A decision of the Turkish Court of Appeal has important implications for parties to agreements with a Turkish element (such as a Turkish counterparty or place of performance in Turkey) who wish their disputes to be litigated in the English courts (or some other courts) rather than in Turkey.

Turkish courts have long recognised and respected contractual clauses that grant jurisdiction to an overseas court, provided that they comply with the Turkish Private International Law No 5718 (“Law 5718”). However, in a recent decision, the Turkish Court of Appeal has taken a restrictive approach, rejecting a jurisdiction clause in favour of the "English courts" as insufficiently precise to be a valid choice of jurisdiction.

It remains to be seen whether the Turkish courts will follow this approach in future, but the decision serves as a warning to parties conducting business with a Turkish element. Such parties should consider revisiting and potentially amending the jurisdiction clauses in their contracts to minimise the prospect of ending up before the Turkish courts, if that is not what has been agreed.

Serdar Paksoy and Simel Sarialioglu of Paksoy, one of Turkey's leading independent law firms, and John Ogilvie and Oliver Elgie of our London office, consider the decision and its implications further below.

Background

A Turkish ship owner concluded an agreement with a Turkish shipyard owner for pilotage and towing services. The agreement incorporated by reference the UK Standard Conditions for Towage and Other Services (Revised 1986) (“Standard Conditions”). Pursuant to Article 9 (a) of the Standard Conditions, the applicable law was English and the parties accepted the exclusive jurisdiction of "the English courts" (subject to specific exceptions).

The ship owner filed a lawsuit before the Istanbul commercial courts against the shipyard owner, claiming compensation for damage done to its vessel whilst towing services rendered by the defendant in 2012. The defendant challenged the Turkish court’s jurisdiction in its response, arguing that the parties agreed on the exclusive jurisdiction of English courts by way of incorporating the Standard Conditions. The defendant also filed a claim before the English courts for a declaration that no liability had arisen as against the ship owner. This claim was pending at the time of the Turkish judgments.

The Istanbul commercial court held that the parties were bound by the English jurisdiction clause in Article 9 of the Standard Conditions and dismissed the claim. The claimant appealed to the Turkish Court of Appeal.

Decision

The 11th Civil Law Division of the Court of Appeal first found that the jurisdiction clause of the Standard Conditions was incorporated into the agreement by reference. However, it then went on to consider whether that clause was actually a valid jurisdiction clause under Articles 40 and 47 of Law 5718.

Article 47 states that parties may agree on the jurisdiction of a foreign court to settle the disputes arising from their contract provided that:

  1. The dispute does not fall within the exclusive jurisdiction of Turkish courts;
  2. The dispute has a foreign element; and
  3. The dispute arises from private law relations.

In addition, Article 40 of Law 5718 states that the international jurisdiction of Turkish courts is determined according to the national rules of jurisdiction, as set out in Civil Procedure Law No 6100 (“CPL”). In accordance with Articles 17 and 18 of CPL, a jurisdiction clause must precisely determine the relevant court. On this basis, the Court of Appeal concluded that there is a fourth condition for a valid choice of a foreign jurisdiction, namely that the foreign court must be "precisely determined".

Leading legal opinion in Turkey is that CPL requires that, for national purposes, the parties must specify the court of a particular city; a contractual reference to the courts of a particular province in Turkey would not suffice as there are multiple courts within a province.

The Court of Appeal adopted this line of reasoning in the international context and concluded that a reference to "the English courts" was insufficiently precise to meet the CPL requirements. The Court of Appeal did not consider the three Article 47 criteria, but reversed unanimously the commercial court decision to decline jurisdiction in favour of the English courts.

Comment

This is not the first time that the Turkish Court of Appeal has made a decision like this. However, there has been a degree of inconsistency in the case law.

The present decision reflects the approach taken in some older cases. For example, in a case in 2001 the 11th Civil Law Division of the Court of Appeal held that the term “UK courts” lacked clarity as to the precise court and therefore was not enforceable. Although that decision could be understandable on the basis that the United Kingdom is comprised of three distinct legal systems (England and Wales, Scotland and Northern Ireland), it is not clear that the Court of Appeal made its decision on that basis. Indeed, it rather more simply held that a reference to the courts of a particular country neither (i) clearly state the relevant court, nor (ii) provide any rules that would allow determination of the court. This appears to be a similar rationale as was applied in the present case. In addition, the 19th Civil Law Division of the Court of Appeal held in 1995 that a jurisdiction clause referring to Iranian courts did not determine the precise court and was not enforceable.

However, more recent case law had appeared to indicate a less strict approach. For example, the 19th Division has upheld jurisdiction clauses referring to (i) “Romanian courts”, without any reference to a city in Romania (in April 2016), and (ii) "Swiss courts", without reference to any canton (in 2014).

It is important to note that Turkish courts are not bound to follow the Court of Appeal’s decisions. However, such decisions set important guidelines in the interpretation of the law. It is not clear if this most recent decision is simply a one-off exception to the current trend or whether it is a sign that the Court of Appeal may be moving back towards its previous, stricter position.

Either way, parties to agreements with a Turkish element (such as a Turkish counterparty or place of performance in Turkey) should ensure that any jurisdiction clause is carefully drafted to refer to a precise court, such as “the High Court of Justice of England and Wales in London” in order to minimise the chance of finding themselves unexpectedly subject to the jurisdiction of the Turkish courts.