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Rules and industry standards
Describe any industry-standard form contracts used in the energy sector in your jurisdiction.
Industry-standard form contracts are used in certain areas of the energy sector in Turkey. The content and form of such contracts varies depending on the nature of the energy sector. The framework of the notable ones can be summarised as follows.
The Turkish Electricity Transmission Corporation uses standard connection and system usage agreements approved by the Energy Market Regulatory Authority (EMRA) when executing contracts with distribution companies, Organised Industrial Zones and consumers who wish to connect and use the transmission system.
Market actors wishing to participate in the Turkish Energy Exchange should sign a market participation agreement and enter into ‘intra-day’ and ‘day-ahead’ market participation agreements with the Energy Markets Operation Corporation (EPİAŞ). To register to the Organised Mass Natural Gas Sale Market, a standard form Accession Agreement should be executed between the investor and EPİAŞ.
To participate in the wholesale natural gas market, investors should sign two standard accession agreements: one with EPİAŞ and one with Takasbank.
In addition, shippers, Turkish Petroleum Pipeline Corporation (BOTAŞ) and EPİAŞ should also execute the Protocol for Reconciliation of Imbalances. Carriers of natural gas resources should also sign a standard form carriage agreement with BOTAŞ.
Finally, the end users or distribution companies must sign an outlet connection agreement pursuant to the natural gas distribution regulations.
Exploration and exploitation of petroleum and natural gas, operation rights, and transfer of these natural resources are generally made through licensing, permitting, privatisation agreements and private agreements pursuant to the principle of freedom of contract to be applied in conformity with related laws and regulations.
What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?
The Turkish Code of Obligations No. 6098 (TCO) is the main piece of legislation detailing the principles of contract law. The general principles in the TCO apply to all contracts including those signed in the energy sector unless the contract is classified as an administrative law contract. Pursuant to article 19 of the TCO, a contract must be interpreted according to the true and mutual intention of the parties. If it is not possible to determine the true mutual intention of the parties in respect to the disputed provision, then the assumed intent of the parties has to be established by the courts. If the parties’ mutual intention cannot be determined, contracts are usually interpreted in opposition to the party preparing the contract - this rule generally applies to the standard form one-sided general terms and conditions.
Describe any commonly recognised industry standards for establishing liability.
Article 18/2 of the Turkish Commercial Code No. 6102 defines the prudent businessperson standard, requiring each merchant to act as a prudent businessperson in all his or her commercial activities. This standard is based on the due care of an average prudent, responsible, and organised businessperson and is evaluated objectively. In terms of directors, however, the Turkish Commercial Code echoes the well-known business judgement rule.
Overall, prudent businessperson standard is also mirrored in sector specific legislation; accordingly, the Natural Gas Market Certificate Regulation and the Natural Gas Market Licence Regulation holds certificate and licence holders to the standard of a reasonable and prudent businessperson. The Electricity Market Licence Regulation underlines that a company is obliged to make electricity or capacity purchases as a prudent merchant in consumer sales transactions.
As frequently seen in practice, the bona fide principle requires rights owners to act in a reasonable, honest and trustworthy manner when utilising their rights.
The concepts of intent, wilful misconduct and gross negligence are also important in terms of liability analysis. As for the contractual limitation of liabilities, see question 8.
Performance mitigation
Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?
Yes, as per the principle of rebus sic stantibus, a judge is entitled to adjust the provisions of a contract in line with the concepts of equity and fairness upon the request of the injured party to the contract. However, adjustment of contract provisions by the court is a direct interference with the parties’ ‘freedom of contract’ and the pacta sunt servanda principle. Therefore, for judges to implement the principle of rebus sic stantibus, either the conditions of the contract must be extremely affected (such that fulfilment of the contract obligations under the affected conditions would create an imbalance between the parties) or the basis for the transaction must be partially or totally disrupted. A change in circumstances will invoke adjustment of a contract if: (i) the parties do not perform their obligations; (ii) new circumstances affecting the contract arise; (iii) such new circumstances do not arise from the acts of either party; (iv) it was not possible for the parties (at the execution of the contract) to foresee the change in circumstances; and (v) the new circumstances make it impossible for one party to comply with its contractual obligations.
The above-mentioned general principles of the TCO and the Turkish administrative laws are also applicable to contracts in the energy sector. In addition, energy market legislation (electricity, gas and petroleum) regulates specific force majeure events that may lead to the suspension or postponement of a licence holder’s market-related obligations.
Nuisance
What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?
Under Turkish law, any person who is directly or indirectly affected by the actions of a third party or a decision of an administrative body may initiate a lawsuit before the relevant court. Initiation of a lawsuit per se will not suspend an energy project. However, the court may render a decision for injunctive relief, resulting in suspension of the relevant project. In terms of nuisance, operators may be subject to private nuisance claims stemming from smoke, noise, vibrations or other various factors that the operator may have caused pursuant to article 730 of the Turkish Civil Code No. 4721. This article depicts the liability of a real property owner to its neighbouring landowners. In terms of public nuisance claims, judicial review of claims to cancel administrative licences is open to applicants with the appropriate locus standi. For negligence claims, the court may decide indemnification of the affected party pursuant to the general provisions of the TCO.
Liability and limitations
How may parties limit remedies by agreement?
Under Turkish law, the principle of freedom of contract prevails. Therefore, contractual clauses limiting the liability of parties are valid and enforceable, except for liability arising from severe fault (including wilful misconduct and gross negligence).
In addition, the TCO introduces two other exceptions to the general principle of limitation of liability arising from slight fault. Accordingly, contract provisions limiting liability for slight fault are invalid provided that such liability arises from either an employment agreement or a provision of services requiring contractor’s expertise and conducted within the scope of a permit issued by a governmental authority (such as, engineers or architects who must obtain a licence from the relevant occupational chamber).
Furthermore, while Turkish law does not have an exact equivalent concept to ‘liquidated damages’, the TCO does contain similar contractual concepts. Under the general principle of freedom of contract and articles 158-161 of the TCO, contractual penalties, including penalty interest, are enforceable under Turkish law. Furthermore, the contracting parties may freely determine the penalty to be imposed for failure to perform the obligations arising from such contract. Accordingly, if the parties to a contract have agreed on a penalty clause, the sum fixed is the limit on damages for breach regardless of whether or not it exceeds or falls short of the actual damage (unless the creditor proves that its actual damages are more than the penalty amount).
Is strict liability applicable for damage resulting from any activities in the energy sector?
Turkish law introduces the concept of ‘objective liability’ (which is similar to the principles of strict liability in foreign jurisdictions), where fault is not required for a party to be held liable under Turkish law. Objective liability is limited to specific instances explicitly codified under the relevant legislation. The instances relevant to the energy sector are liability arising from environmental pollution, employer liability and liability of property owners stemming from defective construction.
As per the Environmental Law No. 2872 (Environmental Law), polluters of the environment and those who cause damage to the environment are responsible, regardless of their degree of fault, for any damage arising from the pollution and destruction it may cause. The polluter will also be required to pay compensation for the resulting damage according to the general provisions.
For the objective liability of employers, an employer can avoid liability by demonstrating that due care in employment decisions, inspection of work, selection of tools and organisation of work was shown under an objective standard. A construction owner’s objective liability cannot be diminished, but the construction owner may seek recourse from the person who caused the damage.
In addition, article 5 of the Law of Construction and Operation of Nuclear Power Plants and the Sale of Energy No. 5710 refers to the 1960 Paris Convention on Third Party Liability in the Field of Nuclear Energy for the establishment of the objective liability of the nuclear power plant operator.
