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Determining the Applicable Law to the International Contracts in Cases Where Parties Did not Select Applicable Law Pursuant the Turkish Legislation

According to Article 24.4 of International Private and Procedural Law (''Law No:5718''), in cases where parties did not determine which law will be applied to the contract, the most strictly related law shall be applied.

A. In General 

Article 24.4 of the International Private and Procedural Law, regulates which law will be applied by the judge if the law to be applied is not determined in contracts containing foreign elements by the contract parties. According to this, in cases the possibility of choosing the law which is given to the parties is not used, the law of the most strictly related country shall be applied.

Article 24.4 of Law No:5718 allows a decision to be made taking into consideration the characteristics of the concrete case, but at the same time it leads to uncertainty and removes predictability. In order to eliminate this ambiguity and to facilitate the judge in the process of determining the law to be applied, the second clause has included mandatory legal presumptions for the determination of the law that is the most strictly related to the contract. These legal presumptions differ depends on whether the contract is established in the context of commercial or professional activities or not.

The legal presumption where the contract is not established in the context of commercial or professional activities:

According to Article 24.4 of Law No:5718, the law of the habitual residence of the characteristic deed obligor (at the time when the contract established) is accepted as the the most strictly related law.
The habitual residence, a concept unique to real persons, is defined as the place where social relations intensify. According to the doctrine, the habitual residence for legal persons is defined as the center where the legal person manages its activities. The Rome Convention and Article 9 on Law No:5718 verifies these definitions.

The legal presumptions where the contract is established for commercial or professional activities:

According to the Article 24.4 of Law No:5718, in terms of contracts established in the context of commercial or professional activities, the law of the country which the workplace of characteristic deed obligor (at the time when the contract is established) is considered the the most strictly related law to that contract.
If the characteristic deed obligor has not any workplace, the law of the habitual residence (at the time when the contract is established) is considered as the law the most strictly related to the contract. If there is more than one workplace, the law of workplace that is the most strictly related to the contract is considered as the law the most strictly related to the act.
The term of “workplace” is broadly interpreted for Article 24 of the International Private and Procedural Law. Accordingly, all units used in the conduct of a commercial or industrial activity (such as a center, sales office, warehouse, branch, factory, etc.) are considered as workplaces.  

B. Legal legal presumptions That Determines the Most Strictly Related Law

As stated above, Article 24.4 of Law No:5718, makes a distinction between the contracts that are established in the context of commercial or professional activity and the contracts that are not established in the context of such activity when determining the most strictly related law.
For this reason, it is important to determine whether a contract is established for commercial or professional activities or not, so that this law can be understood and applied correctly.
Turkish judges must determine whether the contract, subject to the case, is established for commercial or professional activities or not according to the Turkish Legeslation.
Art.no.3 of the Turkish Commercial Code "Law No. 6102" defined “the commercial activity”. According to this article, "all transactions and actions related to a commercial operation organized in this Law" are accepted as commercial activity.
In addition, in accordance with the commercial business legal presumption in the Article 19 of Law No:6102, a trader’s debts are considered as commercial activity. According to this legal presumption, it is considered as commercial activity that the transactions of the merchant that is arising from contracts which generate debts. But, the article further states, "However, a debt is considered as ordinary (not commercial) if the trader who is a real person expressly informs the other party that the transaction is not related to its commercial operation, or the debt is not conducive to commercial transactions."
It should be noted that the exception that is regulated in the Article 19 of Law No:6102 applies only for merchants who are real person. Corporate persons are not allowed to perform ordinary transactions.

Determination of the Characteristic Deed Obligation:  

It is also important to understand what is meant by the expression of the characteristic deed obligation in order to determine which law is applied in accordance with the Article 24.4 of Law No:5718.
The concept of the characteristic deed is not explained by law. The doctrine has attempted to define this concept by describing it as "hits the mark and gives the legal characteristic to the contract, and carry more risk than the other."

C. The Exception of the Rule Based on the Characteristic Deed Obligation: The Criteria of the The Most Strictly Related Law

As mentioned above, "the law that is the most strictly related to the contract" tried to be determined by various legal presumptions. But in the last sentence of the article, the phrase of "However, in the event that there is a law which is more closely related to the contract according to all the circumstances, the contract shall be subjected to this law" included.
Thus, compared with the above-mentioned legal presumptions, if there is a more closely related law, this more closely related law shall be applied. To determine this, all the conditions of the concrete situation must be taken into account.
In this context, criterias such as the language, place of performance, place of establishment of the contract, place of common residence of the parties or place of residence, existence of authorization agreement can be taken into consideration.
Author: Abdülkadir Güzeloğlu & Tarık Kurban
Relevant Fields: Corporate Law and Commerce, International Trade, Litigation,
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