Unit 8: Commercial Law in Turkey with Specific Reference to Rules Related to Competition in Turkish Legal System

Introduction

Commercial law generally focuses on commercial transactions. The scope and extent of commercial law is vast. In some jurisdictions commercial law is partly considered within the scope of law and economics. Nevertheless, commercial law is based on freedom of contract whereas in law of economics, the state, based on public interest arguments may interfere with commercial, industrial or financial relations. Commercial law and business law have many overlapping issues. Divergent set of rules in commercial law all of which regulate one aspect of commercial business life is also accompanied with other specific rules and regulations such as norms in the Code of Obligations, Capital Markets Law; Code of Execution and Bankruptcy; Banking Law etc.

General Overview Of Turkish Commercial Law

Turkish Commercial Law provides set of rules by which commercial, financial and capital markets are bound. The new Turkish Commercial Code3 (“TCC”) which came into effect in 2012 aims to provide a modern and contemporary legal environment for the commercial life in Turkey.

TCC is composed of six books each of which regulate specific areas in the law:

• Book 1 : (Articles 1 – 123) on Commercial Enterprise
• Book 2 : (Articles 124 – 644) on Commercial Entities
• Book 3: (Articles 645 – 849) on Valuable Papers (Negotiable Instruments)
• Book 4 : (Articles 850 – 930) on Transport (Carriage) Operations
• Book 5 : (Articles 931 – 1400) on Maritime Law
• Book 6 : (Articles 1401 – 1520) on Insurance Law

Commercial Enterprise is defined in Article 11/1 of the TCC. Pursuant to the definition, the following are the key elements that should be sought for a commercial enterprise:

• The will/purpose of the enterprise to generate income above a certain treshold (above the level of a craftsman enterprise)
• Continuity
• Independence

The types joint stock corporation and limited liability company are the most common types preferred in business life in Turkey. A joint stock corporation must have the following three organs to function:

• Shareholders General Assembly: General Assembly is the decision making organ of a joint stock company where each shareholder has the right and duty to participate and vote either personally or through a proxy. The general assembly meets regularly at least once a year (ordinary general assembly meeting/annual meeting) and where necessary extraordinarily.
• Board of Directors: The Board of Directors is the representing organ of the joint stock Company composed of one or more persons as Directors assigned by the Articles of Association. Board of Directors is the organ to whom the general assembly may delegate partially or fully the authority of management of the company. The members of the Board of directors must be individuals and should be shareholders of the company. Those who represent the company can carry out all transactions on behalf of the company. Unless otherwise agreed in the Articles of Association, pursuant to the law, the board of directors meets with simple majority and decides with the majority of those directors who are present in that meeting.
• Statutory Auditors: The auditing of the joint stock companies shall be carried out both internally and externally. For internal auditing, in addition to the Board of Auditors, the auditing shall attention The parties (shareholders/partners) establishing the company enter into a contract titled “Articles of Association (AoA)” be carried out by independent auditing companies (sworn financial accountants such as the big four auditing companies) or alternatively, medium and small size companies may use the services of sworn financial advisors or public accountants. Such auditing requirement, however, is applicable only to some corporations, which are to be determined and announced by the Council of Ministers. External audit is performed primarily by the Ministry of Customs and Trade. In additian to these, tax offices also have authority to audit the company accounts.

Competition can be referred to as a contest or play where in the playground (market), for all the players (competitors) and the stakeholders the play should be competitive and fair. This requirement sets forth certain duties not only for the players but also for the regulators. Unfair and restrictive trade practices in the broadest sense include unfair competition, non compete clauses and restrictive trade practices. Depending on the purpose, scope and function of these practices, there are different sets of rules (laws) in legal systems, namely unfair trade rules, contractual non compete clauses and competition laws all directed to protectthe competition in the markets. This section aims at providing a general overview of competition related rules in the Turkish legal system in order to provide an overview for undergraduate students, young lawyers and business people for whom competition law is fairly a new concept.

In Article 5 of the Turkish Constitution, to ensure the welfare, peace, and happiness of the individual and society; to strive for the removal of political, economic, and social obstacles which restrict the fundamental rights and freedoms of the individual in a manner incompatible with the principles of justice and of the social state governed by rule of law is stated as fundemental aims and duties of the State.

Unfair competition in trade relations is mainly regulated in the TCC. There are also further general and specific provisions in some other legislation. These are regulated in Turkish Code of Obligations and in some specific laws such as intellectual and industrial property laws and in consumer protection law.

Article 56 explicitly lists those who are entitled to bring a court action in cases of unfair competition. Accordingly the following can take the following legal actions:

• Persons whose economic interest are damaged or jeopardized
• Customers whose economic interests are infringed
• Professional or economic associations:

Article 56 also sets forth the types of legal actions that might be brought before the court in cases of unfair competition:

• Action for declaratory relief
• Termination (Injunction)
• Action for restitution of the unlawful situation
• Action for damages
• Publication of the Judgement
• Precautionary Measures
• Liability of Employers and Entities
• Statute of Limitations in Unfair Competition Cases
• Liability of the Press

Competition Law: Competition law is one of the major sub areas of law and economics which is an emerging area in Turkish legal system. Law No.4054 on the Protection of Competition16 (Competition Law) adopted by the Turkish Parliament on December 7, 1994 is the first legislation in Turkey on the protection of competition and regulates anti-competitive behavior of enterprises.

The very first and direct concern of competition is not to protect the consumer directly like consumer protection laws, but to maintain a workable competition in the markets and avoid those trade practices which restrict competition and thus avoid lessening consumer welfare.

In that respect, the primary goal of competition rules is not to protect the economic interests of individuals but to protect competition in the market as an economic and legal phenomenon.

Competition laws regulate three major areas that may distort competition in the market.

The purpose of Competition Law is set forth in Article 2 as ‘‘…to establish a system in the markets for goods and services by means of regulation, supervision and prevention of abuse of dominant position by undertakings and associations of undertakings and agreements, decisions and concerted practices which have as their object or effect the prevention, restriction or distortion of competition’’.

Law No.4054 covers formal agreements and decisions which impair competition as well as looser forms of agreements and parallel restrictive actions of the undertakings which are referred to as concerted practices are within the scope of the Law. By taking into consideration the relationship of the parties to an agreement or how they are positioned in the markets, a classification has been developed between horizontal and vertical Agreements. Horizontal agreements are those which are made by firms that are the same level of trade or industry, such as agreements between retailers or manufacturers or between wholesalers. Unlike horizontal agreements, vertical agreements are concluded between the parties who are not at the same level of trade or industry such as agreements between the wholesaler and the retailer or between the licenser and the licensee or between the manufacturer and the seller. A patent licensing agreement or a distributorship agreement are examples of vertical agreements. It may be concluded that although competition among competitors is always at the horizontal level, a restrictive agreement between parties may either be a horizontal agreement or a vertical agreement. So long as it restricts or distorts competition, such agreements, regardless of their nature as horizontal or vertical agreements, shall be within the scope of the Law.

Article 4/2 of Competition Law provides a non exhaustive list of examples. Directly or indirectly fixing sales or purchase prices or other trading conditions of goods or services, sharing markets or controlling production or distribution or eliminating or preventing newcomers from entering the market, applying dissimilar conditions to equivalent transactions are some examples from the list. Since the list provided is a non exhaustive list, any other type of action which is not stated explicitly in the list, but distorts competition, would also fall within the scope of Article 4 of the Law.

Article 6 of the Law regulates the abuse of a dominant position in the market. Law No. 4054 is not concerned with the mere existence of a monopoly or a dominant position, but it prohibits the abuse of this dominant position23 and there is no exemption clause in such cases. Any inquiry into the applicability of the abuse of dominant position should start with the definition and delimitation of relevant market.