This Memorandum aims to provide brief information on (i) provisions and restrictions imposed by the Law on Mandatory Use of Turkish Language by Economic Enterprises numbered 805 and dated 10 April 1926 (the “Law No. 805”) on Turkish and foreign enterprises; (ii) consequences of non-compliance with the Law No. 805; and (iii) application of the good faith principle in the light of the precedents of the Turkish Supreme Court of Appeals (the “Court of Appeals”).
A. SCOPE OF THE LAW NO. 805
The Law No. 805 is applicable to all Turkish and foreign enterprises with respect to transactions listed in Articles 1 and 2 of the Law No. 805; however, application of the Law No. 805 differs depending on the nationality of the enterprise.
1. Turkısh Enterprıses
In accordance with Article 1 of the Law No. 805, “Any type of companies and enterprises which have Turkish nationality shall use Turkish language in all kinds of transactions, agreements, correspondences, accounts and books within Turkey”. According to Article 1 of the Law No.805, each company and enterprise a the Turkish nationality is obliged to keep any kind of transaction, records and books and execute all agreements and make all communications with each other in Turkish language within the territory of Turkey. Accordingly, the only exclusion for the obligation of the use of Turkish language in transactions and communications of Turkish companies and enterprises is the case where such transactions and communications are executed/performed outside the territory of Turkey.
In that respect, it is clear that an agreement to be executed between two or more Turkish companies should be prepared and signed in Turkish language, or if it is preferred to be executed in a foreign language, to be accompanied with a Turkish version which shall prevail in the event of discrepancy. There are several court decisions in this respect. In one of its judgments, the Court of Appeals has upheld that the parties, in the text of the agreement may refer to non-Turkish (international) terms and/ or clauses, only if (i) these terms cannot be replaced by a counterpart in Turkish; and (ii) the parties are obliged to include such terms in the agreement.
However, it has also underlined by the Court of Appeals that this rule is valid only for terms and expressions either with no counterpart in Turkish or which cannot be written in Turkish. Similarly, in a later decision, the Court of Appeals has ruled that if the parties are both Turkish then all agreements must be executed in Turkish; although international terms and expressions may be incorporated into a Turkish agreement as a special condition. In this decision, the Court of Appeals has not accepted the usage of a maturity clause which was drafted in English language in an agreement executed in Turkish language since such maturity clause could easily be drafted in Turkish language as well.
2. Foreıgn enterprıses
In accordance with Article 2 of the Law No. 805, “This obligation applies to foreign companies and enterprises only in their communications, transactions and relations with the Turkish institutions and persons and for the documents, books and records which must be submitted to governmental offices and government officers.”
Pursuant to Turkish legislation, a foreign enterprise is a duly incorporated legal entity that has its registered office outside of Turkey. For foreign enterprises, as stated above, the requirement of Turkish language usage is limited only to (i) transactions, correspondences and communications with persons and legal entities subject to Turkish laws; and (ii) documents, books and records which will be presented to Turkish authorities.
In contrast with Article 1 of Law No. 805, Article 2 of the Law No. 805 has a narrower a scope of obligation to use Turkish language. The wording “agreement” is willingly not stated in Article 2 on purpose. In other words, the Law No. 805 does not specifically refer to “agreements” under the provision concerning foreign entities. This omission indicates that the Law No. 805 allows the execution of an agreement between a foreign entity and a Turkish entity in a foreign language.
There are several court decisions with respect to Article 2 of the Law No. 805. In a decision by the 11th Circuit of the Court of Appeals, the Court of Appeals has upheld that all accounts and books have to be in Turkish language, when submitted to the relevant Turkish authorities. Otherwise, they do not have any validity before Turkish courts. The Court of Appeals has come to a similar conclusion summarizing that Turkish enterprises may enter into agreements with foreign enterprises in any language since Article 2 of the Law No. 805 specifically lists instances where foreign enterprises are prohibited from using a foreign language and this list does not include agreements.
Accordingly, the Court of Appeals has concluded that agreements may be executed in any foreign language, where one of the parties is a foreign enterprise and the other is Turkish. According to this decision, an agreement executed in a foreign language between a foreign company and a Turkish company is valid and binding on the parties pursuant to and under Turkish laws. However, under Article 4 of the Law No.805, the parties are compelled to use Turkish language in all correspondences with respect to the agreement, although the agreement is allowed to be drafted in a foreign language.
B. CONSEQUENCES OF NON-COMPLIANCE WITH THE LAW NO. 805
Pursuant to Article 7 of the Law No. 805, any party violating the related provisions is imposed to a judicial fine of at least 100 days. The Turkish Penal Code numbered 5237 has regulated the judicial fine provisions and accordingly the judicial fine for one day shall be determined between TL 20 – TL 100 depending on (i) severity of violation; (ii) specific and economic conditions of persons; and (iii) discretion of judges.
C. GOOD FAITH PRINCIPLE
Pursuant to Article 2 of the Turkish Civil Code, raising a good faith claim is possible regarding the conflicts in an agreement. While deciding on the validity of the good faith claims, the determination shall be made on a case-to-case basis. In terms of disputes regarding non-compliance with the Law No. 805, there is not a definite provision for the application of the good faith principle and we have not come across any judgment of the Court of Appeals regarding the good faith claims has raised with respect to the application of the Law No. 805. However, with respect to the general provisions regarding the good faith claims, by analogy, the following solution may apply to conflicts on the mandatory use of Turkish language in agreements.
In the event that the parties have carried out their performances to the fullest extent, considering that the agreement is valid, the agreement, itself, should be considered valid, as well. The Court of Appeals, in one of its judgments, has stated that if parties have carried out their obligations under a contract for a long time, it would be a violation of the good faith principles to claim that the related contract is invalid. Similarly, the Assembly of Civil Chambers of the Court of Appeals has ruled in a former decision that the right to raise a good faith claim is restricted when the party raising the claim is acting against the good faith principle.
Although the aforementioned judgment does not directly refer to a dispute under the Law No. 805, the following conclusion could be drawn: when one or both of the parties is awaring (or shall be aware) of the mandatory use of Turkish language requirement and the aware party (or parties) disregards this rule on purpose, they should not be able to rely on a good faith claim regarding the language of the agreement.