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Arbitration

Under the Code of Civil Procedure, in order to avoid uncertainty, the dispositive sections of court decisions should stand alone, without the need to repeat any statements included in the legal reasoning. The Court of Appeals has ruled that this provision of the code is mandatory. As a result, dispositive sections that give rise to doubt are in breach of the law. The same principle applies to the enforcement of foreign arbitral awards.

Establishment of a globally renowned arbitration centre in Istanbul has long been discussed, particularly in light of the increasing use of arbitration as an alternative dispute resolution mechanism. The recent preparation of a draft bill to create such a centre is a significant and concrete step towards reinforcing Istanbul's status as an international business centre.

The 19th Chamber of the Court of Appeals recently ruled that the enforcement of a foreign arbitral award was subject to progressive court fees, since the award related to the collection of debt. This decision is of great significance, as the Court of Appeals has clearly ruled that the enforcement of a foreign arbitral award is subject to proportional court fees if the award relates to debt collection.

Bilateral investment treaties signed by Turkey primarily provide for two international arbitration mechanisms for dispute resolution, one of which is that governed by the International Centre for Settlement of Investment Disputes (ICSID). However, only certain disputes shall be subject to ICSID jurisdiction. Disputes related to immovables and in rem rights therein are exclusively within the jurisdiction of the Turkish courts.

The Istanbul Chamber of Commerce (ICOC) has recently formed a working group for the purpose of updating its current rules on arbitration, which date from 1979. The new rules are expected to comply with the new Code of Civil Procedure and embody certain concepts of global arbitration rules. With the new rules, the ICOC aims to become a more appealing institution for parties using arbitration.

A new code of obligations comes into force in Turkey next year that prohibits purchasers residing in Turkey from concluding arbitration agreements in relation to disputes arising out of sales with instalment payments. The new code provides certain exceptions to the restriction on arbitration. The new code also applies the arbitration restriction, as well as its exceptions, to sales with instalment payments in advance.

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Asset Finance

Overview
Including: Background; True Sale; Perfection and Priority; Notice of Assignment; Bankruptcy; Substantive Consolidation; Tax Liability; Authorization, Licences and Collection; Judgments; Consumer Receivables.

The Savings Deposit Insurance Fund announced the auction of non-performing loan portfolios with a face value of at least $250 million. The final bid date was December 15 2003. However, on December 19 2003 the fund's board of directors decided not to proceed with bidders' negotiations and ended the bidding process.

In June 2003 the Savings Deposit Insurance Fund announced the auction of loan portfolios with face value of at least $250 million. Following this first sale, the government intends to sell new portfolios of loans every four months (not including small consumer loans). The sales process should be benefited by recent reforms to the Execution and Bankruptcy Act.

The government recently submitted a letter of intent to the International Monetary Fund, outlining certain measures that it is taking to support the rapid resolution of the overhang of non-performing assets in the banking sector.

The Savings Deposit Insurance Fund (SDIF) has announced its intention to solicit bids for the sale of portfolios of corporate and commercial loans. The SDIF has categorized loan assets from 19 SDIF intervened banks. The programme of asset portfolio sales will draw from the SDIF’s small, medium and large corporate and commercial loans, which comprise approximately 10,000 loan files.

Aviation

Parliament recently passed an act which finally ratified the 1999 Montreal Convention for the Unification of Certain Rules for International Carriage by Air. While the convention applies only to international carriage as defined therein, the ratification also signals a change to the rules applicable to domestic carriage by air.

Under a new financial lease law which came into effect on December 31 2005, financial lease transactions and cross-border agreements will now be reviewed by the Banking Supervision and Regulation Agency. This naturally includes all leasing agreements dealing with the lease of aircraft.

The Civil Aviation Act governs the registration and licensing of aircraft in Turkey, including for the purposes of operation and security. The aim of the law is to arrange - within a framework of national interest and international relations - the harmonious operation of civil aviation activities, giving priority to efficiency and security.

Banking

The Banking Regulation and Supervision Agency recently amended the Regulation Regarding Banks' Procurement of Support Services. The regulation sets out the principles and conditions for providing support services, as well as requirements for support service providers and service agreements signed between such providers and banks.

Once the new Code of Obligations enters into force, Turkish banks will become reluctant to accept suretyships (the most common type of personal guarantee under Turkish law). Turkish banking practice has been always to obtain the suretyship of all shareholders for loans granted to companies. The new code aims to eliminate the current tendency to provide suretyship against loan debts of bank clients

When the New Code of Obligations enters into force, Turkish banks will have to put remarkable effort into reviewing their standardised terms of contract. The rules on standardised terms of contract in the new code are mostly adopted from several EU regulations and directives regarding standardised and unfair contract terms. The new code brings a three-stage supervision process to the standardised terms of contract, which will also protect corporate clients.

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Capital Markets

Following the entry into force of the new Capital Markets Law, the enactment process of the secondary legislation is continuing. In this regard, the Capital Markets Board recently published draft communiqués on the issuance of debt securities, shares and real estate certificates.

The new Capital Markets Law recently entered into force. The law aims to align the regulations and market practice in Turkey with those of the European Union and strengthen investor protection and market liquidity. Amendments to the Commercial Code, which acts as the secondary basis of legislation for all capital markets regulations, also played a key role in the new law's codification.

The Capital Markets Board recently announced the highlights of its latest revisions to the Communique on Principles Regarding Registration of Real Estate Certificates. According to the announcement, the board aims to encourage investment in real estate certificates and create an effective source of financing for project developers. The revisions should pave the way for the trading of active real estate certificates on the stock exchange.

A new system for custody and settlement of government debt securities provides for the holdings of bank or brokerage house clients to be held at the Central Registry Agency on a client-name basis, segregated from the intermediary institution's proprietary portfolios. This provides greater comfort to investors upon a bank or brokerage house's insolvency.

The Capital Markets Board recently released a draft of the revised Capital Markets Law for review by the public, professionals and practitioners. Pursuant to its preamble, a number of reasons have triggered the board's preparation of a brand-new text, a process which took two years. Having canvassed the opinions of professionals and practitioners, the board seems eager to finalise the draft law shortly.

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Company & Commercial

Until recently, under Turkish law interim dividends were allowed for public companies only. The new Commercial Code introduces the concept of interim dividends for both private joint stock corporations and limited liability partnerships. In principle, a company must post a profit in its quarterly interim financial statements (ie, at three, six or nine months) in order to distribute interim dividends.

Under Turkish law, liaison offices are governed by the Foreign Direct Investment Law and the Regulation on the Implementation of the Foreign Direct Investment Law. The regulation was recently amended, introducing major changes in relation to the incorporation, authorisation, extension and operations of liaison offices and clarifying the procedure for establishing such offices.

The Commercial Code (Law 6102) will enter into force next year. Unlike the existing code, the new code includes arrangements for the regulation of corporate groups, with discussion focused on regulation of illegal control within such groups. Illegal control is regulated in the first and second clauses of Article 202 of the code, which involve compensation for losses for both a subsidiary and its shareholders.

In order for a transaction that is carried out by a member of a company's board of directors to breach non-compete obligations, it must relate to the subject of the partnership. The subject of the partnership is interpreted literally to mean the business activities carried out by the partnership, rather than those specified in the partnership agreement.

The Law on Multi-corporate Enterprises aims to protect subsidiary companies and their shareholders in the event of a conflict of interest between the subsidiary company and the group of companies of which it is part. For this purpose, the subsidiary company's control over the management and resolution process has been restricted and certain rights have been granted to its shareholders in the event that control is used illegitimately.

The draft Commercial Code, which has been under discussion in Parliament for several years, introduces significant changes to the structure of joint stock companies. Its main aim is to facilitate the flow of foreign capital. Foreign investors are particularly interested in establishing joint stock companies because they are more flexible and easier to administer.

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Competition

Overview
Including: Competition Authority; Competition Board; Prohibited Activities; Penalties.

In a further indication that modernisation will be one of the Competition Authority's top priorities in 2013, it recently issued secondary legislation concerning the merger control regime. The revised guidelines reflect the changes introduced to the merger control regime in recent months, including amended turnover thresholds and the removal of the 'affected market' criterion in notifiability analysis.

Following the introduction of the Regulation on Active Cooperation for Discovery of Cartels, the Competition Authority has issued a set of guidelines, which aim to provide certainty in interpretation, reduce uncertainty in practice and provide guidance for undertakings so that applicants can benefit from the leniency programme more efficiently, as a requirement of the transparency principle.

After almost two-and-a-half years of investigation, the Competition Board recently announced the outcome of its high-profile investigation against 12 Turkish banks. The total fine amounted to an unprecedented TRY1.1 billion and broke a number of records in the process, including single-handedly surpassing the sum of all fines imposed in the history of Turkish antitrust enforcement.

The appellate court has ruled that a recent Competition Board decision demonstrated a lack of sufficient justification concerning the determination of the basic level of a fine and the effects of mitigating or aggravating factors on the calculation of such fine. The ruling offers an preliminary insight into the way in which the higher administrative courts will interpret the board's application of the law concerning such fines.

Ever since the Competition Authority amended the communiqué setting out mergers and acquisitions subject to approval, it had been debated whether the revised jurisdictional thresholds would decrease the authority's workload in relation to merger control cases. As soon as figures were available, it became clear that the TRY5 million threshold for approval was too low; therefore, the authority has now amended the thresholds.

The most significant development with respect to competition law in Turkey over the last two months is the announcement for public consultation of two important secondary legislative instruments. While these are still in draft form and have not been conclusively enacted by the authority, they point towards the authority's increased willingness to create greater predictability with respect to horizontal cooperation.

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Corporate Finance/M&A

Due to the remarkable rate of development in the Turkish markets over the past 30 years, investors that wish to share their risks, costs, responsibilities and liabilities prefer to form joint venture partnerships in relation to their investments in Turkey. Unless otherwise agreed in the joint venture agreement, each partner's share in its losses and profit are equal and it is directly, unlimitedly and severally liable against its creditors.

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Corporate Immigration

In Turkey, the application procedures for working permits are covered by the Law on Work Permits for Foreigners and the Application Regulation for the Law on Work Permits for Foreigners. Except for those employees who fall under the scope of the provisions of the Regulation Concerning Foreign Personnel Employment in Foreign Direct Investments, all foreign employees are subject to such legislation.

E-commerce

If a spam email containing defamatory information is forwarded, after just one day the company targeted by that email could face significant damage to its reputation among customers, thus losing market share. The introduction of Law 5651 has made it possible to bring criminal prosecutions against those who create and forward spam emails, as well as filing compensation claims against them.

It is widely accepted that in cases of breach or suspected breach of criminal law provisions on the regulation of the Internet, blocking internet access is a necessity. Usually, instead of isolating the infringing webpage from the rest of the website, practitioners prefer to ban access to the whole website. However, in a recent case a court ordered that only the relevant pages of the website be blocked.

Under the Criminal Code, the facilitation of gambling is a crime and supplying equipment for the purposes of gambling is punishable by imprisonment. However, since there is no direct provision in the code for online gambling, this is more difficult for the authorities to police. In particular, gambling websites which are hosted by foreign service providers are considered to be outside the Turkish jurisdiction.

Online journalism is a new concept in Turkey. Previously, publications on the Internet were simply online versions of news stories already covered in the relevant newspaper or on the relevant television channel. Under Turkish law, there is no regulation directly providing legal grounds for online newspapers.

When Law 5651 on the Regulation of Online Publications and the Combat of Crimes Committed by Online Publications was published it was presented as the best solution to combat crimes committed via the Internet. However, according to many practitioners, the regulation does not satisfy public demand. There is concern that the regulation may be used as a tool to censor the Internet.

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Employment & Labour

Under the current law, severance pay is made as a lump-sum payment to an employee whose labour contract has been terminated, subject to certain exceptions. In order to be entitled to severance pay, the employee must have been employed for at least one year. However, if a new draft law enters into force, both the existing severance pay system and its mode of payment will be substantially amended.

Business transfers constitute one of the most significant topics in social law. However, the interpretation of the impact of such a transfer on employment relationships differs under the Labour Law and the Commercial Code. Both laws regulate business transfers, but some argue that certain provisions of the Commercial Code set barriers to the maintenance of employment relationships.

Due to economic, technological and social developments, contemporary employment models have arisen that may differ from the classic model of working on a full-time basis at the employer's workplace. The new Code of Obligations provides for two types of employment contract that are not set out under the Labour Law - namely, remote working agreements and marketing agreements.

The new Code of Obligations recently entered into force, resulting in revocation of the former code after more than 80 years. The new code introduces four new provisions that establish the obligations of employers with respect to annual leave days. Employees are entitled to annual leave days where an employment relationship subject to the new code exists and the regulated waiting period has expired.

Under the Labour Law, an employment contract may be established for either a fixed or flexible term. Although flexible-term employment contracts are the most usual form of contract, the conclusion of fixed-term contracts has led to much debate. In contrast to the former Code of Obligations, the new code regulates new principles regarding fixed-term employment contracts and includes provisions on compensation claims.

The new Code of Obligations will enter into force shortly. The provisions of the new code that regulate the termination of employment contracts comprise a number of remarkable changes and new approaches, not only for employees who work within the scope of the code, but also for those who work within the scope of the Labour Law.

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Energy & Natural Resources

Two major developments have taken place in the Turkish energy market: a new draft regulation regarding the electricity market and privatization efforts in the sector. The draft regulation aims to make use of excess electricity and decrease production costs.

The new Petroleum Market Law is intended to create an environment in which commercial petroleum is supplied safely from domestic and external sources to consumers through a transparent and fair market. It provides for the proper regulation and monitoring of the market in order to achieve this aim.

Recently, the Energy Market Regulatory Authority and other governmental authorities have conducted talks about privatizing the electricity distribution sector and reducing the number of electricity distribution districts. The overarching aim of the discussions is to create a liberal and competitive environment in line with the Electricity Market Law.

Recent consultations concerning the liberalization of the domestic petroleum market have resulted in a major legislative change, namely the new Petroleum Market Law, which was enacted on December 4 2003. The law aims to ensure a steady and economically viable supply of petroleum.

The Electricity Market Law and the Natural Gas Market Law aim to establish transparent, competitive markets that operate in accordance with private law principles. To date, the Energy Market Regulatory Authority has passed a number of decisions to expedite the implementation of these laws and related secondary legislation.

Several private sector electricity companies have initiated legal actions against the Energy Market Regulatory Authority (EMRA) following the cancellation of various provisions of the Electricity Market Licensing Regulation. The companies claim that the replacement provisions impose additional liabilities on them or affect their existing agreements.

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Healthcare & Life Sciences

The Competition Authority recently concluded its investigation into the pharmaceutical sector. The report notes two main concerns in relation to regulation in the pharmaceutical sector - protecting public health and ensuring the sustainability of pharmaceutical expenditure. The authority focused on the latter, with its investigation concentrating on the development of price competition at the supplier level.

Before a pharmaceutical product can be marketed, a good manufacturing practice (GMP) certificate must be issued to the manufacturer by the Ministry of Health. Following concerns over delays in the grant of such certificates, the ministry recently considered implementing a parallel application system, by which applicants could apply simultaneously for both the GMP certificate and the marketing authorisation.

The law on patents in Turkey is still relatively new and the history of patent disputes short. Problems in relation to the protection and enforcement of patent rights, especially for pharmaceutical products, include insufficient expertise in the expert panels to which patent cases are referred, and issues of access to a counterparty's evidence in ongoing actions under freedom of information requests.

Specific rules have governed the promotion of medicinal products in Turkey since the early 1990s. However, the regulation currently in place does not cover medical devices and no specific rules exist for such devices from the perspective of either interaction with healthcare professionals or advertising to the public. The Ministry of Health is in the process of drafting a new regulation, but this has yet to be published.

The 2011 introduction of a new decree-law led to significant restrictions on the working principles of healthcare professionals, prohibiting them from providing secondary income-generating services, with few exceptions. However, following complaints from the industry, the Constitutional Court recently requested that a number of provisions of the decree-law be cancelled, including those relating to secondary income.

Insolvency & Restructuring

Recent economic downturns have affected many Turkish companies. Article 324 of the Commercial Code details the procedure to be followed by a company's board of directors if the company's net assets fall below a certain level.

Intellectual Property

The registration of pharmaceutical product names is regulated by the Ministry of Health. Regardless of whether the name has been registered as a trademark, the Ministry of Health will consider whether there is any likelihood of confusion with an existing authorized pharmaceutical product name. However, should the likelihood of confusion be evaluated with reference to the general public or healthcare professionals?

In Turkey, industrial rights arising out of trademarks, patents, utility models, industrial designs and geographical indications have been protected under decree-laws since 1995. However, after 15 years the need for new legislation has become more urgent for several reasons, including the need to conform with EU legislation.

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Litigation

Following a recent court decision, the partial lawsuit mechanism introduced by Article 109 of the Code of Civil Procedure has been clarified. The mechanism can no longer be used solely for the purpose of avoiding payment of larger court fees and expenses. In addition, plaintiffs cannot simply file a routine partial lawsuit without fulfilling the conditions set forth in the code and defendants will be better equipped to make objections.

A plaintiff wishing to amend a claim at a later stage of a lawsuit is entitled to amend the claim only once, within the statute of limitations. Thus, where a plaintiff fails to do so within such limits, the defendant can object to any amendment made. However, after a recent decision of the Fourth Chamber of the Court of Appeals, the established practice of the Turkish courts might be likely to change.

The principle of good faith is not directly defined under Turkish law. The Court of Appeals recently reversed a first instance decision that the real right (ie, the right in rem) of a third party was not protected (and thus cancelled) as a result of the previous illegal registration of such right at the land title registry. The decision came despite the legal acquisition of such right by a third party in good faith.

In a recent decision the Eleventh Chamber of the Court of Appeals held that the post-contractual non-compete clause in a franchise agreement was unconstitutional, and thus invalid, for violating the freedom to work and contract guaranteed under Article 48 of the Constitution. Although this decision has not yet become established practice, it is significant and the court's future practice should be closely monitored.

In a recent decision the Court of Appeals ruled that in relation to an international company with a Turkish subsidiary, employees working abroad in the same business line should also be included when calculating the number of employees required for protection under work security provisions. This ruling departs from the past practice of the labour courts and the Court of Appeals.

A transfer pricing issue has come to light in a recent court case. Tax auditors considered that a pharmaceutical company which had purchased ingredients from its group companies abroad at inflated prices was engaging in disguised profit distribution. However, the Council of State ruled that the factors which may cause price differences between pharmaceutical ingredients should be taken into account.

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Media & Entertainment

A popular marketing method with Turkish advertisers is to launch a promotional campaign involving a prize draw. These campaigns aim to increase sales by offering consumers the chance to win a prize with every purchase. Such advertising campaigns are strictly scrutinized by the relevant regulatory authorities to ensure that they are not misleading or deceptive.

The Turkish Advertising Board is the governmental authority that tracks and controls advertising campaigns, ensuring that they are not contrary to consumer interests. In the last two years the board has been even stricter in clamping down on aggressive marketing campaigns.

Product Liability

Under the Consumer Protection Law, a 'defective product' is defined as a product with physical, legal or economic deficiencies that reduce its quality, quantity or standard. Responsibility for a defective product lies with the product's producer, seller, distributor, agency and exporter. Article 4 of the law provides that in case of a defective product, the consumer may exercise one of four rights.

Given the wide range of competitive products on the cosmetics market, advertisers often try to differentiate their products from those of their competitors by claiming that their products offer pharmaceutical-like effects. This practice is prohibited under Turkish legislation. If advertisers choose to flout this law, they run the risk of their product being reclassified.

In Turkey, many people smoke, including teenagers as young as 14 years old. It is hoped that with the entry into force of a new regulation prohibiting smoking in public areas, smoking habits will change. Manufacturers of the electric cigarette have welcomed the new legislation.

Recent technological developments in the cosmetics industry have led to the introduction of new methods to serve the needs of people wishing to look younger and more attractive. Both men and women are keen to buy such 'wonder' products and as a result, the sector has become increasingly competitive as companies spend more money on their advertising campaigns to reach more consumers.

In a growing competitive market, companies in the nutrition sector have been trying to strengthen their market position by enlarging their product scope. In this respect, the baby food sector is expanding. In order to develop their market share in this sector, many companies have started launching intensive advertising campaigns which are in breach of valid advertising principles under Turkish law.

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Shipping & Transport

The Council of Ministers is reviewing the new draft Commercial Code which proposes major changes to maritime trade. The changes respond to the need to implement international conventions and reflect experience gained over the last 50 years from the application of the current Commercial Code.

The maximum fines for various shipping infractions were amended on June 1 2005 under the new Criminal Code. The new single multiplier implemented by the code has resulted in drastic changes to the fines, with the new fines being much lower than they used to be.

Carrier responsibility in case of loss of or damage to goods carried by sea is an important issue. If a dispute occurs, the judge must first decide whether there is a 'foreign element' involved in the matter. If the carriage took place from one Turkish port to another Turkish port on a Turkish vessel, then there is no foreign element.

In an effort to attract foreign investment, Article 823 of the Turkish Trade Law has been amended to allow shipping companies with Turkish-flagged vessels to be traded on the stock exchange, provided that the majority of shares are held by Turkish citizens. Other changes encourage foreign investment by relaxing and simplifying mortgage and foreclosure processes.

The Turkish Parliament has promulgated a new Road Transport Act. The act is more regulatory than substantive in nature, and governs commercial operators of road transport vehicles that carry passengers and goods. A strict liability regime has been introduced in connection with the carriage of passengers.

Telecommunications

A number of new regulations have been introduced into the telecommunications market in order to provide for and protect competition. Not all of the telecommunications companies have welcomed the new regulations. Rather than sparking a brutal pricing war, the new competitive pressure has pushed advertisers into being more creative with their campaigns.

Long-distance telephone service licences are expected to be issued in the near future. In addition to a clear licensing regime, it is hoped that the Telecommunications Authority will quickly establish an effective system in which prices, terms and conditions of interconnection are all defined.