Business Law

ENERGY OUTAGE’S IMPACT ON COMMERCIAL CONTRACTS AND RELATION WITH FORCE MAJEURE

With the energy restrictions brought to industrial zones by Turkey Electricity Transmission AŞ (TEİAŞ) in recent days, many industrial manufacturers have come to a point where they can manufacture significantly fewer products than they could under normal conditions, and in some situations, they have to stop production completely. One of the main problems that the decrease in this production number can cause is whether the actions to deliver a certain amount of goods on a certain date arising from the commercial relationship between the 3rd parties and the manufacturer can be fulfilled. The manufacturers, who cannot fulfill their obligations, due to these energy outages, want to benefit from the force majeure provisions, claiming that the reductions in production are not caused by them.

What is Force Majeure?

In case, look at how the international legal regulations will regulate this issue, the definition of Force Majeure by the International Chamber of Commerce (“ICC”) is as follows:

 “Force Majeure” means the occurrence of an event or circumstance that prevents or impedes a party from performing one or more of its contractual obligations under the contract, if and to the extent that the party affected by the impediment proves:

  • that such impediment is beyond its reasonable control; and 
  • that it could not reasonably have been foreseen at the time of the conclusion of the contract; and 
  • that the effects of the impediment could not reasonably have been avoided or overcome by the Affected Party.

MTO clearly accepted the following situations as Force Majeure.

  • war (whether declared or not), hostilities, invasion, act of foreign enemies,  extensive military mobilisation;  
  • civil war, riot, rebellion and revolution, military or usurped power, insurrection, act of terrorism, sabotage or piracy; 
  • currency and trade restriction, embargo, sanction; 
  • act of authority whether lawful or unlawful, compliance with any law or governmental order, expropriation, seizure of works, requisition, nationalisation; 
  • plague, epidemic, natural disaster or extreme natural event; 
  • explosion, fire, destruction of equipment, prolonged break-down of transport, telecommunication, information system or energy;
  • general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories and premises.

According to the relevant articles of law, jurisprudence and doctrine established in Turkish law, in order for an event to be considered as force majeure, it must contain the following three elements:

  • It happens outside of the control areas of the parties,
  • The fact that the occurrence of the circumstance cannot be foreseen at the date of establishment of the legal relationship, and even if it is foreseen, it cannot be predicted that its effects has an great impact,
  • Failure to prevent the circumstance or preventing the non-performance act is impossible, despite that the affected party taking all measures, and
  • It is not regulated in the contract that the relevant circumstance will not be considered force majeure.

What happens in case the contract contains a force majeure clause?

In case there is a contract concluded between the parties, for example, for the sale of goods or the production of a certain product, one of the most important points is whether there is a force majeure clause in the contract and whether the definition of force majeure is limited in this clause. At this point, in case the force majeure conditions are limited in the contract, it is important whether the energy outages can be considered force majeure or not. In case energy outages are accepted as force majeure in the contract, the issue will already be clarified and current energy outages will directly constitute force majeure in accordance with the freedom of contract principle. However, although the force majeure cases are limited in number within the contract, in case energy outages are not clearly counted in these cases, it can be accepted that the current energy outages will not be considered force majeure the contract.

In such a case, the Supreme Court generally states that in case a situation that is not accepted as force majeure occurs in the contract concluded between the prudent traders; accepts that the risk that occurs is on the party whose performance is impossible. In other words, the party who cannot fulfill the contract performance due to the energy outage will be liable for the other party’s loss incurred.

What happens in case the contract non-contains a force majeure clause?

In cases where the definition of any force majeure is not specified in the contract concluded between the parties, it will be examined whether the general force majeure conditions arising from the legislation we have mentioned above have been fulfilled, and an evaluation will be made according to whether the performance of the party affected by the alleged force majeure situation becomes impossible or not. (for example, the delivery of goods on a certain date). Even in cases where the force majeure clause is not explicitly included in the contract between the parties, the situation may be considered as force majeure in case it meets the mentioned conditions. Thus, the parties will be able to benefit from the rights granted to them by force majeure.

Which Rights Does Force Majeure Provide the Affected Party Under Turkish Law?

In order to decide in case, a situation can be accepted as a force majeure under Turkish law, it must first be determined whether the situation leads to the permanent or temporary impossibility of performance. Furthermore, the Turkish Code of Obligations (TCO) essentially only regulates the impossibility of permanent performance. According to the relevant provisions of the TCO, the debt that becomes impossible (or a part of the debt within the framework of partial impossibility) will be terminated in case the force majeure for which the debtor cannot be found responsible completely or partially makes it impossible to perform the action.

In the event of temporary impossibility, which is accepted in Supreme Court decisions and doctrine but is not clearly regulated in the relevant Laws; it is foreseen that the contract will survive for a reasonable period of time, which will be determined by taking into account the parties’ purposes in making that contract, but mutual obligations will not be demanded during this period. In case the mentioned contractual tolerance period expires and the temporary impossibility of performance becomes reasonably intolerable for one of the parties, the contract is considered to be terminated automatically in accordance with the provisions of the permanent impossibility of performance.

Conclusion:

In case energy outages are considered to be a force majeure in the contracts concluded by the parties, manufacturers who are exposed to energy outages may benefit from a force majeure clause.

However, for contracts that do not have a force majeure clause or that there is a force majeure provision but no limitation is made in the clause; it may be considered as force majeure since the energy outages that have already been made are unpredictable and occurred due to reasons beyond the control of the parties. In addition, as mentioned above, ICC already considered prolonged energy outages as force majeure.

Finally, the Republic of Turkey’s Ministry of Industry and Trade published an official letter that these energy outages may be considered as a consequence of force majeure. This official letter may be used by industrial manufactures in their commercial relations to prove the occurrence of the circumstance that caused the force majeure.

 

Buse Mercan, Attorney at Law

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