The Effect of Law No.805 on the Compulsory Use of Turkish in Economic Enterprises in International Arbitration Agreements

Law No.805 on the Compulsory Use of Turkish in Economic Enterprises of 1926, still in force in Turkey, has become an outdated law because of the changes in trade and economy over the world and Turkey and of the preferences of the Turkish legislative authority regarding foreign investment since 1926, and should be repealed.

Due to same reasons, until it is repealed, courts should interpret the Law in accordance with the facts of the world and of Turkey. However, the way the Law is interpreted and enforced by Turkish courts causes serious uncertainties and problems in practice. Especially those decisions in which international arbitration clauses are deemed invalid because they are not drafted in Turkish language attract attention.

In fact, international arbitration agreements are not covered by Law No.805. This is because the language in which contracts can be issued is a matter of form and the Turkish legislative authority put a separate legal regime into force regarding form of international arbitration agreements (apart from Law No.805) by adopting the New York Convention of 1958, the European Convention of 1961 and the Law on International Arbitration. Since these regulations contain no requirement of language regarding arbitration agreements, an international arbitration agreement cannot be considered invalid only because it is not issued in Turkish.

However, this important issue seems to be overlooked in both doctrine and judicial jurisprudence.

As in judicial decisions, even if one insists on international arbitration agreements to be covered under Law No.805, there will be no problem if Law No.805 is interpreted and applied correctly.

According to art.1 of the Law No.805; “All kinds of companies and institutions of Turkish nationality are obliged to keep their all kinds of transactions, contracts, communications, accounts and books within Turkey in Turkish language.” In this respect, two conditions must be met for an arbitration agreement to be subject to the Turkish requirement provided in art.1: (i) the arbitration agreement must be concluded between two companies or institutions of Turkish nationality and (ii) the arbitration agreement must be “within Turkey”.

Arbitration agreements carrying these two conditions shall not be considered as international but as local arbitration agreements and shall be subject to the Turkish requirement. On the other hand, arbitration agreements where at least one of the parties is not a Turkish national and arbitration agreements that are not “within Turkey” though both parties thereof are Turkish nationals, are not within the scope of art.1.

Under Turkish law, in determining the nationality of legal entities, place of establishment and place of administrative centre criteria are applied together in a nested manner. According to Turkish Commercial Law No.6102, in order to establish a company in Turkey, its place of administrative centre must be in Turkey and it must be registered with the trade register in the same place. Accordingly, it is not possible to establish a company under Turkish law with a place of administrative centre in a foreign country and showing the place of administrative centre of a company -established in a foreign country- in Turkey does not turn such a company into a Turkish company. The same is true for associations and foundations. Therefore, legal entities which are not established in Turkey and places of administrative centre of which are not in Turkey shall be accepted as foreign legal entities.

Regarding the second condition provided in art.1, it should be underlined that the meaning of a “contract within Turkey” is a controversial point. It is argued that a “contract within Turkey” means a contract that is concluded in Turkey even if it has any cross border element, where it is argued on the other hand that a “contract within Turkey” means a contract having any cross border element even if it is concluded in Turkey or between two Turkish companies or institutions. The second opinion is more reasonable and acceptable in terms of private international law principles. Whether a contract -subject to arbitration- carries a cross border element or not is defined in art.2 of International Arbitration Law No.4686 and it should be noted that such a definition is very wide. For instance, if at least one of the parties of an arbitration agreement is a foreign capitalised Turkish company, such an arbitration agreement shall be accepted as an agreement with a cross border element and may be drafted in a foreign language.

Art.2 of Law No.805 provides that “For foreign companies and institutions, this obligation is limited to communications, transactions and contacts with Turkish citizens or institutions and to documents and records that they are obliged to submit to State offices and officers”. According to an approach adopted in doctrine and in some judicial jurisprudence, even if contracts are not mentioned in art.2, contracts are within the scope of art.2 since a contract is a kind of transaction and transactions are mentioned in art.2; therefore, arbitration agreements concluded between Turkish companies or institutions and foreign companies or institutions are subject to the Turkish requirement. According to a second approach adopted in doctrine and in other judicial jurisprudence, the fact that the Turkish legislative authority did mention transactions but did not mention contracts in art.2 while inserting both terms in art.1, means that the Turkish legislative authority considered contracts out of the scope of art.2. This second approach is more convincing since there is no reasonable explanation for the difference between these two successive articles regulating the same issue. In this respect, since “contracts” are not mentioned in art.2, which regulates the Turkish requirement in terms of relations between foreign companies and Turkish natural or legal persons, arbitration agreements between such persons are not subject to the Turkish requirement.

According to art.4 of Law No.805; “After this Law enters into force, any records and documents drafted contrary to the provisions of article 1 and article 2 shall not be taken into consideration in favour of relevant companies and institutions”. Thus, claims and objections based on documents issued in a foreign language but made by persons who must have complied with the Turkish requirement shall not be heard. But the party that ensures the agreement to be drafted in foreign language should not benefit from Law No.805 due to bona fides principle.

 

Prof. Dr. Emre Esen

 

For more information see Prof. Dr. Emre Esen, “İktisadi Müesseselerde Mecburî Türkçe Kullanılması Hakkında Kanun’un Milletlerarası Tahkim Anlaşmaları Üzerindeki Etkisi” , PPIL, 2020/1.

https://dergipark.org.tr/tr/pub/ppil/issue/52638/735592