Coronavirus alias COVID-19 was first recorded on December 2019 in the city of Wuhan, People's Republic of China and has rapidly spread to many regions, causing a worldwide epidemic that threatens human health. Attack rate of the virus that has no cure with exact data, is trying to be precluded by taking measures such as suspending all activities except those that are vital in many countries, suspension of activities in the area of culture, arts, sports and etc., and advising the community to not to leave the house or declaring a curfew.

The measures taken by countries affect daily life along with influencing flow of commercial life, which are resulting in de facto suspension of contracts. Legal evaluation of the current situation becomes more of an issue for all commercial actors.

In this study, legal consequences of the impacts of the coronavirus will be evaluated on the basis of the provisions contained in the contracts, which are considered as "the constitution of the parties", and the predictions about how the performance of the contracts may evolve under the Turkish law in general will be included.

  1. Concept of Force Majeure
     

In the doctrine, force majeure is defined as an unforeseen, irresistible and extraordinary event that occurs outside the activity and operation of the responsible or debtor, which leads to breach of debt or general norm of conduct in an absolute and inevitable way[1]. Accordingly, natural disasters such as earthquakes, floods, fires and epidemics are considered as force majeure.

In the decision of the General Assembly of the Turkish Court of Appeal dated 27.06.2018, numbered 2017/11-90 E. and 2018/1259 K. regarding force majeure is states as follows:

"Force majeure is an extraordinary event that occurs outside the activity and operation of the responsible or debtor, which leads to breach of debt or general norm of conduct in an absolute and inevitable way, which cannot be foreseen and resisted. Natural disasters such as earthquakes, floods, fires, epidemics are considered force majeure. As can be understood from the explanation above, there are numbers of elements of force majeure. First, force majeure is a compelling event. This event may be a natural, social or legal event, or it may be a human-related event. This should be an event outside the activities and operations of the person that caused harm."

Force majeure as a legal condition, appears as an issue that causes the impossibility of performance terminating the contractual obligations. Indeed, in a case where conditions to be considered as a force majeure are occurred, Article 136 and 137 of the Turkish Code of Obligations ("Law No: 6098") regulating ''impossibility of performance'' or Article 138 regulating "hardship" should be taken into consideration.

  1. Impossibility of Performance
     

COVID-19, which has become one of the most current and crucial issues in the world, may be regarded as an "epidemic" that have become force majeure in the performance of contracts. As of March 12, 2020, coronavirus has been declared "pandemic" by the World Health Organization which confirms the acceptance of coronavirus as an epidemic disease both at homeland and abroad.

As it is known, the main factor determining the relationship between the parties is the contracts concluded. In practice, it is seen that "force majeure" clauses which may prevent the execution of the contract are contained in the contracts. These clauses illustrating "force majeure" generally comprise of expressions such as "natural disasters, epidemics, earthquakes, legal strikes, partial or general mobilization, or other causes that may occur outside the control of the parties".

However, it is possible for the parties to determine the force majeure provisions in their contracts on limited conditions. Under these circumstances, parties will not be able to benefit from the effects of force majeure, except for the limited conditions incorporated in their contracts[2]. It is also possible for parties to determine in which specific cases the debtor will be held responsible under force majeure provisions, and it is also possible to not to hold debtor liable under force majeure provisions. Therefore, the provisions of each contract relating to force majeure clause should be examined and interpreted along with other provisions incorporated.

For instance, as in the matter of COVID-19, the epidemic must constitute force majeure in that particular contract[3] and there shall be partial or complete impossibility of performance. Otherwise, it may not be possible to accept that force majeure has occurred, and it caused impossibility of performance under that contract.

For this reason, we will below examine the impossibility of performance in cases when the contract does not explicitly prohibit the epidemic diseases referred as force majeure.

  1. Continuous Impossibility of Performance
     

In this respect, the first case to be examined is the "continuous impossibility" of the performance of the contractual obligations. This situation was regulated under the Art. 136 of Law No: 6098 and accordingly, the contractual obligations terminate with the fact that a situation that does not directly cause by the debtor and which brings external origin and inevitable results making the performance of the contractual obligations impossible. In determining whether the force majeure causes continuous impossibility, the moment when force majeure occurred is considered.  

It is necessary to scrutinize whether in these periods of epidemics such as COVID-19, the diseases make the performance of contracts completely impossible. There is no doubt that coronavirus may not render the performance of the contractual obligations continuously impossible in terms of all types of contracts. For instance, contracts requiring continuous obligations such as a lease agreement, it may be said that epidemic disease may cause a temporary impossibility of performance, rather than a continuous one, thus Art. 136 of Law No: 6098 shall not be applied. However, it can be accepted that coronavirus will cause a continuous impossibility when force majeure occurred for the contracts those include sales of products may be affected by epidemic disease.

According to the conditions of present case, if it may be accepted that the performance is continuously impossible and the debtor is freed from the debt, then the debtor will be obliged to restitute the counterparty's performed parts of the contract in accordance with the unjust enrichment provisions and the debtor will lose the right to demand execution of the remaining contractual obligations. Moreover, if the debtor does not inform the counterparty without delay that the performance has become impossible and does not take the necessary measures to prevent from further loss, then the debtor shall also be obliged to recover the losses arising from this. Therefore, the debtor shall inform the counterparty that the performance has become impossible and shall take necessary measures to preventing from further loss[4].

  1. Temporary Impossibility of Performance
     

Provided that the debtor is unable to performance their contractual obligations for a period of time resulting from force majeure, in other words, if the debtor would be able to performance their contractual obligations if the obstacle causing from force majeure is removed, then "temporary impossibility of performance" occurs. The impossibility of temporary performance is not regulated under the Law No: 6098.

In the doctrine, it is accepted that the debtor, who is unable to perform their contractual obligations as a result of temporary impossibility, is in default as a rule. However, when the debtor defaults due to temporary impossibility, the counterparty's demand for performance is deferred until the temporary impossibility ends. In other words, there is a postponement of the specific performance. In this case the debtor will be in strict liability default by not being responsible for force majeure. Since the debtor is in default by strict liability as a result of the temporary impossibility of performance resulting from force majeure, the counterparty whose demand for performance is deferred cannot ask for damages for delay in performance along with the execution of the specific performance. Additionally, in this situation, the debtor will not be held responsible for the damages caused by unexpected circumstances.

At this point, we would like to state that it is acknowledged as a rule that pecuniary debts cannot become impossible to fulfil. Therefore, it is not possible to mention that pecuniary debts become temporarily or continuously impossible.

In case of temporary impossibility for bilateral contracts, there are two different views in the doctrine. According to one view[5], the contractual relationship is suspended in case of temporary impossibility for bilateral contracts. For this reason, if the temporary impossibility continues, the counterparty cannot exercise their right of choose.

According to the other view[6], it is accepted that only the specific performance obligation of the debtor, who is in defaulted by strict liability due to temporary impossibility, is delayed. On the other hand, if the counterparty wishes to exercise its right to choose without waiting for impossibility to end, the counterparty cannot renounce the specific performance and claim compensation for the positive loss, as the debtor has no fault in defaulting. Apart from this, if the counterparty wishes to renege on a contract, it is thought that the counterparty may renounce the specific performance but cannot claim the negative damages. In this view, with the acceptance that it is possible for the counterparty to exercise their right to renege on the contract, in accordance with honesty rule[7]. While counterparty is exercising their right to renege on the contract in case of temporary impossibility of performance, a period under the name of "period of tolerance to the agreement" is envisaged by the Court of Appeal. In other words, the counterparty can only renege on the contract right after the period of tolerance expires.

In this respect, The General Assembly of the Turkish Court of Appeal's decision dated 28.04.2010, numbered 2010/15-193 E. and 2010/235 K. stated as follows:

"Impossibility of performance is one of the reasons of terminating the debt. Literally, according to the Art. 117/1 of Law No: 6098, "In the event that the execution of the debt is not possible but not because of the debtor's faulty actions, the debt becomes inoperative." The impossibility of performance is subject to some distinctions according to the reasons for its emergence. One of these distinctions is the distinction of objective impossibility (continuous impossibility)-temporary impossibility. If the impossibility of performance is not only for the parties to the contract but for everyone, it is called objective impossibility. In objective impossibility, the contract is essentially void according to Art. 20 of Law No: 6098 and does not have to be annulled. However, in the case of temporary impossibility, execution of the contractual obligations depends on the realization of an event. So that if that incident occurs, the execution of the contract may be demanded. (...) There is no doubt that the existence of temporary impossibility brings the question of how long the parties will be bound by this contract. The rule on this subject is to keep the parties bound by the contract according to the principle of "pacta sund servanda". However, there are some special circumstances in which to consider the parties bound by that contract both prevents their economic freedom and eliminates the opportunity to contract with someone else. In practice, in case of temporary impossibility, the period of retention of the parties under that contract is called the "period of tolerance to the agreement". It is also necessary to evaluate whether this period has taken place according to each concrete event and within its framework"

By stating that, the necessity of examining whether the period of tolerance to the agreement has been realized based on every concrete event, was revealed.

As a matter of fact, regarding the above-mentioned Court of Appeal decision, it is possible for counterparty to renege on a contract due to temporary impossibility of performance in terms of bilateral agreements, however it is necessary to wait for the period of tolerance to the agreement considering the  honesty rule

  1. Partial Impossibility of Performance

Art. 137 of Law No: 6098, different from Art. 136., regulates ''partial impossibility of performance''. As per this article, if the performance of the contract becomes partially impossible due to reasons that the debtor cannot be held responsible, it is stated that the debtor will be freed from only the impossible part of the contractual obligations. However, if it is clearly understood by the parties that the contract would not have been concluded if this partial impossibility of performance had been foreseen in advance, it is accepted that the entire debt is terminated. In contracts that impose mutual obligations, if a party's debt becomes partially impossible and the counterparty consents to partial execution, the counter performance is also executed at that rate. If the counterparty does not consent such performance or that the counter performance has inseparable nature, full impossibility provisions apply.

In summary, if the execution of the contract is partially impossible, it is accepted that the debt will terminate only in terms of the portion of the debt that becomes impossible.

For contracts to be partially executed, the performance shall be separable by law. It is possible to mention that the debtor is freed from that performance if that performance becomes impossible to execute among the rest of the separable contractual obligations. The other condition in which the performance can be separable materially is that more than one performance has been committed by contract. Unless otherwise agreed by the parties, impossibility of the execution of one of the contractual obligations does not prevent the execution of the obligations among the rest.[8].

Provided that a contract is partially impossible due to coronavirus, then it is possible to mention that the debtor is freed from the impossible part of their debt.

  1. Hardship
     

The concept of adaptation of contracts refers to the arrangement of the contract with new conditions for reasons that arise after the conclusion of the contracts and give rise to an actual or legal impossibility preventing the performance of the contract as agreed.

In some cases, there are clauses in the contracts regarding under which circumstances the contracts will be adapted. It is convenient for contracts accepting epidemic diseases like COVID-19 as a force majeure to evaluate the intention of the parties regarding to provide performance, to negotiate accordingly to render the adaptation of the contract in a way which seems possible. However, if there is no clause for adaptation in the contract and negotiations between the parties for the adaptation of the contract to the new conditions fails, in this case Art. 138 of Law No: 6098 regulating ''hardship'' shall be applied.

Art. 138 of Law No: 6098 comprise of special provisions on adaptation of the contract, rather than solving by honesty rule and general principles, by detailed explanations and special practice[9]. Accordingly, if an extraordinary situation, which was not foreseen by the parties at the time of the contract and is not expected to be foreseen, arises for a reason not causing from the debtor, and changes the facts present at the time of the contract to the extent that the demand for performance is against the debtor in a manner which is contrary to the rules of honesty, and if the debtor has not yet fulfil his debt or has performed it by reserving his rights arising from the hardship, the debtor has the right to ask the judge to adapt the contract to the new conditions and, if this is not possible, the debtor may execute their right to renege on the contract. In the contracts comprising continuous performance, the debtor executes the right of termination of the contract instead of the right of renege on the contract.

In order to be able to request for adaptation of the contract based on hardship, and if that is not possible, to be able to renege on the contract requires the following conditions to be fulfilled simultaneously:

  • - At the time of conclusion of the contract, an extraordinary situation which was not foreseen by the parties and which was not expected to be foreseen must have occurred,

  • - This should not result from debtor's actions,

  • - This situation should have changed the provisions of the contract at the time of the conclusion against the debtor to such a degree that it would be against the rules of honesty to demand performance,

  • - The debtor must have not yet fulfilled the debt or performed it by reserving their rights arising from the hardship.

Although the impact of COVID-19 in practice is not yet known, it is worth noting that while request the adaptation of the contract is possible, the adaptation of the contract is considered as an exception under the Turkish Law. For this reason, it is necessary to examine the effect of coronavirus, which is described as a pandemic, on the parties and what extent it affects the subject of the contract. As a matter of fact, it is also accepted in the case law that the debtor may request the adaptation of the contract according to the new conditions or terminate the contract in cases where the demand for the performance of the debt according to the terms of the contract would constitute a violation of honesty rule[10].

It is important to note that the request for adaptation of the contract is requested from the judge, not from the counterparty of the contract, and that the contractual obligations must have either never been performed or has been performed with reservations in order to be able to assert this request.

  1. Conclusion
     

As a result, since the coronavirus is a new virus species and an epidemic disease worldwide, its current legal impacts are not reflected in case law and practice. Taking into consideration both the provisions of the contracts between the parties and the regulations provided under the Law No: 6098 that the virus affects the execution of the contracts, is a force majeure and therefore under the conditions of the contract and without prejudice to sui generis provisions of contract types, it is convenient to apply provision regulating continuous, temporary impossibility or hardship.

It is important to keep in mind that pecuniary debts do not become impossible to execute. Moreover, it is possible to encounter aside from continuous impossibility of performance, temporary impossibility of performance may arise due to COVID-19. Since the debtor is in default by strict liability due to the temporary impossibility of performance resulting from force majeure, the counterparty whose demand for performance is deferred cannot ask for damages for delay in performance along with the execution of the specific performance. Furthermore, under the bilateral agreements, the counterparty cannot renounce the specific performance and claim compensation for the positive loss, as the debtor has no fault in defaulting, however counterparty also may choose to renege on the contract in concept of honesty rule. As it is provided by decisions of The General Assembly of the Turkish Court of Appeal, it is necessary to wait for the period of tolerance to the agreement and this period shall be determined under the very own spirit of each contract.

Finally, based on each concrete event, it is observed that written warnings are being issued relying on coronavirus causing force majeure. If it is clearly incorporated under the contract clauses that herein this contract may be suspended unilaterally, a party to the contract may suspend the contract unilaterally via issuing a written warning depending this clause. However, if the clauses providing unilateral suspension is not incorporated, we are of the opinion that it is not possible to suspend the contract by issuing a written warning within the scope of the explanations above-mentioned. Accordingly, the written warnings stipulating the aim of suspension shall be considered as an invitation to suspend the contact and in case the other party does not wishes so, then an objection shall be issued. In our opinion, the request for suspension of the contract corresponds legally to the situation of temporary impossibility of performance within the scope of our above-mentioned statements. In this case, we believe that the explanations relating reneging on the contract should be taken into consideration after expiration of tolerance period and the prohibition of demanding damages for delay under the default of debtor provisions.

Link:  https://www.hg.org/legal-articles/covid-19-and-its-potential-impacts-on-contracts-in-turkey-55168https://www.hg.org/legal-articles/covid-19-and-its-potential-impacts-on-contracts-in-turkey-55168

 


[1] Prof. Dr. Fikret Eren, Borçlar Hukuku Genel Hükümler, Ankara 2017, p. 582.

[2] Prof. Dr. H. Tamer Inal, 6098 sayılı Türk Borçlar Kanunu'na göre Borca Aykırılık Dönme ve Fesih, Ankara, 2015, p.347.

[3] In this context, we are of the opinion that it is necessary to evaluate whether the impossibility is foreseeable in terms of contracts signed after November 2019, when the virus was first detected.

[4] Turkish Court Of Appeal's decision dated 11.09.2019, numbered 2018/3533 and 2019/5295.

[5] Sahin, p.116, Rona Serozan, İfa, İfa Engelleri, Haksız Zenginleşme, (Kocayusufpaşaoğlu, Necip/Hatemi, Hüseyin/Serozan, Rona/Arpacı, Abdülkadir: Borçlar Hukuku Genel Bölüm Üçüncü Cilt), 7. Bası, İstanbul 2016

[6] Sahin, p.117, Mustafa Dural, Alman Hukukunda Sözleşmenin Amacının Engellenmesi ve Sözleşmesinin Amacına Erişilmesine İlişkin Görüşler, BATİDER, c. VII S.4, p.907-936

[7] Sahin, p.114 ff

[8] Hale Sahin, Mücbir sebep nedeniyle borcun ifa edilememesi, Yüksek Lisans Tezi, Mayıs 2019, p.67

[9] Prof. Dr. Ahmet Kılıçoğlu, Borçlar Hukuku Genel Hükümler, Ankara 2012, p.253

[10] 13th Civil Chamber of Turkish Court of Appeal's decision dated 12.02.1981, numbered 1981/147 E. and 1981/932 K.