Given the complex, competitive and contested course of commercial life, the odds are most businesses will face, at one stage or another, a commercial dispute raised by a business partner (eg, a customer, distributor or supplier etc,). Some of these disputes can be resolved peacefully and amicably, but others may escalate to the court level. The latter can be particularly difficult to manage for global companies operating in multiple states, as cross border claims in various jurisdictions subject to different governing laws may drag these companies into a completely vague and unexperienced process. This article provides brief guidance on the initial actions that should be taken by foreign companies should they face commercial litigation in Turkey.
As per an amendment made to the Turkish Commercial Code in 2019, mandatory mediation became a prerequisite for commercial disputes concerning monetary receivables or compensation before applying to Turkish courts to pursue such claims. Accordingly, parties to a commercial dispute cannot bring their case before a court unless they exhaust mandatory mediation. Otherwise, the first instance courts will reject the case on procedural grounds.
Once the plaintiff applies for mandatory mediation, the relevant Mediation Bureau appoints a mediator from the official mediators list. The appointed mediator is required to inform the parties about their assignment and invite them to the first meeting by using all kinds of communication means. This includes using digital methods such as telephone, e-mail, SMS or sending a mediator meeting invitation via methods such as courier, ordinary mail and mail with notification of receipt.
If the parties of the dispute, or their lawyers, have already been in contact before the mediation application through e-mail communication or exchange of warning letters, the mediator may also reach out to the counterparty's relevant employee conducting the previous communication or lawyer with the applicant's guidance, if they were involved in this process. Again, although a company has no legal presence in Turkey, any liaison offices or branches may be a contact. Therefore, especially in the cases where a lawyer has not been included in the previous communication with the counterparty, the relevant employees who could be a point of contact should be informed about this process internally, and they should immediately escalate the invitation to the relevant concerned individuals inside the organisation. This is something that is often overlooked in practice.
According to article 18/A of the Law on Mediation in Civil Disputes No. 6325, attendance to the mediation meeting is mandatory. The party failing to attend the first mediation meeting without a valid excuse will bear any and all litigation costs in the end of the lawsuit, even if it wins the case. The court will also not rule on official attorney fee in favor of the party who failed to attend the mediation process.
In light of the above, foreign companies must either attend the first mediation meeting personally or be represented by a duly authorised attorney. As many foreign companies not established in Turkey have no local representatives here, the more feasible option would be to contact a local lawyer and issue a power of attorney. Power of attorney can be issued either before a notary public and then be apostilled, or before the Turkish consulate at the relevant state. The power of attorney must include a clear authorisation for representation before the mediator.
The mediation process must be completed within six weeks as of the appointment of the mediator, which can be extended for a maximum of two weeks if the mediator finds it necessary. In practice, there may be delays in the issuance of a power of attorney, and it may not be possible to issue the power of attorney in due time.
In case of such a delay, the company representatives would need to attend the mediation meeting. This is often difficult and burdensome for the companies, as making travel arrangements can be costly and time-consuming. Alternatively, the parties can have a teleconference instead of holding a physical meeting for logistics purposes. However, this is subject to both parties' consent and the mediator's approval. In any case, the foreign representatives would not entirely be familiar with the mediation process in Turkey, and there would need to be a sworn certified translator present at the meeting, which may also impede a clear and direct communication.
If the parties fail to reach a settlement regarding the dispute at the end of mediation, the mediator will issue final minutes stating that the parties have duly carried out the mandatory mediation process but failed to reach a settlement, and the plaintiff can initiate a lawsuit by presenting the minutes to the first instance court.
Court proceedings stage
Once the plaintiff initiates the lawsuit, the court will prepare an opening minute. In the opening minute, the court would grant time to the defendant for filing its response petition and evidence. It would also order the defendant to pay an advance on expenses. Additionally, where the defendant party is a foreign entity, the court would instruct the plaintiff to submit the certified translation of the plaint petition. Some courts inform the parties about the hearing date as well but, depending on the court's practice, the hearing date may be also set after the exchange of petitions is completed.
Next, the opening minutes and the plaint petition will be served on the defendant company. Service abroad would be subject to the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Convention) if the defendant is located in one of the contracting states, or any bilateral treaties. Otherwise the Turkish Notification Act No. 7201 and its secondary regulation would apply.
Service abroad usually takes about three to 12 months in practice. Yet, where the Hague Convention applies and the country of the defendant does not have a reservation, a diligent plaintiff may shorten this duration considerably. This is done by requesting service as per article 10 of the Hague Convention, which regulates a direct service through postal services without involving central authorities, or diplomatic or consular agents.
The defendant company must be on the watch for the service because the Civil Procedure Code foresees a prescribed time of two weeks for filing the response petition. Where it is extremely difficult or impossible for the defendant to prepare the response petition depending on the circumstances, according to articles 127 and 317, a time extension of one month is possible in written procedure and up to two weeks in simplified procedure, where it is extremely difficult or impossible for the defendant to prepare the response petition, depending on the circumstances. The time extension must be requested within the legal prescription for filing a response petition, and it will start running as of the expiry of the prescription. In practice, courts usually allow time extension requests.
In simplified procedure, the exchange of petition is completed with the plaint and response petitions. However, in written procedure, the parties will be entitled to file one further petition each, namely, rejoinder and rebuttal petitions. These petitions must again be filed within two weeks as of the service of the counterparty's petition unless an extension has been obtained.
After this stage, the court will conduct a preliminary examination on the file, invite parties to the preliminary examination hearing if the hearing date is not set in the opening minutes and further examination will follow, including stages such as on-site examination, expert examination, court hearings and witness hearings.
Thus, it is strongly recommended that a foreign legal entity authorise a local lawyer to follow-up and handle the proceedings as soon as the receipt of the court documents at the latest, if not sooner. In this way, the court will also start serving the documents domestically to the authorised attorney, which would significantly mitigate the risk of facing any loss of rights.
In conclusion, Turkish proceedings are subject to a legal procedure containing strict deadlines that may require the parties to act quickly. To avoid any loss of right, it is recommended that foreign parties that become a party to a dispute in Turkey watch out for any services closely and direct the case to a local professional for a more hands-on monitoring.
First published by ILO - Litigation Newsletter in 21.11.2023.