When the New Code of Obligations enters into force on July 1 2012, 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 most outstanding impact of the new code is the legal remedies available to the banks' corporate clients, which, pursuant to the Law on Consumer Protection and associated sub-regulations, were available only to consumer clients. In addition, the new code provides consumer/retail clients with a broader range of remedies, thereby aiming to place them in a stronger position.
Under the existing legislation, standardised terms of contract are regulated pursuant to the Consumer Protection Law. The Consumer Protection Law protects only the banks' consumer/retail clients from unfair terms. Similar to the definitions under EU legislation, the law defines 'unfair terms' as terms which are contrary to the rules of good faith and, with no negotiation, are prepared unilaterally by the seller/supplier, thereby causing a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. The burden of proof regarding unfair terms lies with the seller/supplier.
In addition to the existing claim under the Consumer Protection Law, the new code brings a three-stage supervision process to the standardised terms of contract, which will also protect corporate clients. At all stages, the burden of proof will be borne by the banks.
The first stage is the validity check. The standardised terms of contract will not be deemed part of the contract if the contract's content is not duly communicated to the client prior to the acceptance by the client and the execution of the contract. The new code is unclear about how such communication should be delivered to the client. Such communication may be established by providing the client with a copy of the terms in a way that could be proven under Turkish law. The implementation of the new code and court decisions following its entry into force will determine the practice.
The second stage is the interpretation check. The standardised terms of contract which are contradictory or vague will be interpreted in favour of the client.
The third stage is the content check. The standardised terms of contract which are contrary to the rules of good faith, which put the client in a weaker position, will be deemed null and void.
Some of the most common provisions found in standard banking agreements include:
- "making the loan unavailable by the bank at any time as it deems appropriate";
- "changing any provision of the agreement by the bank at any time without prior consent of the client"; and
- "terminating the agreement unilaterally at any time".
The above-mentioned provisions are prone to conflict with one of the checks above and to be deemed invalid or void.
The new code is the most important revision to the Turkish Code of Obligations in the last eight decades. Furthermore, the rules regarding the standardised terms of contract pursuant to the new code are one of the most significant changes to the Code of Obligations because it mostly defends freedom of contract. The objective of the new code seems to challenge the current practice of the banks in their standardised terms of contract.
For further information on this topic please contact A Cem Davutoglu or Duygu Tanisik at Davutoğlu Attorneys At Law by telephone (+90 212 281 7100), fax (+90 212 281 6040) or email ([email protected] or [email protected]).