35. TERMINATION OF WORK CONTRACT BY EMPLOYER

 

1. I am Prof. Dr. İlhan Helvacı, of Nispetiye Caddesi, Seramik Sokak, No 3/2, Bebek – 34342, Istanbul – Turkey. I am a faculty member of the Department of Civil Law at Istanbul University, School of Law.

 

2. I am an academician who has been researching and working in the fields of Fundamental Principles of Civil Law, Law of Persons, Family Law, Law of Obligations (General Provisions), Law of Obligations (Specific Obligation Relationships), Property Law, Law of Inheritance and Law of Security for nearly 25 years. I have been teaching classes and writing academic works (articles and books) on these areas for nearly 25 years.

 

3. At the same time, I have been an attorney at law registered with the Istanbul Bar since 1991. I have been the founder and manager of the Av. Prof. Dr. İlhan Helvacı Law Firm since 2009.

 

4. In addition, for nearly 25 years I have been appointed by the courts as an expert witness on matters in which I have become specialised as a university lecturer and in line with such appointments, I have prepared expert reports addressing the courts.

 

5. In short I can state that I have the knowledge, professional experience and objectivity required to examine the issues discussed in this legal opinion within the framework of the principles of the Law on Obligations and to prepare a scientific and objective legal opinion on such issues.

 

6. By letter from … dated 26 August 2013, I was requested to provide a written legal opinion regarding a current legal dispute between their client M Corporation and … … … … Taahhüt Sanayi ve Ticaret Limited Sirketi being tried at Geneva, Switzerland pursuant to the ICC Rules of Arbitration.

 

7. I have been provided with the following documents:

 

a. The SYE Sub-Contract;
b. SYE’s Statement of Claim dated January 2013;
c. M’s Defence Memorial dated 2 April 2013;
d. SYE’s Respond to the Response and Response to the Counterclaim dated 14 June 2013;
e. Invoice Number 1 issued by SYE and dated 30 November 2007;
f. Related correspondence – M’s letter to SYE dated 13 June 2007; Minutes of Joint Kick off Meeting dated 19 June 2007; M’s letter to SYE dated 26 June 2007.

 

8. I examined the documents contained in the file submitted to me with an impartial point of view and responded the questions objectively.

 

9. I have no relationship with the parties to this arbitration, other than my role as a legal expert. The fact that the questions were directed to me by the consulting party has not affected the objectivity and impartiality of the replies.

 

 

 

10. M Corporation (“M”) and … … … … Taahhüt Sanayi ve Ticaret Limited Sirketi (“SYE”) entered into a Sub-Contract Agreement (the “SYE Sub-Contract”) on 18 May 2007 and the dispute between the parties arises therefrom,

 

11. The price of the SYE Sub-Contract is EURO 19,311,702.00,

 

12. SYE, as the main subcontractor, undertook to design, execute and complete certain works described as TPS (Traction Power Supply) and APS&D (Auxiliary Power Supply & Distribution) works for the upgraded commuter rail system of the … Project, in consideration of the contract price to be paid by M,

 

13. Upon the conclusion of the SYE Sub-Contract, SYE provided Performance Guarantee and Advance Payment Guarantee as per the terms and conditions of the SYE Sub-Contract,

 

14. M believed that SYE failed without reasonable excuse to proceed with works as well as failed to fulfill its other contractual obligations and further delayed the progress of the works,

 

15. On 10 June 2008, M issued a Notice of Termination to SYE and terminated the SYE Sub-Contract by relying upon clause 15.2 (c) of the SYE Sub-Contract,

 

16. Subsequent to the termination M liquidated the Performance Guarantee and Advance Payment Guarantee provided by SYE,

 

17. In April 2012, SYE lodged a Request for Arbitration before ICC and challenged M’s termination of the SYE Sub-Contract,

 

18. SYE argues, in general terms, that: (i) encashment of the Performance Guarantee is unlawful due to unjust termination of the SYE Sub-Contract, (ii) encashment of the Advance Payment Guarantee is unlawful as it has already been reimbursed by M, (iii) SYE suffered pecuniary and non-pecuniary damages due to the unlawful termination of the SYE Sub-Contract,

 

19. M argues and responds, on the other hand, that (i) SYE failed to proceed with the works in accordance with clause 8 of the SYE Sub-Contract, (ii) termination is a valid termination in accordance with clause 15.2 (c) of the SYE Sub-Contract and for the reasons attributable to SYE’s breach of the SYE-Subcontract, (iii) M is entitled to liquidate the Performance Guarantee and the Advance Payment Guarantee upon valid termination of the SYE Sub-Contract.

 

20. M further raises a counterclaim against SYE by relying upon 15.4 of the SYE Sub-Contract.

 

 

 

21. The questions for analysis have been set out in the letter of instruction and I repeat each of them at the start of each question below.

 

 

 

22. Before starting with explanations, first of all I would like to state that the dispute between the parties emerged during the effective term of the Turkish Code of Obligations No. 818, and thus the dispute must be resolved pursuant to the same Code. The Code of Obligations No. 818 was replaced by the new Turkish Code of Obligations No. 6098 as from July 1, 2012; however, I am going to inevitably analyze in my explanations the provisions of the Code of Obligations No. 818 (“Turkish Code of Obligations” or the “Code of Obligations”), where the Code of Obligations is of relevance.

 

23. Secondly, before going on, I would like to explain the principle of freedom of will in Turkish law of obligations. The principle of freedom of will is the head of the principles dominating law of obligations. “Freedom of will” is also called “freedom of contract” because it is manifesting itself almost always in the field of contracts.

 

24. It can be said that the principle of freedom of contract is based on article 19 of the Code of Obligations. The title of article 19 of the Code of Obligations is “contents of the contract” and “determination of the contents” and this article reads as follows:

 

 

25. According to the principle of freedom of contract, the parties can define the content of the contract, and can choose the other party. And also nobody can be forced to make a contract.

 

26. The freedom of determining the party: In accordance with this principle, everyone may conclude the contract as they wish and choose the party at will. (However, an exception of this rule exists in terms of the institutions of public utility. The institutions of public utility (for example: postal service and public transportation) cannot avoid concluding contracts related to the services they render with people.)

 

27. The freedom of the form: Contracts are valid without any special form unless the law provides otherwise (TCO Article 11). Accordingly, the parties can make their contracts in every form, for example: oral agreements, written agreements, and officially written agreements.

 

28. The freedom of modifying and cancelling the contract: It is in the parties discretion to modify or completely or partially cancel the contract.

 

29. The freedom of determining the content of the contract: This freedom is also called as “freedom of type”. This means, the parties can make a contract that is regulated in legislation (for example: sale, rental, mandate, suretyship contracts that are regulated in Turkish Code of Obligations). Also the parties are not obliged to choose these types of contracts and they can create other contracts which are not provided by law.

 

30. The limits of the freedom of contracts are defined by the article 19 and 20 of the Turkish Code of Obligations. I have cited above the first paragraph of the article 19 therefore I am content with referring to it. Now I would like to cite the first paragraph of the article 20 of the Code of Obligations:

 

 

31. With reference to these two articles, the doctrine and jurisprudences determine the limits of the freedom of contract as: A contract which does not violate mandatory provisions, public policy, boni mores or personal rights are valid. And in order that a contract is valid, the subject of the contract shall not be objectively impossible in the constitution of the contract.

 

32. Most of the general provisions of the Code of Obligations and specially the provisions related to the types of the contract are primarily not mandatory. Accordingly, the rules related to performance or non-performance of obligations may be agreed upon in any manner by the parties. Similarly, when concluding a contract such as employment, rental, work and mandate contract, parties may adopt regulations other than provided by law. For instance, a contract of mandate is not required to be in a particular form in the Code of Obligations but the parties may agree that the contract shall be valid only if it is concluded in the presence of a notary public.

 

33. To understand if a provision is mandatory or not, there are two possibilities. In some cases, the text of the examined provision is clear and it is easily understood from it that the provision is mandatory. Even the legislator explains the mandatory quality of the provision explicitly. However, in some cases the text of the examined provision is not clear for resolving the problem of being mandatory or not. In such a case it is necessary to interpret the text of the provision. Provisions which protect the personal rights, public policy, public decency (boni mores) and economically or socially or physically weak people (for instance the employees, consumers) are mandatory. If the provision of the Code is mandatory, it will apply irrespective of the parties’ contract provisions, but if it is not mandatory, then under the principle of freedom of contract, the parties are free to depart from the rule.

 

34. In addition, I should also explain that in this legal opinion, we use the terms employer (D …), main contractor (M Corporation) and subcontractor (… … … … Taahhüt Sanayi ve Ticaret Limited Şirketi) in terms of responding to the questions where we inevitably have to mention the name of D … . However, where it is not necessary to mention the name of D … with a view to responding to the questions, the terms “employer” (M Corporation) and “contractor” (… … … … Taahhüt Sanayi ve Ticaret Limited Şirketi) are used. As a matter of fact, the parties are also referred to with these titles in the agreement named “Contract Agreement” underlying the dispute. … … … … Taahhüt Sanayi ve Ticaret Limited Şirketi is also sometimes referred to as “SYE”. M Corporation is sometimes referred to as M.

 

 

 

1.1 Question 1. Based on the terms of the Sub-Contract and the contractual and factual position explained below, did SYE’s Sub-Contract obligations commence on a Commencement Date of 21 June 2007?

 

1.1.1 Clause 5 of the SYE Sub-Contract says: “After the Effective Date occurs, the Employer shall issue a Notice to Proceed to the Contractor to commence the Works, which Notice shall indicate the Commencement Date in accordance with Sub-Clause 8.1 Commencement of Works) of the Conditions of Contract. The Notice to Proceed will be issued no later than 49 calendar days after the Effective Date.”

 

1.1.2 Clause 8.1 of the SYE Sub-Contract Conditions says: “Commencement of Works. The Employer shall give the Contractor not less than seven days’ notice of the Commencement Date. The Contractor shall commence the design and execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall proceed with the Works with due expedition and without delay.”

 

1.1.3 SYE have submitted that (1) M “has breached Art 8.1 of the Conditions of Contract.” and (2) M “has never given notice of the Commencement Date pursuant to Art 8.1 of the Conditions of Contract.”

 

1.1.4 Reference is made to M’s letter dated 13 June 2007. This said “We would like to inform you that A Consortium (M) was notified of the Commencement Date of Contract CR1 as 21st June 2007 in accordance with Sub-Clause 8.1 of the Conditions of Contract. We have also been advised that the Employer shall commence the site handover procedures from that date.”

 

1.1.5 Reference is also made to the minutes of the meeting on 19 June 2007 at Item 3.1: “MC advised that the start date “D” would be on 21st June 2007 ...” The minutes were sent formally to SYE. Reference is made to Letter from M to SYE dated 26 June 2007: “Please find enclosed Minutes of Joint Kick off Meeting dated 19th June 2007 for your information and action.”

 

1.1.6 SYE issued Invoice No 1 on 30 November 2007. They argue that this requested payment for works which they say (though M deny) were undertaken.

 

1.1.7 SYE further argue (and again, M deny) that they did everything they could in terms of performance, in the absence of access to or possession of the site. Again M deny that access was not available.

 

1.1.8 SYE attended monthly progress meetings and submitted certain progress reports (albeit M argue that such progress reports were inadequate and/or inaccurate).

 

1.1.9 SYE contend that due to a lack of a valid commencement notice, the works didn’t proceed under the Sub-Contract.

 

1.1.10 In terms of Turkish law and the factual and contractual circumstances, did the Sub-Contract commence on 21 June 2007? (Question 1A)

 

In its letter dated 13 June 2007, the main contractor has made the following explanation to the subcontractor:

 

 

As seen, in the first sentence of this explanation, the main contractor advises that it was notified by D … (the employer) that the commencement date of the contract CR1 was designated as June 21, 2007 in accordance with the sub-clause 8.1 of the Conditions of Contract.

 

In fact, this sentence is not as clear as the following sentence:

 

 

However, I should forthwith state that the main contractor must refer to the theory of confidence to decide how the above-stated declaration of June 13, 2007 must be understood. According to this theory unanimously adopted in the doctrine, if a declaration of intent is not clear, it must be interpreted. When making this interpretation, the sense to be attributed by the addressee of the declaration to the rule of good faith regulated in article 2 of the Civil Code to the declaration of intent considering all conditions in the present case (all conditions that are and must be known by it) is taken into account.

 

In the doctrine, as argued by Prof. Dr. Kemal Oğuzman⁽¹⁾ :

 

 

In this context, it should be possible to characterize the main contractor’s declaration of intent dated June 13, 2007 as a declaration of intent for notification of the work commencement date to it by the sub-contractor. Here, in our opinion, the sense that must be attributed by the subcontractor to the declaration of intent made by the main contractor to the subcontractor by reference to clause 8.1 of the subcontractor concluded with it, is self-evident. This declaration of intent is a declaration of intent concerning notification of the work commencement to the subcontractor.

 

The following wording noted in the minutes of meeting of 19.07.2007 held between the main contractor and the subcontractor is one of the facts undermining the claims of the subcontractor that it has not been informed of the work commencement date and indicating that the claims in this regard are contradictory and should be deemed in violation of the rule of good faith and thus should not be heard by the court:

 

 

As the main contractor argues, and confirms with its evidence, the minutes of this meeting were provided to the subcontractor. Namely, according to the minutes of meeting, the sub-contractor knows the work commencement date of the contract.

 

I think it is simply acceptable that the meaning of the minutes is clear and even without requiring to apply the rule of the theory of confidence, there is no ambiguity in their meaning.

Accepting that it is for the Tribunal to determine the facts, nonetheless in my opinion there is no doubt that the minutes record the commencement of the sub-contract.

 

1.1.11 By SYE’s proceeding even in some limited way with the Sub-Contract between 2007 to 2008, can SYE really argue, following termination, that the Sub-Contract never commenced? What is the relevant Turkish law of estoppel/acquiescence/personal bar/waiver or other legal principles whereby SYE’s actions may prevent them from arguing that the sub-contract did not commence? (Question 1B)

 

One of the most important principles of our legal system is the principle of good faith regulated in article 2 of our Civil Code.

 

This principle is written as follows:

 

 

According to this principle, everyone must act honestly when exercising their own rights and satisfying their obligations. Everyone must also obey the rule of good faith when raising their claims and arguments. The courts decline to hear claims and arguments that are in violation of the principle of good faith (Civil Code art.2/para.2).

 

An analysis of the present dispute from this perspective shows that the subcontractor’s commencement of work and issuance of an invoice corresponding to partial performance in accordance with the contract and its argument that this invoice amount has been paid to it, on one hand, and its claim that the main contractor has actually not notified it of the work commencement date, on the other, are contradictory. According to the principle of good faith, such contradictory claims should not be heard by the court (Civil Code art.2/para.2).

 

Indeed, one of the principles based on the principle of good faith is the prohibition of acting in a self-contradictory manner (venire contra factum proprium). If a person has declared that he shall not exercise one of his rights or if one of his actions lead to such a conclusion and if he then exercises such a right in a manner that contradicts with his previous behavior, then one may draw the conclusion that he has abused his right based on the specific circumstances of the case. Let us assume for a moment that the subcontractor’s defense that the notification to start the work has not been made is true. However, the subcontractor has issued an invoice in spite of the fact that this notification has not been made. As you know, in contractual relations, an invoice is a document pertaining to the stage concerning the performance of liabilities arising from a contract. The main contractor may have thought that the subcontractor would not dispute that there was no notification to start the work given the issuance of such a document by the subcontractor. The subcontractor may have caused the contractor to justifiably trust the subcontractor. When the subcontractor, under these circumstances, alleges that it has not been notified of the date to start the work, then one may say that it has violated the principle of not acting in a self-contradictory manner. In this scenario, the court or the arbitrators should not hear such allegations by the subcontractor, according to Article 2 of the Turkish Civil Code⁽²⁾ .

 

1.1.12 Please also consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 1.1.1, regarding the commencement of the sub-contract. (Question 1C)

 

I cannot possibly agree with the subcontractor’s Submission dated 14 June 2013 in which it argues that the contract is conditional upon the employer D … handing over the construction site to the main contractor and, in turn, the main contractor to the sub-contractor. Handover of the construction site by the employer to the main contractor and then in turn by the contractor to the subcontractor is not stipulated as a condition within the contract for the effectiveness thereof.

 

1.2 Question 2. In terms of the Sub-Contract (which does not provide for a 14 day ultimatum for termination under clause 15.2(c), which was the provision relied upon for termination in this case), was there a requirement (as SYE now contend) for a 14 day ultimatum/cure period after the issue of a clause 15.1 Notice to Correct? Please note that the Notice to Correct dated 28 May 2008 was not relied upon as the basis for termination, and SYE had in any event already responded to the Notice to Correct prior to the expiry of the 14 day Notice to Correct period on 3 June 2008. The notice of termination (under clause 15.2(c) and not 15.2(a)) was given on 10 June 2008, some 7 days after the response to the Notice to Correct. Please also consider the comments raised by SYE in their submissions dated 14 June 2013 at paragraph 1.1.2.

 

Clause 15 of the contract between the parties contains provisions concerning termination of the contract by the employer.

 

Clause 15.1. of the contract governs “notice to correct”. According to this provision, if the contractor fails to satisfy any of its obligations in the contract, the employer may request the contractor to perform its obligation within a reasonable period and to remedy the consequences of its acts that are in contradiction with the obligation by serving a notice. It is worthy of note that this provision provides that the employer possesses this power. Otherwise, the employer is not required to demand specific performance of its obligation from the contractor within a reasonable period and to remedy the consequences of its acts that are in contradiction with the obligation in order to terminate the contract. I note that the termination which followed was effected under clause 15.2(c), not clause 15.2(a) and therefore do not consider there to be any relevance in the issue of a notice to correct.

 

Subsequent to this provision, clause 15.2 of the contract provides the conditions under which the employer is entitled to terminate the contract. One of these conditions is specified in paragraph (c) of clause 15.2. According to this paragraph, the employer has been empowered to terminate the contract if the contractor fails to proceed with the Works, in accordance with clause 8 of the contract, without a good reason.

 

The first sentence of the third paragraph in clause 15.2. of the contract stipulates that, under all these circumstances and conditions, the employer may terminate the contract by serving a 14-days’ notice of termination to the contractor and shall be entitled to remove the contractor from the site.

 

In light of the above, I can make the following determination in brief: The employer is not required to grant a reasonable grace period to the contractor allowing it to satisfy its obligation as required in order to be able to terminate the contract. On the contrary, the employer has been empowered to immediately terminate the contract without appointing a grace period in case of occurrence of the circumstances set forth in article 15.2. of the contract and in particular in the probability set forth in paragraph (c). However, it must serve a 14-days’ notice of termination to the contractor in order to be entitled to exercise this right of termination.

 

At this point, I should also state that I cannot agree with the arguments of the contractor in paragraph 1.1.2 of its Submission dated 14 June 2013. Accordingly: one of the most basic principles governing the Turkish Code of Obligations is freedom of contract. According to this principle, the parties may enter into any agreements and may specify its content in any way within the same limits provided that this shall not be in breach of the law (mandatory provisions of law, public order, personal rights) and ethics⁽³⁾ .

 

The provisions (Art. 101 - 108) of the Turkish Code of Obligations governing the conditions of debtor’s default and its consequences are not mandatory. Thus, the parties to the contract can make regulations that are inconsistent with these provisions. In this context, the parties may include, in the contract, provisions related to both the conditions of the debtor’s default and its consequences that are different from the provisions of the Code of Obligations. As a matter of fact, in the present case, the parties have designated in the contract under which conditions the employer shall be empowered to terminate the contract. Within the framework of this designation, the employer is not required to grant a grace period to the contractor in order to terminate the contract. Indeed, the period mentioned in the contract is not a grace period, but it can be characterized as a period for notice of termination. The employer may terminate the contract without granting a grace period to any contractor; however, its termination shall be effective 14 days after the service of its termination notice to the other party. This period is not a “grace period” granted to the contractor for the last time to perform its obligation, on the contrary it is a timeframe granted to allow the contractor to get prepared for the phenomenon of termination of contract; in technical words it is a “notice period”.

 

1.3 Question 3. SYE argue that termination cannot be validly made where it is possible to catch up delays. M contend, factually, that it was not possible for SYE to catch up with the delays. But even on the assumption that it were possible, given that the termination was in terms of the Sub-Contract and not under a Turkish Code, is it a pre-condition for termination under Turkish law that it must be impossible for SYE to catch up with their delays? Please consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 1.2.1, including the references to Article 355 and 358 of the Turkish Code of Obligations.

 

As I have explained above, the provisions of the Turkish Code of Obligations governing debtor’s default are not mandatory. The parties may freely decide the conditions of the debtor’s default and its consequences in the contract within the limits of the principle of freedom of contract. In the present case, the parties have explicitly designated in the contract under which conditions the employer shall be empowered to immediately terminate the contract and under which conditions it shall be entitled to terminate by serving a notice of termination.

 

In any event, according to the Turkish Code of Obligations, there is no precondition of impossibility on the part of the debtor to remedy its delay for termination of the contract.

 

Even if termination of the Contract were subject to the provisions of the Turkish Code of Obligations (and as I have explained this is not the case here), the contractor’s obligation should have been due and enforceable and the employer should have served a notice of default, in principle, in order to allow the employer to terminate the contract (Code of Obligations, art. 101).

 

If, after the notice, the contractor fails to perform its obligation again, the employer could, in principle, grant a suitable grace period to the contractor for the last time and could terminate the contract in case the contractor failed to perform its obligation at the end of such period (Code of Obligations, art. 106).

 

Even in some circumstances, the employer may not be required to appoint a grace period to the contractor. These circumstances are regulated in article 107 of the Turkish Code of Obligations. For example, even if it is understood that appointment of a grace period shall be ineffective under the present conditions and circumstances of the contractor, the employer could have terminated the contract without appointing a grace period (Code of Obligations, art. 107/b.1).

 

All these rules are regulated in article 101 et. seq. of the Turkish Code of Obligations and especially articles 106 to 108. A review of these provisions and other related provisions shows that they do not contain any pre-condition of impossibility on the part of the contractor to remedy its delays.

 

Article 355 of the Turkish Code of Obligations No. 818 is a provision governing contract of work. This article only describes contract of work.

 

Please note that Article 355 does not govern the termination of the contract. This article only describes contract of work; it gives only a definition. So the other party’s argument related to the termination of the contract based on this article does not make any sense.

 

Article 358 of the Turkish Code of Obligations, on the other hand, is a provision that allows the employer to terminate the contractor agreement due to the contractor’s default in the performance of the work in works with a fixed delivery term.

 

Indeed, according to the 1st paragraph of the said provision:

 

 

Article 358 of the Turkish Code of Obligations is not mandatory. Thus, it is also possible to make regulations on the contrary to this article provided that this shall remain within the limits of freedom of contract. As a matter of fact, the parties have also especially regulated the employer’s right of termination in the present dispute and the regulation they have made is valid. In this case, it is not possible to apply articles 355 and 358 of the Turkish Code of Obligations analyzed above by me to the present dispute.

 

1.4 Question 4. Please comment, with reference to Turkish law, on the meaning of clause 2.1 regarding access to the site.

 

1.4.1 The Tribunal have asked parties to comment on the allocation of risks and the meaning of Sub-Clause 2.1 of the Sub-Contract Conditions regarding access to the site.

 

1.4.2 A significant aspect of SYE’s position is that they were not granted access and they have raised various issues regarding the provision of access on the one hand and possession on the other. From a Turkish law perspective, what are your comments regarding the meaning of ‘access’ in the way these terms have been used in the SYE Sub-Contract?

 

Clause 2.1. of the Contract regulates “access” of the contractor to the site where it shall carry out its works. According to the first sentence of the first paragraph of this provision:

 

 

The word “access” mentioned in the provision does not have a specific or technical sense in the Turkish Law. The word “access” can be considered as an inherent concept within the concept of transfer of possession. According to Turkish Civil Code one of the components of the possession is “effective control” (TCC.art.973). Indeed, according to the 1st paragraph of the said provision:

 

 

Therefore, it can be said that the possession would include access, but access itself is a limited term which is referable to the particular factual circumstances, and the wording of the contract.

 

Also, according to the contract the employer shall give the Contractor access to such portion of the Site “reasonably required by the Contractor in the performance of the Works”.

Therefore, it can be said that first the contractor has to require the access to such portion of the site and then the employer will consider if this requirement is reasonable (acceptable) or not for the due performance of the works.

 

 

At this point, I first need to discuss what should be understood from the phrase “D … Contract” in clause 2.1 of the section titled “Conditions of Contract” of the Contract. It can be asserted that this phrase is intended to denote to the contract between D … (main employer) and the main contractor (employer). The D … Contract is defined in clause 1.1.1.5 of the Conditions as “the contract between the D … and the A Consortium pursuant to which the A Consortium will undertake the works required under the CR1 Contract.”

 

The provision in clause 2.1 of the section titled “Conditions of Contract” in the Contract imposes a specific criteria for handover of a construction site to the contractor. Accordingly, when the employer is granting access or handing over the construction site to the contractor, it shall act in a way to allow the contractor to perform its work in accordance with the work schedule designated in the D … Contract.

 

I am told that the Employers’ Requirements imposed certain obligations upon the Contractor, including the provision of method statements and requirements for design, programme, quality, safety etc. Such being the case the progression of the Contractor’s obligations such as for surveys would be subject to the contractor complying also with those obligations.

 

1.5 Question 5. Does clause 20.1 of the SYE Sub-Contract Conditions have a preclusive effect?

 

1.5.1 Clause 20.1 requires the giving of notice within 21 days of the contractor’s awareness of a claim giving rise to a claim for an extension of time or additional payment.

 

1.5.2 The Tribunal have asked whether this provision has preclusive effect (so as to prevent the bringing of a claim for extension of time, unless valid and timeous notice has been made in such regard), whether such a clause is valid under Turkish law and if not, how this clause would be construed under Turkish law.

 

1.5.3 What is the interpretation under Turkish law of contractual provisions, such as clause 20.1, that require timeous notice as a pre-condition for a claim/payment etc. In other words, in the absence of such timeous notice, will such claim (e.g. for extended time) be void?

 

The contract between the parties imposes an obligation of notification on the contractor, and obliges the contractor to serve such notice not immediately, but within 21 days. If the contractor fails to serve this notice within 21 days, it shall be obliged to suffer the consequences thereof. Thus, this is the short response to your question: If the contractor has not served the necessary and appropriate notice in a timely manner within the period prescribed in the contract, it cannot demand extension of the contract term, and/or claim additional payment.

 

I would like to also add that the article 357 of the Turkish Code of Obligations related to this problem is even stricter since it requires immediate notification. Pursuant to the third paragraph of (non mandatory) article 357 of the Turkish Code of Obligations:

 

 

1.6 Question 6. Is there any relevance in Article 369 of the relevant Turkish Code?

 

1.6.1 Given that M terminated in terms of the Sub-Contract, is there any relevance in Article 369?

 

If the employer has terminated the contract in accordance with the rules designated therein, there is no need to further evaluate this within the framework of article 369 of the Turkish Code of Obligations. Namely, Article 369 of the Turkish Code of Obligations reads:

 

 

As also explained by Tandoğan, one of the most respected authors of Turkish Law, this provision is explained⁽⁴⁾ : with the freedom of contract principle and with the notion that the performance of the work is only an obligation for the contractor, but not a right at the same time, and as the contractor’s activity is in the interest of the employer, it may abandon performance of this activity at its option.

 

As I have consistently highlighted, the parties are free to determine, as they wish, the terms and conditions and consequences of voluntary termination within the limits of the principle of freedom of contract. Article 369 of our Code of Obligations is not mandatory. The parties may make regulations contrary to this article. As a matter of fact, it is seen that the parties regulated the terms and conditions of termination in the present dispute and that the employer has exercised its termination right in accordance with the terms and conditions specified in the contract.

 

 

 

1.7 Question 7. What are the consequences for SYE’s claim of the terms of clause 17.6 of the Sub-Contract? The Tribunal has asked parties to comment on the limitation of liability provided by Sub-Clause 17.6.

 

It is noted that article 17.6 of the contract contains a provision that limits parties’ liabilities both in terms of scope and amount.

 

In light of this basic information, if we move on to interpretation of the clause in the contract, the first paragraph of clause 17.6 of the contract limits any liability of the parties in terms of scope of recovery. Thus, the contractor may not claim damages from the employer under the name “loss of reputation” or “lost profit”.

 

In paragraphs 1.2.17 of its submission dated 14 June 2013, the contractor asserts that the employer may not rely on the non-liability condition set forth in clause 17.6. of the contract, and that the employer has, in fact, intentionally breached the contract and audaciously acted in violation of the law. Whilst acknowledging that determination of fact is a matter for the Tribunal, as far as I can determine from the documents and information in the file, termination of the contract by the employer is based on a cause, and is a valid termination. Thus, I cannot possibly accept the contractor’s claims that it is not possible for the employer to benefit from this non-liability condition.

 

1.8 Question 8. Are there any issues arising from SYE’s claim for loss of reputation. SYE have been asked by the Tribunal to provide a clearer briefing of its claim for loss of reputation, which appears to be founded on Article 49 of the relevant Turkish Code and Articles 24, 24/a of the Civil Code. Please consider and respond to the issues raised by SYE in their submissions dated 14 June 2013 at paragraph 1.2.16. What are the legal conditions for non-pecuniary damages under Turkish law?

 

There is no special method in calculation of the non-pecuniary damages. The appraisal of non-pecuniary damages lies with the judge. However, the fact that the individual has felt humiliated before a majority of the society due to severity of the respondent’s fault, namely the severity of the effects of breach, and also issues such as social status, social and economic state of the person whose immaterial rights have been infringed and contributory negligence of the injured party appear as issues to be considered by the judge in calculating non-pecuniary damages. Indeed, the second paragraph of article 49 of the Turkish Code of Obligations provides as follows:

 

 

In addition, I should also state that, the Turkish Code of Obligations has not introduced the system of non-pecuniary damages in order to punish the perpetrator; on the contrary, it has introduced this system to relieve the pain and sorrow suffered by the injured party due to infringement of its personal rights. From this perspective, the amounts of non-pecuniary damages accepted by the Turkish courts are extremely low amounts. With the exact expression in the Supreme Court practices, when deciding on the amount of damages, the judge should not put the claimant in a desirable position. In the present case, the respondent’s claim for non-pecuniary damages are very high when compared to the amounts of non-pecuniary damages generally ordered in the Turkish Law practice.

 

According to the Turkish Code of Obligations, the claim for non-pecuniary damages based on tort is subject to a limitation period of 1 and 10 year. One-year period starts on the date when the damage and the responsible party are learnt. If the responsible party cannot be learnt, the claimant must have filed its action within 10 years following the date on which the act violating personal rights has taken place. Otherwise, if the claimant’s claim is time-barred, the respondent may assert limitation argument. The judge cannot ex officio (voluntarily without the Respondent’s assertion) take the limitation argument into consideration.

 

However, if the claim for non-pecuniary damages relies on breach of contract, then this claim for damages must be held subject to the 10-year limitation period pursuant to article 125 of the Turkish Code of Obligations. However, we should immediately state that, the contract between the parties is a contract of work. The litigations arising from contract of work are, in principle, subject to a 5-year limitation period. Thus, the limitation period of the non-pecuniary damages claim of the claimant based on unjust termination of the contract of work must be accepted as 5 years⁽⁵⁾ .

 

If the contractor asserts that it has suffered non-pecuniary damage due to unjust termination of the contract by the employer, namely if it claims that it has incurred loss of reputation, it must prove each of the following:

 

(i) the employer’s termination of the contract is contrary to law (contract, obligation);
(ii) the employer’s act to terminate the contract breaches the contractor`s personal rights and thereby leads to an immaterial loss.
(iii) there is adequate casual link between the employer’s act to terminate the contract and the breach of the contractor’s personal rights and thereby the immaterial losses sustained;

 

If the contractor fails to prove any of the above, its claim for loss of reputation will fail. Even if the contractor succeeds to prove necessary conditions above, the main contractor may still survive from liability by proving that it had no fault.

 

Indeed, in order for a commercial corporation to be entitled to a claim of non-pecuniary damage due to any action on the part of the other contracting party in contravention of its obligation, own subjective discretions of the legal entity tradesman’s managers or partners are not sufficient. On the contrary, its goodwill before the society must have been harmed.

 

As also felicitously put by Arıdemir who discusses this issue in its thesis titled “Non-Pecuniary Damages arising from Breach of Contract”⁽⁶⁾ :

 

Therefore, if the claimant fails to assert a relevant claim in fact and in law for non pecuniary damages, then it will not succeed in its claim.

 

1.9 Question 9. The consequence of encashment of the securities on SYE’s loss. SYE say that in consequence of the encashment of the securities, SYE were required to take out a credit facility and that is the cost claimed. SYE’s factual position is narrated at paragraph 77(iii) of the Statement of Claim. Please also consider and respond to the issues raised by SYE in their

Submissions dated 14 June 2013 at paragraph 1.2.15. The Tribunal has asked whether there is a foreseeability issue if a party acts in an unorthodox or unusual manner. What issues arise in Turkish law?

 

The contractor must first prove that the employer has unrightfully liquidated the bank letter of guarantee in order to concede the assertions of the contractor that it has suffered damage.

This damage it asserts is as a result of obtaining cash loan from the bank and paying costs and interests to the bank for the loan, due to the fact that when the bank had recourse to it upon the employer’s asserted unrightful liquidation of the bank letter of guarantee, that the employer is required to reimburse these damages.

 

In addition, the claimant must also prove that there is adequate causal link between the action on the part of the debtor in contravention of its obligation namely the claimant’s unrightful liquidation of such letter and the damage suffered by it.

 

In order to accept the causal link between the action in contravention of obligation and the damage, it should be established whether it is in the ordinary course of life for the creditor (the beneficiary of the letter) to have to obtain loan from the bank as a result of the unrightful liquidation of the letter, namely whether it is a generally repeatable phenomenon in the ordinary course of life to have this outcome appear.

 

It is very normal, and even inevitable that the bank had recourse to the beneficiary of the letter. But, it is not a phenomenon that can be almost always encountered or frequently repeated in the ordinary course of life for the beneficiary of the letter referred to by the bank to have to obtain loan from the bank to pay its loan to the bank and to enter into obligation to pay interest for this loan. Thus, the contractor’s claim for damages from the employer for the interest and costs of its loan is not acceptable.

 

 

 

1.10 Question 10. General counterclaim. Please consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 2.1.1, bearing in mind that we are dealing with an ICC Arbitration under Swiss Arbitral law. Is the Code referred to by SYE of any relevance to this ICC Arbitration?

 

The explanations of the contractor regarding clarification of the damages claim in the employer’s counterclaim are relied on the Turkish Code of Civil Procedure No. 6100 (“Code of Civil Procedure”). If the Code of Civil Procedure does not apply to the dispute between the parties – which, as far as I can establish, the employer claims that the Swiss Arbitral Law must apply to the arbitration procedure and if this claim is correct – then it will not be possible to apply the Code of Civil Procedure.

 

1.11 Question 11. What are the consequences for M’s counterclaim of the terms of clause 17.6 of the Sub-Contract? The Tribunal has asked parties to comment on the limitation of liability provided by Sub-Clause 17.6. M’s counterclaim arises in respect of its entitlement under clause 15.4 of the Conditions of Sub-Contract. Furthermore, M contend that SYE acted with deliberate default and reckless misconduct, and so liability is not limited in respect of the counterclaim by any of the terms of clause 17.6.

 

It is noted that article 17.6 of the contract contains a provision that limits parties’ liabilities both in terms of scope and amount. The Turkish Law also allows agreements limiting liability to be concluded. Article 99 of the Turkish Code of Obligations reads as follows:

 

 

As can be seen, the lawmaker agrees that the debtor’s liability arising from gross fault (intention and gross negligence) cannot be released in advance. However, there is no obstacle against prior execution of an agreement by the parties stipulating that the debtor shall not be liable for its slight negligence.

 

In the third paragraph of clause 17.6 of the contract between the parties, it can be seen that there is a limitation similar to those set forth in article 99 of the Code of Obligations. It is because clause 17.6 does not limit liability in any case of fraud, deliberate default, or reckless misconduct. Article 99 / paragraph 1 does not limit liability in any case of fraud or gross fault as well. Gross fault includes two concepts. One of them is intention; the second one is gross negligence. According to Turkish law of obligations system, intention is foreseeing and demanding the action in contravention of obligation. Whereas gross negligence is foreseeing the action in contravention of obligation, and not showing the care that must be shown by even an ordinary individual despite not demanding such outcome. Slight negligence is foreseeing the action in contravention of obligation, and not showing the care that must be shown by a careful individual to prevent it despite not demanding such outcome. Therefore, in my view the deliberate default is similar to intention whereas the reckless misconduct is similar to gross negligence.

 

In light of this basic information, if we move on to interpretation of the clause in the contract, the first paragraph of clause 17.6 of the contract limits the liabilities of the parties in terms of scope. However, clause 15.4 of the contract contains regulations related to post-termination payments. According to this regulation, the employer entitled to terminate the contract may be entitled (1) to demand recovery of its losses and damages arising out of exercising its right of termination and (2) to recover any extra costs of completing the works.

 

Although the Turkish Code of Obligations provides for an agreement in the contract limiting the liability of the parties; we consider that there is no obstacle to inclusion of any other exceptional provision that allows either party to claim all damages and actual losses and lost profits suffered by it, from the other party, if it terminates the contract for cause. This can be characterized as a legal system which contemplates that the liability cannot be limited if the party with limited liability causes the contract to be terminated by the other party for cause with its attitude and conduct when it fails to perform its obligations arising from the contract as required, in other words a legal system which constitutes an exception to the limitation of its liability.

 

In addition, the contractor argued that the employer cannot claim damages under the name “loss of margin”, “loss of any contract”, and that these claims were in fact included within the scope of non-liability agreement in article 17.6 of the contract. In my opinion, this evaluation is not correct. As a matter of fact, the provision of the contract between the parties governing post-termination payments is an exceptional provision that falls outside this non-liability agreement.

 

In summary I do not consider that the particular terms of clause 15.4 are excluded by the general provisions of clause 17.6. As I explained above (see above (D) / no: 24 et seq) according to the principle of “freedom of contract” the parties can regulate the provisions of the contract according to their necessities provided that there is no mandatory rule prohibits their dispositions. The parties can easily accept rules limiting their liability and they can exclude some cases from these limitations as well.

 

1.12 Question 12. Turkish Law issues arising regarding sums recovered under the Performance Security.

 

1.12.1 M has stated: “The Respondents have accepted, and the Terms of Reference has recorded at Paragraph 54, that in respect of its entitlement arising out of its counterclaim, the Respondent will credit to the Claimant the sum of 985,585 Euros that it recovered by the drawing down of the Performance Guarantee.”

 

1.12.2 The background to this declaration is that:

 

(a) Upon termination of the SYE Sub-Contract, M called the Advance Payment Security and the Performance Security.
(b) The Advance Payment Security recovered the sum of Advance Payment already paid by M. So this enabled M to recover sums it had actually paid, but for which it had obtained no value.
(c) Regarding the Performance Security, M were effectively ‘credited’ with the sum recovered from the Guarantee (i.e. 985,585 euros) in that M had not actually paid out this sum to SYE. However, M has suffered loss in consequence of SYE’s poor performance. That loss is the subject of the counterclaim. M is entitled to retain the sums recovered from the Performance Security as a contribution towards their loss.
(d) M do not seek to ‘double recover’ and therefore have agreed that the 985,585 euros already recovered by M should be credited against any sum recovered through the counterclaim.

 

1.12.3 The Tribunal have asked M to provide its submissions on the following question: Is there any relevant Turkish law issue regarding M’s crediting of sums recovered under the Performance Security against sums recoverable in their counterclaim.

 

According to the established jurisprudence of the Turkish Supreme Court and the view in the doctrine also supported by certain authors in the Turkish law system, bank letters of guarantee are considered as guarantee agreements in representing the commitment of a third party’s act⁽⁷⁾ . The most important quality of a guarantee agreement is its independence from the contract relation it has secured. The creditor is not obliged to prove that the debtor has not satisfied its obligation or that it has suffered loss due to the debtor’s failure to satisfy its obligation in order to liquidate the bank letter of guarantee. The employer has terminated the contract based on clause 15.2. This phenomenon must be examined in terms of the assertion that the bank letter of guarantee has been unrightfully liquidated. Namely: Clause 4.2 of the contract between the parties is titled “Performance Security” and the third paragraph and subparagraph (d) of this clause has been drafted as follows:

 

 

Thus, in the light of this provision, it can be asserted that the employer has terminated the contract under clause 15.2., and, despite termination, is entitled to claim reimbursement of (1) all damages and losses and (2) any extra costs of completing the works from the contractor pursuant to sub-paragraph (c) of clause 15.4 governing post-termination payments and, that in this context, it is entitled to liquidate the bank letter of guarantee available to it, in accordance with these procedures. In fact, one of the principles governing our Code of Obligations is the principle of freedom of contract.

 

1.13 Question 13. M’s claim for its loss of margin arising from the requirement to appoint replacement sub-contractors. The Tribunal have asked, generally, what issues of Turkish law arise in the claim for margin. But for the termination of the SYE Sub-Contract, M would have recovered a certain margin. As a result of the SYE termination, the costs of SYE’s scope of works increased, so the margin correspondingly reduced. Only an element of the terminated scope of works was re-let prior to the termination of the main CR1 Contract, some 24 months after the SYE termination. Nonetheless, M have lost the opportunity to claim for such reduction in margin in its claim in the arbitration against the Turkish government regarding the termination of such CR1 Contract. What Turkish law issues arise in a claim of this nature? Please also consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 2.1.2; 2.1.3 (again, we understand that the concept of positive/negative damages only arises where the termination is under the Turkish Code, whereas the termination here was contractual); 2.1.9, 2.1.10; 2.1.11.

 

In the Turkish law system, positive damage is described as follows: The damage that would not have been suffered by the creditor if the debtor had satisfied its obligation as required constitutes positive damage. Here, in fact, a comparison is made. The position in which the creditor’s assets would be if the debtor had satisfied its obligation as required and the position in which the creditor’s assets would be if the debtor did not satisfy its obligation at all or as required are compared. The difference between the two positions constitutes the creditor’s positive damage. Positive damage appears before us as either current damage or lost profit. Current damage expresses reduction in the creditor’s assets whereas lost profit means loss of the opportunity of potential increase in the creditor’s assets. Current damage emerges either as reduction of asset or increase of liabilities. In parallel with this, lost profit means loss of opportunity of increase in the creditor’s assets or opportunity of decrease in its liabilities.

 

The burden of proof of damage and its actual amount essentially lies with the injured party. However, if the injured party is not able to prove the actual amount of its damage, it must submit to the court all evidence that will allow the judge to form an opinion about the amount of damage. In such cases, the second paragraph of article 42 of the Turkish Code of Obligations will be applied by analogy by reference to the second paragraph of article 98 of the Turkish Code of Obligations:

 

 

Determination of the damage amount by the judge has a separate significance in terms of the proof of damage in the form of lost profit. Indeed, as the current damage is a type of damage actually suffered by the creditor according to the causal link in parallel with its action in contravention with the debt, it is easy in this type of damage to determine the appropriate causal link between the action in contravention of the obligation and the damage. However, in lost profit, the situation relies on an assumed calculation. When the judge is making this calculation, it should take into account the profit seemingly possible to be generated in the ordinary course of life and in consideration of the measures taken by the creditor. The judge should approach claims of abnormal profit with caution and should seek substantiation of claim by the creditor. In addition, the assertion that the creditor would generate profit less than the profit it would normally generate is considered an issue that must be proven by the debtor⁽⁸⁾ .

 

Thus, there is no obstacle to the court’s (and in this case the tribunal’s) characterization of certain components as a loss of chance when taking up the damages claimed to have been suffered by the employer. This approach of the court/tribunal should not mean that it will decide that the profit claimed to have been lost by the employer will not be recovered. As a matter of fact, as I have stated above, the court/tribunal’s evaluation as to lost profit naturally relies on an assumed calculation. The court/tribunal should measure whether the creditor’s claim that certain profits would have been generated, certain opportunities would have been created if the obligation had been satisfied as required will be realized or not in the ordinary course of life.

 

Briefly, as mentioned above, the injured party has to prove his damages. There are two types of damages: Definite and prospective damages. Definite damages may be determined or determinable. According to the article 98 of Turkish Code of Obligations that refers to the article 42, if the judge/tribunal, taking into account the ordinary course of things, is of the opinion that damages are already realized or will be realized, he has to accept the claim of damage. Whereas prospective or potential damages are unrealized damages and are not compensated. Loss of profit is not a kind of prospective damages and it can be acceptable by the court.

 

As a matter of fact it can be cited some examples of explanations of current, future and potential damages. For example according to Oğuzman and Öz⁽⁹⁾ :

 

1.14 Question 14. M’s claim for stamp duty and social security costs. The Tribunal has asked whether M’s claim for stamp duty and social security costs can have any other legal basis than a claim consequential upon the termination. Please consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 2.1.4 (stamp duty). Please consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 2.1.8 (social security costs).

 

Article 15.4 of the contract related to the payment after termination is written as follows:

 

 

According to paragraph (c) of this article after termination employer may recover from the contractor any losses and damages. Therefore, where the employer paid stamp duty or social security costs instead of the contractor he can claim that these payments are to be recovered.

 

As to the question whether M’s claim for stamp duty and social security costs can have any other legal basis than a claim consequential upon the termination:

 

In order to response this question it is required to separate two problems. First, I would like to analyze the problem of stamp duty. According to the Stamp Duty Law, parties to a contract have to pay stamp duty (Article 3). Where one of the parties paid his and other party’s proportion of liability, he can demand that this payment related to other party’s proportion of liability is to be recovered based on rules related to the unjust enrichment (TCO.art.61)⁽¹⁰⁾ .

 

As to the question pertaining to social security costs: Article 2 / paragraph 7 of the Labour Law and article 12 / paragraph 6, phrase 2 of the Social Insurances and General Health Insurance Code provide a joint liability for employer and sub-employer (in our case sub-contractor) regarding to the social security costs. However, for the problem of recourse among jointly liable persons, Turkish Code of Obligations art. 146 will be applicable. According to first paragraph of this article:

 

 

Accordingly, where the employer had to pay social security costs because of law, he can recourse for all his payment against the sub-contractor since article 6.4 of contract is as follows:

 

 

Briefly, since the parties define the liability of the contractor, the employer can have recourse against contractor for all of his payment regarding social security costs.

 

As a matter of fact, Oğuzman / Öz have made the following explanations on the issue in the doctrine⁽¹¹⁾ :

 

 

1.15 Question 15. The consequences of payment of Invoice No 1 and VAT issues arising.

 

1.15.1 SYE argue that M paid Invoice No 1 without objection, so that, SYE argues, under Turkish law, this means that M is deemed to have acknowledged that the work covered by that invoice was correctly carried out.

 

1.15.2 M have responded: “In respect of the Invoice, this was issued solely for VAT purposes, in line with Turkish law and practice. The non objection to the invoice is not an indicator of the undertaking and completion of the works and services referred to in the invoice. We have evidenced in these submissions, the factual narrative, and supporting documentation, that the Claimant did not progress its contractual obligations, as it was required to do. Thus the Respondent has vouched that the invoice cannot be taken as evidence of satisfaction of the Claimant’s contractual obligations.”

1.15.3 The Tribunal has requested further briefing by both parties on Turkish law in this regard.

 

1.15.4 What are the general consequences of non objection to the issuing of an invoice?

 

1.15.5 Please also consider and respond to the issues raised by SYE in their Submissions dated 14 June 2013 at paragraph 1.2.12.

 

The second paragraph of article 23 of the (former) Turkish Commercial Code No. 6762 reads as follows (Second paragraph of Art. 21 of the New Turkish Commercial Code No. 6102 which has become into force as of 1 July 2012 repeats the same rule):

 

 

According to this regulation, invoice is a document related to the stage of performance of the contract and the tradesman receiving the invoice shall be deemed to have accepted the content of the invoice if it has not raised an objection to the invoice within eight days; however, it is possible for it to prove the contrary. Indeed, art. 23 / paragraph 2 of the former Turkish Commercial Code causes replacement of the burden of proof; namely, the burden of proof that lies with the party issuing the invoice under normal conditions passes to the party that has not raised an objection after the expiry of 8-day objection period.

 

As a matter of fact, in the doctrine, as fittingly stated by Arkan⁽¹²⁾ :

 

 

Therefore, in the underlying dispute, the main contractor, despite having not raised an objection within 8 days against the invoice, may prove that the data contained in the face of the invoice (e.g. the amount, the description, date etc.) is not true, and thereby disprove the presumption in favor of the sub-contractor origination from Art. 23/II of the Turkish Commercial Code. Pursuant to the Contract, there are certain procedures and stages that need to be complied with before the sub-contractor entitles to any payment (e.g. signing of progress reports by both parties). As such documents do not exist, the burden of proof to prove that the services narrated in the invoice shall shift to the sub-contractor.

 

More importantly, according to precedents of the Turkish Court of Cassation, if the delivery of the goods or performance of the works is under dispute between the parties; the delivery of the goods or performance of services must be further proved by the party who is supposed to deliver the goods or perform the works even if the invoice was not disputed by the other party within 8 days.

 

The following are a few examples reflecting the Court of Cassation’s approach in this regard:

 

In order to consider the underlying invoice final and binding for the parties in accordance with Art. 23/2 of the Turkish Commercial Code, the contractor is supposed to prove that a contract has been entered into between the parties in relation to the work narrated in the invoice and the work in dispute has been delivered to the employer in an adequate manner (15th Civil Chamber of Court of Cassation, 2007 / 2029 E., 2008 / 1483 K., 07.03.2008 T.)

 

In the event that the invoice was served to the respondent and it was not disputed within 8 days, the respondent shall be deemed to have accepted its content according to Art. 23/2 of the Turkish Commercial Code. However, this will mean that the amounts narrated in the invoice became definite but it does not entail an acceptance that the work has also been performed. Therefore, the claimant who argued to have performed the work related to fixing and maintaining the wash-machine should prove it accordingly (15th Civil Chamber of Court of Cassation, 1992 / 4618 E., 1992 / 5448 K., 23.11.1992 T.).

 

In cases where the content of an invoice was not disputed within 8 days, a presumption occurs that the data contained in the invoice are correct; but the latter does not necessarily entail that the work narrated in the invoice was performed. As in the underlying dispute the respondent disputed that the work undertaken by the claimant were performed, the burden of proof rests with the claimant in terms of proving that it performed its obligations (11th Civil Chamber of Court of Cassation, 2004 / 7832 E., 2005 / 4738 K., 05.05.2005 T.)

 

Failing to dispute an invoice received within 8 days does not necessarily indicate that the goods narrated in the invoice were delivered to the buyer. It rather means that only the content of the invoice in terms of price and quantity of the goods have been accepted. The claimant should further prove that it has delivered the goods narrated in the invoice to the buyer as well as such delivery was due to a contractual relation between the parties (3rd Civil Chamber of Court of Cassation, 2000 / 4885 E., 2000 / 5011 K., 29.05.2000 T.)

 

The contractor’s reliance of its claims on the relevant provisions of the Tax Procedure Code makes no sense. As a matter of fact, the Tax Procedure Code covers rules as to the time, manner and content of and the conditions under which the invoice must be issued. It also provides for the legal consequences that will naturally emerge in terms of tax law, in other words the sanctions that will be imposed, in case of non-compliance with these rules. As for the present case, it is in no way connected to the Tax Procedure Law. In fact, the issue is simply a matter of burden of proof. The governing law for this issue relayed to burden of proof is the Turkish Commercial Code, and not the Tax Procedure Law. As stated above, the provision that applies here is the second paragraph of article 23 of the Turkish Commercial Code.

 

Therefore, according to Turkish law, it is open to the Turkish courts, and therefore an arbitral tribunal, to determine that any works alleged to have been carried out with reference to an invoice, were not in fact carried out.

 

 

 

This report has been prepared for the Tribunal in this Arbitration. I confirm that my duty to the Tribunal as an expert witness overrides any duty to those instructing or paying me, that I have understood this duty and complied with it in giving my evidence impartially and objectively, and that I will continue to comply with that duty.

 

I hereby declare that I believe in the accuracy and truth of the matters put forward in this report and that I have included in the report all those facts which I regard as being relevant to the opinions which I have expressed and that I have drawn attention to any matter which may affect the validity of those opinions.
I confirm that I have made clear which facts and matters referred to in this report are within my knowledge and which are not. Those that are within my own knowledge I confirm to be true. The opinions I have expressed represent my true and complete professional opinions on the matters to which they refer.

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