Legal issues of general applicationGovernment permission
What government approvals are required for typical project finance transactions? What fees and other charges apply?
There is no approval process directly targeting project finance transactions. However, there are various phases during the implementation of projects underlying project finance transactions that are subject to governmental approval or licensing requirements. While the specific range of these requirements varies based on the nature of the project, the essential approval and licensing requirements that may be relevant can be categorised as follows:
- licensing in relation to core activities if the project occurs in a regulated sector (eg, energy projects);
- real estate-related approval requirements including not only land rights but also construction and usage permits; and
- environmental permits, including, but not limited, to environmental impact assessments.
The applicable licence or permit fees are rather minimal with the exception of the regulated sectors such as energy where the licence fees are usually determined pro rata to the production capacity.Registration of financing
Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
Loan transactions based on or indexed to foreign currency need to be notified to Turkish Central Bank periodically after the ending of each accounting period by the borrower. Furthermore, if the project is based on the PPP model, the project agreements in most cases require filing financing agreements in addition to the project documents with the relevant governmental or contracting authority as a contractual requirement.
For any agreement in a foreign language to be used or enforceable before a Turkish court, a notarised Turkish translation must be filed. Additionally, Law No. 805 on the Use of Turkish Language by Commercial Entities requires that any contract between two Turkish entities be executed in Turkish to be enforceable. As a result, a dual-language contract structure is very common in Turkey in project finance transactions if the agreement fits the definition under Law No. 805.Arbitration awards
How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
Turkey is party to the New York Convention as well as the ICSID Convention, which both dictate the enforcement rules to be applied in Turkey if the award falls under their authorities. The ICSID Convention enables automatic enforcement of foreign arbitral awards without the need to resort to domestic courts for enforcement. As for arbitral awards subject to the New York Convention, Turkish courts apply the enforcement tests set therein.
Additionally, the Turkish International Arbitration Law No. 4686 was adopted in 1999 and applies to cases concerning international arbitration (determined as a result of the foreignness test under the same law) if Turkey has been set as the place of arbitration by the contracting parties. The enforcement conditions set under the Turkish International Arbitration Law mirror those set under the UNCITRAL Rules to a great extent.
There are certain categories of disputes that cannot be subject to arbitration under Turkish Law, such as disputes regarding the rights in rem over real estate located in Turkey and disputes in which the parties are not entitled to discretionary settlement. The latter has mostly been defined through court decisions and includes disputes in connection with family law, criminal law, employment law, competition law and bankruptcy law, among others.
There are a very limited number of cases where local arbitration is mandatory, including disputes in connection with sports contracts and consumer claims.Law governing agreements
Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?
If there is a PPP project in place, legislation requires Turkish law to be the governing law of the main project agreement. Furthermore, any agreements granting land rights to the project company and the agreements concerning security interest over the land and movables located in Turkey are governed by Turkish law in accordance with the mandatory rules. Otherwise, parties have the freedom to choose a foreign law as the governing law of their contract provided that there is an element of foreignness (eg, financing agreements). The provisions of foreign law governed agreements may be unenforceable before the Turkish courts only if the enforcement of such provisions would be against public policy.
In addition to the main project agreement and security agreements concerning assets located in Turkey, construction and operation agreements are also usually governed by Turkish law with limited number of exceptions. Financing agreements are commonly governed by English law due to the involvement of foreign financial institutions while Turkish law is preferred if the financing transaction does not involve any foreign parties.Submission to foreign jurisdiction
Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?
As a general rule, parties have the freedom to submit their dispute to a foreign jurisdiction if there is an element of foreignness. However, if there is a PPP project in place, there are certain jurisdictional restrictions arising from the legislation that dictate the authority of Turkish courts over disputes as the default option and also giving the parties the right to refer to international arbitration to the extent the substance of the dispute is governed by Turkish law. However, the PPP legislation does not entitle the parties to refer to the jurisdiction of foreign courts.
Disputes arising from financing agreements are usually referred to international arbitration or the jurisdiction of courts in London if there are non-Turkish lenders involved, which is commonly the case.
As per the jurisdictional immunity, which concerns sovereign states, the Turkish International Private and Procedure Law explicitly states that the states may not benefit from jurisdictional immunity for the disputes arising out of their private law relations.