Turkish legal system, like many other legal systems as well as the international law, has adopted the principle of adherence to the contract (pacta sunt servanda) as the basic principle. Undoubtedly, the main rule is that the contracting parties have to fulfil their obligations under the contract in accordance with the conditions they have mutually committed at the time of the conclusion of the agreement. This principle is the cornerstone of the Turkish contract law system. However, the commercial and individual disputes and experiences have revealed the problems caused by the absolute application of this principle in terms of contractual justice and good faith. In order to prevent this injustice, adaptation of the contract to changing conditions is accepted in Turkey as well as many legal systems.
The adaptation of the contract constitutes an exception for the principle of pacta sunt servanda (promises must be kept). Indeed the main principle of contract law rules the contracting parties to be bound with the contract and to fulfil their contractual obligations even if there appear difficulties after the conclusion of the contract. However, changes that arise after the conclusion of the contract might make the fulfilment of the obligations extremely unbearable for one of the contracting party. In the event of this change, the balance of the contract is broken, and it is not appropriate for the party to act in accordance with the contract as per the rule of good faith.
In international commercial contracts, it is possible to adapt to these changing conditions with “hardship clauses”.
Hardship Clauses
The primary purpose of the Hardship clauses is to protect the balance of the contracts. By adapting to the changing circumstances, the contract balance, which is destroyed due to changed circumstances that caused hardship, ultimately attempted to be restored.
Hardship is defined by the Article 6.2.2. by the UNIDROIT Principles of International Commercial Contracts as follows:
“There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and
- the events occur or become known to the disadvantaged party after the conclusion of the contract;
- the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;
- the events are beyond the control of the disadvantaged party; and
- the risk of the events was not assumed by the disadvantaged party.”
Especially during the Covid-19 pandemic period, hardship clauses, which are used incorrectly as synonyms with the concept of force majeure, are included in most contract applications. Many incidents and disputes have arisen in which these provisions have been applied. In addition to these contractual provisions, the existence of a legal provision in Turkish Law is crucial in terms of the law of contracts in Turkey. In cases where there are contractual gaps or uncertainties in a hardship clause , the existence of a provision arising from the law, not from the contract, is appropriate in terms of modern contract theory and is compatible with the requirements of commercial life.
Turkish Code of Obligations (numbered 6098) Art. 138
According to Article 138 of the Turkish Code of Obligations (TCO), entitled “Hardship”;
“Under the condition that an extraordinary situation which is unforeseen and is not expected to be foreseen by the parties during conclusion of the contract, arises due to a reason not caused by the obligor and if the present conditions during conclusion of the contract are changed to the detriment of the obligor to such an amount as to violate good faith principal and if the obligor has not discharged his debt yet or has discharged his debt by reserving its rights arising from hardship, the obligor shall be entitled to claim from the judge the adaptation of the contract to new conditions, and to withdraw from the contract if this adaptation is not possible. In contract of continuous performance, the obligor shall, as a rule, exercise the right to terminate instead of the right of withdrawal.
This provision shall also apply to the debts in foreign currencies.”
Article 138 of TCO is an crucial provision for adapting the contracts to be relied upon in the event that there is no hardship clause in the contracts or this clause is insufficient.
The conditions specified in Art.138 for the adaptation of a contract are listed under four headings as follows in the preamble of the provision:
- An extraordinary situation must have arisen that was not foreseen by the parties and also cannot be expected to be foreseen at the time of conclusion of the contract.
- This situation must not have caused by the obligor.
- This extraordinary situation should change the facts existing at the time of the contract to the detriment of the obligor and also the demand for performance from the obligor due to this change should become contrary to the rule of good faith.
- The obligor must not have fulfilled its debt yet, or the obligor must have performed it by keeping its rights arising from hardship while performing.
The realization of the unforeseeable extraordinary situation change is the first condition for being included in the scope of the relevant article and for adapting the contract in Turkish Law. In this sense, not every change, but significant changes will be considered within the scope of the article in question. In this respect, by considering the wording of the Art. 138, “extraordinary situation ” defined in the law is remarkable .
In addition to this concept of being extraordinary, it should be taken into account that, the change in the situation should be unforeseeable at the beginning of the contractual relationship, and the party requesting the adaptation of the contract will be under the burden of proving this unforeseeablity.
The purpose of the Art.138 of TCO is to reorganize the risk allocation and risk sharing of the contract, which has deteriorated due to an extraordinary situation change, and to re-establish the contractual compliance and balance due to the changes that the parties could not foresee.
Adaptation of the contract cannot be claimed based on a contractual imbalance that existed at the time of the conclusion of the contract. An extraordinary and initially unforeseeable situation change after the conclusion of the contract is a prerequisite for this claim. When making a contract, the parties cannot take into account every possibility. Extraordinary events that the parties could not foresee and predict can take place after the contract has been concluded. In this direction and in summary, the occurrence of extraordinary situation changes constitutes the scope of the relevant article.
Another indispensable condition in terms of the relevant article is that the party requesting the adaptation must not be at fault in the change of circumstances. Here, the concept of fault should be interpreted broadly, and the obligor requesting the adaptation should not have influenced the change in situation and should not have caused the new situation with its any kind of actions.
Another requirement to be able to rely on Art.138 of TCO is that the extraordinary event that occurred afterwards must have seriously disturbed the equality and balance of the contract and there must have been an objective imbalance between the acts/performance of the parties. In other words, circumstances must have changed substantially and objectively after the event in question compared to the initial situation. If the balance of acts has not changed significantly or the difficulty of performance has not become excessively evident, the judge will not adapt the contract.
In order to adapt the contract, performance must have become unclaimable for one party due to the changes in the situation after the conclusion of the contract within the scope of the good faith rule. The reason why it is extremely difficult to perform must be the unforeseen change that occurred after the contract was concluded.
Finally, in order for the contract to be adapted according to Art.138 of TCO , the obligor shall not have fulfilled its obligation yet or it must have performed with reservations about the hardship status while performing.
In the event of the realization of these abovementioned conditions together, the adaptation of the contract is claimed from the judge based on the relevant article. If there is a clause about hardship in the contract between the parties, the judge must first make a decision according to the contract clause. In other words, the judge’s adaptation of the contract on the basis of Art.138 is conditional on the absence of any regulation in the contract. For this reason, the judge’s adaptation to the contract in accordance with Art.138 is considered as a secondary-backup solution.
While adapting the contract, the judge should not deviate from the essence of the existing contract. As a rule, the party in hardship should only ask the judge to adapt the contract to the new conditions and should not directly demand to withdraw from the contract. However, in the concrete case if there are significant reasons showing that it is not possible to adapt the contract, then the contract can be withdrawn. The judge is free to determine the amount and method of adaptation. The judge has the authority to make an adaptation different from the adaptation method requested by the claimant. The limit here is that it cannot be adapted against the will of the parties, and the basic balance and ground of the contract cannot be moved away. Termination of contract or withdrawal from the contract are also the forms of adaptation.
Withdrawal from the contract, the most severe form of adaptation of the contract is referred to as zero adaptation. In this case, unfulfilled primary and ancillary performance obligations expire and fulfilled performances will be demanded back. In the termination of the contract, the debts/obligations up to the moment of termination will be deemed completed, in other words, the performances of the parties in the period before the use of the right of termination will not be required to be returned, and the obligations which are not performed will be removed after the termination.
As a result, the main rule in the contractual relationship is to stick to the contract. Adaptation or withdrawal after the conclusion of the contract is the exception in Turkish Law. If all of the conditions such as the existence of an extraordinary situation change for the contractual relationship, unforeseen events occurring after the conclusion of the contract, the absence of fault of the party that requests for adaptation, the balance of acts undertaken by the parties has been excessively deteriorated against the debtor, the acts has not yet been performed or performed with reservations about the hardship status while performing, are met together then it may be claimed from the judge to adapt the contract according to the changing circumstances.
