Turkey;
●● There must be no restrictions regarding transferability and circulation of FCIs or restrictions prevent its owners to dispose his rights.
Furthermore, there should be no usufruct
right attached to such shares.
●● Foreign partnership issuing such shares must
have an investment grade among the long
term credit ratings from a rating agency that
are approved by the Capital Market Board of
Turkey (“CMB”).
The Communiqué does not discriminate local
shares and FCIs regarding registration process
with the CMB, preparation of prospectus and circular, and offering and sale of FCIs, accordingly
same rules will apply. The application for quotation at the ISE and registration application to the
CMB must be completed simultaneously .
What’s new in the Communiqué?
The Communiqué aims to facilitate integration of the Turkish capital markets with global
markets and to increase offering of more FCIs in
Turkey. The main developments introduced by
the new Communiqué could be listed as follows:
●● It is no longer mandatory to realize the public offering of FCIs via depository receipts.
●● In case of public offering of FCIs via depository receipts, the requirements pertaining to
foreign partnership (such as being incorporated at least two years before offering and
making profits in its last year’s audited financial statements) have been lifted.
●● The FCIs do not need to be listed on a stock
exchange.
●● The initial application procedure (to verify
whether the FCIs, depository receipts and the
issuers comply with the CMB’s regulations)
set forth under the old communiqué do not
exist in the new Communiqué.
●● Financial statements of foreign partnerships
need to be prepared in accordance with the
standards set forth for the listed companies
by the CMB regulations or, if approved by
the CMB, in accordance with international accounting standards.
●● The value of FCIs must be denominated in
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The consolidation of the
infrastructure market
in Turkey and its legal
framework
Francesco FERRARI
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nvestors are usually surprised to discover
that Turkey put BOT concessions and other
similar schemes in place more than 25 years
ago and that it successfully used them since.
For example, the first piece of legislation setting out the regime of BOT and Transfer of Operation Rights (TOR) schemes applies to the energy sector and dates back to 1984 (Law no. 3096),
while the 1988 Law on Assignment of Construction, Maintenance and Operation of Highways
(Law no. 3465) regulated the application of the
BOT scheme to the construction, maintenance
and operation of motorways under private law.
Since then, many other sectors introduced
similar schemes and procurement methods, in
1994, transportation and water supply were allowed to use BOT schemes; in 1997, thermal power plants followed; in 2005, the air transportation
sector was opened to TOR schemes of up to 49
years for airports and terminals; also in 2005, the
healthcare sector was reformed, first creating the
Turkish legal framework for PPP contracts and
later enacting an ad hoc PPP Regulation that actually made them happen.
As the above legislation was being passed,
Turkey started developing an ambitious privatization programme that often involved TOR
schemes, and that led to the establishment in
1994 of the Privatization Administration, which
so far has raised more than USD 40bn for the government to invest in other sectors, as well as rescue the country from the financial crises of 1994
and 2001.
A New Era
Turkey is now beginning a new era with another batch of ambitious projects: the USD6bn
Gebze-Izmir motorway, running 420km and including a 3km bridge, is now working towards
financial close, an impressive USD5bn privatization of toll roads (8 motorways and the 2 bridges
over the Bosphorus) will be tendered in the first
quarter of 2011, the launch of seven new PPP
hospitals worth hundreds of millions of dollars,
with the first 1,500 bed Kayseri hospital expected
to be awarded soon, and, finally, other assets,
mainly in power generation, still in the hands of
the Privatization Administration will be privatized in 2011.
In this ambitious environment, investors may
wonder whether Turkey really needs a PPP law
and what the status is of the legislation that has
been attempted many times. The confusing and
sometimes contradictory legal framework described above has, after all, accomplished much
in recent years, as is evident in the projects that
have been procured, awarded and even completed.
The Ministry of Health (the “Ministry”) developed its own PPP regulation, on the basis of
Law no. 5396, to procure and develop PPP projects aimed at reforming and changing radically
the shape of Turkish hospitals and healthcare
services for generations. A PPP unit responsible
for the procurement of the new projects was also
established within the Ministry. Based on the
said law, the Ministry may initiate new projects
(the scope and conditions of projects are predetermined by the Ministry in line with High Planning Council decision), over ministry or Treasury land through lease which shall not exceed 49
years. Projects shall be realised via public tender.
Tender method, eligibility criteria of contractor,
scope of contract and other relevant issues shall
be prepared jointly by the Ministry of Finance,
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The Ministry, State Planning Organization and
Treasury and shall be implemented by Council
of Ministers’ decision.
The draft PPP law has been circulating in
various government and parliamentary offices
for more than three years and it is hard to see
anything other than political reasons for it not
being enacted. Whatever the reason, the market
has developed and rapidly expanded without it.
Benefits of the New Law
Though it would be early to make an assessment as the draft PPP law is not as yet finalized,
some advantages can already be identified based
on the current text.
First of all, PPPs will not be left only to the initiative of the more proactive ministries, but will
be a tool accessible to all ministries and sectors.
We may eventually see the development of PPP
schemes for schools, universities, prisons, social
housing, street lighting, waste disposal, waste to
energy, water distribution network, light rail, etc.
Secondly, participants in all industries will
be able to operate in an environment where the
same rules and principles apply, although of
course some sector specific issues will be left to
be resolved by the authorities competent for that
sector. A uniform and stable set of rules and principles will help create confidence in the market,
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especially among international investors, local
and foreign banks, and the infrastructure investment funds that have yet to jump into the Turkish
arena.
The draft law provides for different schemes
applicable to PPP projects: BOT, BO, TOR and
similar schemes. Also, the partnership to be established between the private and the public sector will never see the latter holding the majority
of the shareholding in a project, as the public
authority’s shareholding can be between 0% and
49%.
The draft law says PPP contracts between
the public sector and the private sector will be
subject to private law, but it also provides that
tenders of PPP projects will not be subject to the
Public Tender Law no. 4734, but to a separate and
tailor-made set of procurement rules more in line
with PPP standard tender requirements.
The duration of the PPP contract cannot exceed 49 years, which seems a reasonable term
even if some countries and some sectors have
gone higher on certain rare projects. Finally, the
public sector will be entitled to provide guarantees (such as traffic guarantees, occupancy rates,
other demand guarantees), as long as such guarantees comply “with market standards.”
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Turkey Welcomes its New
Merger Control Regime
Kübra ŞIVGIN
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s of January 1, 2011 Turkey welcomed
its new Merger Regulation or officially referred to as the Communiqué
Concerning The Mergers and Acquisitions Calling for the Authorization of the Competition Board No:2010/4 (Communiqué No.
2010/4). Albeit various shortcomings and flaws
were encountered in practice with the old Communiqué – the use of market share threshold versus turnover threshold – that jeopardized legal
certainty, mergers and acquisitions that need to
be notified to the Turkish Competition Board (the
“Board”) under the new regulation will have to
comply with extended requirements compared
with the previous regulation, Communiqué No.
1997/1. “Short form” notifications under the new
regime are available for those transactions that
brand new concept that has
completely changed the overall
merger control regime is the notion
of “affected markets.
meet certain requirements as detailed below, yet
for those that fail to meet the requirements, “long
form” notifications will have to be performed,
which certainly entail more disclosures than its
counterpart. It is clear that the development of
Turkish economy since 1997 necessitated this
change in the law, where in which transactions
have become more complex, demanding additional disclosures than before. Nevertheless, it is
clear that Turkish competition law is being further harmonized with European Union competition law as the new Turkish regime resembles
that of EU’s Merger Regulation*. The ensuing discussion shows the changes that have come about
with the new regulation while comparing it EU’s
regime.
While the old Communiqué used a system of
market share thresholds that resulted in legal uncertainty, Communiqué No. 2010/4 uses a threshold system that is based on turnovers which eases the undertakings to make their assessments.
More specifically, transactions have to be notified
if: (a) Total turnovers of the transaction parties in
Turkey exceed 100 million TL, and turnovers of
at least two of the transaction parties in Turkey
each exceed 30 million TL, or (b) Global turnover
of one of the transaction parties exceed 500 million TL, and at least one of the remaining transaction parties have a turnover in Turkey exceeding
five million TL.** It should be emphasized that
in the calculation of the turnovers, in case of a
transfer of those parts of the transaction parties
with or without legal personality, only the turnover of the part transferred will be taken into account with regards to the transferor. In addition
to calculation of the turnover, another relevant
concept that is new for Turkish law but familiar
to EU’s Merger Regulation is the concept of conditional/closely related transactions.***
*
Council Regulation (EC) No 139/2004 of 20 January
2004 on the control of concentrations between undertakings (the EU Merger Regulation)
** It should be underlined here that the Board has reserved the right to re-establish the thresholds every
two years.
***Communiqué No. 2010/4 Art 8(5) states: “Two or
more transactions under paragraph 2 of this Article, carried out between the same persons or parties
within a period of two years, shall be considered as
a single transaction for the calculation of turnovers
listed in Article 7 of this Communiqué.” Similarly,
Art 5(2) of EC Regulation No 139/2004 states “two
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More importantly, a brand new concept that
has completely changed the overall merger control regime is the notion of “affected markets”. It
entails the relevant product markets that might
be affected by the transaction to be notified and
includes horizontal relationships where two or
more of the parties are commercially active in the
same product market and vertical relationship
where at least one of the parties is commercially
active in the downstream or upstream market of
any product market in which another party operates. The affected market concept also plays
a role where the transaction does not affect any
markets, the parties do not need to file a notification form with the Board. The lack of necessity to
notify here is qualified in terms of joint venture
transactions for which notification is not required
as long as the thresholds are exceeded.
T
The Board’s authorization of the notified
transaction will also cover those limitations
which are directly relevant and required for the
he affected market concept also plays
a role where the transaction does not
affect any markets, the parties do not
need to file a notification form with
the Board.
implementation of the transaction, hence ancillary restraints. By this, the Board will no longer
devote a separate part of its decisions to ancillary
restraints and thus the parties themselves shall
assess the ancillary status of the restraints contained in their transactions. Thus, as long as the
major transaction is approved, so will its ancillary restraints, such as non-compete and/or nonsolicitation clauses. This once again resembles
the EU’s regime where the ancillary restraints
benefit from the Commission’s approval of the
main concentration.*
As far as procedural changes, it could be argued that the new system works in favor of the
notifying parties as they can opt for a so-called
“short form” where either one of the transaction
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parties acquires full control over an undertaking
in which it had joint control, or, for any affected
market within Turkey, the sum of the market
shares of the transaction parties is less than 20%
for horizontal relationships, or the market share
of one of the transaction parties less than 25%
for vertical relationships. For all other instances,
the parties still have to notify with a long form,
which necessitates disclosures on import conditions, suppliers, customers in the affected markets, market entry conditions as well as a detailed
analysis of efficiency gains.
In merger or acquisition transactions, the date
of implementation is the date when the control is
changed, which once again harmonizes the Turkish regime with that of EU. Likewise, joint notifications are to be made with a single form. As
in the EU, a copy of the final or current version
of the agreement concerning the notified merger
or acquisition can be enclosed with the Notification Form. Hence, this would permit the parties
to file before the transaction document is signed,
whereas in the old regime executed document
was required.
Last but not least, the M&A’s existence will
no longer be confidential. The Board now publishes the notified transactions on its official website, together with the relevant undertakings and
their fields of operation, extracting commercial
secrets. As such, competitors or any other interested third parties can submit electronic information on the Board’s website that is relevant to the
transaction.
Overall, the new system has introduced a
brand new form that certainly requires a lot
more information, yet is more harmonized with
the EU’s Merger Regulation. Short form and long
form distinctions are welcome as the short form
permits parties to save significant time. The new
system brings more clarity, especially in terms
of threshold calculations. Nevertheless, given
the Board will review applications based on this
form for the first time, uncertainties hang as far
as the Board’s interpretations to the new terms
(i.e. affected markets) which will only get clearer
with time.
or more transactions within the meaning of the first
subparagraph which take place within a two-year
period between the same persons or undertakings
shall be treated as one and the same concentration
arising on the date of the last transaction.”
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EC Regulation No 139/2004 Art 6(1)(b) “A decision declaring a concentration compatible shall be
deemed to cover restrictions directly related and
necessary to the implementation of the concentration.”
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Intellectual Property
Rights versus Competition
Rules: Parallel Imports
Ayşe GÜNER
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recurrent conflict between Intellectual Property law and Competition
law in Turkey stems from parallel
imports—defined as the legal importation of a good by third parties after the good
has been placed on the Turkish market with the
consent of the right holder. The key question always hangs on whether the Intellectual Property
Right (“IPR”) holder may legitimately oppose
the importation of a particular good into Turkey. A quick look at the current state of law in
other jurisdictions, such as the European Union,
shows that once the goods are placed anywhere
in the common market, the IP rights are deemed
exhausted, and the parallel importation of such
goods cannot be restricted as it would violate the
he key question always hangs
on whether the Intellectual
Property Right (“IPR”) holder may
legitimately oppose the importation
of a particular good into Turkey.
freedom of movement of goods. Turkish law, on
the other hand, takes a protectionist approach in
terms of IPR exhaustion (also referred to as the
“first sale” doctrine) given that the principle of
national exhaustion prevails over that of international exhaustion. As such, if a particular good
has never been marketed in Turkey, its supplier
could rightfully seek an injunction to stop the importation of the goods on the basis of a registered
copyright, trademark or a patent license.
Take, for instance, an international cosmetics
manufacturer who finds out that their most recent shampoo bearing their TM was just import-
ed into Turkey via an alternative chain of supply
from a country bearing the same TM where the
product was first marketed into, and the supplier for various reasons withheld its marketing
in Turkey. Certainly, the importation into Turkey
was without the supplier’s authorization. In such
a case, IP rights would most certainly prevail
over any competition policy. In many instances,
however, the issue is not as simple because the
goods have already been launched in the Turkish
market. In that case, unless the goods were imported via illegal means, from illegal producers
or constitute counterfeit goods, competition policy would not permit restriction of the imports.
Parallel imports in Turkey have been considered by its courts from various angles, particularly under the Trade Mark Act as well as Act
No 4054 on the Protection of Competition. Both
Turkish Trademark law as well as Turkish Competition law fails to provide explicit reference to
parallel imports. The Decree-law No 556 (Trade
Mark Act) in Article 13 provides exhaustion of
trademark rights where the product has been put
on the market in Turkey by its proprietor or with
his consent. Once that first sale with the registered mark affixed on it has been made, the right
holder can only prevent changes to the condition
of the good or impairment of such.*
Under Act No 4054, the Competition Board
(“Board”) evaluating competition-law aspects
of parallel imports looks to whether a vertical
agreement, one that is solely to restrict parallel
imports exists between the supplier and its authorized distributor in Turkey [Article 4(d) analysis], or in the alternative, it looks to determine
whether the undertaking supplying the goods
in a particular brand holds a dominant position
*
Decree No 556, Article 13
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where it would be deemed abusing that position
if it prevents another entity from entering into
that market [Article 6(a) analysis].* Under both
analyses, any restriction against parallel imports
would violate either Article 4(d) or Article 6(a).
While recognizing that IP rights protect from
free-riding, as parallel imports provide intrabrand competition, the Board in its relevant case
law underlines that the IPRs must be balanced
with competition rules so as to ensure consumer
wellfare.** One way to safeguard consumer wellfare through parallel imports would be to guarantee that the imported goods are not hindered
from competing with the authorized distributor’s
prices. Moreover, the Board has touched upon
international price discriminations, where the
goods sold into Turkey via selective distribution
system differ in price from the goods sold into
other countries. The suppliers may do this, for
instance, to either achieve market presence in
countries where they either newly enter or else
seek to increase their market presence. Parallel
O
verall, the Board sides with the
idea that the more bans on paralel
imports are attempted by suppliers
and their autorized distributors, the
less consumer wellfare would be
achieved.”
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torized distributors, the less consumer wellfare
would be achieved. Nevertheless, any allegations
of anticompetitive acts would fail provided that
either no agreement/concerted practice exists to
ban parallel imports or the product does not have
a significant market share.
As the Board has so far only considered the
same products being imported, one issue that remains is where the goods and products that are
imported are not exactlly the same quality, but
are rather similar quality, for instance those with
of lower quality (cheaper product variants). Given international exhaustion of IPRs in Turkey is
not yet recognized, it could be argued that where the goods are of less quality and where they
have never been placed into the Turkish market,
a supplier or its distributor hold more convincing
arguments that such goods can be banned from
sale. Nevertheless, global consumer wellfare would suggest that in such cases, not only intrabrand but also interbrand competition would be
implicated. It can be further suggested that parallel importation of similar products should be
permitted under competition policy.
imports are one way to balance these price variations in different countries. Overall, the Board
sides with the idea that the more bans on parallel
imports are attempted by suppliers and their au* Act No 4054, Article 4(d) prohibits “agreements
and concerted practices between undertakings, and
decisions and practices of associations of undertakings which have as their object or effect or likely
effect the prevention, distortion or restriction of
competition directly or indirectly by complicating
and restricting the activities of competing undertakings, or excluding firms operating in the market by
boycotts or other behavior, or preventing potential
new entrants to the market.” Article 6 provides that
“the abuse, by one or more undertakings, of their
dominant position in a market for goods or services
within the whole or a part of the country on their
own or through agreements with others or through
concerted practices, is illegal and prohibited.” One
such abusive case under Art 6(a) is “preventing, directly or indirectly, another undertaking from entering into the area of commercial activity, or actions
aimed at complicating the activities of competitors
in the market.”
** See for example Case No 00-44/472-257 and Date:
6.11.2000; Case No 07-63/767-275 and Date: 2.8.2007;
Case 05-79/1099-316 and Date: 24.11.2005
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Turkey’s Signing
the Convention on
Cybercrime
Tolgahan KARKIN – Burak ÖZDAĞISTANLI
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The Convention on Cybercrime
he rapid and almost uncontrollable
revolution in information technologies
changed the society and we believe it
will continue to do so. According to recent stats there are around 2 billion internet users
worldwide. * Considering the current total population of the world, it is clear that more than 28%
of the world population is directly or indirectly
open to the impact of cybercrimes.
T
The increasing importance of cybercrimes
can be understood by looking at internet usage
statistics. When compared with 2000, the number
of internet users has increase almost 444 %. It is
clear that such an increase cannot be ruled out
and necessary steps should be taken in order to
regulate this area.
he signing of the Convention is very
significant because it is expected to
create co-operation between signing
states.
Recognizing this need, the Council of Europe drafted the Convention on Cybercrime following 5 years of work by committees and subcommittees and the Convention’s final text was
presented for signature in Budapest on November 23, 2001. Although the Convention has been
prepared by the Council of Europe, it was open
for both member and non-member states to sign
because combating cybercrimes is a global issue
and the Convention is the first international trea*
http://www.internetworldstats.com/stats.htm
ty dealing with crimes committed using means of
internet and computer technology.
The Convention has been a huge step forward for regulation and description of crimes by
means of internet and computer technology. It
sets forth the internationally accepted definition
of types of cybercrimes.
The aim of the Convention is to develop common regulations in the signing states and to create a common policy to protect the society against
cybercrime by creating and easing international
co-operation between signing states.
The Convention primarily deals with crimes
such as copyright infringement, data interference, system interference, violations of network
security, child pornography and computer related fraud and forgery. Procedures and powers related to search and seizure of the computer data
and collection of internet data are also regulated
under the Convention.
The Convention was signed by 26 member and 4 non-member countries on the day of
opening for signature. Member countries including the UK, France, Germany and Italy and
non-member countries including the U.S.A., Japan and Canada are within the countries which
signed the Convention on its date of opening for
signature. Since November 23, 2001, 47 countries
signed the Convention, Turkey being the 47th.
Turkey signed the Convention on Cybercrime w.
ETS no. 185 and the Additional Protocol to the
Convention on the Transfer of Sentenced Persons
on November 10, 2010.
Combat Against Cybercrimes in Turkey and
Impact of the Convention
As stated above, Turkey’s signing of the Convention is very recent and the Convention has
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not been ratified by the Grand National Assembly of Turkey as yet. Once the ratification process
is complete, national laws will be aligned with
the Convention. However until the ratification,
the Turkish Criminal Law w. No. 5237 and Law
No. 5651 will continue to be the most important
pieces of legislation regarding combating cybercrime in Turkey.
The Turkish Criminal Code w. no. 5237 came
into force in 2004. Due to being a new law, most
of the crime types regulated under the Conventions have already been stipulated by the Turkish
Criminal Code w. no. 5237. Crimes such as illegal
access to computer systems and prevention of the
functioning of a system and deletion, alteration
or corruption of data, recording of personal data
etc. are regulated under the Turkish Criminal
Law no. 5237.
Although most of the cybercrime types are
already regulated under Law no. 5237, prosecution and investigation of such crimes constitute
the main difficulty and this confirms the need for
effective regulation regarding cybercrimes. Due
to broad accessibility and mobility brought by Internet, cybercrimes can be committed from other
countries regardless of geographical distances
and therefore the prosecution and investigation
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of such crimes become difficult to prosecute due
to differences in jurisdictions and poor co-operation between judicial authorities in different jurisdictions.
The signing of the Convention is very significant because it is expected to create co-operation
between signing states. In this respect, it is believed that more states should sign the Convention and be a part of this cooperation process.
We believe that following Turkey’s ratification of the Convention, cross-jurisdictional cooperation will improve and the enforcement
authorities will make use of international resources. In this regard, Turkey has taken a very
important first step towards modernising its
legislation bringing it in line with international
laws against cybercrimes; however there is still
substantial work to be done. In order to complete
this transition, the Convention should be carefully examined and the local legislation should
be adapted rapidly. Furthermore, like the other
signing states, local preparations such as establishment of 7/24 contacts should be completed
as soon as possible to realize the requirements of
the Convention.
Combatting Counterfeit
Healthcare Products
Süleyman SOYSAL - Alize TUFAN
T
he trend in illegal trade of counterfeit
goods continues to increase. Healthcare
products, including pharmaceuticals,
still constitutes an important product
category upon which counterfeiters concentrate.
There are actually many reasons for this. First of
all, there is a consistent and increasing demand
for pharmaceutical product consumption. Second, as counterfeit pharmaceutical products are
manufactured very close to their genuine versions, it is really hard for an average consumer
to notice if he/she has purchased a counterfeit
product. As counterfeiting in healthcare products affect not only the rightholders but also
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the patients in general, enforcement authorities
should carefully monitor this issue and take exofficio action where needed.
Pharmaceuticals
The Turkish Criminal Code contains two
provisions regarding the prevention of trade of
counterfeit/spoilt pharmaceutical products. Pursuant to Article 186, one who sells, provides or
possesses spoilt drugs that may affect others’
lives and health shall be subject to 1 to 5 years
imprisonment and a judicial fine. Further, Article
187 stipulates that manufacturing such spoilt
products shall require the same penalties. If these
offences are perpetrated by officials, such as doctors or pharmacists, the penalties are aggrevated
by one third.
O
As stated above, there are sufficient and effective criminal sanctions in criminal legislation
against manufacturing and selling of counterfeit
pharmaceutical products. However, in practice,
ne who sells, provides or possesses
spoilt drugs that may affect others’
lives and health shall be subject to
1 to 5 years imprisonment and a
judicial fine
the offence that is frequently observed is not the
sale of fake products but fake packaging and
price tags.
Packaging and Price Tags
As it is very easy to obtain pharmaceutical
packaging from any printhouse, perpetrators
tend to commit such offence in order to gain illegal benefits by cheating the reimbursement system. Unfortutanely, the provisions stated above
regarding fake drugs, cannot be applied to such
offences, as the wording of the Criminal Code
provisions is limited to drugs and food.
If the circumstances of each case allow, i.e.
if the fake packaging or price tags are actually
used to obtain illegal benefit from the reimbursement authorities, the provisions on forgery and
fraudelent activity can be applied. If such are not
submitted to any authority, then the remaining
action to be taken isunder the protection of trademark rights.
troduced pharmaceutical tracking system, where
products will be identified by 2D barcodes starting from the manufacturing phase. It is possible
to process each product in the reimbursement
system only once, as each barcode allows one
single transaction. It is expected that this new
system, will help a lot in reducing the fake packaging and price tags.
Medical Devices and In Vitro Test Devices
Another group that counterfeit products are
sold to the customers are the medical devices
and in vitro test devices. As stated above, there
is a legal gap for these products as well, as the
Criminal Code explicitly prohibits only pharmaceuticals and food.
Rightholders also face parallel import of expired or spoilt devices. In such case, they are able
to apply to the courts and prosecution offices
with the request to cease trademark infringement, as spoilt or expired products can not be
presented to the market under a protected trademark. Otherwise, the original trademark would
be harmed.
It is also possible to make administrative
complaints to the relevant departments of the
MoH, as the use of such devices constitutes hazard to the patients’ health.
Combat with Counterfeit Pharmaceuticals in
Practice
Police units have developed their skills to investigate the sources of counterfeit products and
packaging. The products seized during the police
investigations are examined by the MoH and the
results are submitted to the prosecution offices.
In the recent term, the most frequently observed counterfeit products are slimming pills,
afrodisiac products and products used for preventing hair loss, etc.
Another increasing trend is the increase of
selling pharmaceutical products via the Internet. This is definitely in breach of legislation, as
in Turkey only pharmacies are authorized to sell
pharmaceutical products. Another vital aspect
to combat this issue is public awareness. Consumers should be educated via newspapers, TV
and radio channels, to purchase pharmaceutical products only from pharmacies and to avoid
any proposal from third parties to get involved
in claiming their payments from the reimbursement authorities.
Recently, the Ministry of Health (“MoH”) in-
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Reform of the
Turkish Constitution &
Privacy Rights
Ayla ÖZENBAŞ
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ne of the most prominent and spoken
about changes in 2010 was reform of
the Turkish Constitution. On September 12, 2010, a referendum was held
as a result of which the Constitution reform package was adopted introducing sweeping changes
largely affecting the political and judicial system
in Turkey. Amongst these changes, the right to
protection of personal rights and privacy enshrined in the constitution has been bolstered.
Although, the Constitution before the reform
protected privacy rights at a certain level, as a
result of the reform, protection of personal data
has been strengthened whereby the new rights
have been granted, the scope of existing rights
has been expanded and new positive measures
have been introduced for the protection of privacy. The changes echo the principles laid down in
the Convention for the Protection of Individuals
with regard to Automatic Processing of Personal
Data and consequently data processing is more
controlled and individuals have been provided
with rights available under EU legislation.
New Laws & Liabilities
Prior to the amendment, the Constitution afforded protection of personal data and set forth neither a person nor private papers, nor belongings, of
an individual shall be searched nor seized without
legal reason or excuse. These rights have been reinforced and everyone has the right to ask for protection of his/her personal information including the
right to be informed of personal data pertaining to
such person, the right to access, delete and/or correct such data and the right to find out whether the
data is being used in accordance with the purpose
for which it was collected. It can be seen that there
is a notable difference whereby data processing is
more controlled and individuals have been provided with more specific rights similar to those available to individuals in the EU.
In 2008, Turkey prepared a Draft Law on
Data Protection (“Draft Law”) in accordance
with the European Union Data Protection Directive No.95/46/EC and Commission Decision
2001/497/EC of 15 June 2001, which in light of the
recent changes to the Constitution is expected
to be enacted shortly. The provisions of the EC
Directive have been mirrored in the Draft Law
and it practically affords the same protection
and imposes similar duties on those involved in
processing data. Broadly speaking, the Draft Law
sets forth that everybody has the right to know
whether their personal data has been recorded
and confidentiality of all data collected must be
guaranteed by law. Another important development is that it clearly establishes individual
rights but more importantly focuses on control
and monitoring of data processing.
In general terms, the Draft Law permits personal data to be processed to meet legal obligations, where the data subject provides consent
or if the processing of the data is necessary and
in the public interest. It imposes strict conditions for processing data ensuring data stored is
obtained and processed fairly and lawfully, for
specified and legitimate purposes and not used
in a way incompatible with those purposes. The
right to access data stored to check accuracy and
where necessary correct, modify or delete data,
as well as, specific regulation for “sensitive personal data” has been introduced. It has also defined procedures and governing principles to
be applied when dealing with data processing,
increasing liability and obligations of those involved in data processing to ensure data protection when data is collected, stored or transferred.
Furthermore, a Data Protection Authority shall
be established to monitor and govern compliance
and provisions regarding enforcement stipulating criminal liability and monetary fines have
been included.
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Compliance & Considerations
As a result of the amendment to the Constitution, individuals are more aware of their rights
and liability of data processors. It is expected
that the Draft Law and recent amendments to the
Constitution shall act as a catalyst for change in
the manner in which data is processed and managed. It is without doubt that the amendment of
the Constitution will result in improved protection and has placed those processing data under
a legal duty to process data lawfully.
The Draft Law clearly sets forth obligations
under which data processors are to operate and
an authority for regulation and monitoring of
data processing shall be established. This is a significant development as although there are laws
in place and sanctions for breach, enforcement
of data privacy leaves a lot to be desired and in
practical terms, there is little stimulus for those
processing data to ensure privacy of such data is
respected. The new developments will appease
concerns and will inspire confidence in Turkey’s
attitude towards privacy. Consequently, all busi-
nesses shall need to seek legal advice and reconsider policies and business ethics in light of their
obligations with regards to data protection.
The issue of data protection compliance is
unavoidable as with today’s global economy, the
free flow and exchange of information is indispensable in operating almost any business. The
need to transfer and share data, be it, employee
data, customer data, marketing data, and other
information is essential to run an efficient and
competitive business. Sharing data has obvious
benefits but with the current focus on privacy and
data protection it also carries compliance issues
for multi-national businesses. In this respect, it
is vital that businesses are aware and properly
advised of the boundaries and obligations of
the law to ensure compliance and avoid legal
repercussions. Seeking advice from experts that
closely monitor the advancements and follow the
statutory changes and adoptions is a necessity,
as is seeking sound legal advice at an early stage
rather than when compliance becomes an issue,
prevention is always better than cure.
Public Discounts in
Reimbursement of
Pharmaceutical Products
İbrahim YAMAKOĞLU
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omparing to the reimbursement practices of various countries in the past decades, today it can be observed that the
general trend in the world with respect
to reimbursement of healthcare expenditures by
the governments is that in order to ensure the
social security principle, governments allocate a
considerable budget for healthcare expenditure.
In most countries the largest part of the budget
is allocated for healthcare expenditures whilst
the remaining part of the budget is allocated for
other public services in the said countries such
as education, military defense etc. Likewise, the
budget for the reimbursement of pharmaceutical products has the largest share amongst all the
other healthcare services. In this article we will
deal with the recent issues and changes in the
legislation in Turkey with respect to reimbursement of pharmaceutical products.
In the Turkish Constitution, the State has the
responsibility to establish healthcare institutions
to ensure the health of the public and to establish
the social security system for the same purposes.
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Therefore, the Turkish State established a Social
Security Institution (“SGK”) in order to provide
the social security services to the public as provided in the Turkish Constitution. The major responsibilities of the SGK may be listed as the protection of public health and financing of general
health security and healthcare expenditures of
the citizens. Pursuant to the relevant legislation,
the healthcare expenditures that are reimbursed
by SGK are, inter alia, pharmaceutical products,
medical devices, vaccine, medical disposables.
In order to reduce the pharmaceutical product related expenditures of the State, in recent
years, the Turkish government has amended the
legislation to reduce pharmaceutical product
prices and to increase the public discounts for
the pharmaceutical products that are purchased
by the government. In this respect, the reference
price system was introduced in 2004 whereby
the highest ex-factory price of a pharmaceutical
product in Turkey must not exceed the lowest
I
t is natural that governments may
provide legislative changes in order to control public expenditures.
However, such unexpected and high
increase in public discounts in the recent term negatively affected investment and operational plans of the
pharmaceutical companies in Turkey.
ex-factory price of the same product in the 5 reference countries’ (France, Italy, Spain, Portugal,
Greece) markets. Since then to date the reference price system has changed to some extent;
however, basically today the price to wholesaler
of an original product can be maximum 66% of
the lowest price to wholesaler of the 5 reference
countries as well as the origin country or the
country where the product is imported from.
In Turkey, the main purchaser of the pharmaceutical products is the Turkish government with
a 90% percent purchase volume in the pharmaceutical market; thus it can be argued that in order to survive and generate meaningful profits in
the Turkish market, pharmaceutical companies
should make the most of their products placed
in the reimbursement list of the SGK. Therefore,
right after the product is granted with the marketing authorization, pharmaceutical companies
apply to the SGK in order to place the product
in the reimbursement list. Although being reimbursed by the State brings certain advantages,
it also has a down side where additional public
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discounts are imposed by the State for the sales
to the public.
In Turkey, the principles for the reimbursement of healthcare expenditures and the relevant
public discount ratios are regulated under the
Social Security Implementation Communiqué
(“SUT”) which was issued by the SGK. In 2008,
the public discount rate in the SUT was determined as 11% both generic and original pharmaceutical products unless the products price was
below TL 3.56 for which the public discount ratio
was 4%. Then in December 2009 a change was
made in SUT whereby the public discount ratio
for original products which have no generic in
the market was increased to 23%. According to
the most recent legislation change on December
11, 2010 in the SUT, for original products which
have no generic in the market the public discount
has been determined as 32.5%; whereas for the
original products which have generic in the market and for all the generic products the public
discount rate has been determined as 20.5%.
It is a fact that due to the recent global financial crisis many countries have been applying certain measures for financial stability. The Turkish
Government allocated a budget of TL 14.6 billion
for pharmaceutical products expenditures and in
order to achieve this target, it decided to reduce
pharmaceutical product prices and to increase
public discount rates if the said budget is exceeded. According to the retrospective evaluation of
SGK for 2010, it was determined that the said
budget of TL 14.6 billion has been exceeded and
accordingly the Government started negotiations
with the players in the pharma sector in order
to understand their willingness to contribute in
compensating the said budget deficit. Although
the pharmaceutical companies were not happy
to be imposed additional public discounts, they
had to accept such additional 9.5% ratio. In 2011,
it is expected by the sector that, these measures
will be reviewed every 3 months and decreased
if there are grounds to do so.
It is natural that governments may provide
legislative changes in order to control public
expenditures. However, such unexpected and
high increase in public discounts in the recent
term negatively affected investment and operational plans of the pharmaceutical companies
in Turkey. For instance some companies had to
decide for layoffs, and some decided not to continue importing certain products. For the future,
a compromise should be found in order to strike
a balance between decreasing public costs and allowing public to access new treatments.
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Clinical Trials
Sinem TEOMAN
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n Turkey, clinical trials was first regulated
by the Regulation on Pharmaceutical Researches published in the Official Gazette
dated 29 January 1993 with no. 21480 and
Good Clinical Practices Guideline dated 29 December 1995.
With the publication of the Regulation on
Pharmaceutical Researches and relevant guidelines, implementation of clinical trials became
much more stable. However, new needs and institutional requirements were raised and a new
regulation, namely, the Regulation on Clinical
Trials (“Regulation”), which is in parallel with
the EU Directives 2001/20/EC and 2005/28/EC for
the purpose of harmonization, was published by
the Ministry of Health (“MoH”). The Regulation
was published in the Official Gazette dated 23
December 2008 with no. 27089 and finds its basis in Article 43 of Decree Law on Organization
and Duties of the MoH with no 181 and Article
3/1(k) of the Law on Healthcare Services with no.
3359. The Regulation sets forth the principles and
procedures regarding design, conduct, record
keeping, reporting, validity, volunteer rights and
other aspects of clinical trials to be conducted
within the framework of EU standards and Good
Clinical Practice.
Following the publication of the Regulation,
the Turkish Medical Association filed a lawsuit
with no. 2009/3991 E. for annulment of some provisions of the Regulation with a stay of execution request before the 10th Chamber of Council
of State, which is the high administrative court
and appeal authority in Turkey. Although this
lawsuit is still pending, so far two important suspension decisions have been issued, i.e. first by
the 10th Chamber and the latter by the Highest
Assembly of the Council of State, i.e. the Assembly of Administrative Chambers.
With the first suspension decision dated 13
November 2009, only some of the provisions of
the Regulation had been suspended. The Council
of State, in light of the local laws, Convention for
the Protection of Human Rights and Dignity of
the Human Being with regard to the Application
of Biology and Medicine dated 4 April 1997 and
the Helsinki Declaration, decided for suspension
of the provisions on informing subjects before
the commencement of the trial, payments regarding pharmacokinetic and bioequivalence studies,
rewards provided to subjects, the Clinical Trials
Advisory Board which was established under the
MoH and Regional Ethics Committees, simultaneous application to ethics committee and the
MoH and silence of the MoH for amendment requests in clinical trials.
Pursuant to Article 28 of the Administrative
Procedural Law, the administrative authority is
required to establish a transaction in accordance
with the suspension decision within 30 days
of the notification; therefore, the MoH made
amendments on March 2010 in accordance with
the first suspension decision. However, later on
15 July 2010 a second suspension decision was issued in accordance with the objection made by
the Plaintiff Party, i.e. the Turkish Medical Association, which caused suspension of the whole
of the Regulation. The reasoning of this second
suspension, in summary, was that the Regulation
had been published without a legal basis, despite
the constitutional requirement that integrity of
the human body can be limited only by law. It is
stated in the decision that although Article 43 of
the Decree Law and Article 3/1 (k) of the Law No.
3559 were referenced as a basis of the Regulation,
there is no provision which grants authority to
the MoH regarding regularization of clinical trials performed on human subjects.
Consequently, the Regulation is not applicable as of today. All the relevant parties are
looking for a solution and we are in a transition
phase, where the government is expected to en-
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act a law. Meanwhile, only, the ongoing studies
which were previously approved and permitted
continue.
Although enactment of a new law is awaited, the MoH published various announcements
and guidelines on performance of clinical trials in December 2010 on the official website of
the General Directorate of Pharmaceuticals and
Pharmacy, i.e. Guideline on Ethical Approaches
at Clinical Trials Performed on Pediatric Population, Guideline on Collection, Confirmation and
Submission of Reports on Adverse Event/Reaction Occurred During Clinical Pharmaceutical
Researches, Guideline on Means of Application
to Ministry of Health at Clinical Trials, Guideline
on Performance of Audits Regarding Good Clinical Trials Concerning Sponsor and Contract Research Organization, Guideline on Independent
Data Monitoring Committees.
First of all, it should be noted that only enforcement of the Regulation was suspended, but
the MoH still has administrative and executive
power over clinical trials. In other words, effect
of the suspension decision is limited and merely
ceases implementation of the Regulation, it does
not absolutely conclude or abolish all clinical trials.
Constitutional Law sets forth “Excluding medical obligation and circumstances stipulated at the law,
bodily integrity of persons shall not be harmed and
scientific and medical trials shall not be experimented
without consent of the relevant person.” Furthermore, Article 3/1(k) of the Law No. 3559 states
“(…) Usage of the pharmaceuticals and combinations
on human with the intention of scientific research is
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forbidden without obtaining permissions of Ministry
of Health and relevant person even if these products
are permitted or registered. Production, importation
and sales of pharmaceuticals and combinations which
are not permitted or licensed in accordance with its
specific legislation are also forbidden.”
In the light of the abovementioned provisions,
we evaluate that the MoH still has power to grant
permission regarding commencement and performance of clinical trials and clinical trials can
be carried out in accordance with the principles
published by the MoH, although the Council of
State indicated in the second suspension decision
that Article 3/1 (k) of the Fundamental Law does
not authorize the MoH to regulate clinical trials.
The MoH‘s authority to grant permission is also
confirmed by Article 90/2 of the Turkish Criminal
Code, also confirms this situation as it sets forth
permission of competent committees or authorities are required for the performance of clinical
trials on human subjects.
As stated above, all provisions of the Regulation have been suspended within the ongoing
administrative lawsuit. The Council of State has
not issued its final decision yet, however the suspension decisions surely indicate that a cancellation decision is likely. Consequently, we anticipate that new legislation to be enacted will be in
line with that amended regulation. On the other
hand, we evaluate that during the transition period, clinical trials can be performed in accordance
with the guidelines of the MoH with regard to
authority given under Article 3/(1)k of Law No.
3559; however permission of the MoH should be
obtained under any circumstances.
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Loss Compensation Funds
Sinem TEOMAN
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n various business sectors, companies expand their operations to other jurisdictions.
In that respect, they establish subsidiaries in
accordance with the local legislation of respective counties. Also in Turkey, several companies with foreign capital have been formed in the
past decades under the provisions of the Turkish
Commercial Code (TCC).
Due to various reasons, such as sector specific
problems or general economic fluctuations, businesses may face financial losses and their equity
capital may become insufficient to continue operations. In Turkey, pharmaceutical companies
frequently lived through such process and had
to request their shareholders to inject capital
through loss compensation funds in order to prevent technical bankruptcy. These amounts are
not recorded as revenue into the balance sheet
but transferred to passive balance sheet accounts
under the name of “loss compensation fund”.
However, this practice has been criticized by tax
inspectors and led to tax assessments.
Tax authorities believe that such amounts
should be deemed as revenue, as in reality they
are received in return of providing services to
the parent companies such as promotion and
marketing of services. The tax authorities also
argue that commercial companies are established for profit. As some of the pharmaceutical
companies generated loss for several years, this
has drawn attention of the tax inspectors. Consequently, corporate tax and VAT are assessed
with respect to the “revenue” deemed loss compensation funds.
Companies that are subject to such tax and
fine assessments have three options: (i) accept
the outcome of the inspection (ii) to apply for reconciliation (iii) to file a lawsuit before tax court.
However, if the finding does not lead to a tax and
fine assessment but only ends with correction of
tax declaration, the only resort is to initiate tax
litigation.
The main argument of the taxpayers in challenging tax authorities’ findings is Article 324 of
the TCC. It stipulates that if a commercial company’s capital becomes insufficient in certain ratios, it is required to take the necessary precautions; otherwise it would face the outcome of
technical bankruptcy.
The first level tax courts reach different decisions within the lawsuits filed by taxpayer
companies. Some have simply concluded that a
commercial company cannot continue to generate loss for so long, thus this constitutes a strong
indication that the loss compensation funds have
been received in return of services. While others
have decided that the dynamics of the pharmaceutical sectors should be carefully examined,
and without doing that it would not be legally
appropriate to conclude that the loss compensation funds had been received in return of services.
Parties of these litigations have appealed the
cases. Therefore, as of today, there are several
lawsuits waiting to be finalized by the Council of
State, which is the highest administrative appeal
authority. So far, the 4th Chamber of the Council
of State issued some decisions, where it decided
that the purpose of the taxpayer in continuing its
activities despite the ongoing loss is that it operates in Turkey on behalf of its parent company.
In light of this, we can state that 4th Chamber
does not have a favorable approach. However, it
is believed that, it can issue different precedents
by taking the specifics of each case into account.
Furthermore, VAT disputes are examined by the
9th Chamber, therefore 9th Chamber may display
a different view in this issue.
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Copyright Infringements
on Internet
Özge YURDAL
D
ue to the accelerated trend of sharing intellectual and artistic works on the Internet, copyright infringements in the digital
world are increasing. In Turkey, copyright on intellectual and artistic works is governed by
the Law on Intellectual and Artistic Works with no.
5846 (“Copyright Law”). Although there are certain
provisions in the Copyright Law that address the
rights of copyrightholders, the Law is not sufficient in
finding solutions to prevent and cease the copyright
infringements, as such infringements are committed
by using advanced technological tools.
Like the other rights on intellectual and artistic
works, rightholders have a monopoly over the right
to distribute and publish their works in the digital
world. Article 25 of the Copyright Law clearly stipulates that rightholders are entitled to present their
works to the public and they have the authority to
prevent presentation of their works to the public
without their consent.
A
special notice & take down procedure
was introduced to the Copyright Law
with the 2004 amendment, which allows
rightholders to obtain quick removal of
infringing content from the Internet.
A special notice & take down procedure was
introduced to the Copyright Law with the 2004
amendment, which allows rightholders to obtain
quick removal of infringing content from the Internet. Pursuant to Supplemental Article 4 of the Law,
rightholders first apply to content providers with the
request of removal; and if such do not react positively then they have the right to proceed to the public
prosecutor to cease services provided by the service
provider to the content provider which continues to
publish infringing content.
The Ministry of Culture, who is in charge of
improving the copyright legislation, has plans to
amend Supplemental Article 4. One of the proposed
changes is that the rightholders should submit certain information, such as the details of the allegedly
infringing content and a copy of rightholdership
certificate. The reason for such change is to prevent
groundless applications. Further, if the Supplemental Article 4 is amended, it will be necessary to obtain
approval from the relevant criminal court to process
the decision of the prosecutor.
The Copyright Law does not contain definitions
of content provider, service provider, hosting provider etc. For this, the definitions stated in the Law
on Regulating the Transmission on Internet and Fight
Against Crimes Committed Through These Transmissions w. no. 5651 should be taken into account.
Furthermore, there is also another procedure stipulated in Law No. 5651 to prevent access to websites that
contain certain criminal content. However, this Law is
only for certain offences which in practice are called
“catalogue crimes”, such as obscenity, provision of
narcotic drugs etc. Therefore, such procedures cannot
be applied in copyright infringement cases.
Pursuant to Law No. 5651 and the Regulation
published for its implementation, content, access
and hosting providers who act with commercial or
economic purpose should display certain identification information on their websites. In practice, as
most of the websites do not contain such information, some rightholders skip the phase of informing
the content provider and directly apply to the prosecution offices. This results in website being unnecessarily ceased. Therefore, it is debated in the relevant
circles that the content providers should be properly
informed before applying for cease of their websites.
Once the public prosecutor decides restriction,
such is mostly applied by IP or DNS restrictions.
However, as a matter of global approach, these sorts
of restrictions are limited within domestic borders;
therefore do not provide an effective solution as they
will not be binding on content providers in other
countries. For this reason, instead of IP or DNS restrictions, URL restrictions would be more effective
which will also provide restriction only to the alleged content instead of whole website.
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E-Commerce Gateway to
The World
Eda YIKILMAZ
W
ith the rapid development of the
Internet and information technologies, the world is witnessing
the various results and applications of technology. E-commerce is one of these,
which complements the New World order called
Globalization. E-commerce can be defined as the
exchange of information, goods, services and
payments by electronic means. It has become the
driving force for the innovation of every industry. The belief is that the increased levels of Information Technology usage and diffusion provide
enhanced economic benefits and opportunities
for economic growth.
In 1997 the High Council for Science and
Technology of the Government established a special committee dealing with e-commerce issues,
T
he service provider shall send no commercial communications by e-mail unless the addressees of such material have
explicitly notified the service provider
that they wish to receive that material.
and the administration for science and technology called TUBITAK and the undersecretary
of foreign trade of the prime ministry were assigned to this project. The E-Commerce Coordination Commission (ETKK) held its first meeting
in 1998, and three different work groups were
formed to draft necessary resolutions for the government to regulate e-commerce.
As part of the process of adapting to EU legislation, Turkey made it a national goal to complete
harmonization studies with more flexible audiovisual rules by the end of 2010. To this end, the
Ministry of Trade and Industry prepared a draft
E-commerce Law (“Draft Law”) The Draft Law
was significantly influenced by the EU E-commerce Directive 2007/31/EC (“Directive”).
The Draft Law aims to provide rules to remove
legal obstacles and create a more certain legal environment for e-commerce. It seeks to provide
equivalent treatment for users of paper-based documentation and for users of computer-based information. As a “framework” law, however, it does
not set out all the rules or cover every aspect of
the use of e-commerce. The aim of the Draft Law
is the creation of awareness, confidence, transparency among consumers and service providers.
In accordance with the Draft Law service providers (real or legal persons providing information services), must provide a registration number
or if they do not have registration numbers, they
shall provide other information which identifies
the service provider regarding their commercial
and professional activities before executing an
agreement with electronic communication tools.
Electronic orders
In accordance with the Draft Law, if a customer submits his/her orders with electronic
communication tools, the service provider must
explicitly display the total amount of order
and the terms of agreement before entering the
payment information. Additionally the service
provider has to acknowledge the receipt of the
recipient’s order without undue delay and by
electronic means, the order and the acknowledgement of receipt are deemed to be received when
the parties to whom they are addressed are able
to access them. During the e-commerce activities
the real or legal person on whose behalf the commercial communication is made shall be clearly
identifiable. Also if the service provider would
like to give promotional offers on their website,
promotional offers such as discounts, premiums
and gifts shall be clearly identifiable and the conditions which are to be met to qualify for them
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shall be presented clearly and unambiguously.
Spam e-mails
According to the Draft Law, the service provider should obtain prior written consent from
recipients before sending commercial e-mails.
The service provider shall send no commercial
communications by e-mail unless the addressees
of such material have explicitly notified the service provider that they wish to receive that material. The content of commercial e-mail should be
appropriate and compatible with the recipients
consent and requests. On the other hand please
note that, when the service provider sends e-mail
to merchant, there is no need to obtain prior consent. Recipients have the rights to reject to obtain
these e-mails at any time.
Data Protection
The service provider is responsible and must
guarantee confidentiality of recipients’ personal
data. Personal data may only be passed on to
third parties with the data subjects consent or on
account of a legal duty.
Indemnifications
The service providers who do not fulfill their
obligations arising from the Draft Law, are im-
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posed to administrative fines varying between
1.000 TL and 100.000 TL. If the service providers
send e-mail or SMS to recipients without consent,
they shall be imposed administrative fines varying between 10.000 TL and 100.000 TL
In the preamble of the Draft law, it is mentioned that the Draft Law has been prepared in
accordance with the EU Directives to provide
harmonization with the EU directives. However,
there are several issues that need to be addressed
in order to achieve harmonization of legal and
regulatory systems for e-commerce that could be
acceptable to Turkey.
Parallel to the developments observed within Europe and the rest of the world, Turkey has
to be aligned with the progress in e-commerce
technologies. E-commerce concept should be
introduced, developed and spread among Turkish businesses and citizens. E-commerce should
be welcomed as a national project and should be
perceived as a priority. Therefore, enactment of
the Draft Law is awaited with great anticipation.
To benefit from the changes in the law and ensure
compliance it is important that advice is sought
to avoid missing out on the new advantages and
avoid being penalised for non-compliance.
Misleading Advertising
Hatice EKİCİ
Apart from the quality of a product, its promotion and presentation to the consumer are vital. Day by day, it is getting more and more rapid
for a consumer to form his/her purchasing decisions. Advertisers are well aware of this fact and
they use all means of technology and media to
reach to the mind and heart of the consumer and
affect his/her perception. In that respect, the importance of the advertising sector has intensively
increased in parallel with competition.
Although the vast majority of the advertis-
ers act with good faith and prepare and publish
their advertisements with proper content, there
are also ones who tend to mislead consumers to
obtain unfair advantage by providing incomplete
or incorrect information.
The consumer protection legislation prohibits
misleading advertisements. Under the EU Directive on Misleading and Comparative Advertising number 2006/114 (“Directive on Misleading
Advertising”), misleading advertising is defined
as: “any advertising which in any way, including its
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presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and
which, by reason of its deceptive nature, is likely to
affect their economic behaviour or which, for those
reasons, injures or is likely to injure a competitor”.
Misleading advertising is also regulated in Turkish law under the Consumer Protection Law
(“Consumer Law”) together with the Regulation
on Principles and Application Essentials Regarding Commercial Advertisements and Announcements (“Advertising Regulation”). Misleading
advertisement is not clearly defined neither under the Consumer Law nor the Advertising Regulation. However, in light of various provisions
of the said legislation and the decisions of the
Advertisement Board, the elements of misleading advertisement can be summarized as follows:
●● Advertisements with lack of sufficient information or deceiving context
●● Content that mislead or likely to deceive a
reasonable consumer
T
he Advertisement Board strictly
applies that if the accuracy of
the information provided in the
advertisement cannot be proven;
such advertisement would be
considered misleading.
●● The level of misleading should be material to
the extent affecting the consumer’s purchasing decision.
The Advertisement Board, which operates
under the Ministry of Industry and Trade is the
authorized body to investigate whether an advertisement is compliant with legislation. Either
upon complaint or ex-officio, the Advertisement
Board reviews the advertisements, requests certain information, documents and views from the
advertisers and then reaches a decision, where it
can decide for cease or correction of the advertisement or application of an administrative fine.
The decisions of the Advertisement Board can be
challenged by filing lawsuits before the Administrative Courts of Ankara, where the Board is
located.
ment Self-Audit Board which has been established by the advertisement industry. The purpose of the process before this authority is to
resolve disputes between the advertisers amicably before the issue becomes a legal dispute. The
Self-Audit Board is very efficient in terms of providing rapid solutions. The difference between
the Advertisement Board and the Self-Audit
Board is that the Advertisement Board performs
its evaluation from the consumer protection perspective, while the Self-Audit Board forms its
decisions in accordance with the advertisement
rules established internationally.
As a matter of fact, the Advertisement Board
requires evidence as per the accuracy of the information provided at the advertisements during the evaluation of misleading advertising. The
Consumer Law and the Advertising Regulation
clearly stipulate that the burden of proof is borne
by the advertiser. The Advertisement Board
strictly applies that if the accuracy of the information provided in the advertisement cannot be
proven; such advertisement would be considered
misleading. Moreover, especially precise expressions such as “99.9% success”, “first and only in
the world” need to be soundly evidenced. For instance in a case, “fuel efficiency up to 11.3%” was
considered misleading on account of the fact that
it is not accurate for all vehicles.
It is a fact that it is quite expensive to publish
an advertisement, in particular on a TV channel.
For this reason, advertisers are under pressure of
delivering certain messages in limited time slots.
This sometimes may have a negative impact
whereby the viewers do not understand or misunderstand the message that is being delivered.
Therefore, the Advertisement Board officers
should evaluate the advertisements in light of
this fact. Furthermore, they should develop their
sectoral knowledge, as every sector has different characteristics and to evaluate an advertisement properly the specifics of each sector should
be taken into account. While the advertisers on
one hand should balance their eagerness to promote their products with providing correct and
reliable information, the officers of the Advertisement Board on the other should not only restrict
themselves to the wording of the legislation but
also consider the internationally accepted rules
and standards of advertising.
There is another authority called Advertise-
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Employment
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Obtaining Work Permits
for Foreign Employees in
line with Recent Changes
in the Law
Katharina S. Cihan AKYÜREK
I
n Turkey, the application procedures for
working permits are covered by the Law on
Work Permits for Foreigners and the Application Regulation for the Law on Work
Permits for Foreigners. Additionally, employees
who fall under the scope of the provisions of the
foreign direct investment legislation and foreign
employees who are employed independently,
or dependently, in Turkey are also subject to the
aforementioned legislation.
The Direct Foreign Investment Law and the
Regulation concerning Foreign Personnel Employment in Foreign Direct Investments regu-
A
s in many countries, Turkey is concerned
with high unemployment amongst its
nationals and therefore issuing work
permits to foreigners is a sensitive issue.
To avoid disappointment and providing
a frivolous excuse to reject an application,
it is essential that the application is made
in due time, legal criterion is satisfied and
conditions set by the Ministry of Labour
and Social Security are fulfilled.
lates the provisions and procedures regarding
obtaining a work permit for “foreign key personnel” employed in special direct foreign investments or liaison offices.
In order for a company or branch to be considered a special foreign investment, it must fall within
the scope of the Direct Foreign Investment Law and
shall fulfil at least one of the conditions indicated
in the Regulation, such as, the last year’s turnover,
capital shares of foreign shareholders, last annual
export, minimum number of personnel of the company or branch in question and minimum fixed investment amount foreseen for investments.
Personnel engaged mainly in high-level management and executive posts, in possession of
knowledge of technology and management, research equipment and services of foreign direct
investments possessing particular characteristics
as set out in the Regulation, or, a single person
in a liaison office who has been issued a letter of
authorization by the principal company abroad
are considered foreign key personnel.
As in many countries, Turkey is concerned
with high unemployment amongst its nationals
and therefore issuing work permits to foreigners
is a sensitive issue. To avoid disappointment and
providing a frivolous excuse to reject an application, it is essential that the application is made
in due time, legal criterion is satisfied and conditions set by the Ministry of Labour and Social
Security (“Ministry”) are fulfilled.
Application Procedure
Applications for work permits can be made
either abroad or in Turkey. In this context, a foreigner residing abroad should apply to the Turkish consulate of either his/ her country of residence,
or his / her country of citizenship. However, since
August 2, 2010 it is mandatory for an employer to
apply to the Ministry for a foreign employee’s work
permit through an online application system. The
employer shall also submit the required application documentation to the Ministry within 10 days
of the application date.
Work permits granted to foreigners become
valid upon obtaining a valid residence permit.
Therefore, foreigners who obtain work permits
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should apply for an entry visa within 90 days of
obtaining a work permit and then apply to the
Ministry of Internal Affairs for a residence permit
within 30 days of entering the country.
Foreigners who already have a residence permit valid for a minimum of 6 months, except for
residence permits for educational purposes, or
their employers can apply directly to the Ministry to change his or her residence permit to a residence permit for work purposes and this must
be completed within 30 days of obtaining a work
permit. As of August 2, 2010 the online system
shall also be used for such applications.
The Ministry may issue the following types
of work permit:
●● A work permit for a definite period valid for
a maximum of 1 year and may be extended
for up to 3 years on the condition that the employee is working in the same workplace or
enterprise and in the same job. At the end of
the 3 year legal working period, the terms of
the work permit may be extended for a maximum of 3 more years to work in the same
profession with any employer.
●● A work permit for an indefinite period may
be granted to foreigners who have resided in
Turkey legally and continuously for at least
8 years or who have worked for a total of 6
years in Turkey.
●● An independent work permit may be granted
to foreigners who work independently, on the
condition that they have resided in Turkey legally and continuously for at least 5 years.
●● In exceptional cases, certain groups of foreigners set out in the relevant legislation may
be granted work permits notwithstanding the
terms stipulated by the law, on condition that
they do not act contrary to national regulations and that they comply with the regulations on professional services.
In comparison to a regular application obtaining work permits for foreign personnel is a swifter
procedure. In this procedure, documentation
proving that the company or branch is a special
foreign investment and the foreign personnel is a
key personnel shall be submitted to the Ministry.
Criteria
Recently, amendments have been made to
work permit applications. In line with the amendment of the Application Regulation for the Law on
Work Permits for Foreigners, when considering the
employment of a foreigner rather than a Turkish
national, the Ministry considers the nature of the
business, foreigner’s educational background, contribution of the workplace to the national economy;
and the appropriate wage level in conformity with
such qualifications and employment status.
Thus, the Ministry’s decision set out certain
evaluation criteria which have been applied since
August 2, 2010.
A workplace which requests a work permit
to employ a foreigner should employ at least 5
Turkish nationals. If the foreigner requesting
a work permit is a partner of the company, the
Ministry will request fulfilment of the requirement to employ 5 nationals for last 6 months of
the 1 year work permit. If work permit applications for more than 1 foreigner are submitted,
the requirement to employ 5 Turkish nationals
applies for each foreigner to be employed. Moreover, the following financial requirements apply:
●● The paid-up capital of the company must be
at least TRY100,000; or
●● Its annual gross sales shall be at least
TRY800,000; or
●● It must have exported goods to the value of at
least $250,000 in the past year.
If the foreigner requesting a work permit is a
co-partner of a company, that person shall own at
least 20% of the shares in the company and this
percentage shall correspond to at least TRY40,000.
The wage declared by the employer to be
paid to the foreigner shall comply with the foreigner's position and competence. In this context, minimum wages for certain positions (e.g.,
senior managers, engineers and architects) are
determined by considering the minimum wage
amount effective as of the application date.
The legal requirements for the work permit
application and evaluation criteria may change
depending on the occupation of the foreigner
and the sector. The Ministry carefully examines
whether the position in question can be filled
by a Turkish national because the government's
policy is to combat unemployment.
In this context, obtaining work permits for
persons such as engineers and architects is more
difficult as there are complex legal requirements
that must be fulfilled. Accordingly, before issuing a work permit the Ministry requests approval
of the Higher Education Council and the Union
of Chambers of Turkish Engineers and Architects
for certain issues. Moreover, companies that plan
to employ foreign expert personnel for engineering, architecture, construction and consultancy
services should also employ Turkish nationals in
the same profession and prove their employment
by submitting copies of their payslips. Therefore,
the specifics of each case should be considered
independently for each work permit application.
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Impact of Certain Events
that May Occur in the
Course of Lawsuit for
Reinstatement to Work
Ezgi ÖZDEMİR
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s per the Labour Law No. 4857 (the
“Labour Law”), an employee who
has worked for at least 6 months under an employment contract for an
indefinite period at an employer’s workplace,
where 30 or more employees are employed shall
benefit from job security provisions. Hence, an
employer who intends to terminate an employment contract of such employee can only terminate the contract for reasons determined under
the Law and must follow the procedures specified. In this context, in accordance with the Law,
an employer who wishes to dismiss an employee
who benefits from job security provisions should
base such termination on “an objective valid
E
ven if the employment contract of
an employee is terminated prior to
the transfer of business, in case an
employee initiates a Reinstatement
Lawsuit within the prescribed term,
employment contract of subject
employee shall be deemed to
continue during the proceedings.
cause”. The Law enumerates situations which
constitute an objective valid cause relating to efficiency or behaviour of such employee or necessities (requirements) of the enterprise, workplace
or work. The scope and content of each category
of objective valid cause has been clarified by
precedents of the Court of Appeals. In addition
to basing the termination on a valid objective
cause, an employer must respect statutory notice periods stated under the Law and provide
the employee with the statutory period of notice.
In the event the employer does not want the employee to work during notice period, the employer must pay the employee an amount equivalent
to the pay he/she would have received if he/she
had worked the term of notice (notice pay).
An employee that benefits from job security
provisions may initiate a lawsuit for reinstatement to work (“Reinstatement Lawsuit”) in case
of invalid termination, i.e. termination without
an objective valid cause. The burden of proof
substantiating that the contract was terminated
for a valid objective cause rests with the employer. Upon the labour court’s final ruling in
favour of an employee stating termination was
invalid, an employer must either reinstate an
employee to work or must pay the employee reinstatement compensation not to be less than an
amount equivalent to four months’ and no more
than eight months’ salary of the employee. This
compensation is paid in addition to notice pay
and severance pay (which at this point should
have already been paid assuming that such payments are made upon termination). Regardless
of whether the employee is reinstated to work
or not, the employer pays an amount equivalent
to up to four months’ salary of an employee and
other entitlements for the time s/he is not reinstated to work until the issuance of the labour
court’s final ruling.
Within this article, we have explored the impact of a number of events that may occur in the
course of a Reinstatement Lawsuit.
A.Inviting the Employee to Work
An employee may be invited to work by the
same employer that is party to the proceedings
in the course of a Reinstatement Lawsuit. In this
case, unless an employee explicitly withdraws
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from the lawsuit, the proceedings shall continue
and the court shall evaluate the validity of termination taking into consideration conditions during termination. If the court decides invalidity of
termination, a payment in an amount equivalent
to up to four months’ salary of the employee
and other entitlements for the time an employee
is not reinstated to work shall be awarded, this
amount shall be determined by taking into account the termination date until reinstatement to
work. However, proceedings in respect of reinstatement to work of such employee shall be over
and no payment of reinstatement compensation
shall be awarded since the employee has already
been reinstated to work. Additionally, it shall be
deemed that the employment relationship between the employee and employer prior to termination still continues.
An employee may reject the invitation to
work and such rejection shall be considered to
validate termination by the employer. Hence, a
Reinstatement Lawsuit shall not continue and the
court shall reject the lawsuit in favour of the employer. However, the employer should invite the
employee to the same position under the same
working conditions otherwise the employee is
not obliged to accept the invitation of employer.
pensation and an amount for the time the employee is not reinstated to work shall be paid to
the employee. Therefore, the closing down of the
workplace or liquidation of the company at the
time of employee’s application for reinstatement
does not carry any significance; hence such cannot be regarded as impossibility of performance.
The defendant employer could be held liable for
the legal consequences of not reinstating the employee to work.
D.Retirement of an Employee
An employee is entitled to request his/her retirement in the course of a Reinstatement Lawsuit. Such request in the course of proceedings
shall not change the fact that an employment
contract of an employee has been terminated by
an employer. The proceedings shall continue and
the court shall evaluate validity of the termination.
E. Employment of an Employee by Another
Employer during Proceedings
In case of death of an employee in the course
of a Reinstatement Lawsuit, an employee will not
be able to be reinstated to work. Consequently,
proceedings shall not continue in respect of reinstatement to work and reinstatement compensation. However, according to the recent decisions
of the Court of Appeals, although the employee
is dead, proceedings shall continue to determine
validity of the termination effected by the employer for the purposes of social consideration.
If the court rules that termination of employment
is not valid, the court will also rule for payment
to be made by the employer for the time the employee is not reinstated to work until his/her
death and such amount shall be paid to heirs of
an employee.
An employee may be employed by another
employer in the course of a Reinstatement Lawsuit. In the event that the court rules reinstatement to work of an employee and payments for
the time employee is not reinstated to work as
a result of a proceeding, salaries/wages paid to
an employee by another employer shall not affect the amount to be paid for the time an employee is not reinstated to work. According to
the precedents of the Court of Appeals, salaries/
wages paid to an employee by another employer
shall not be deducted from the payment which is
awarded for the time employee is not reinstated
to work. An employee who is employed by another employer in the course of a lawsuit should
apply to his/her former employer within ten days
for reinstatement to work upon the court’s final
ruling. Otherwise, termination of employment
by a former employer shall be deemed valid; consequently, an employer shall not pay reinstatement compensation or an amount for the time s/
he is not reinstated to work to an employee.
C. Closing of a Workplace
F. Transfer of Enterprise
Closing of a workplace in the course of a
Reinstatement Lawsuit shall not validate termination by an employer. Even if a workplace has
been closed during proceedings, the proceedings
shall continue and the court shall decide for reinstatement to work in the event that a termination
is not valid. However, since the employer will
not be able to reinstate an employee to work due
to closing of a workplace, reinstatement com-
As per the Labour Law, in case an enterprise
or a section of an enterprise is transferred to another person by a legal transaction, all employees employed in that enterprise or the relevant
section is also transferred to the transferee together with their existing rights and obligations
arising from their employment contracts on the
transfer date. Even if the employment contract of
an employee is terminated prior to the transfer
B.Death of an Employee
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of business, in case an employee initiates a Reinstatement Lawsuit within the prescribed term,
employment contract of subject employee shall
be deemed to continue during the proceedings. If
the court rules that the termination was groundless, the transferor employer would either reinstate the employee back to work or pay him/her
the reinstatement compensation together with
the amount for the time he/she is not reinstated
to work until the issuance of the labour court’s
final ruling. Regardless of the fact that the work-
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place where the subject employee is employed is
transferred during the proceedings, or the possibility that the defendant employer is in the process of liquidation upon the transfer of business
and does not have any other workplace to reinstate the employee to work, such would not be
regarded as impossibility of performance for the
purposes of reinstatement to work, it would be
clearly expected that the employee be reinstated
to work by the transferee employer.
Disclosure of Business
Malpractice (Whistleblowing)
under the Turkish Labour
Law & Duty of Fidelity
Gülce SAYDAM
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histleblowing is a new issue gaining attention in the theory and
application of labour law. Whistleblowing can be defined as “revealing of faults in the workplace to the public”
or “disclosure of business malpractice, illegal acts
or omissions” by the employees. Whistleblowers
inform employees’ superiors, related public authorities or media about matters such as abusive,
negligent or illegal activities carried out by the
employer.
Currently, there is no specific protection for
whistleblowers under Turkish legislation. Thus,
due to the lack of specific legal regulation we refer to the general principles of law to determine
the limits of disclosure of business malpractice,
illegal acts and omissions.
Whistleblowing is to some extent founded
in the right to petition under Article 74 (1) of the
Turkish Constitution providing that citizens and
foreigners have the right to file an application to
the competent authorities and Grand National
Assembly of Turkey with regard to requests and
complaints related to their own and/or public interest. There are also some provisions under the
Turkish Criminal Law that impose the obligation
to notify an act constituting a crime to the competent authorities if one is aware of such crime.
However, the scope of Article 74 (1) of the Turkish Constitution has an excessively broad scope
while provisions under the Turkish Criminal
Law only cover specific infringements and certain incumbents as regards whistleblowing.
Whistleblowing & the Duty of Fidelity
The intersection between whistleblowing and
the Turkish Labour Law is the employee’s duty of
fidelity. The duty of fidelity is considered an ancillary obligation. Ancillary obligations are mainly related to employee’s conduct with regard to
the protection of his/her employer’s interests and
arise either from the Turkish Labour Law or from
the rule of good faith regulated under Article 2 of
Turkish Civil Law. In accordance with the law,
an employee is under an obligation to fulfil his/
her ancillary obligations as well as performing
his/her main duties.
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The duty of fidelity includes non-disclosure
of any information of a confidential nature concerning the business of the company which the
employee became aware of during the course of
his/her employment with the company to third
persons as well as the avoidance of any conduct
which may be detrimental to the employer or the
workplace, avoidance of committing to dishonest acts, notification to the employer of any misconduct at the workplace, the performance of the
duties in a diligent manner, and an employee’s
non-competition obligation.
However, an employee’s duty of confidentiality becomes an issue in case trade/business
secrets which the employee is aware of include
information regarding acts contrary to law. For
instance, in the event that an employee becomes
aware of the fact that there is malpractice at the
workplace regarding accounting issues, the employee notifying his/her superiors in the company, to competent authorities outside the com-
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n employee’s duty of confidentiality
becomes an issue in case trade/
business secrets which the employee
is aware of include information
regarding acts contrary to law.
pany or to the media of such malpractice may
not be regarded as a violation of his/her duty
of confidentiality arising from the employment
relationship. Hence, the employee may disclose
his/her company’s confidential information in
the event that such information constitutes a
crime or if public interest requires disclosure. On
such an occasion, public interest prevails over the
employer’s interest in maintaining confidentiality. There are also several decisions of Court of
Appeals which provide public interest takes precedence over an employee’s duty of confidentiality. For instance, in one of its rulings, the Court
of Appeals held that a Company partner and accountant who files a complaint before the official
authority stating the Company is not complying
with tax obligations does not violate the duty of
confidentiality.
Protection for Whistleblowers under the
Turkish Labour Law
The Turkish Labour Law protects employees
against invalid or unjust dismissals through affording employees that are covered by job security
provisions the right to claim reinstatement to work
or payment of compensation by the employer.
Article 18 (3)(c) of the Turkish Labour Law
states that recourse to competent administrative
or judicial authorities or participation in proceedings against an employer in order to pursue the
rights or fulfil the obligations arising from the
legislation or contract cannot be considered a valid reason for termination of an employment contract. This provision derives from Article 5(c) of
ILO Convention 158 Termination of Employment
Convention 1982, which states that the filing of
a complaint or the participation in proceedings
against an employer involving alleged violation
of laws or regulations or recourse to competent
administrative authorities shall not constitute
valid reason for termination.
Other than that, the Turkish Labour Law also
provides a level of protection to employees as
Article 25 (2)(b) of the Turkish Labour Law
states that if the employee makes groundless accusations or notifications against the employer
affecting his honour or dignity; and Article 25 (2)
(e) of the Turkish Labour Law states that if the
employee commits a dishonest act against the
employer such as a breach of trust, theft or disclosure of the employer’s trade secrets, the employer may terminate the employment contract
for just cause without the need to comply with
notice periods regulated by law. This provision
can be interpreted that the employee is afforded
a degree of protection as any accusation or notification which has a justified ground would cause
the effected terminations unjust, and thus the
employee would benefit from legal protection.
Since Article 25 (2) which enumerates immoral, dishonourable and malicious misconduct,
is not a restrictive clause and allows wide interpretation, the above stated provisions may be
interpreted to offer protection to those making
accusations or notifications based on factual information. Thus, in case an employer terminates
an employment contract for just or valid cause
provided that the employee (whistleblower);
●● acted honestly and with genuine good faith,
●● did not act for personal gain,
●● has a reasonable belief that the disclosure is
substantially true, and
●● initially raised the relevant facts internally,
unless this cannot be reasonable expected,
and made the facts known externally in appropriate manner commensurate with the
situation or directly made the facts known
externally provided that internal reporting
is not possible or does not lead to corrective
action;
Provided the above conditions are pres-
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ent, the employee (whistleblower) shall benefit
from the provisions of the Turkish Labour Law
which protect the employee against invalid or
unjust dismissal. Thus, to some extent, the Turkish Labour Law offers protection to employees
(whistleblowers) whose employment contracts
are terminated due to disclosure of business malpractice, illegal acts or omissions.
Moreover, the Turkish Labour Law has also
foreseen provisions protecting employees who
are discriminated against, suspended, demotivated, transferred, socially excluded, threatened
or harassed etc. by the employer due to whistleblowing. Article 10 of the Turkish Constitution
on equality principle, and Article 5 of the Turkish Labour Law on prohibition of discrimination against employees in an employment relationship, would protect the employees from
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any discriminatory or derogatory treatment of
employers, in case they have lodged any factual
compliant or accusations against their employers. The Turkish Labour Law has also foreseen
the sanctions to apply in the event of violations. If
the employer violates equal treatment principle
and applies differential treatment to employees
due to above reasons, the employee may demand
compensation up to her/his four months’ salary
plus other claims which s/he was deprived of.
The provisions of the Turkish Labour Law
stated above are indirectly related to protection
of whistleblowers. Thus, currently Turkish labour courts resolve this issue by evaluating the
relation between duty of fidelity of an employee
and employer considering the specifics of the
present case.
Execution of Contracts on
Cessation of Employment
In Light of Job Security
Provisions of Turkish
Labour Law
Ahu Pamukkale GÜNBAY
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he parties may draw up and terminate
a contract depending on the principle
of freedom of contract. The contract
drawn up to terminate another contract
by mutual understanding is called cessation (rescinding) contracts.
contract to the other party. Execution of cessation contract by employee and employer is not
a unilateral or a resignation offered by the employee. In other words, concentration of wills in
termination of an employment contract cannot be
deemed as one party termination.
In order to terminate an employment contract, the cessation contract may be constituted
upon proposal of one party to the employment
Please note that the employers started to execute cessation contracts after the enactment of the
Labour Law numbered 4857 (the “Labour Law”)
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in 2003 which regulated job security provisions
and protected the employees from invalid unilateral terminations effected by the employers.
There is no regulation regarding the form or procedure of execution of the cessation contract under the Labour Law. However Court of Appeals
accepts the cassation contracts as valid if certain
requirements are fulfilled by the employers.
Although employees execute cessation contracts by their own free will, sometimes in practice employers may face reinstatement to work
lawsuits filed by employees in order to be entitled to job security compensation. In such case,
the Court of Appeals seeks the validity of the cessation contracts and certain issues are considered
for such validity. These issues may be listed as
the employee’s consent, the employee’s will and
reasonable interest provided to the employee.
Firstly, it should be clearly understood that
the employee agrees to the termination of the em-
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n case it is signed under duress or by
mistake and this is proven by the employee, the contract shall be deemed
void and null and as it is an invalid
termination carried out by the employer the employee shall be successful in its reinstatement to work claim.
ployment contract by a mutual understanding. In
case an employee signs the contract with an annotation stating that s/he reserves his/her rights
for future claims, it can be clearly understood
that unconditional consent has not been given by
the employee and such cessation contract shall
not be deemed as valid.
Secondly, the cessation contract shall be
signed by the employee by his/her own free will.
In case it is signed under duress or by mistake
and this is proven by the employee, the contract
shall be deemed void and null and as it is an invalid termination carried out by the employer the
employee shall be successful in its reinstatement
to work claim. In practice, employees usually
claim that they signed the cessation contract under the employer’s pressure; they had no will or
intention to terminate the employment contract;
the employer threatens the employee saying that
employment receivables of the employee will
not be paid to the employee. Therefore, it is advisable for the employer to explicitly state each
amount that will be paid to the employee as per
the cessation contract; explain the amounts that
the employee will be deprived of, in particular
unemployment insurance payment; provide the
employee a reasonable period of time for him/her
to review the cessation contract; and if the employee requests, to allow him/her to discuss the
terms of the contract with his/her lawyer.
Thirdly, a reasonable interest shall be provided to the employee this is satisfied by offering
payment under a redundancy package. Since the
employee would be entitled to his/her employment receivables such as severance payment,
notice payment or other unpaid receivables such
as annual pay, the employer shall provide benefits other than the employment receivables to
the employee, otherwise, there will be no reason
for the employee to execute the cessation contract and the cessation contract shall be deemed
invalid. The amount of the redundancy package
to be provided to the employee shall be evaluated as to whether it is in favour of the employee
or not, this issue is considered on a case by case
basis, and if such amount favorably benefits the
employee, the cessation contract shall be deemed
valid. However, as a matter of fact “reasonable
interest” cannot be defined and is subjective.
Only making payment of certain amounts is not
enough for determination of validity of the cessation contract. Thus, the interest of the employee
is significant in determination of validity of the
cessation contract. However, if the employee has
signed the cessation contract under pressure,
such cessation contract shall be deemed invalid.
The amount of such redundancy package
may be determined considering the reason for
executing the cessation contract, the seniority of
the employee, the financial position of the business, the general practice of workplace and the
amount of job security compensation varying
between 4-month and 8-month salary of the employee as per the provisions of the Labour Law.
Mostly, 4-month wages of the employees are
deemed as reasonable interest for the employee
besides the payment of other employment receivables of the employee. Thus, a redundancy
package which is over the minimum limit of the
job security compensation besides the amount
corresponding to severance payment and notice
payment shall be accepted as reasonable interest
provided to the employee.
Since the employment contract is not terminated by the employer and the results of termination cannot occur, the severance payment and
notice payments cannot be paid to the employees. As per the Income Tax Law, while notice payment is subject to income tax, severance payment
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is not subject to income tax. However, in case of
execution of cessation contract, the amount corresponding to severance payment paid to the employee based on the cessation contract is not the
severance payment regulated under the Labour
Law, thus it shall be subject to income tax in addition to stamp tax. Such deduction makes a big
difference when compared to severance payment
to be paid in case of a termination. The employee
shall also be informed regarding such tax related issues and that s/he will be paid less amount
comparing to the legal severance payment. In
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n order to protect the employer
from the employees initiating legal
proceedings relating to termination
of their employment relationship and
minimise the risk, certain additional
provisions may be inserted into the
cessation contracts.
case the employer does not inform the employee,
the cessation contract may be deemed as invalid
due to keeping the employee in ignorance.
Consequently, if a cessation contract is executed by the parties, there would be a very low
legal risk of the employee initiating a labour
claim against the employer by claiming the invalidity of termination and requesting reinstatement to work. However in order to protect the
employer from the employees initiating legal
proceedings relating to termination of their employment relationship and minimise the risk, certain additional provisions may be inserted into
the cessation contracts.
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lated under the cessation contract, penalty payment in the amount of the additional payment
may be claimed in case any actions are initiated
by the employee against the employer with respect to any of her/his employment rights notwithstanding release given under the cessation
contract. Also, under the cessation contract it
may be regulated that the additional payment
shall be taken back by the employer since such
payment may be deemed to be an unjust enrichment of the employee based on the fact that such
entitlement is granted to the employee to hinder
her/him filing a labour lawsuit against the employer for reinstatement to work which could be
argued as an illegitimate intention. Furthermore,
in addition to the foregoing amounts, the employer may state that all expenses, court fees and
legal costs paid during the lawsuit and the whole
amount of the attorney fees agreed between the
legal counsel and the employer shall be claimed
by the employee since the employee breached
the contractual terms agreed under the cessation
contract. As per such provisions regulated under
the cessation contract, the employee will evaluate
the risks of initiating a legal proceeding and then
give her/his final decision whether s/he will file
a lawsuit.
Finally, it would be advisable to stipulate
that redundancy compensation shall be paid to
the employee on the signing date of the contract
apart from the other entitlements of the employee. In case the court and Court of Appeals decide
that the cessation contract is invalid due to not
providing any reasonable interest to the employee, all the provisions of the cessation contract become unenforceable and in such a case, it shall be
deemed that the employment contract has been
terminated without any valid cause and the employee shall be entitled to job security provisions.
For instance, with an additional clause regu-
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Recent Changes in Favour
of Female Employees and
Inclusion of Maternity Leave
in Service Periods as Per
Recent Changes in the Law
Hikmet ÖZKAYA
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urkish law granted the right of inclusion of maternity leave into service periods to the female employees for the
first time under the Social Security and
General Health Insurance Law No. 5510 (“Law
No. 5510”). As such, female employees who suspend their work due to maternity will be able to
recover unpaid premium days.
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nder Law No. 5510, female
employees that give birth to a child
are able to convert both maternity
leave and the term that they did
not work following maternity into
insured days. In other words, they
have a borrowing right.
Under Law No. 5510, female employees that
give birth to a child are able to convert both maternity leave and the term that they did not work
following maternity into insured days. In other
words, they have a borrowing right. The Law No.
5510 provides that female employees may borrow unpaid maternity periods which are granted
to the insured females by the related law twice,
provided that the female employee did not work
under an employment contract for a term which
is not more than two years as of birth and the
child is alive, the female employee may include
these borrowed terms into service periods.
The periods which may be borrowed as per
the Law No. 5510:
1- A total period of sixteen weeks which is
granted to the female employee eight weeks prior and eight weeks subsequent to the birth in accordance to Article 74 of the Labour Law and in
case of multiple pregnancy, two weeks are added
to eight weeks before birth;
2- Unpaid leave up until six months which
is granted upon request of the female employee
following the expiration of sixteen weeks’ period,
in case of multiple pregnancies following the expiration of eighteen weeks’ period;
3- The term which may be requested by
the female employee a maximum of two times
and provided that the female employee did not
work under an employment contract for a term
which is not more than two years as of birth and
the child is alive.
The conditions of inclusion of maternity leave
into service periods according to the Law:
1- Female employees who are insured by
the Social Security Institution (“Institution”) and
are employed by one or more employer through
an employment contract (Law No. 5510, Article
4/a) may only benefit from the right to include
maternity leave into service periods. Female employees who are self employed (Law No. 5510,
Article 4/b) and female employees who work at
public administrations (Law No. 5510, Article
4/c) cannot benefit from this right.
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2- Female employees shall benefit from
this right for a maximum of two children.
3- Since the female employee may include
two years’ term into the service period at most
for one child, the total term which may be included into the service period of a female employee
shall be 4 years.
4- Female employees shall be entitled to
include maternity leave into the service period
for births following the commencement date of
the insurance.
5- The child must be alive to include the
whole two years’ term in the service period, in
the event the child dies within this period; the
term up until the date of birth may be included
into the service term.
6- If a female employee gives birth to another child before the expiry of two years’ term
following her first birth, such female employee
shall include the term from her first birth until
her second birth and two years’ term which may
be wholly included into the service term for her
second birth.
However, the right to include maternity leave
in the service period which is granted by Law
No. 5510 has been restricted by communiqués
and circulars published contrary to the Law and
this triggered problems regarding the application of the right.
According to the Law No. 5510, it is not mandatory for a female employee to be insured who
is actively working and whose social security
premiums are paid prior to birth to benefit from
this right. In addition, female employee does not
have to resign for the birth. It is sufficient for the
female employee to be registered with the Social
Security Institution as an insured person to benefit from the right to include maternity leave in
the service period. The Law further states that if a
female employee who did not work for a term of
two years following her first birth becomes pregnant at the end of such two years’ term prior to
starting work and gives birth to a child, she shall
be entitled to include maternity leave into service
period relating to the second birth.
However, according to the regulations of the
Institution, a female employee who did not work
as an insured during this term shall not be entitled to this borrowing right. On the other hand, it
is required that the female employee resign due
to birth and work as an active insured as stated
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above. Besides, birth should take place within
300 days of the date on which the female employee resigned.
Applications of the Institution contrary to the
Law have been revoked by a newly published
decision of the 10th Civil Chamber of the Court of
Appeals. As a result, the conditions of the right
to include maternity leave to service period have
been clarified. The Court of Appeals has shed
light on whether this right shall be applied for
confinements before 01.10.2008, which is the effective date of the right and female employee
should be an active insured.
10th Civil Chamber of the Court of Appeals
decided that Article 41 of the Law No. 5510 relating to the right to include maternity leave in
service period is in favour of the insured and no
regulation which prevents the application of this
right to confinements prior to the effective date
of the Law No. 5510 exists. The Court of Appeals
further ruled that it is sufficient to formerly fulfil
mandatory insurance registration of the female
employee before the Institution due to employment to benefit from this right and it is not required to be an active insured. According to the
decision, it should be accepted that the female
employee shall benefit from this right provided
that the female employee did not work under
an employment contract for a term which is not
more than two years as of confinement and the
child is alive without observing any other right.
Furthermore, if the female employee who had
her first confinement following the registration
before the Institution becomes pregnant again
and has her second confinement before the expiration date of the two years’ term and prior to
commencement of work may include her service
period the term as of her first confinement until
the second confinement together with the two
years’ term to be included to the service term for
the second confinement.
Upon the decision of the Court of Appeals,
the Institution published a Circular and amended the conditions regarding the application of
borrowing right to the benefit of the female who
has a birth. In this way, the conditions have become in compliance with the Law.
This right which has been granted to the female employees by the Law No. 5510 is significant
in terms of preventing them to be economically
harmed while fulfilling family responsibilities.
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LEGAL TEAM
Ahmet Öztürk
[email protected]
Jonathan Clarke [email protected]
Ahu Pamukkale Günbay [email protected]
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Alize Dikmen Tufan
Levent Belli
Ayla Özenbaş
Ayşe Güner Ayşe Nur Şanlı
Batuhan Uzel
Berat Hamzaoğlu
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[email protected]
[email protected]
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[email protected]
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Melek Onaran Yüksel
[email protected]
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Meryem Kübra Şıvgın
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Mine Alten
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Burak Özdağıstanlı [email protected]
Muharrem Küçük
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Burçak Ünsal [email protected]
Murat Karkın
[email protected]
[email protected]
Murat Öztürk
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Bünyamin Yılmaz
Mustafa Yiğit Örnek
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Ceren Berispek
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Oya Uğur
Dilek Çolakel
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Ekin Gökkılıç
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[email protected]
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Hatice Ekici
İbrahim Yamakoğlu
İdil Kurt
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[email protected]
2011/I
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