Defense Contracts Perspective: Do the Government Acts Qualify as Force Majeure As Per Turkish Law?
Political fluctuations in recent years have undoubtedly affected the defense industry. Although the players in the industry are following the government's statements/acts diligently, they can be caught unprepared for possible sanctions resulting them to face with excessive penalties or debarment risk, especially, as to the government contracts signed prior to recent political tensions.
Due to complex structure of Turkish Defense Law, whether or not a government act such as revocation of an export license can be an excuse for a government contractor not to perform its obligations under a government contract does not have a short answer. It is worth to highlight that the answers to this critical question may change depend on the procuring government authority, applicable law to the government contract, competent court to hear the disputes.
Force Majeure under Public Procurement Contracts Law
The circumstances that may be regarded as force majeure under Public Procurement Contracts Law (“Law No. 4735”) Article 10 are natural disasters, legal strikes, epidemic cases, announcement of partial or general mobilization and other similar circumstances determined by the Public Procurement Authority (“the Authority”). The Authority may recognize similar circumstances as long as they have following aspects;
- The incident did not arise out of contracting parties’ commitment or omission,
- The incident constitutes an obstacle in fulfilling the contractual obligations
- The contractor could not afford to remove such obstacle
- The contractor has notified the contracting entity in writing within twenty days as of the date which the force majeure has occurred
- The incident has been documented / certified by competent authorities.
Additionally, Ankara District Administrative Court held that it unforeseeability and unavoidability are also required elements for “other similar situations to be determined by the Authority”.
For example, in case numbered E.2016/1614 K. 2017/874 dated March 31, 2017, plaintiff was awarded a procurement of unshelled rice to a government authority. In this case, inter alia, the plaintiff argued that Government of Russia; where the unshelled rice was imported; imposed covered prohibition on the importation of unshelled rice from Russia. The Court held that the covered prohibition on the importation of unshelled rice does not constitute a force majeure. Despite the fact the Court did not explain why the covered prohibition does not constitute force majeure event, according to the plaintiff’s statements Russia imposed the covered prohibitions on 2007, 2008, 2010 and 2011, therefore, the Court likely held that covered prohibition on importation of unshelled rice was foreseeable considering the previous prohibition by Russian Government in recent history.
Despite the fact that Law No 4735 stipulates what constitutes force majeure, Law No 4735 does not apply all of the defense related procurement contracts. Whether or not Law No 4735 applies to a government contract ultimately relates to which government authority is party to the government contract and what secondary legislations stipulates in this regard.
Provided that the relevant authority or applicable public law does not consider “sanctions” or “export licenses” as force majeure, there are still some principles under Turkish Law which may be employed by government contractors to terminate its obligations as per Turkish Law, however, to determine whether or not terminate a government contractor’s obligations under a government contract without prejudice still requires a case by case analysis.
As per Article 138 of TCO, contracting parties are entitled to petition to the competent court for judicial modification or, if applicable, termination of the contract in case: i) an unforeseeable and unavoidable event occurs which is not caused by any act or omission of obligor; ii) the unforeseeable and unavoidable event renders the obligor’s performance excessively prejudicial to the obligor; iii) obligor have not performed its obligations yet or performed by reserving its rights arising from impossibility of performance.
In case numbered E. 2016/7269, K. 2017/8431, dated 21.09.201, plaintiff argued that devaluation of the Turkish Currency against Japanese Yen rendered the Contract impossible to perform under TCO. The Court held that Turkey had been through numerous economic crisis in both its recent and distant history, therefore the claim of economic crisis or a devaluation is an unforeseeable event shall not be accepted by the court. Additionally, in case numbered E. 2017/3617, K. 2019/2297 dated 26.3.2019, where the plaintiff and defendant entered into a contract for transportation services in Northern Iraq, the court held that plaintiff should have foreseen and took necessary precautions to protect its business from the conflicts that took place in the region then.
Therefore, to determine whether or not a government act such as revocation of an export license, sanction (explicit or disguised) or conflicts between two states constitutes a force majeure, or at least an excuse to terminate a government contract without prejudice requires a case by case analysis as per Turkish Law.
Authors: Şafak Herdem -Yunus Çağlar, Esq.