A YEAR OF CHANGE: WHAT S LAW GOT TO DO WITH IT?

2011 / I A YEAR OF CHANGE: WHAT S LAW GOT TO DO WITH IT? This is the first Bulletin of the 2011 recently-arrived 2011. When we look back for a moment, one can say that last year was a busy year indeed. The financial turmoil swept away many enterprises throughout the world and while some countries had no choice but to apply for bail-outs, it was a breeze for Turkey. In the meantime, the Turkish economy has shown remarkable performance with steady growth while the entire world has gone through many changes politically, economically and regulatory-wise. Then came the blasting leaks to shake up the order Moving on to the facts, early this year, IMF ranked Turkey as the 15 th largest economy in the world and according to GDP figures (at PPP) and in 2009 Turkey was the 6 th largest economy when compared to EU countries. As the GDP levels increased to USD 618 billion in 2010, GDP per capita soared from USD 3,500 to USD 12,392 (2010) in 8 years and is estimated to become approximately 13,870 for 2011. Continued on page 3 Corporate 5 New Turkish Commercial Code In General 9 Joint Stock Companies under the New Commercial Code 11 Share Capital Increase in Joint Stock Companies in terms of the New Commercial Code 14 Important Innovations Regarding Incorporation of Limited Liability Companies in the New Commercial Code 16 Dos and Don ts in Shareholders Agreements 18 Exit Rights under Shareholders Agreements 21 Code of Obligations: Law to Change the Country 23 Banks in Alert: New Musts for Brand New Protection beyond Swiss Law Contracts of Surety by New Code of Obligations 25 Termination of Exclusive Distributorship Agreements 27 The Importance of International Factoring in International Trade and Applicable Law 29 A Sensational Investment: Use Permits Granted by the National Estate 31 Latest Dilemma of Private Healthcare Sector: Are Amendments to Private Hospitals Regulation Malpractice? 33 A New Era in Media 36 The New Renewable Energy Law Litigation 39 Legal Professional Privilege Rules Under Turkish Law 41 Exemptions from Public Tender Law 42 An Overview of FIDIC Silver Book IN THIS ISSUE 44 Solicitation of Employees as an Event of Unfair Competition 45 Providing GSM Services in Turkey and an Ongoing Discussion: Share Payments 47 Dispute Boards in Construction Projects 48 The United Nations Convention on Contracts for the International Sale of Goods 50 Legal Aspects of Unlicensed Software Use 52 The Liability of the State Arising from Enforcement and Bankruptcy Offices 54 Legal Implications and Importance of Control in International Joint Ventures From The Turkish Law Perspective 55 Multi-Step Dispute Resolution Clauses 56 New Claim/Counterclaim 58 Role of Local Courts in International Arbitration: Preliminary Injunctions Project and Finance: 60 Real Estate Investment Companies In Turkey 61 Recent Developments in Public Offerings 63 Banking Regulation and Supervisory Agency Control of Factoring Transactions in Turkey 64 Privatization of Motorways 66 Sukuk and Its Emergence in the Turkish Capital Market 67 The Public Offering of Foreign Capital Instruments in Turkey 69 The consolidation of the infrastructure market in Turkey and its legal framework Competition 71 Turkey Welcomes its New Merger Control Regime 73 Intellectual Property Rights versus Competition Rules: Parallel Imports IPT 75 Turkey s Signing the Convention on Cybercrime 76 Combatting Counterfeit Healthcare Products 78 Reform of the Turkish Constitution & Privacy Rights 79 Public Discounts in Reimbursement of Pharmaceutical Products 81 Clinical Trials 83 Loss Compensation Funds 84 Copyright Infringements on Internet 85 E-Commerce Gateway to The World 86 Misleading Advertising Employment 88 Obtaining Work Permits for Foreign Employees in line with Recent Changes in the Law 90 Impact of Certain Events that May Occur in the Course of Lawsuit for Reinstatement to Work 92 Disclosure of Business Malpractice (Whistleblowing) under the Turkish Labour Law & Duty of Fidelity 94 Execution of Contracts on Cessation of Employment In Light of Job Security Provisions of Turkish Labour Law 97 Recent Changes in Favour of Female Employees and Inclusion of Maternity Leave in Service Periods as Per Recent Changes in the Law

No. 3 Disclaimer BÜYÜKDERE CAD. NO: 127 ASTORIA A KULE KAT: 5, 6, 24, 26, 27 34394 ESENTEPE ISTANBUL TURKEY TELEPHONE: +90 (212) 318 05 05 TELEFAX: +90 (212) 318 05 06 E-MAIL: info@yukselkarkinkucuk.av.tr WEBSITE: www.yukselkarkinkucuk.av.tr Legal News Bulletin Turkey YükselKarkınKüçük Adına Yayın Sahibi / Owner Cüneyt Yüksel Editör / Editor Cüneyt Yüksel Sorumlu Müdür / Responsible Gökhan Gökçe Yayın Türü / Type of Publication Yerel Süreli / Local Periodical Baskı / Printing PINARBAŞ Matbaacılık Ltd. Şti. Rami Kışla Cad. No: 88 Topçular İstanbul Tel: (212) 544 58 77 This bulletin is designed to provide general information to the public and clients and has been prepared for educational and information purposes only. The information included herein is not for advertising purposes. The information in this bulletin is not intended to be nor does it constitute legal advice of and does not necessarily reflect the opinion of any of DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership. Professional legal advice should be obtained for specific questions and concerns. DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership will not be liable directly or undirectly for any loss that may arise from relying on the data included herein. Receiving this bulletin does not create an attorney-client relationship. Copying part or all of the contents in any form of this bulletin is prohibited and the contrary constitutes copyright infringement. For further information, contact Cüneyt Yüksel, Buyukdere Cad. No: 127 Astoria A Kule Kat: 5, 6, 24, 26, 27 34394 Esentepe, Istanbul TURKEY, Fax: +90 (212) 318 05 06, www.yukselkarkinkucuk.av.tr e-mail: info@yukselkarkinkucuk.av.tr Copyright 2011, DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership. All rights reserved.

Intro Previous page to continue Turkey is definitely expected to continue to improve during the years to come. Meanwhile, credit rating agencies such as Fitch, Moody s and S&P all gradually upgraded their credit ratings for Turkey in the last two years, but still have not satisfied the country s expectations. It is anticipated that the rating agencies must upgrade their rankings to investment grade after the general elections of June 2011. Now that transactions in Turkey have regained leverage and pace, the magnetic competition in various sectors is attracting the investors. The Turkish market is accommodating more and more investors and their deals lately. In the final quarter of 2010, the total value of 203 M&A deals in Turkey exceeded USD 30 billion. A significant portion of this amount was privatization (e.g. Başkent Gaz). The most leveraged deal of the year was the acquisition of 25% of Garanti Bank s shares by Spanish BBVA at USD 5.8 billion. After the general elections of summer 2011, Turkey is expected to attract lots of foreign investment. Most recently, Turkey entered into a memorandum of understanding with the Japanese government for constructing the controversial nuclear plant to be located in Sinop (Black Sea region). Earlier in 2010, the country had come to terms with Russia for the other nuclear plant to be built in Mersin, Akkuyu (Mediterranean region). On the privatization agenda, it was recently announced that Turkish Airlines, the 4 th largest airline company of Europe is to be privatized. The upcoming days will host debates as to whether there will be a secondary public offering or a sale. Privatization of motorways is a top transaction regarding which you will find an article in this edition. There is also the current media blast with the prospective sale of major television networks and publications where we will see the impact of the new media law allowing a higher percentage of foreign ownership going up to 50% (which was 25%) and indirectly 100%. You will find further information about it in this 3 rd issue of Bulletin Turkey. Furthermore, private equity deals in various other sectors such as health and pharmaceuticals, energy, food and beverages, IT, leisure and travel etc. are a hit this year both on the multinational and local arenas. It is worth mentioning here that we have illustrated this issue with the top legal events that keep Turkey s agenda busy. A selection of over 50 articles has been put together in a readerfriendly manner with the intention of keeping our readers busy and on full alert. To give a few other examples, new regulations introduced on public offerings, registration of capital markets instruments, health sector, and Competition Authority notification rules for M&A transactions are topics we have covered in this issue. We have written a variety of articles on dispute settlement and bankruptcy matters as well as data protection, counterfeiting and electronic communications. Popular employment law matters such as foreign work permits, job security and whistleblowing are interesting articles which you may find helpful. In the meantime, YKK not only developed its practice but it has welcomed new faces to its dynamic team and we have grown to 65 lawyers with around 40 support staff making the total more than 100. Taking up more office space in the Astoria building, we now occupy 5 floors. Although it can only be a myth that lawyers will rule the world one day, constant advice has become part of many clients daily routine which only used to be a practice followed by foreigners in the past. Now, national companies are also eager to retain these services which keep us busy. Legislative-wise, the New Year is all about change, change, change in Turkey. You can find several articles on the amendments that will be introduced in terms of corporate governance, corporate transactions and others matters in this issue of Bulletin Turkey. The major changes introduced to the Commercial Code (including the companies act) and Code of Obligations will definitely change our lives. They will enter into force in July 2012, hence giving us more than a year of transition/warm-up period and we are preparing ourselves for these changes through intense training programs. More on the changes, in order to improve the functioning and efficiency of its judiciary in line with the European standards, the law regarding judicial reform strategy was enacted on 14 February 2011. The reform was established mainly with the purpose of reducing the courts workload by making fundamental changes with regard to restructuring Constitutional Court and redefining its tasks, restructuring High Council of Judges and Prosecutors, establishment of Union of Judges and Prosecutors, providing operation of the Supreme Court in civil and criminal judiciary, merging courthouses, completing UYAP (National Judicial Network Project), enlarging the Forensic Medicine Institution, adopting the new Civil Procedure Code. The European Commission had also considered this a positive step in its progress report regarding Turkey. Furthermore, a new Bag of Laws was enacted 2011/I 3

on 26 February 2011. This new package amends numerous types of laws, which will radically change people s lives. As would be significant for corporations, the bag of laws provides for several types of tax amnesties enabling restructuring taxes and social security premium fees that were not paid until 31 December 2010. The Bag of Laws foresees that the two authorities, Turkish Banking and Regulation and Supervision Agency (BDDK) and the Capital Markets Board (SPK) are going to be moved to Istanbul. This is an important step in making Istanbul a financial center. Now that our Bulletin Turkey has become yours, there is no doubt that it will provide you with highlights from the top legal agenda of the country tailored in the best possible way to address your interest. Expect to receive future issues which will continue to offer you interesting insights with a business approach about new legal developments in the country. * * * Should you have any suggestions about matter you would like us to address in the next issue please contact us at bulletin@yukselkarkinkucuk. av.tr and we should be delighted to make sure that they are attended. 2011/I 4

Corporate New Turkish Commercial Code In General Batuhan UZEL U nder Entering into force on July 1, 2012, and comprising of 1535 articles, the New Turkish Commercial Code ( New TCC ), was ratified by the parliament on January 12, 2011. The most important changes introduced by the New TCC can be summarized as below. 1. GENERAL PROVISIONS AS TO CORPORATE LAW A. Corporate Governance The prevailing notion in the New TCC is to apply a set of corporate governance rules which are generally applied to companies listed on stock exchange to all companies to boost investor confidence. Thus, new provisions have been the New TCC, joint stock companies and limited liability companies are allowed to be incorporated by a single shareholder or partner. provided for in the New TCC concerning internal management, internal and independent audit in equity companies (joint stock and limited liability companies), in a carefully drafted and comprehendible form. The main aspects of corporate governance rules in the New TCC are as follows: transparency, fairness, accountability and responsibility. B. Websites of the Equity Companies, Information-Based Society Services and Access Rights The New TCC has introduced an obligation for equity companies to launch a website. Those equity companies that already have a website are obliged to allocate an appropriate part of their online services to render information to the public. The reason underlying the introduction of such new obligations on the part of the equity companies is to inform shareholders of limited and joint stock companies sufficiently and efficiently. The content of such web sites would be composed of information regarding the company, such as information in which the shareholders, creditors and other stakeholders have interest, General Shareholders Assembly documents and convocations, year-end and interim financial statements, balance sheets as to mergers and spin-offs, audit reports, valuation reports, tender offers for pre-emption holders, notices for liquidation, notices for annulment actions and etc. C. Joint Stock Companies and Limited Liability Companies with Single Shareholder Under the New TCC, joint stock companies and limited liability companies are allowed to be incorporated by a single shareholder or partner. In both types of company single shareholders or partners can assume the duties and responsibilities of the General Shareholders Assembly and function as such. This new amendment provides commercial undertakings operated by sole proprietor the ability to transform into corporate types in which limited liability principle is controlling. D. Holding Companies Holding companies are corporate types struc- 2011/I 5

tured to control multiple subsidiary companies in reliance of the procedures and guidelines set out by the management in the holding company. It is the first time that holding companies are regulated under Turkish legislation. The New TCC has clarified definitions such as what constitutes a controlling company, affiliated company and subsidiary company. It has also clarified the distinctions between such corporate structures and their relations. In order to bolster the transparency principle, the New TCC requires the controlling and subsidiary companies to disclose the relationships between them. Furthermore, controlling and subsidiary companies are under a duty to annually report their relationship to the public. E. Changes in Corporate Structures Mergers, spin-offs and change of corporate types are widely regulated by the New TCC, with the majority of provisions being related to the position of the creditors of target companies, and safeguarding the rights and benefits of employees. Different kinds of protection in terms of right of actions are provided in the New TCC for the benefit of specific persons in case of the mentioned types of restructuring. F. Turkish Accounting Standards Identical to IFRS, New Standards in Commercial Book Keeping and Accounting Standards Commission of Turkey The New TCC has introduced radical changes in relation to commercial books, and financial statements of equity companies and holding companies and annual reports of the board of directors. The provisions regarding mandatory book keeping, inventory records, initial balances, financial statements, principles applicable to balance sheets, non-capitalization, provisions, periodic accounts, valuation and record keeping and submission of records introduce the new requirements set forth by the New TCC. G. Audit in Equity Companies One of the aims of the enactment of the New TCC is to establish confidence in the corporate arena within Turkey as well as globally, and to change Turkey s vision and view on matters related to the corporate landscape in Turkey. With such legislative mindset, the audits to be carried out from now on under the New TCC should be conducted by independent, professional, diligent auditors in compliance with the International Audit Standards, abiding by the ethic rules in the sector, in a transparent manner with due attention. 2. JOINT STOCK COMPANY A. Incorporation In the first instance, the New TCC has abolished the system of incorporating joint stock companies through public offerings as set out under the current TCC, which was dysfunctional. Hence, the New TCC introduced a simple, applicable and effective system of incorporation through public offerings. Going a step further and removing the barriers faced during the incorporation of joint stock companies, self-administrative governmental authorities have been stripped of their authority in terms of intervening in the incorporation and capital increase of joint stock companies. Another amendment introduced in relation to incorporation is the founders statement and self-policing mechanism, giving effect and functionality to liability arising from incorporation of the company. Under the New TCC, incorporation of joint stock companies should be audited by an ad-hoc auditor. Ad-hoc auditors should inspect the increases and decreases in share capital, mergers, spin-offs, changes of corporate type, and issuance of securities. B. Private, Public and Listed Joint Stock Companies While the majority of the provisions in the current TCC are applicable only to private joint stock companies, the New TCC has introduced provisions to be applied to public joint stock companies and joint stock companies listed on stock exchanges. The intention behind the introduction of the mentioned provision with respect to capital markets is to abolish differences between the TCC and capital markets legislation in Turkey, bringing these two legislations into harmony. C. Share Capital and Shares Whether public or private, the New TCC stipulates two share capital systems in joint stock companies--ordinary share capital system and registered capital system. Prior to the New TCC, registered capital system was applicable only to companies regulated under capital markets legislation, which are not private companies. Details as to the adoption of registered capital system and exiting from such system should be further regulated by the regulations to be put into force 2011/I 6

by the Ministry of Industry and Trade. Shares in joint stock companies can be issued in consideration of cash or assets. There is no lock-up period provided for in New TCC, whereas under the current TCC a lock-up period of two years for shares issued in exchange of assets exists. Under the New TCC, it is set out that the minimum nominal value of shares could be TL 0,001. As per the provisions of the New TCC the issuance of preferred shares in joint stock companies is permitted. However, further restrictions are stipulated for preference in voting and consequently, shares having preference in voting are not capable of preventing share capital increases under the New TCC. The reason behind this amendment is to mitigate the blocking effect of preferred shares in the functioning of companies. In comparison with the current TCC boundaries of privileges attached to preferred shares in convocation and meeting of General Shareholders Assembly and adoption of decisions in General Shareholders Assembly are clearly delineated and narrowed. D. Repurchase of Shares from Shareholders by the Company In terms of the current TCC, the creation of treasury shares is strictly prohibited. In other words, a joint stock company is neither allowed to repurchase nor take as collateral its own shares from its shareholders. However, this strict prohibition has been relaxed to a great extent under the New TCC for the sake of bringing Turkish commercial legislation into alignment with EU legislation. Thus, listed companies are protected against manipulative practices and also private companies would not have to bear the burden of useless statutory restrictions. Such restriction remaining in force and being applicable even in the event that subsidiary companies acquire the shares of their parents, several exemptions are set out in the New TCC, in which case such repurchase by the companies is allowed. E. Board Amending qualifications for being a board member, the New TCC has abolished the precondition of being a shareholder in the company. Moreover, legal entities can become board members under the New TCC in contrast to the current TCC. The said amendments are so vital that they pave the way for the introduction of professionalized boards in companies. Election of board members outside the company, requirements as to the education levels of the board members are such provisions that serve to professionalize management in companies. F. General Shareholder s Assembly In a succinct and restrictive manner, the New TCC defines the duties which cannot be delegated to third parties and are solely ascribed to the General Shareholders Assembly. However, exemptions are regulated such as share capital increases in the public joint stock companies or issuance of securities. The New TCC has also introduced amendments as to who can convene the General Shareholders Assembly for meetings. Moreover, the statutory auditor is no longer authorized to make calls for General Shareholders Assembly meetings. Furthermore, minority shareholders are subject to shorter periods to make calls for General Shareholders Assembly meetings. In addition to that, joint stock companies are under an obligation to set out and put into force their internal regulation regarding the conduct of General Shareholders Assembly meetings. G. Share Capital Increase Having maintained the current methods in share capital increase, the New TCC introduces certain new methods in share capital increase, to bring more functionality to joint stock companies. In addition to the share capital increase via subscription by shareholders, registered capital system and transformation of assets into share capital are newly introduced methods for share capital increase in joint stock companies. Another alternative under the New TCC is increasing the amount of share capital through issuance of convertible bonds and bonds with warrants. Under this newly introduced method by the New TCC, joint stock companies have the option of issuing convertible bonds and bonds with warrants (hybrid securities), the exercise of which would lead to increases in the share capital. The terms and conditions relating to the issuance of convertible bonds and bonds with warrants are to be set out in the articles of association of the companies. H. Liability The New TCC stipulates provisions imposing legal and criminal liability applicable to certain 2011/I 7

resolutions, statements or documents of joint stock companies. Issues which may lead to legal or criminal liability under the New TCC can be summarized as the following: Illegality in documents and statements False representations on share capital and known insolvencies in terms payment of share capital subscriptions Valuation Raising of funds from public Liability attached to founding shareholders, board members, managers and receivers Liability attached to the performance and activities of the auditors 3. LIMITED LIABILITY COMPANY The New TCC has introduced various amendments into the system set under the current TCC for limited liability companies, transforming limited liability companies into small-sized joint stock companies. Under the New TCC the minimum amount of share capital is 25,000 TL and each partner can hold multiple interests in the company instead of a single interest in the company as mandated under the existing TCC. Transfer of interests has been facilitated and relaxed, partners being able to regulate the procedure on transfer of interests in the articles of association of the company at their own discretion. A. Incorporation The New TCC has introduced limited liability companies with single partner and incorporation has been simplified. In the articles of association, partners can set out provisions as to repurchase rights and pre-emption rights on interests in the company. Giving veto rights and superior voting rights to preferred partners, the New TCC has made it possible for partners to depart from the statutory provisions on voting and distribution of dividends. B. Financial Soundness The position of creditors and economic strength of limited liability companies has been solidified under the New TCC. In this context, payments of share capital should be made at once and in single payments, meaning that incorporation of limited liability companies cannot be consummated without share capital being paid in full. Financial statements to be prepared in accordance with IFRS and to be audited as per the IAS are issues mandated under the New TCC, in order for the financial situation of the limited liability companies to gather strength. 2011/I 8

Joint Stock Companies under the New Commercial Code Ceren Berispek The New Code introduces new regulation for joint stock companies ( JSC ) which constitute a significant part of commercial life in Turkey. paid in 3 years from the same date. According to the New Code, the timeframe for paying the remaining ¾ capital has been decreased from 36 months to 24 months. T he Incorporation of a JSC: With regards to the incorporation of a JSC, the New Code makes it possible for a JSC to be incorporated with one or more Shareholders, whereas the TCC requires at least five Shareholders in order to incorporate a JSC. In addition, the New Code introduces the obligation for founding shareholders to submit an undertaking regarding the incorporation of a JSC. Another new requirement for incorporation is that an auditor s report with respect to the aforementioned provision should be submitted. New Code abolishes the requirement that the Board should consist of at least three members and renders it possible that the Board may also consist of one member since it is possible to incorporate a JSC with one shareholder. Moreover, the New Code allows the registered capital system for privately held (nonpublic) JSCs having an initial capital of more than TL 100,000 whereas the TCC permits the registered capital system only for publicly held companies. Under the New Code, it is possible to increase the share capital of the JSCs subject to the registered capital system without a general assembly ( GA ) resolution, but through a Board resolution. The Board: The New Code abolishes the requirement that the Board should consist of at least three members and renders it possible that the Board may also consist of one member since it is possible to incorporate a JSC with one shareholder. In this context, the sole shareholder may be able to use all powers within the General Assembly ( GA ). Even where the Board may consist of one director, at least one director should be of Turkish nationality and be a resident in the Republic of Turkey. Significantly, the New Code abolishes the requirement for the members of the Board to be a shareholder in the JSC and enables nonshareholders and the legal entities to become members of the Board in the JSC by eliminating the previous requirement in the TCC. Capital: The New Code clearly stipulates that all transferable, cash valuable assets that are not limited with any real right, encumbrance or injunction, including intellectual property rights and cyber space can be invested as capital in a JSC. Under the TCC, ¼ of the share capital contributed by shareholders to a JSC may be paid within 3 months of registration with the trade registry, and the remaining amount may be Another requirement concerning directors is that half of the number of directors should have earned a bachelor degree and in terms of a one-director Board or legal entity such director should have a bachelor degree. 2011/I 9

S ignificantly, the New Code abolishes the requirement for the members of the Board to be a shareholder in the JSC and enables non-shareholders and the legal entities to become members of the Board in the JSC According to the New Code, the Board may authorize a director or directors or a third party with the authority to manage, whereas the TCC does not allow third parties to take over the authority of management. The New Code states that the Board should draft an internal regulation concerning the principals and procedures of the GA, the grounds of which shall be determined by the Ministry of Industry and Commerce. In order to avoid a conflict of powers between the administrative bodies of a JSC, the New Code has clearly stated the non-transferable powers of the Board which are, inter alia, establishing company organization, giving instructions to the upper management, establishing financial planning system, appointment of directors, recording the share ledger and activity report. Meeting Quorum for Board Resolutions: The New Code alters the meeting quorum required for Board Meetings and stipulates that the Board shall convene with the presence of the majority of the Directors of a JSC whereas the TCC requires the presence of one more than half of the number of the Directors. Such amendment will result in a difference in terms of the Boards of the JSCs having a total of odd and even numbered Directors. Also, Board Meetings may be held on-line. Number of Statutory Auditors: According to the TCC a minimum of one and a maximum of five statutory auditors are mandatory for a JSC, whereas the New Code precludes that a JSC should appoint one independent auditing company as statutory auditor. However, under the New Code it is sufficient for small JSCs to employ at least two independent financial advisors. GA: Although no amendment has been made by the New Code with respect to meeting and decision quorum for a GA, for the amendments to the Articles of Association of a JSC, the New Code requires majority vote of the participants in the GA who represent at least half of the JSC capital. In order to avoid conflict of powers between the administrative bodies of a JSC, the New Code has clearly stated the nontransferable powers of the which are, inter alia, amendment of the Articles, appointment of Directors, determination of their terms of duty and salaries, their release, appointment and release of statutory auditors, rendering resolutions concerning dividends, reserve funds and financial reports, and the dissolution of the JSC. Meeting and Decision Quorum for GA Meeting Resolution: The New Code provides that for the issues that do not require weighted quorums, the meeting quorum is the presence of the shareholders holding ¼ of the capital and the decision quorum is the majority of the affirmative votes of the present shareholders. These quorums apply to capital increase, change of form, and resolutions concerning mergers and spin-offs. Whereas except for the latter, the aforementioned are subject to a meeting quorum which requires the presence of the Shareholders holding 2/3 of the capital and a decision quorum of the majority of the affirmative present votes. In addition, according to the New Code, changing the subject of activity of a JSC requires the affirmative votes of the Shareholders holding at least 75% of the company shares. But, the TCC requires the affirmative votes of the majority of the Shareholders holding at least 2/3 of share capital. Online Corporate Information: The New Code aims to secure transparency which is required for the corporate governance. Therefore under the New Code, JSCs are required to maintain a corporate website where they will publish official corporate announcements, important explanations for shareholders, audit reports and financial statements. 2011/I 10

Share Capital Increase in Joint Stock Companies in terms of the New Commercial Code Batuhan UZEL I ntroducing Under the current provisions and principles of the Turkish Commercial Code ( TCC ), two basic rules are stipulated in relation to share capital of joint stock companies and these have survived the amendments to be made in the TCC (which are expected to be voted and approved in the upcoming months in the Turkish Parliament and referred to as the New TCC or the new law in this article). Accordingly, the amount of the share capital and division of the share capital into equity shares to be held by the shareholders of a joint stock company should be determined and stated in a provision in the articles of association ( AoA ) of the company. So, in such context, radical changes into Turkish commercial law and practice, these amendments should bring joint stock companies into alignment with the international standards in terms of corporate finance and governance. shareholders rights and obligations stem from the equity shares they hold as participation of shareholders to the rights and obligations in the company are determined and defined pro rata to their shareholding in the share capital of the company. Due to such critical function of the share capital in joint stock companies, increase in the amount of share capital is regulated in a very detailed manner and subject to certain procedures under the current TCC as well as the New TCC. Having maintained the current methods in share capital increase, the New TCC introduces certain new methods in share capital increase and such changes have been introduced to bring more functionality to joint stock companies. As is in the current TCC provisions, the New TCC also requires any change in the amount of share capital to be made through an amendment in the AoA of the company. Consequently, in principle, share capital increases should be consummated by a general shareholders assembly decision amending the provision of the AoA in relation to the share capital of the company. Additionally, the New TCC also makes increases in share capital possible with a board of directors resolution through a newly introduced system (registered capital system), which is explained in detail below. However, as a restrictive precondition to the increase in share capital, the New TCC has preserved the provisions of the current TCC that require all shareholders to have fully paid their contribution of the share capital prior to an increase in the share capital. This article aims to explain the methods in increasing share capital of joint stock companies in accordance with provisions of the New TCC and below detailed information have been provided in relation to three main methods of share capital increase in joint stock companies, as outlined under the New TCC. Increase In Share Capital Via Subscription: As per the provisions of the New TCC, under this method, ordinary share capital system and registered capital system are the share capital systems applicable to joint stock companies. Ordinary share capital system is currently ap- 2011/I 11

plicable to joint stock companies under the TCC provisions and has been kept by the new law as well. Under the ordinary share capital system, share capital increases are consummated by contributions from current and/or new shareholders. Such contributions are made either in form of AoA amendments or undertakings undersigned by the shareholders. Under the TCC, the registered capital system was only applied to companies subject to capital markets legislation and Capital Markets Boards ( CMB ) regulations. However, under the New TCC the registered capital system is now also applicable to privately held companies. Under this system, the board of directors in a privately held company shall be authorized by a provision in the AoA of the company to increase the amount of the share capital up to a predetermined amount, by simply taking a board of directors` resolution without any need to convene a general shareholders` assembly to amend the AoA of the company. Such authority can be entrusted to the board of directors for a maximum period of 5 years. Having been duly authorized in the AoA, the board of directors can restrict preemption rights and issue premium shares and preferred shares in increasing the amount of the share capital of the company in registered capital system. The provisions brought by the amendments do not make any change in the application of capital markets legislation and CMB regulations with respect to share capital increase. Capital markets legislation will continue to be applied to public companies or companies to launch IPOs, in addition to the New TCC provisions. Capital markets legislation and CMB regulations aim to regulate the offerings through increase in share capital conducted by public and privately held companies launching IPOs. As per the current system set forth under the capital markets legislation, private companies can launch IPOs after having amended their AoA and increased the share capital accordingly upon getting relevant approvals from CMB for such increase and the IPO. In the alternative, private companies to launch IPOs are allowed to change to the registered capital system with the approval of CMB before launching their IPOs. Companies which already have public floatation are allowed to change to the registered capital system from the ordinary share capital system under the current capital markets legislation and CMB regulations following the approval of CMB to do so. However, these companies may elect to stay with the ordinary share capital system. So, the New TCC does not repeal any authority entrusted to official agencies under capital markets regulations. Consequently, public companies and private companies to launch public offerings may change to the registered capital system from ordinary share capital system, only after acquiring the approval of CMB for such change, whereas ordinary private companies may change to registered capital system with an amendment in their AoA in terms of the New TCC, as capital markets legislation is not applied to these companies. Summarizing the foregoing, companies subject to capital markets legislation which have not changed to the registered capital system and are functioning under the ordinary share capital system shall be subject to the provisions of the New TCC when increasing their share capital with an AoA amendment; however, any offering launched by these companies should be regulated by the capital markets legislation. Companies subject to capital markets legislation and having changed to the registered capital system are regulated by the provisions of capital markets regulation, in which case the New TCC should not be applied to such. So, the New TCC is to be applied to ordinary private companies with respect to the registered capital system without the provisions of capital market legislation being applied, which means that no CMB approval is required. Transforming assets into share capital: This method has been introduced as a new method for share capital increases under the New TCC. Accordingly, secondary reserves and part of the statutory reserves which are allowed to be disposed of under the TCC and certain funds on the asset side of the balance sheet of the company can be added to the existing share capital of the company in order to increase the share capital. Depending on the system adopted by the company, the ordinary share capital or registered capital, the general shareholders assembly decision or the board of directors resolution regarding the increase and the amended version of the AoA of the company need be registered with the Trade Registry for the consummation of the increase in share capital under this method. Simultaneously with the registration, existing shareholders in the company become entitled to acquire the ownership of the new shares without paying any consideration, pro rata to their shareholding in the share capital of the company. The right to acquire such new no-par shares can neither be restricted by the company nor relinquished by the shareholders. 2011/I 12

Increase in share capital through issuance of convertible bonds and bonds with warrants: Under this newly introduced method by the New TCC, joint stock companies do have the option to issue convertible bonds and bonds with warrants (hybrid securities), the exercise of which would lead to increases in the share capital. the holders of the bonds cannot be rendered dysfunctional due to the transfer restrictions imposed on registered shares of the company. Convertible bonds and bonds with warrants cannot be eroded with further increases in share capital and issuance of new conversion rights and call options. In this respect, joint stock companies can issue convertible bonds and bonds with warrants to compensate their funding needs. So, the holders of such bonds are entitled to exercise conversion and call option rights attached to these bonds. Under this method, in case these rights are exercised by the holders, the share capital of the company would automatically increase at the same time as these rights are exercised and relevant amounts for the acquisition of new shares have been paid by the bondholders without any further action. As a result of the exercise of these rights, either the bonds would be converted into equity shares in the company or the exercising bondholder would receive equity shares in the company through the exercised call options, in both cases upon the payment of considerations to be paid by the holders for the acquisition of equity shares in the company. There are certain safeguards set out in the New TCC for increase in share capital through issuance of hybrid securities as summarized below: The amount of share capital increase to be made through issuance of convertibles and bonds with warrants is limited by half the amount of share capital of the company. Existing shareholders at the time of the issuance of these hybrid securities are entitled to pre-emption rights to acquire such. However, only in the presence of justified reasons, the pre-emption rights could be subject to restriction. Unless stated otherwise in the AoA of the company, in case registered shares are underlying securities in hybrid securities, rights of Preemption Rights: As per the New TCC, existing shareholders at the time of the issuance of new shares resulting from increases in share capital are entitled to acquire these new shares pro rata to their shareholding in the share capital of the company. Under the New TCC i pre-emption rights can be restricted only in the presence of justified reasons and with the affirmative vote of the shareholders representing 60%of the share capital of the company in the general shareholders assembly. What constitutes a justified reason has not been confined to a limited number of cases in the new law, but public offering and acquisition of subsidiaries have been illustrated as what could be a justified reason. Stipulating clearly the conditions required for the restriction of preemption rights, the New TCC put an end to this contentious issue leading to disputes under the current TCC. Conclusion: Having preserved the current methods for share capital increase, the New TCC has brought new methods to increase share capital of joint stock companies, which can facilitate and expedite the functioning of joint stock companies. So, introducing radical changes into Turkish commercial law and practice, these amendments should bring joint stock companies into alignment with the international standards in terms of corporate finance and governance. In addition, with the new concepts and institutions introduced, Turkish commercial law and practice has been also updated in light of the EU law and legislations. 2011/I 13

Important Innovations Regarding Incorporation of Limited Liability Companies in the New Commercial Code Berat HAMZAOĞLU - Merve ÇIKRIKÇIOĞLU I t Turkey is on the eve of a new era in the field of Company Law pursuant to new regulations which recently entered into force with the new Commercial Code ( New TCC ). The previous Turkish Commercial Code ( TCC ), which has been drafted by Prof. Hirsch has been in force for more than 50 years. Now, considering Turkey s position as the Negotiating State for full membership of the EU, technological developments, Turkey s critical role and wish to become an important part in the international trade market; it is clear that a new commercial code is in need to blend in with the new order of the trade market. In this appears that upon the enactment of the new TCC, the incorporation of LLCs will be subject to strict control. article, innovations and amendments in the field of limited liability companies ( LLC ), more specifically incorporation of LLCs according to New TCC will be thoroughly examined and discussed. To begin with the most significant change in the incorporation of LLCs is that the New TCC allows LLCs to be incorporated with a single founder unlike the previous TCC which requires at least 2 founders. Therefore, pursuant to the New TCC Article 504/1, LLCs may be incorporated with only one real person or legal entity. The one man company system has been designated in order to comply with EU s 12. Council Company Law Directive 89/667/EEC of 21 December 1989. The purpose of this regulation is to protect small and medium size enterprises ( SME ). Thus SME s will be able to break through from unlimited liability as a single-member company. However, as in the previous TCC, the New TCC has also limited the number of members. Accordingly, a LLC may have a maximum of 50 members. One other issue is that the New TCC sets forth that registered capital shall be a minimum of TL 25,000. This registered capital may be raised by the Council of Ministers up to 10 times of this amount. (Article.580/ 2) One of the most significant amendments in this regard is that the previous system which did not allow registered capital share to be represented by certificates has been abandoned. Instead, it has been stated in the New TCC that registered share certificates may be issued. It has been stipulated in Article 583 of the New TCC that the certificates to be issued shall be at least in the value of TL 25. The New TCC lists the documents required for the incorporation of LLCs as application petition, articles of association, founders declaration, report of the operational auditor (işlem denetçisi raporu), nomination of the auditor and a document which provides the names and domicile addresses of the persons authorized to represent the company. It appears that upon the enactment of the New TCC, the incorporation of LLCs will be subject to strict control. 2011/I 14

Another amendment that needs to be mentioned is the obligation to own a website. The New TCC requires the LLCs to have a website and stipulates certain sanctions in the event of non-compliance with such requirement. The New TCC lays down certain rules with respect to auditing of the LLCs by independent auditors. Accordingly, the financial charts and annual activities of the companies will be audited by an auditor pursuant to international auditing standards. Moreover, various activities of the LLCs such as the incorporation thereof will be audited by an operational auditor. Apart from these amendments, the scope of criminal and legal liability under the previous TCC is extended under the New TCC. The directors will be subject to strict liability in this sense. On the other hand, expenses made during the incorporation of the LLC will be covered by the LLC only if they are approved by the company. Otherwise, these expenses will be covered by the founders. The founders may demand these expenses from the company, but if the company does not accept such claim, the founders cannot seek recourse from the other partners. In the event the LLC is not incorporated in accordance with the TCC, it will not be considered null and void. The Ministry of Industry and Commerce, the company manager, shareholders or the relevant creditor may only file for dissolution of the company before the commercial courts of first instance in the case the benefits of the shareholders, creditors or the public are in severe danger or breached,. Such filing is made before the commercial courts of first instance where the company s registered office is located The dissolution of the LLCs upon the request of one of its partners based on just cause is regulated under the previous TCC. The New TCC also recognizes this issue. It sets forth that in the event of such request, instead of dissolving the company, the court may rule for the payment of the current value of the claimant partner s shares and removal of the partner from the company, or it may rule for another appropriate and acceptable decision. The lack of regulation under the previous TCC prevents the court from making an alternative decision. Therefore, if the court is not satisfied with the grounds asserted by the claimant to dissolve the LLC, it simply dismisses the partner s claim. Fortunately, under the New TCC the court may use its broad discretion to rule for a reasonable solution. Accordingly, the court will not consider the dismissal of such claim as the last resort. As stated above, the main purpose of the New TCC is to integrate modern corporate governance rules into Turkish commercial life. The New TCC prescribes major amendments as to the governance and structure of the LLCs. It is possible to conclude that the New Code will be the key regulation for LLCs with respect to the current needs of the legal and commercial environment. 2011/I 15

Dos and Don ts in Shareholders Agreements Gizem GÖKER I n M&A transactions in Turkey are regaining speed with the opening of 2010. They have started to gain leverage compared to the previous year which was rather big on acquiring small enterprises. In acquiring a certain stake in a company or in merger transactions, the share purchase agreement or the merger agreement takes the leading role. However, the terms and conditions on the target company s control and governance are mainly subject to the shareholders agreement ( SHA ) (same applies to joint other words, the future is governed by the SHA. Therefore, it is essential to enter into a comprehensive SHA in order to establish the grounds of a wellgoverned partnership and to avoid any doubts on control issues in the future. venture agreements). In other words, the future is governed by the SHA. Therefore, it is essential to enter into a comprehensive SHA in order to establish the grounds of a well-governed partnership and to avoid any doubts on control issues in the future. In Turkey, companies are governed by their articles of association which is a registered and publicly available document. The practice allows for a major part of the SHA to be reflected in the articles of association or in certain cases the SHA remains contractual where the parties choose to draft a simpler version of the articles of association either for non-disclosure purposes or for other corporate matters. This article aims to offer preliminary guidance on what points to consider in negotiating an SHA. DO display a solid corporate governance portrait. In determining control of an enterprise corporate governance provisions are key. In Turkey, joint stock companies are governed by a board of directors, whereas limited liability partnerships only have a partners assembly (equivalent to a shareholders assembly in joint stock companies and corporate decisions are taken at this level). However, limited liability partnerships may also establish a supervisory or management committee to which the corporate decision making process is delegated (subject to the approval of the partners assembly). For instance, where a party appoints the majority of the directors of the board such shareholder can render any decisions by itself at board level. However, should the minorities have strategic veto rights (to give a few examples, appointing the CEO, CFO, approving the budget or business plan are considered strategic board matters), then this may mean that there is joint control regardless of the board composition or the shareholding percentage. One should make sure that general matters, reserved matters or strategic matters are specifically identified under the SHA (such as how the signatories will be appointed, taking in financing and loans, increasing the capital, carrying out related party transactions, approving the business plan and budget etc.) DO consider the legal identity of your counter parties. An SHA may be between legal entities or individuals or a mixture of both. One should pay attention in drafting provisions tailored to the personality of the relevant shareholder. For instance, a termination clause al- 2011/I 16

Deadlocks mainly occur (i) where board decisions cannot be adopted due to split votes between the directors; (ii) where board meetings or shareholders meetings (general assembly) cannot be convened due to absence of quorum (mainly occurs when a shareholder intentionally refrains from discussing the subject) and (iii) where a decision at shareholder (general assembly) level cannot be reached due to split votes between the shareholders or due to a minority shareholder exercising its veto right. Depending on the complexity of the deadlock, the parties may first attempt to resolve the issue by (i) appointing mediators or senior management, (ii) referring the matter to an arbitrator, (iii) shoot-out (where the shareholder who offers the highest price will buy the shares of the other shareholders and they will be obliged to sell to such highest bidder), or, (iv) Russian Roulette where one shareholder can require other members to choose whether to sell their shares of the first shareholder or buy the shares of the first shareholder at a price and on terms offered by the first shareholder. Since the first shareholder does not know what the other shareholders will elect (i.e., buy or sell), it will have to specify a reasonable price and terms. Even as a final resort, windlowing for termination should there be a liquidity event or winding up would not work for an individual. Whereas, an individual who is a merchant may file for bankruptcy, bankruptcy protection (meaning that the person is about to go into bankruptcy but is trying to survive) as a result of which a supervisory or administrator trustee would be appointed to control his assets. Furthermore, a change of control clause (meaning that should one shareholder sell the control in his company to a third party share transfers and transferring voting rights above 50% or granting veto rights to other persons that result in a shift of control, etc.) would be applicable for a legal entity. DON T forget the change of control scenario. You are taking a partner (where the partner is a legal entity) who is very well known to you. Should there be a major change in the shareholding structure of that entity, you would want to be informed and prepared in advance. Suppose you have signed a SHA and established a partnership with an Incorporated Limited and the next day the majority of the shares of Incorporated Limited are sold to an Alien PLC which belongs to a corporate group that is known to be laundering money or a major competitor. There has been an indirect change of shareholding in the partnership to which you have made a commitment. Therefore, a change of control clause triggering a default event is definitely a recommended clause in a SHA in order to avoid any surprises. DO determine your exit strategy. Knowing your way out in advance is a quite strategic in transactions. Aside aiming for achieving certain economic goals, the legal consequences of an exit should also be regarded primarily. There could be a lot of reasons (voluntary or otherwise) leading to an exit. In exiting a company, it is important to make sure that you are welcoming the new investor to a desirable environment. Therefore, in drafting the SHA certain points must be considered, for instance, whether (i) the new investor will be forced to sign a joinder agreement or not; (ii) the minority shareholders will retain their major rights such as veto rights, etc.; (iii) exit is likely to be achieved via either a transfer of the partnership shares or the shareholder s shares itself (in what percentage) or an IPO of the partnership shares; and, (iv) a certain portion of shares be sold and so on if there is a shift in control. DON T allow for uncontrolled share transfers. Share transfer restrictions as well as rights of first refusal or rights of first offer should be carefully addressed. In this respect, tag along (right to sell with the selling party) and drag along (right to force another shareholder to sell with you) rights are also strategic. It is essential that no share transfers take place without offering those shares to an existing shareholder first. Tagging onto a sale is a benefit for a minority shareholder and dragging along is a benefit for the majority shareholder. Furthermore, if your partner is a strategic one for the business (which is the case in many JVs) the parties may consider locking in share transfers for a certain period of time for sustainability. DO negotiate your way to dilute a nonparticipating shareholder in case of a capital increase. A well-funded shareholder aims to contribute to capitalization of the company and its financial improvement. Unless there is an appropriately determined mechanism in the agreement, capital increases can be approved by the shareholders easily, but afterwards a contributing shareholder may default in paying such capital. In such cases, it is a very long process to expatriate a defaulting shareholder. For avoidance of such unwanted circumstances, a persuasive mechanism for capital increases could possibly be governed under the SHA. DON T render a useless deadlock resolution mechanism. 2011/I 17

ing up a company is not a recommended considering how long it takes to wind up a company in Turkey (about a year). Remember that such buy/sell mechanisms can be tricky when it comes to bidding. The shareholder with the biggest financial strength can take over the company or insider information can cause having to sell the shares. Harsh solution methods (such as winding up) can be intimidating thus forcing the parties to act consciously in order to avoid any unwanted obstruction. DO take into account the near future and the new Turkish Commercial Code. The renowned Turkish Commercial Code amendment that has been on the agenda for years was recently ratified by the Turkish parlia- ment and is to come into force in July 2012. While entering into a contract today, you should envisage the changes that could affect your contractual relationship or that may render certain provisions useless and hence should be taken into careful consideration. * * * This article sets out a selection of shareholder matters. There are of course many other important aspects of a shareholding relationship to consider. There is no doubt that a concretely established and strong legal partnership founds the grounds of a successful future and business. We, corporate lawyers are always here to efficiently guide you to success. Exit Rights under Shareholders Agreements Nihan PALTA Most financial and strategic investors main objective in a company acquisition is taking over absolute control of the target company with minimum liability. In share purchase deals where ownership of all shares of the target company is transferred from the seller to the purchaser, the purchaser steps into the seller s shoes and the legal entity s operation continues in an uninterrupted manner. Unless specifically agreed through representation and warranty clauses and/or specific indemnity clauses inserted in the share purchase agreement, subsequent to the share transfer, the seller has no ongoing interest or obligation with respect to the assets, liabilities or operations of the legal entity in question. On the other hand, in share purchase deals where less than 100% of the shares are acquired, apart from the share purchase agreement, the seller and the purchaser execute a shareholders agreement for the purpose of recording their mutual agreement concerning the shareholding, financing, operation and management of the company and their mutual rights and obligations relating to the company. The purchaser/ investor s main concern should be to enable the purchaser/investor to cash out of the investment to be made in the target company at the end of a prescribed term with maximum profit and under the best conditions. For that purpose, new business terms and instrument models in corporate law (emanated from common law system) have been created so as to facilitate the investor to exit their portfolio company investment by exercising certain rights inserted in the shareholders agreements. Even though these are not statutorily implemented under the current Turkish Commercial Code numbered 6762 or the new Turkish Commercial Code numbered 6102 which has been approved on 13 January 2011 and will be entered into force on 1 July 2012, they are commonly used in practice in Turkey while drafting shareholders agreements especially when the purchaser is a private equity investor. Exit rights are related to two most important exit channels: 2011/I 18

F or (i) trade sales (including drag-along rights, tagalong rights and right of first refusal/right of first offer) and (ii) initial public offerings (including demand rights and piggy back rights). It should be stressed that the most important clauses which are commonly subject to discussion and negotiation are drag-along rights and tag-along rights clauses. A drag-along right gives its holder the right to force all other shareholders in the company to sell their shares to a (outsider) buyer at the same price at which the right holder sells his shares. The tag-along right allows the holder to include his shares in a sale at the same price as all other shareholders. Thus these rights possess option-type characteristics. that purpose, new business terms and instrument models in corporate law (emanated from common law system) have been created so as to facilitate the investor to exit their portfolio company investment by exercising certain rights inserted in the shareholders agreements. Right of first refusal/right of first offer Right of first refusal ( ROFR ) allows the right holder to force any selling shareholder to firstly offer all or a portion of the shares to the right holders (other shareholder(s) in the company) at a price offered by the intended transferee. In brief, the right of first refusal is similar in concept to a call option. In general, a written notification is sent by the relevant selling shareholder to other shareholder(s) so as to inform them on the number of shares subject to transfer, the proposed offer price and name, identity and description of the intended transferee. This avoids a shareholder selling his/her shares to an unwanted third party which may alter the balance of power in the company. Unfortunately, since a ROFR is a contractual right, if there is no contractual penalty determined under the contract the right holder s remedies for breach are typically limited to compensation for damages. In other words, if the selling shareholder transfers his/her shares to a third party without offering the holder the opportunity to purchase it first, the holder can then sue the selling shareholder for damages, but may have a difficult time obtaining a court order to stop or reverse the sale. The right of first offer ( ROFO ) differs from ROFR as ROFO merely obliges the owner to undergo exclusive good faith negotiations with the right holders before negotiating with other parties. A ROFR is an option to enter a transaction on exact or approximate transaction terms. In other words a ROFO is merely an agreement to negotiate. Drag-along clauses If a deal has been struck with a buyer, dragalong rights enable the right holder to force all other shareholders to sell their shares under the same conditions to the buyer and join the sale of company s shares in question. This avoids an exit being prevented by one party who is unwilling to transfer his/her shares. Since these clauses are generally inserted to the advantage of the majority shareholder so as to ensure an exit channel, this right is exercised for all the shares held by such shareholder via dragging all the shares held by other shareholders. Please also note that especially in fifty-fifty partnerships, a floor price for dragged shares may also be stipulated with reference to a formula agreed by the parties. It should be noted that if structured and implemented properly, drag-along clauses can provide important protection for the private equity investors when it is time to exit portfolio company investments. Tag-along clauses Tag-along clauses preclude that one of the parties transfers his/her shares to an outside investor without giving the right holder the chance to follow suit. It gives right holder the right to include his/her shares in the sale at the same price as offered to the intended transferee. Thus, the tag-along clause constitutes a put right for the right holder enabling him/her to transfer the shares at a price determined in the negotiation between the selling shareholder(s) and a third party. A tag-along clause may avoid one party being excluded from a value-increasing sale of the company to a buyer who only acquires a portion of the shares. Value increases may be caused, for example, by synergies created or by a sale to a direct competitor and the associated increase in market power. In addition, it denies the other party the ability to sell company s shares to a third party who has the ability and incentive to undertake measures to reduce the value of the company, i.e. via asset-stripping or transfer-pricing, without compensating the other shareholders. These first three rights are directed towards 2011/I 19

the possibility of a trade sale as an exit channel. The following two exit rights are especially important in the course of an initial public offering being used as the main exit channel for the initial owners of the company. Piggy-back rights Piggy-back rights allow each party to include their shares in an initial public offering pro rata to their company s shares. Thereby, the exclusion from an IPO can be avoided. This right avoids that some shareholders can threaten to exclude other shareholders from the IPO. The right holder can sell his/her shares at the same price as all other parties whose shares are sold via an IPO. It is in this sense that piggy-back rights constitute a put option with the IPO price being the endogenous strike price. Thereby, the close similarities between the piggy-back rights and the tag-along rights which both constitute a put option with endogenous strike prices become obvious. The main difference lies in the exit channel, whereas piggy-back rights become effective with an IPO, tag-along rights refer to situation in which the company is sold to a trade buyer. Demand rights Demand rights allow the right holder to force other shareholders to agree to join the public offering. Thereby, denying other shareholders the chance to prevent or threaten to prevent a valueincreasing IPO. Preventing shareholders that threaten to block a value-increasing IPO reduces ex-post bargaining power and therefore the ability to capture a larger share of the entire payoff. This reduction in the bargaining power is also present in the case of drag-along clauses. Both rights are call options with endogenous strike prices. The difference is, once again, the exit channel; demand rights are associated with IPOs, while the drag-along clause is directed towards the trade sale. It should be underlined that even if exit rights ensure a certain degree of comfort to both majority and minority shareholders, in case of breach of these clauses, their enforceability may only be alleged before arbitration, if contractually agreed, or court. In other words, if no mechanism is sought in order to compensate one party s damages in case of breach of these clauses, the non-breaching party should claim his/her negative and/or positive damages by proving (i) contractual breach, (ii) occurrence of damage and (iii) a causal link between the damage and contractual breach. Therefore, until the arbitration court or national court renders its decision, he/she may not be compensated for his/her damages. Apart from the damages, especially due to contractual breaches by local shareholders and breach of drag-along clauses by the local shareholders, investors cannot exit their portfolio and evaluate a bona fide offer of a third party until the final decision is awarded by the arbitration or the court. In order to save time and create an efficient solution to the exit of the investor, in practice, there are certain mechanisms such as payment of a penalty amount or appointment of an escrow agent to keep the shares that will be dragged or tagged by the investor. Penalty clauses are regulated in a manner so as to enable one party to request a certain penalty (generally in daily basis) from the other party, when the latter breaches provisions of the agreement, starting from the date of breach. These clauses are merely sought for drag and tag along clauses as well as put and call option rights and aim to force shareholders to comply with their obligations inserted in the agreement in relation to procedural process such as sending the notifications or delivering the shares to a third party offeror. The second mechanism being appointment of an escrow agent is not a mechanism usually come across, however, the aim here is to enable the right holder to request (i) the other shareholder to deliver its shares to the escrow agent (to be dragged or tagged) and (ii) the escrow agent to deliver the shares that he/she is required to keep when the right holder requests the delivery. Therefore, the escrow agent is a third party protecting ownership of shares in its possession under the terms and conditions and until the time inserted in the escrow agreement. To sum up, it is obvious that the market which is growing day by day is signalling investors to give more emphasis to insert exit rights in the shareholders agreements in the most structured manner. Since certain exit rights as well as mechanisms aiming to facilitate their enforceability are only dedicated to protect one party s interest, they can create deal-breaks during the negotiation process. Therefore, it is crucial the right advice is sought from the right lawyer to ensure balance while inserting these clauses by taking into consideration general common practice and the party s real interests in the transaction. 2011/I 20

Code of Obligations: Law to Change the Country Hazal KORKMAZ T he The long-awaited amendments to modernise the old-fashioned Code of Obligations ( TCO ), which has been in force since 22 April 1926, were enacted on 11 January 2011 with full cooperation of Turkish Parliament. The new TCO, which will not be in force until 1 July 2012, will introduce comprehensive changes to social life and redefine it from tip to toe. Most of the provisions of the old TCO are incorporated into the new TCO. However, we are going to summarize some of the significant amendments in this article. 1. Form of the Contracts Parallel to modernization of the old TCO, one of the most significant amendments made to TCO that enables the parties to sign contracts by electronic signature, upon enactment of these amendments the written form requirement is new TCO, which will not be in force until 1 July 2012, will introduce comprehensive changes to social life and redefine it from tip to toe. compliant with the Electronic Signature Law no. 5070. As per the Articles 14 and 15 of the TCO, texts sent/received via fax or other electronic devices shall meet the written form requirement provided the contracting parties confirm and sign the texts with electronic signature in compliance with the said law. Thus, the new TCO recognizes that electronic signatures are equivalent to traditional handwritten signature while executing contracts in written forms. 2. General Transaction Conditions The social and economic developments of our day have created a requirement for mass-orient- ed services and a new contract model, which contains pre-drafted and non-negotiable provisions, have emerged. Such pre-determined standard contract conditions and terms are called general transaction conditions. Articles 20-25 of the new TCO regulate general transaction conditions which only gives the individual contracting party the options yes or no against the predrafted, standardized text offered and drafted for commercial contracts executed with banks, insurance companies etc. Article 20 of the new TCO has defined general transaction conditions. As per this article, in order to be considered as general transaction provision, one party shall (i) for the purposes of using the same text and format in a great number of similar other contracts and (ii) unilaterally draft the agreement. However, it should be mentioned that even though there are little differences between the texts of the pre-drafted agreements that do not change the characteristic of the agreement, the criteria of being considered general transaction conditions are met. Further, pursuant to Article 21 of the new TCO in case a general transaction provision had been drafted to the detriment of the counter party the party who drafts it (issuer party) shall (i) explicitly inform the counter party regarding this detrimental provision (ii) enable the counter party to learn the content of the provision and the counter party shall accept this condition. Otherwise, the general transaction provision is considered non-existent. In such cases, the agreement will continue to be in effect. 3. Interest and Default Interest The new TCO amended the provisions regarding calculation of contractual interest rate and default interest rate on behalf of the debtor and prevented the debtor from high interest rates. One of the major changes regarding this subject 2011/I 21

is restricting the contractual and default interest rates to be determined under the contract. Accordingly, as per Article 87 of the new TCO in case contracting parties do not specifically determine interest rates under the contract, the interest will be paid as per the applicable legislation. However, the contractual interest rate cannot be more that 50% of the interest rate determined by legislation. Further, as per the Article 119 of the TCO annual default interest rate cannot be more than 100% of the default interest rate determined by the legislation. The provisions of the Law on Legal Interest and Default Interest no. 3095 are taken into consideration. 4. Peril Liability The new TCO introduced peril liability with Article 70 according to which in case working areas of a company are highly dangerous and caused damage to someone, both owner and the manager of the company will be held jointly and severally liable. Therefore, people who are controlling the activities of these types of companies can be held liable if they have acquired necessary licenses. Furthermore, the criteria of categorizing as highly dangerous working areas are set forth under the second paragraph of the same article according to which materials, equipments or sources used in company s activities are taken into consideration. 5. Judge s Discretion to Rule Monetary Interim Relief Article 73 of the TCO regulates that taking into consideration the injured party s financial situation the judge has discretion to decide whether the defendant is required to make a temporary payment upon the injured party s request before stating its final verdict provided that the injured party supports his/her allegations with evidence and. It should be mentioned that this payment would be deducted from the final compensation amount or in case the judge decides against the injured party; the injured party may be required to repay the said amount with legal interest. With this article, lawmakers intend to protect the injured party who needs immediate financial support. 6. Excessive Distress of Performance Article 137 of the TCO titled excessive distress of performance enables the debtor to terminate the contract or negotiate alternative contractual terms in the event that circumstances specified under the contract creates an unreasonable or disproportionate burden or obstacle. Excessive distress of performance may exist (i) in circum- stances which will not be incurred by the debtor (ii) performance of the debtor has become excessively burdensome due to an event which could not reasonably have been expected to have taken into account and (iii) and the debtor has not yet performed his obligation or has performed his obligation by reserving and retaining his rights of claim arising out of the excessive distress of performance. 7. Registration of Pre-emption and Repurchase Rights in Land Registry Article 237 of the new TCO provides that the rights of pre-emption and repurchase may be agreed upon by and between the sides for a maximum period of twenty-five years, and the right of purchase may be agreed upon by and between the parties for a maximum period of ten years, and may be registered in land registry only for the periods envisaged in the applicable laws. Moreover, as per the new TCO, the rights of pre-emption, purchase and repurchase cannot be transferred and assigned, but can be inherited. 8. Lease Contracts Integration of the provisions of Law on Lease of Real Estate ( Law no. 6570 ) with the old provisions regarding lease the old provisions of the TCO to the new TCO had radically changed the lease of real estate. Thus, Law no. 6570 will be revoked and the new TCO will be applied. Similar to Law no. 6570, the new TCO is also in compliance with the protection of the lessee principle against to the financially strong lessor. Accordingly, pursuant to the Article 301 of the new TCO unless otherwise agreed, compulsory expenses like insurance, tax, etc. will be paid by the lessor. Further, according to Article 302 the lessor will pay expenses regarding use of the leased property. Furthermore, pursuant to the new TCO, provisions pertaining to the securities given to the lessor are stipulated. According to Article 341 for the residence and workplace leases, security amount cannot exceed the rental fees corresponding to 3 months. Article 343 provides that, the increase in rental fees cannot be more than the producer index rate of the previous year. In addition to this, in the case parties did not determine any adjustment clauses, the judge may rule an appropriate increase rate provided that this rate shall not exceed producer index rate of the previous year. Additionally, in case the rental fees are determined as foreign currency, the rental fees may not be adjusted for five years. 2011/I 22

According to Article 345, the lessee shall not undertake to pay any amount except the rental fees and subsidiary expenses. In this context, the penalty clauses will be considered non-effective. Pursuant to Law no. 6570, the lessor may terminate the lease contract for its spouse s or children s residence or workplace needs, however the new TCO extends the provisions enabling the lessor s grandchildren and great grandchildren s needs may enable the lessor to terminate the lease contract. 9. Guarantee Agreements The new TCO aggravated the form requirements of the guarantee contracts. Accordingly, according to Article 538, guarantee will not be effective if (i) execution of the agreement is not in compliance with the requirements of the written form and (ii) the guarantor does not stipulate the guarantee amount and the guarantee date with its own handwriting. The amendments that increase the burden of the guarantor shall comply the said requirements. Additionally, pursuant to Article 584, in order to execute a guarantee contract as a guarantor, a married person needs a clear and explicit consent of his/her spouse unless they are legally separated. The spouse may give his/her consent on the execution date at the latest however the spouse s consent is not required for amendments that increase the burden of the guarantor. Most importantly, as per Article 598, starting from the execution date of the agreement the guarantee given by a real person will be automatically revoked at the end of ten years. The abovementioned requirements will be applied to all contracts regarding personal securities whether they are titled guarantee agreements or not. Banks in Alert: New Musts for Brand New Protection beyond Swiss Law Contracts of Surety by New Code of Obligations Dilek ÇOLAKEL The new Turkish Code of Obligations (the New Code ) has been agreed by the Turkish Parliament to be in effect as of 1 July 2012 annulling the current Turkish Code of Obligations (the TCO ) and has been published on the Official Gazette dated 4 February 2011. Welcoming the New Code, legal form standards, standardized terms of contracts, sales contracts, and lease contracts, default interest and finally contracts of surety are areas requiring a broad review in order to be ready for first day of July 2012. By way of definition, a contract of surety is a unilateral contract that the surety undertakes liability of the original debtor. A contract of surety can be validly formed without the participation of the debtor provided that terms of surety are agreed upon by the surety and the creditor. The general principle of Turkish law practice adopts the approach that formation requirements are basic condition of validity if they are envisaged in a mandatory manner. The New Code orders further form standards mainly aiming to provide an equal protection for both parties of a 2011/I 23

L ooking contract, specifically for the contracts of surety as prescribed below. The validity requirements for a contract of surety set out under the TCO are solely (i) to be in written form and (ii) to have the maximum amount of liability stated in the contract. These requirements have been enhanced in New Code which has been based on articles 492-494 of Swiss Code of Obligations, namely, the date of the contracts of surety must be indicated as a term of the contract in addition to the amount of surety. Considering the general approach of banks and financial institutions incorporated in Turkey tend not to specify the date, such renovation will require changing their previous practices. The New Code also forces surety to put pen to paper stating (i) maximum amount of liability, (ii) date of the surety and/or (iii) any expression intending to refer the meaning of joint surety. These insertions performed by the surety represent a real test whether the surety is aware of the basic items of the suretyship he is entering into. ahead to the New Code, banks and financial institutions will be required to perform a good job in order to save the effect of the contracts of sureties as of 1 July 2012. Another reformist climax favouring protection of sureties is the compliance with new form standards while amending a contract of surety. This departure also aspires to prevent any amendments to be made without ensuring the awareness of the surety. The last but not least important condition to form a contract of surety is if one of the spouses intends to enter into a contract of surety in the role of a guarantor, the prior written consent of his or her spouse is required, regardless of the guaranteed amount (based on Art. 494 Swiss Code of Obligations). This provision only applies if the spouses are not legally separated. Although adopting all general principles for contracts of surety under the Swiss Code Obligations, the comfort provided for contracts of guarantee under Swiss Law is not provided by the New Code. The distinction between both types of personal guarantee has given rise to abundant case law from Swiss Federal Tribunal. Similar to the New Code, if the guarantor under a surety is an individual, it is subject to the form requirement of a notarised public deed (The role of the notary public is to ensure that the guarantor understands the scope of its guarantee undertaking) under the Swiss system. A surety that does not comply with this form requirement is null and void. By contrast, validity of a contract of guarantee is not subject to any specific form requirement as per Swiss practice. At this point, it is crucial to note that the Turkish legislator avoided applying this freedom in regard to formation requirements with respect to the contracts of guarantee. This avoidance aimed to prevent the non-application of the protection of sureties stipulated for the contract of surety. In regard to the term of contracts of surety, the New Code limits the validity term to 10 years as of their date of execution. This limitation comes from the understanding that no surety should be titled as liable under the amount of surety for an indefinite period. In other words, a contract of surety will be terminated per se, without the necessity of taking any action by parties to the contract. The term of a contract of surety may be extended for another period of 10 years provided that the form standards for the execution are exactly applied for such extension. In every account, the extension of the contract must be realized one year before the termination date provided by the New Code. At a glance of new limitations regarding formation, amendment and term of the contracts of surety, we see that Turkish Parliament pushes a more strict approach towards the New Code. This approach favours a balance between real person sureties and banks or financial institutions that are not equally powered by means of economical, educational, and occasional terms. Looking ahead to the New Code, banks and financial institutions will be required to perform a good job in order to save the effect of the contracts of sureties as of 1 July 2012. The announced version of the Draft Law on the Enforcement and Implementation of the Turkish Code of Obligations in the agenda of the Parliament rules the implementation of provisions stipulated for contracts of surety for contracts executed before 1 July 2012 excluding the legal tests questioning their binding character, default penalty and termination. These implementation rulings, explicitly determines the necessary actions to be taken by banks for the continuity of contracts of surety in order to refrain from any crisis endangering validity of contracts of surety. 2011/I 24

Termination of Exclusive Distributorship Agreements Merve ÇIKRIKÇIOĞLU The increase of foreign products and services in the Turkish market as part of the globalization process has led to notable growth in the number of agency and distributorship relations with foreign companies. However, within the last decade, foreign investors have started to sell their products and services directly, rather than through a distributor or an intermediary. Consequently, terminations of agency and distributorship agreements along with the compensation claims arising from such have become frequent and thus draw significant attention. Despite their common use in commercial life, distributorship agreements are not specifically stipulated under the Turkish Commercial Code ( TCC ). Therefore, the provisions regarding agency agreements under the TCC and the general provisions of sale contacts provided in the Turkish Code of Obligations ( TCO ) are applied to certain aspects of distributorship agreements and relations by way of analogy. When the provisions regarding agents and agency agreements in the TCC are reviewed, it is noted that the TCC defines an agent as a person who, without the titles of representative, trade agent, sales officer or employee, is contracted to negotiate or enter into contracts on behalf of a commercial enterprise in a specific place or region. Nonetheless, considering the aforesaid definition, there is a significant difference between an agency and a distributorship agreement: A distributor purchases, imports and undertakes the risk of the product subject to sale, whereas an agent only acts as the intermediary in the name of and on behalf of her/her principal. Turkish scholars generally accept that distributorship agreements are of a sui generis nature, and since the legislation lacks specific statutory provisions in this regard it is believed that they are mostly governed by general principles applicable to similar types of contracts, such as agency and sale-purchase contracts. One other difference between distributorship agreements and agency agreements is that agency agreements may be executed for definite or indefinite periods. An agency agreement having a definite term will automatically terminate on the expiry date, unless otherwise is specifically provided in the agreement. On the other hand, if the agency agreement is executed for an indefinite period, either party may terminate the agreement at any time by providing three months notice to the other party. Unlike agency agreements, exclusive distributorship agreements are often executed for indefinite periods. Such agreements may involve a specific termination procedure. In cases where there is no article in the agreement regulating the termination thereof, the court will apply the principles of fairness and equity. As mentioned above, the parties are entitled to terminate agreements at any time. However, the important point in the event of such termination is the manner in which the parties terminate the agreement. Distribution agreements are of a sui generis nature thus notice periods may differ depending on the merits of each case. The abovementioned three months notice period may fall short considering the distributor s contribution to the principal s business, as well as the duration of the commercial relationship and volume of business. Continuing on the termination of contracts in general; Turkish legislation divides the legal action of termination in two sub-types, one being 2011/I 25

termination with just cause whereas the other is without just cause. This distinction is made in order to determine whether the terminating party has a just cause under law to terminate the agreement, or has no just cause enabling the other party to claim for damages. The general principle adopted in connection with the termination of exclusive distributorship agreements is that these contracts can be terminated with or without just cause, subject to the provisions of the TCC. The court has the discretion to determine the nature of the cause. Under Article 20/3 of the TCC, in all commercial agreements, termination notices must be made in writing and sent via registered mail, notary public or telegram. Moreover, if the termination is based on just cause, the cause should be explicitly indicated in the termination notice. Upon such notice, the parties may terminate the agreement with immediate effect. This is a basic procedure that companies acting without legal counsel commonly tend to neglect. Neglecting this statutory formality invalidates the termination, thereby leads to potentially higher compensation payable to the agent or distributor. Upon the termination of a distributorship agreement, the distributor may seek certain types of remedies. The most common type of damages claimed in such cases is portfolio/goodwill compensation. The Court of Appeals has developed a case law approach in relation to portfolio compensation claimed following the termination of exclusive distributorship agreements. Accordingly, the distributor is entitled for damages provided that the following requirements are met: (i) The supplier must have substantial benefits after termination, from the new customers gained by the distributor for the supplier during the term of the agreement. (ii) The distributor must suffer certain losses, i.e. deprivation of profit which would have been received from the new customers. (iii) The fairness principle. This principle plays a significant role on determining whether the distributor is entitled to damages. The calculation of such indemnity is also affected by the fairness and equity of surrounding circumstances. In line with this rule, the maximum indemnity payable is the average yearly profit gained by the distributor over the past five years. (iv) The claim shall be asserted no later than one year after termination. It may be asserted verbally or in writing, as there are no format requisites. It has to be kept in mind that the payment of the aforesaid compensation does not obstruct the distributor from claiming damages based on other causes of action. Therefore, the distributor may claim compensation for non-pecuniary damages upon termination of the agreement. The legal grounds for this type of compensation are described in the general provisions of the TCO. A common example in this regard would be the damages for the distributor s business reputation. Some distributors claim that their commercial reputation is destroyed following the termination of their agreements. There is no method set forth under the Turkish law to determine the amount of this type of compensation. Therefore, the court evaluates the damages on a case-bycase basis, based on the nature of each relationship. However, as a general rule, the compensation granted for the damages must not exceed the incurred losses. The approach developed by the Turkish Court of Appeal with respect to the portfolio indemnification is in favour of the exclusive distributor. By protecting the distributor, the Court of Appeal entitles the distributor to portfolio indemnification based on the rule of fairness. The amount for the portfolio compensation in this respect may not exceed the distributor s average earning for the last five years. In doing so, the Turkish Court of Appeal has paved the way for portfolio indemnification following the termination of exclusive distributorship agreements under Turkish Law. As mentioned above, nowadays foreign investors prefer to sell their products directly, without using an intermediary or distributor. Accordingly, they tend to terminate the distributorship agreements previously executed with certain distributors in order to eliminate them and take over their businesses. As a result of such terminations, the distributors claims for damages lead to a complicated process. Recent practises have shown that agreeing on a method in advance which regulates the termination and the following procedures accelerate the termination procedure and reduce the costs the parties may suffer. In light of the foregoing, it appears that negotiating the termination and the subsequent process in advance, rather than taking legal action after the termination, may be more favourable for both parties. 2011/I 26

The Importance of International Factoring in International Trade and Applicable Law Berat HAMZAOĞLU F irst Introduction International factoring which may be defined as the sale or assignment of short-term receivables arising from an international sale of goods or supply of services, is utilized to finance the exchange of goods or services between buyers and sellers in the international market. In many cases, the seller ( Client or Supplier ) will assume the foremost economic risk of the sales transaction as the buyer of goods or services ( Debtor ) may be unable to make the payment. At this point, the financial institutions ( Factoring Company ) can remove this risk for the seller with factoring and enable international commercial transactions to operate on a credit basis, making of all it eliminates the buyer s financial burden of premature payment, as well as the seller s risk of non-payment. international trade an attractive alternative to domestic sales. With this piece of work, international factoring will be discussed briefly after pointing out the history of factoring in Turkey while making references to relevant legislation. Factoring in Turkey The term Factoring has been used in Turkey for the first time in the Statutory Decree regarding Loan Transactions in 1983. Despite factoring being a new financing model, it has developed rapidly and has recently become an irreplaceable instrument in Turkey s finance market. At the moment, 75% of factoring in Turkey consists of domestic factoring where the rest consist of export and import factoring, meaning international factoring. Factoring transactions in our country are governed by the Turkish Commercial Code, Law of Obligations, Banking Law and Protection of the Value of Turkish Currency Law. To develop international factoring in our country, the most significant requirement is to become a party to the International Institute for the Unification of Private International Law ( Unidroit ) Convention on International Factoring ( Convention ) and thus overcome lack of regulation in domestic law and the conflict of laws problem. How does International Factoring Work? In a factoring transaction, the Factoring Company serves the Client through providing advance payment, investigating the Debtor s credit, collecting the debt, and maintaining the Client s receivable ledgers. A written factoring agreement between the Client and the Factoring Company defines the terms and scope of these services and traditionally includes the following: (1) the nature of the book debt assigned; (2) duration and termination provisions; (3) financial arrangements; and (4) a description of the administrative functions assumed by the Factoring Company r. International factoring can finance the export of goods or services from a Supplier to a buyer when their places of business are in different countries. Factoring is also internationalized when a Supplier sells or assigns his or her accounts receivable to a factoring company in his or her own country ( Export Factoring Company ), who then assigns the accounts to a Factoring Company in the debtor s country ( Import Factoring Company ). Under this type of financing, the Debtor is notified of the assignment and is obligated to pay the Import Factoring Company. Since the Import Factoring Company in a non- 2011/I 27

T hus, recourse arrangement assumes the credit risk of the debtor s non-payment, he or she assumes the administrative duties associated with the evaluation of the Debtor s credit standing and the collection of the outstanding debt. In international transactions, these services are invaluable to Suppliers, who are frequently ignorant of the foreign law and language of the Debtor s country and who do not want to assume the risk of the purchaser s financial inability to pay at maturity or risks associated with the political and economic stability of the Debtor s country. Why Choose International Factoring? The benefits of international factoring can be easily demonstrated when it is compared to transactions using a letter of credit. Traditionally, a letter of credit is the method by which most international commercial transactions are financed. A letter of credit is issued by the buyer s bank (in the buyer s country), containing its promise to make payment to the seller if the seller submits specified documentation. Despite being the endorsement of this sector has been 100 million dollars in 1990 and has increased to 5.9 billion dollars in 2000. commonly used, its cumbersome functioning, especially in respect of the buyer cannot be denied. To start with, although the seller indemnifies the bank against the risk of currency fluctuation during the extended period between the opening of the letter of credit and the receipt of goods by the buyer, the buyer s capital, which is held by the bank in its own or a restricted account, is unusable. Moreover, if the buyer obtains a loan to open the letter of credit, the buyer is required to make interest payments on the loan prior to receipt of the goods. These financial burdens make it more advantageous for buyers to purchase goods and services domestically whenever available. Many sellers cannot compete in foreign markets because they are unable to offer attractive financing options. By contrast, there are many benefits to recourse to international factoring for international sales both in respect of the seller and the buyer. First of all it eliminates the buyer s financial burden of premature payment, as well as the seller s risk of non-payment. This increases sales in the foreign market, accelerates cash flow and expands purchasing power. Besides this, compared to aggregate charges of a letter of credit, international factoring has lower costs and its orders can be placed swiftly without increasing delay. Legal Regime of International Factoring In respect of the Factoring Company, the fact that there is an absence of uniform international law and lack of regulations in domestic law that govern the validity of assignment and the rights of the assignee make the international arena a risky place for Factoring Companies to conduct business. As an answer to these questions, Unidroit published the International Factoring Convention on 28 May 1998. As of today 7 states have ratified the Convention: France, Germany, Hungary, Italy, Latvia, Nigeria and Ukraine. In the preamble, the significant role of international factoring in international trade has been emphasised. Accordingly, the purpose of the Convention has been set forth as recognising the importance of adopting uniform rules to provide a legal framework that will facilitate international factoring, while maintaining a fair balance of interests between the different parties involved in factoring transactions. The Convention s provisions concerning the legal relationships between the Client and the Import and Export Factoring Companies have the potential to greatly advance the unification of private international law. Conclusion Today, one of the greatest problems faced by exporters is whether the payment will be made on time or whether the payment will be made at all. The increasing insistence by importers that trade be conducted on open account terms and exporter s concern about the payment is one of the most significant obstacles that hinder growth of international trade. In this respect, it is very important to critical to increase the use of international factoring. In Turkey, banks have been providing factoring service since 1988. Especially with the establishment of private Factoring Companies, recourse to factoring institution has spread in a very short period of time. Thus, the endorsement of this sector has been 100 million dollars in 1990 and has increased to 5.9 billion dollars in 2000. The most important factor for this rapid growth may be explained by Turkey s convenient economic and commercial environment. The fact that Turkey s economy is mainly based on export and that the majority of these transactions are able to be paid by factoring, along with the fact that the international trade is now grounding on an open account system and the decrease in payment with letter of credit, the need for factoring continues to rise. 2011/I 28

A Sensational Investment: Use Permits Granted by the National Estate Mine ALTEN T his Entrepreneurs willing to invest in tourism, cultural activities, energy or operations within the forests such as defense, transportation, energy, telecommunication, sewage, petroleum, substructure, sanitarium, dams or cemeteries now have an opportunity to build their chosen investment on areas that are under the order and possession of the State. This investment opportunity is available to investors under Use Permits granted by the General Directorate of National Estate (the National Estate ), which is under control of the Ministry of Finance. sensational investment opportunity is not to be missed. The procedure for obtaining a Use Permit is quite simple and the area on which the investment is established is a piece of land that cannot be acquired or be encumbered by anyone, including even the State. Use Permits are granted for a period of up to 49 years for areas under the order and possession of the State. There is no restriction on the type of investment, however, some investment types are subject to additional specific rules in order to be granted Use Permits. The investment types that require certain additional procedural steps to be taken are tourism, shore, build-operate-transfer, natural gas, energy, organized animal breeding, technologic and geothermal greenhouse cultivation and organic agriculture investments. Since areas that are under the order and possession of the State are not considered land, their registration to the title deed is not possible and therefore no title deed transactions such as the sale or the establishment of rights in rem can be established on these areas. Nevertheless, investment on such areas is still possible if entrepreneurs obtain Use Permits from the National Estate by completing the necessary procedural formalities and entering Use Permit Agreements. How Use Permits are Obtained The National Estate grants entrepreneurs Use Permits by negotiated tendering, which is a simplified means of tendering. A natural person or a legal entity may request the Natural Estate to grant a Use Permit. Upon such requests, the National Estate makes a determination of the value of the area and whether the requested area is suitable for such investment. Use Permit specifications are prepared and the tender notice is announced. Some entrepreneurs are granted Use Permits directly without the need of a tender notice, these include (i) investors that will make an investment pursuant to their license granted by the Energy Market Regulatory Authority, (ii) institutions within the scope of privatization, entrepreneurs who undertake to invest at least the minimum amounts and to provide employment to at least minimum number of people determined by the laws for 10 years investing in organized animal breeding, the technological or geothermal greenhouse cultivation and organic agriculture and in the shores, (iii) entrepreneurs that request a Use Permit for a shore investment, already benefiting from ownership rights, rights in rem or a Use Permit on an area where the common utilization of both areas is compulsory and their projects are in plenitude, and (iv) certain institutions, donations, corporations and professional organizations determined by relevant laws. 2011/I 29

Upon approval of the tender by the Ministry of Finance, the investor shall convert the temporary guarantee to a performance guarantee, sign a Use Permit Agreement and submit the notarized copy to the National Estate within 15 days of the notification of the approval of the tender. The Use Permit Agreement is a standard form annexed to the relevant laws. Prior Permit Under certain circumstances, a Prior Permit is required to be granted to the investors who already possess a Use Permit. A Prior Permit is required in cases where the actual utilization of the area is not possible due to the preparation or amendment of the construction plans, preparation or approval of the application projects, or obtaining necessary licenses and permits from the relevant public bodies. A Prior Permit s validity cannot exceed 4 years and in order to be granted a Prior Permit a Prior Permit Agreement is concluded which is drafted in consideration of the tender price. If the investor satisfies all of its obligations under the Prior Permit Agreement the Use Permit Agreement is concluded for a term of 49 years at most. Transfer of Use Permits The transfer and assignment of a Use Permit is possible, however, the investor should obtain the approval of the National Estate before the transfer. If the investor holding the Use Permit is a legal entity, any transactions that lead to the transfer of 50% or more of its shares shall be considered as transfer of the Use Permit by the National Estate and therefore require the same approval. The National Estate requires the below conditions to be satisfied before consenting to the transfer of a Use Permit: 1. Payment of debts owed by the investor to the National Estate including the accrued default interest 2. Breaches of the investor under the Use Permit Agreement should be remedied within the time period granted by the National Estate 3. The investor should waive any lawsuits initiated against the National Estate arising from any disputes regarding the Use Permit and pay for all of the litigation expenses, and 4. The transferee should accept the new conditions of the Use Permit Agreement, which is in most cases the consideration of the Use Permit. The Use Permit Agreement is transferred upon determination of the new price by the National Estate considering the going rates of the Use Permit prices in neighboring areas and the transferred agreement shall be valid for the remaining term. Investors should be careful while benefiting from the Use Permit. When an application is filed for the transfer of the Use Permit Agreement, the National Estate takes into consideration trivial distinctions in determining breach of the Use Permit Agreement. For instance, if the investor makes any additions such as fill areas to a shore investment or a different use of the investment area which is not in compliance with the plans attached to the Use Permit Agreement and the National Estate determines such incompliance, this could result in cancellation of the Use Permit. In such cases (i) the date of 19.07.2003 and (ii) the consistency of the added area with the original plan are crucial. The incompliant amendment should be consistent with the original plan in order the use permit to cover this amendment. However, if the incompliant amendment is made after 19.07.2003, it will not be added to the plan even though it is consistent with the original plan. This can even result in the termination of the Use Permit Agreement by the National Estate. If investors act in conformity with their Use Permit Agreements, they will not face the risk of termination of the agreements. This sort of investment offers a very profitable business opportunity to entrepreneurs if it is well-operated. Therefore, this sensational investment opportunity is not to be missed. The procedure for obtaining a Use Permit is quite simple and the area on which the investment is established is a piece of land that cannot be acquired or be encumbered by anyone, including even the State. 2011/I 30

Latest Dilemma of Private Healthcare Sector: Are Amendments to Private Hospitals Regulation Malpractice? Hazal KORKMAZ T he It is health that is real wealth and not pieces of gold and silver. Gandhi once said. Turkish citizens should also have great faith in this quote since lawmakers in Turkey entitle private hospitals to implement additional charges of up to 70% and the number of private hospitals in Turkey has increased approximately 80 % to 458 in last two years and is anticipated to rise to 475 in 2011. Accordingly,, Ministry of Health ( MoH ) has already started rejecting new applications for operation licenses in Istanbul because of private hospital boom in crucial point for all service providers and lawmakers should be regulating private healthcare services and maintaining the best conditions for patients. Istanbul. According to recent data provided by the MoH, 1 out of 3 private hospitals is located in Istanbul. Furthermore, given the extent of the past and future expansion of the private healthcare sector in Turkey, competition is inevitable. The increasing popularity of encouraging competition among healthcare service providers raises important questions about how these issues can or should addressed by lawmakers. Consequently, changes in the structure of Turkey s private healthcare sector have forced lawmakers to look for ways to become more productive and cost effective. On 23 September 2010, lawmakers implemented comprehensive amendments to the Private Hospitals Regulation ( PHR ) with regard to subjects including but not limited to hospital cadre, working conditions of doctors, pharmacy obligations, outsourcing laboratory health services and on 14 January 2011 further amendments regarding issues such as transfer of hospital cadre to another district, expansion of permitted cadre, issues for increasing the quality of healthcare, expiry date of preliminary permit were introduced. However, considering the increasing needs of healthcare service providers and the patients these amendments have raised eyebrows. Many people working for the private healthcare sector argued against these amendments stating that working conditions of staff and the quality of the services are deteriorated. Thus, on 23 September 2010 the Turkish Medical Association (Türk Tabipler Birliği) ( TMA ) filed for annulment of certain amendments, such amendments and arguments of the TMA are elaborated below: Pursuant to the amendment stipulated under Article 6 of the PHR, instead of determining objective criteria cadres of the private hospitals will be appointed by the MoH. This amendment is considered illegal since it is inconsistent with both the Law of Health Services (Sağlık Hizmetleri Temel Kanunu) ( Law no. 3359 ) and security principle of law (hukuki güvenlik ilkesi) which means that lawmakers 2011/I 31

should respect the public s dependence on existing laws. Furthermore, upon enacting the article Private Hospitals may start and continue their operations for two years with at least half of their appointed clinician specialist cadres. The PHR enables private hospitals to operate without completion of their cadre, which will evidently negatively affect the quality of services and patient care. The PHR allows private hospitals to transfer their doctor cadres or exchange medical branch departments to another private hospital or medical centre located in the same district. A private hospital may be permitted to take over extra cadre of up to 10% of one third of the total number of beds. Cadre transfers to medical facilities to other districts may be implemented upon affirmative opinion of the Planning and Employment Commission (Planlama ve İstihdam Komisyonu) and approval of the MoH. Furthermore, according to a recent amendment dated 14 January 2011 in case a private hospital wants to transfer its doctor cadres or exchange medical branch departments to another private hospital or medical centre located in another district, this request will be evaluated by the Planning and Employment Commission and will be implemented upon MoH s approval. Implementing this system will constitute release of the MoH s exercise power with regard to cadres to private hospitals, and consequently this change of exercise power will harm permanency of health services and worsen the employee rights of the relevant cadres subject to transfer or exchange within the same district. The PHR amended the procedure regarding leave and recruitment of doctors, according to which registration certificate of the TMA is not required, this certificate is mandatory for recruitment of doctors pursuant to Law of Turkish Medical Association (Türk Tabipler Birliği Kanunu) and relevant rulings of Council of State. Therefore, non-requirement of this TMA certificate constitutes inconsistency. As per PHR, in cases that the number laboratory specialists are inadequate for the relevant district, together with the affirmative opinion of Planning and Employment Commission outsourcing laboratory services from other licensed laboratories is permitted. However, TMA argued that this provision is contradicting; (i) Law of Hospitals (Hususi Hastaneler Kanunu), (ii) nature of the healthcare services, (iii) the purpose of the regulation of PHR, (iv) patients rights and (v) relevant court decisions contradicting this amendment. On the other hand, bearing this in mind, in practice, private hospitals are commonly outsourcing the laboratory services from licensed laboratories and because of the common practice of MoH, these activities of them were not subject to any fines during both MoH and Social Security Institution (Sosyal Güvenlik Kurumu) ( SSI ) inspections. Pursuant to the PHR, Payment of consultancy services is required to be paid to the service provider institution. However, the TMA argues that consultant doctors are entitled to receive payment of consultancy services. On 23 September 2010 an amendment was introduced which decreased the minimum required number of nurses or other medical staff. Accordingly, before the amendment, the minimum required number of nurses or other medical was one fifth of total number of beds and as a result of the amendment has decreased to one seventh of total number of beds. Evidently, the minimum required number of nurses or other medical staff had been deteriorated with the amendment of PHR. Furthermore, it is noteworthy to mention that according to previous court decisions the minimum required number of staff needs to be determined on the basis of the number of beds. However, the PHR established a fixed number of all specialists and especially anesthesiology and reanimation specialists. Before the amendment, gynecology and obstetrics specialists were required to be educated about neonatal resuscitation (actions taken to establish normal breathing, heart rate and response in an infant with abnormal vital signs within 20-30 seconds of birth) however, this criterion has been removed. The TMA argues that this education is crucial for patients care and removal of these criteria will harm healthcare services and the relevant article should be annulled. In line with the foregoing, whether arguments of the TMA will heard and the above-mentioned articles will be annulled or not, expansion of the private healthcare sector shows us each day that more people are seeking treatment at private hospitals; therefore, the crucial point for all service providers and lawmakers should be regulating private healthcare services and maintaining the best conditions for patients. 2011/I 32

A New Era in Media Burçak ÜNSAL T he Introduction Turkey is striving to grow even faster than the last decade which made it the world s 15 th largest GDP-PPP and 17 th largest nominal GDP economy. Among the many dynamic industries of Turkey, broadcasting draws special attention due to the fact that foreign investment has not really had the chance to step in. Radio broadcasting started in Turkey in 1927, with a private company owned by the state. In 1964 Turkish Radio and Television Corporation ( TRT ) was established for TV broadcasting and TRT had a monopoly in radio and TV broadcasting until 1994. Law on Establishment of Radio and Television Enterprises and their Broadcast Services numbered 6112, which significantly encourages foreign investment, has been enacted on 15 February 2011 (the New Law ) and entered into force on 3 March 2011. Currently there are around 24 national, 16 regional and 215 local television stations; and there are around 1100 radio channels, 100 of them on cable. According to a TV viewing survey conducted by the Radio and Television Supreme Council ( RTÜK ), average daily TV viewing time per person is 5.09 hours on weekdays and 5.15 hours on the weekend. Legal Infrastructure Until very recently, the main piece of broadcasting legislation was the Law on Establishment of Radio and Television Enterprises and their Broadcasts numbered 3984 (the Law ), as amended from time to time. However, since the Law fails to address the requirements of the developing technology and global capital movement in the broadcasting world, the Law on Establishment of Radio and Television Enterprises and their Broadcast Services numbered 6112, which significantly encourages foreign investment, has been enacted on 15 February 2011 (the New Law ) and entered into force on 3 March 2011. RTÜK is the autonomous body that regulates and monitors radio and TV broadcasts, as well as granting licenses for such broadcasts. RTÜK has issued various secondary legislation within the framework of the Law among which the Administrative and Financial Conditions Regulation for Private Radio and Television Enterprises * (the Administrative and Financial Conditions Regulation ), the Regulation on Broadcasting Licenses and Permits, the Radio and Television Corporations Channel Allotment Conditions and the Relevant Tender Methods ** (the License Regulation ), the Regulation on Satellite Broadcasting Licenses and Permits *** (the Satellite Regulation ), and the Regulation on Cable Broadcasting License and Permit **** (the Cable Regulation ) can be named as the most important legislation in terms of foreign ownership and licensing matters. The Law prohibits political parties, associations, labor unions, cooperatives, foundations, local governments and companies established or partially owned by local governments, unions, and organizations and enterprises dealing with * Announced in the Official Gazette dated 16 March 1995 and numbered 22229. ** Announced in the Official Gazette dated 10 March 1995 and numbered 22223. *** Announced in the Official Gazette dated 10 November 2004 and numbered 26669. **** Announced in the Official Gazette dated 28 March 2002 and numbered 24709. 2011/I 33

investment, import, export, marketing, and financial affairs to establish or hold shares in radio and television enterprises. Private radio and television corporations should be established as joint stock companies (anonim şirket) and the shares of such companies should be issued in the form of registered shares. A single joint stock company may establish only one radio and one television enterprise. RTÜK is entitled to have one representative present at general assembly meetings held by broadcasting companies. Licensing Based on the technology used and the targeted geographical scope, currently there are five types of licenses by virtue of which an entity can carry out TV broadcasting: a) regional terrestrial, b) national terrestrial, c) satellite, d) cable and e) Internet Protocol TV (IPTV). Companies granted a national broadcasting permit must geographically reach at least 70% of Turkey and broadcast at least 80 hours per week. With respect to the terrestrial broadcasting right, although it is generally referred to as license, actually this term it is used incorrectly due to the fact that to date RTÜK has never granted any license to any entity. Although the national terrestrial broadcast by private companies started at the beginning of the 90 s, RTÜK has never granted national or regional terrestrial broadcast licenses to companies which have applied for it. Instead, based on the legal ground provided by Provisional Article 6 of the Law, RTÜK treated such applications which were filed before 1995, as a license and granted the right to such companies to continue their broadcast services. RTÜK is projecting to launch tenders to award national terrestrial broadcast licenses within a maximum of two years after the enactment of the Draft Law. Since, Provisional Article 6 of the Law stipulates that national terrestrial broadcast right of relevant companies is not a vested right, the companies enjoying this right today will not be able to continue to do so in near future unless they prevail in the tenders. Pursuant to the Cable Regulation, a Cable Broadcaster is required to obtain a cable broadcasting license (valid for 5 years from issuance) and broadcast permit (valid during the term of the cable broadcasting license) from RTÜK. A company may be granted a cable broadcasting license for a single city or multiple cities. In Annex A-10 of the Regulation on Authorization of Telecommunications Services and Infrastructure *, the cable platform service is defined as a telecommunications service covering the transmission of any kind of data and voice, image, coded/ uncoded (şifreli/şifresiz) radio/tv signals to the subscribers and establishment and operation of any infrastructure of the said network. Pursuant to the said annex, corporations intending to perform cable platform services are required to obtain a 2 nd Type Telecommunications License from the ITC Authority. The term of authorization is 20 years from the date of issuance. Following the submission of a cable platform operator certificate obtained from the ITC to RTÜK, RTÜK grants a certificate evidencing that the cable TV platform operator is entitled to transmit radio and television programs. Accordingly, a cable TV platform operator shall be subject to the provisions of both the Authorization Regulation and Cable Regulation. The Law and Satellite Regulation provide that all Satellite TV Broadcasters should obtain a satellite broadcast license and satellite broadcast permit. The term of a satellite broadcast license is 5 years from the issuance date of the license and the permit is valid during the term of the satellite broadcasting license. In Annex A-3 of the Authorization Regulation, the satellite platform service is defined as conversion of data and voice signals (except telephony services) acquired from different transmission media in the digital satellite platform with the help of encoders and multiplexers, and transmission of such signals to the satellite via earth stations and transmission of digital signals from the satellite to the subscribers via appropriate terminal. Pursuant to the said annex, corporations intending to perform satellite platform services are required to obtain a 2 nd Type Telecommunications License from the ITC Authority. Following submission to RTUK of the satellite platform operator s certificate obtained from the ITC Authority, RTUK grants the satellite platform operation permit. Accordingly, a satellite platform shall be subject to the provisions of both the Authorization Regulation and Satellite Regulation. Foreign Ownership Restriction Until the New Law has been enacted, under Article 29 of the Law, the total foreign ownership of the share capital in a broadcasting company shall not exceed 25%. A foreign entity or a foreign real person who is already a shareholder in a * Published in the Official Gazette, dated 17 April 2007. 2011/I 34

broadcasting company cannot be a shareholder, regardless of the share holding percentage, in another broadcasting company. Customarily, RTÜK has been conducting rather detailed research with regards to shareholding structures of broadcasting companies. Moreover, RTÜK is entitled to terminate the license of a radio or television broadcaster in the event the enterprise fails to fulfill the said obligation. Article 19(f) of the New Law stipulates that direct foreign ownership in the share capital shall not exceed 50%. Compared to foreign ownership restrictions in the Law which has been intimidating foreign investors and hindering entrance of foreign investment into the Turkish broadcasting industry, the New Law significantly encourages the foreign investment, but the investors are still skeptical as to whether a foreign shareholder may maintain control in a broadcasting company. Nevertheless, Article 19(f) is now criticized to for creating doubt as to whether it permits indirect foreign ownership. Shareholders, whether Turkish or foreign may not under any circumstances hold privileged shares. The private radio and television companies after obtaining a broadcasting permit and license are required to notify RTÜK of any changes with respect to their shareholders or in the share percentages of their shareholders, exceeding 10% of the paid-in share capital within 30 days following the date such change takes place. Acquisition by an individual or legal entity of the shares representing 10% of the paid-in share capital is subject to the permission of RTÜK. However, as the platform operators technically allow third parties to broadcast via their platforms and are not considered broadcasters, in line with the Satellite Regulation and Cable Regulation, satellite and cable platform operators are not subject to the requirements applicable for the broadcasters under RTÜK regulations, hence the foreign shareholding restrictions under the Law. Restriction on Shareholding in More than One Broadcasting Company Another provision which has remained and causes interested parties to pause before investment is Article 19(d), which stipulates that the total commercial transmission revenues of more than one media service provider in which a le- gal entity or a real person is a shareholder, shall not exceed 30% of total commercial transmission revenues of the sector. A person or a legal entity who directly or indirectly own shares in more than one media service provider, total annual income of which exceed such limit should transfer its shares within ninety days after the notification of RTÜK. We need to further elaborate on certain terms in this provision, to interpret it accurately. The lawmaker defines commercial communication as (i) broadcasting of audible and nonaudible images which are created for promotion of goods and services, or (ii) images of a real person or legal entity placed to appear in programs in consideration of a fee or with the intention of self promotion. Commercial communication is, among others, radio and television advertisements, program sponsorship, teleshopping, product layout and etc. Departing from this definition we can interpret that commercial communication basically covers various forms of commercial advertisements and promotion. Another issue which we have to emphasize about this provision is the fact that being a shareholder in a single media service provider which exceeds the 30% limit does not breach this provision. Instead, being a direct or indirect shareholder in more than one media service provider, total commercial communication revenue of which exceeds 30% of the sector calls for the requirement for such shareholder to transfer its shares to fall beneath the 30% threshold. There is a hot debate as to how to interpret this provision as the text of the provision requires the share transfer regardless of the amount of the shares held by one person or entity in the relevant media service providers. In addition to the foregoing ambiguities, the New Law does not specify exactly how the commercial communication revenues of the media service providers or the sector size will be determined. Instead, the relevant article stipulates that the procedures and principles with respect to implementation of Article 19(d) shall be determined by RTÜK. Thus, entitling RTÜK to determine the specifications of the implementation of this Article and removing all doubts cast on this important matter. 2011/I 35

The New Renewable Energy Law Fatih YİĞİT - Merve ARSLAN The law supporting electricity production from renewable energy resources has been adopted by the Turkish Parliament and will be in force on December 29, 2010. In order to diversify energy resources and limit energy production s negative impact on the climate, production from renewable resources has been globally encouraged. In Turkey, the Renewable Energy Law (the New Law ) awaited for a long time was drafted in line with contemporary laws supporting renewable energy. With the New Law, the Turkish government aims to remove all uncertainties and to provide specific metrics for investors. In this article, we summarize and analyze the changes introduced by the New Law. The Definition of Renewable Energy Resources has been Expanded The New Law has expanded the definition of renewable energy resources. Accordingly, biogas has been removed from the definition of the renewable energy resources and gas derived from biomass (including landfill gas) has been added to the revised definition. A New Price Mechanism has been Introduced The main purpose of the New Law is to provide incentives supporting renewable energy investors. In this respect, the New Law increases the guaranteed purchase price and accepts additional price increases upon using specific parts manufactured in Turkey in the construction and erection of power plants. According to the New Law, the prices indicated in Table 1 below are applied for a period of 10 years for generation license holders who are subject to the Renewable Energy Resources Support Mechanism ( RER Support Mechanism ), and for power plants that have been operating since May 18, 2005 or will be in operation by December 31, 2015. The Council of Ministers is authorized to determine the prices for power plants in operation after December 31, 2015. Additionally, the New Law has adopted dollar cent instead of euro cent for prices to be applied for energy purchased within the scope of RER Support Mechanism. In this respect, the following prices have been introduced by the New Law: Table 1 Type of Generation Plant based on Renewable Energy Resource Exercise Prices (USD cent/kwh) Hydroelectric Energy Generation Plant 7.3 Wind Energy Generation Plant 7.3 Geothermal Energy Generation Plant 10.5 Biomass Energy Generation Plant 13.3 Solar Energy Generation Plant 13.3 2011/I 36

Table 2 * Type of Generation Plant Parts Manufactured in Turkey Additional Price to be Added. (USD cent/kwh) Hydroelectric Energy Generation Plant 1. Turbine 1.3 2. Generator and power electronics 1.0 1. Sail 0.8 Wind Energy Generation Plant 2. Generator and power electronics 1.0 3. Turbine Tower 0.6 4. All mechanical equipments in rotor and nacelle 1.3 1. PV panelling integration and manufacturing solar mechanics 0.8 2. PV modules 1.3 Solar Photovoltaic Generation Plant 3. Cells forming the PC modules 3.5 4. Inventor 0.6 5. The equipment which focuses sun ray over PV modules 0.5 1. Steam and gas turbine 1.3 Geothermal Energy Generation Plant 2. Generator and power electronics 0.7 3. Steam injector and vacuum compressor 0.7 * This table does not include Intensive Solar Energy Generation Plant and Biomass Generation Plant. The most important aspect of the New Law is that it provides additional incentives for the usage of locally manufactured parts in power plants. In the event the power plant commissioned by December 31, 2015 is constructed and erected using specific parts manufactured locally, the prices specified in Table 2 below will be added to the prices indicated in Table 1 above. The facilities willing to participate in the RER Support Mechanism for the following calendar year shall obtain a Renewable Energy Resources Certificate. The applications shall be submitted to Energy Market Regulatory Authority ( EMRA ) by October 31 of the relevant year preceding the year for which the facility intends to participate. The participation to the RER Support Mechanism is voluntary; however, once a generation license holder participates, it will be obliged to sell the energy under the RER Support Mechanism. Applications for PV Energy Production Licenses Apart from the above, the New Law intro- duced the following restrictions on license applications for solar energy: The total installed power of the solar energy plants to be interconnected to the national grid by December 31, 2013 is limited to 600 MW. The Council of Ministers is authorized to determine the total installed power of the solar energy plants to be interconnected with the national grid after December 31, 2013. If the owner of the specified area has already applied for a license, EMRA will not accept any additional application for the same area. In case of multiple applications for the same area, a tender will be conducted based on decreasing incentive prices proposed in Table 1 above. The tender rules shall be set forth under a regulation to be issued by Turkish Electricity Transmission Company Other Provisions The New Law extended the date by which operations of s a power plant qualifying for the 2011/I 37

A incentives granted to renewable energy producers to December 31, 2015. Accordingly, the energy producers may benefit from 85% reduction in the fees to be paid for the lease or easement of the government land allocated to the renewable energy project if the subject power plant will be operational by December 31, 2015. fter its last minute withdrawal from the Parliament in 2009, investors have been looking forward to the enactment of the New Law. Although the guaranteed prices introduced for wind, hydro energy, and geothermal energy are encouraging, solar investors found the prices and the total cap to be insufficient. It is also important to note that State Hydraulic Works changed its process with respect to obtaining water usage permits. Under the New Law water usage permits will be granted by the Special Provincial Administration provided that the positive opinion of the State Hydraulic Works has been obtained. The most criticized provision in the New Law is that renewable energy plants are allowed to be erected in National Parks, Nature Parks, Nature Monument and Nature Protection Areas, Con- servation Forests, Wildlife Development Areas, Private Environment Protection Zones and Natural SIT (Conservation) Areas. Recently, many hydro energy project constructions have been suspended by court decisions based on Natural and Cultural Heritage Preservation Board decisions declaring the project area as natural sit area. These declarations have been issued by the Board very easily due to the environmental groups high pressure supported by the media. Under the New Law, declaration of a sit area will not be a sufficient ground to refuse a renewable energy project unless supported by other factors. The impact of the project to the sit area will be evaluated by the Ministry of Environment and Forestry positive certification will be issued if it complies with the general standards set forth for environmental impact assessments. Conclusion After its last minute withdrawal from the Parliament in 2009, investors have been looking forward to the enactment of the New Law. Although the guaranteed prices introduced for wind, hydro energy, and geothermal energy are encouraging, solar investors found the prices and the total cap to be insufficient. Apparently, predominantly, the New Law aims to attract solar investors who are willing to bring technology and contribute to national employment by manufacturing the components of the power plants in Turkey. 2011/I 38

Litigation Legal Professional Privilege Rules Under Turkish Law Serpil DOĞAN I n Legal Professional Privilege ( LPP ) may be defined as a set of rules which aims to protect communications or documents exchanged between a lawyer/ professional legal adviser and his/her client from being disclosed without the permission of the client. the absence of specific regulation, the Attorneys Act and the Turkish Code of Criminal Procedures provide some guidance as to protection of client s confidential information. There is no specific provision regarding legal professional privilege under Turkish Law. In the absence of specific regulation, the Attorneys Act and the Turkish Code of Criminal Procedures provide some guidance as to protection of client s confidential information. In this respect, Article 36 of the Attorneys Act provides a general obligation of confidentiality. As per the said article, lawyers are under an obligation to keep confidential all information received or obtained in the course of ascertaining the legal position of the client or defending the client. The Attorneys Act stipulates disciplinary sanctions for lawyers who act in breach of this provision. Similarly, Article 130 of the Turkish Code of Criminal Procedures provides protection for documentation relating to a client as it sets forth strict requirements for obtaining a search warrant for a lawyer s office. The procedure is also more stringent given that the prosecuting authorities need to obtain a search warrant from the relevant Court. The same article also provides that In the course of the enforcement of the search warrant, the lawyer is entitled not to permit the confiscation of a document in respect of client-lawyer relationship. In this case, the document claimed to be covered by a client-lawyer relationship should be placed in a sealed envelope and the Court will decide if the said document should be considered to be protected by the client-lawyer relationship. In the event that the Court considers the document to be protected, it is returned to the lawyer. In practice, this is a common issue in investigations on anti-competitive activities. The position adopted under Turkish law contains overtones of the position adopted by the Court of Justice of the European Union and therefore, it would be useful to firstly take a look at the leading precedent concerning LPP. In the Akzo-Nobel case the Court of Justice of European Union determined conditions for documents exchanged or correspondence between client-lawyer to be covered by LPP. Akzo Nobel Chemicals and its subsidiary Akcros were subject of an investigation by the Commission aimed at seeking evidence of possible anti-competitive practices. The issue in the case was whether copies of two e-mails exchanged between the managing director of Akzo Nobel and Akzo Nobel s coordinator for competition law, a lawyer of the Netherlands Bar and a member of Akzo Nobel s legal department employed by the company were covered by LLP. The Commission decided that the documents were not covered by LLP and they were submitted as evidence. Upon the Commission s and the General Court s decision rejecting arguments that the e-mails were covered by LPP, Akzo Nobel and its subsidiary Akcros appealed the deci- 2011/I 39

T he sion. While examining this case, the court ruled that LPP is subject to two cumulative conditions: The documents exchanged or correspondence with their lawyer should be connected to the client s right of defense and at the same time the exchange/correspondence should emanate from independent lawyers that is to say lawyers who are not bound to the client by a relationship of employment. The Turkish Competition Authority also faces the issue of LPP during investigations on anti-competitive activities. In such cases, due to the lack of specific legislation pertaining to LPP, Turkish Competition Authority held that written communications exchanged between an independent lawyer (who is not employed under a contract of employment) and his client, made for the purpose of the client s right of defense were protected by LPP. the above-mentioned articles are taken into consideration while case law of Court of Justice of European Union has a significant impact on administrative practices and Turkish Competition Authorities decisions as stated above. The Turkish Competition Authority dealt with LPP in CNR Exposition Services v./ntsr Exposition Services case. This case concerned the Competition Authority s ability to gain access to communications between an undertaking, suspected to be engaging in anti-competitive behavior, and its lawyers. The Turkish Competition Authority held that written communications exchanged between an independent lawyer (who is not employed under a contract of employment) and his client, made for the purpose of the client s right of defense were protected by LPP. Thus, the same two conditions mentioned above were adopted. It should also be noted that, in order to benefit from LPP during a dawn search, the lawyer must challenge the confiscation of client-lawyer communication and assert that they are covered by LPP. As can be seen, in order to be considered under these provisions the lawyer must be independent from his client. Therefore, exchanges/correspondence between in-house lawyers and their clients are not considered to be covered by LPP. Besides, LPP does not encompass the documents or communications produced with a reason other than the purpose of the legal profession. As for the expression of relevance for client s right of defense, it is possible to say that in the event of a search warrant performed in an undertaking/client premises, interpretation of this concept tends to be much narrower. The reason for this is that documents in a lawyer s office are most likely to be considered relevant to client s right of defense. In a nutshell, it may be stated that in order for an exchange/correspondence to be considered to be within the scope of LPP, the following conditions should be satisfied: the exchanged document or correspondence should be produced with the purpose of client s right of defense, the exchanged document or correspondence should be exchanged between an independent lawyer and his/her client, the lawyer should claim LPP in the course of an inspection and object to the confiscation of such document or correspondence. By Serpil Dogan Litigation&Regulatory 2011/I 40

Exemptions from Public Tender Law Selen SÜMER A lthough Tenders organized by public authorities are subject to the Law on Public Tenders no. 4734 dated 4 January 2010 ( Law ). The construction and the implementation of the agreement to be entered between the relevant public authority and the contractor to which the tender is awarded are governed by the Law on Public Tender Agreements no. 4735 dated 22 January 2010. The Law sets forth provisions with respect to the applicable rules and procedures regarding the organization of and participation to public tenders. at a first glance, a tender exempt from the Law seems to have no relevance with the implementation of the public tender legislation, there is no doubt that the provisions of the Law that are of major importance are applicable to the tenders exempt from the public tender legislation. However, all tenders organized by public authorities do not fall within the scope of the public tender legislation and the Law expressly provides the categories of tenders which are exempt from being governed by the public tender legislation. Some of the key categories of tenders that are exempt from the scope of the public tender legislation are the following: tenders relating to defence, security or intelligence; tenders that are determined to be confidential; tenders organized for projects to be realized with a foreign loan under international agreements; tenders with re- spect to consulting and credit rating services for borrowings to be made in international capital markets; tenders organized for procurement of consulting services within the scope of privatization; tenders organized by air transporters for procurement of any kind of service or good; tenders organized by the subsidiaries of the public authorities which are located abroad. In addition to the above stated exempt categories, (i) Saving Deposits Insurance Fund and banks of which shares held by the latter, (ii) banks within the scope of the Law no. 4603 (Ziraat Bankası, Halk Bank and Emlak Bank which is to be liquidated) (except for the procurement of construction works) and (iii) enterprises that are active in energy, water, transportation and telecommunication do not fall within the scope of the Law. One of the most import exemptions are tenders that are subject to project financing with a foreign loan under international agreements. This exemption covers any tender organized by a public authority, financed under an international loan agreement provided that the relevant agreement sets forth implementation of rules and procedures for the tender to be organized other than the Law. One of the critical consequences of being exempt from the Law is related to securities provided by the contractor to the public authority. In case the tender and the contractual relation between the contractor and the public authority is governed under the public tender legislation, then the public authority shall not be obliged to return any security given by the contractor if the contractor breaches its obligations under the relevant agreement or the public tender legislation 2011/I 41

and the public authority shall be entitled to liquidate the relevant securities with reference to the breach/failure of the contractor. However, when the tender is exempt from the Law, then the public authority shall not be entitled to liquidate the securities unless it has been granted such right under the relevant agreement. Consequently, falling within the scope of the exemptions from the Law is a major issue for the public authorities as they would like to freely enjoy the right to liquidate the securities in case of breach/failure of the contractor. Furthermore, no preliminary injunction or attachment can be exercised over securities provided to the public authority for a tender subject to the Law. This provision of the Law cannot be applied to tenders that are exempt from the Law. Accordingly, a contractor may obtain from the court a preliminary injunction ensuring that the liquidation of the relevant securities is prohibited in case a conflict arises with the public authority. However, if the relevant agreement in question is an agreement governed by the Law, it shall not be possible for the contractor to obtain a preliminary injunction on the securities. On the other hand, the provisions of the Law with respect to penal sanctions and prohibition from public tenders are also applicable to the tenders exempt from the Law. Namely, although a tender organized by a public authority is not subject to the public tender legislation, the penal sanctions set forth in the Law are applicable to a contractor if the latter rigs bidding or does not enter into the relevant agreement (except for circumstances where an event of force majeure occurs) even it has been awarded the tender. Furthermore, the reasons to be prohibited from participating tenders are also stipulated in the public tender legislation and if a contractor commits any of these acts requiring to be prohibited from the tenders, although such act is not performed within the scope of a tender organized under the Law, the prohibition provisions shall also be applicable. In light of the foregoing, although at a first glance, a tender exempt from the Law seems to have no relevance with the implementation of the public tender legislation, there is no doubt that the provisions of the Law that are of major importance are applicable to the tenders exempt from the public tender legislation. An Overview of FIDIC Silver Book Selen SÜMER International Federation of Consulting Engineers ( FIDIC ) issues forms of model contracts for construction projects. One of these model contracts is the Conditions of Contract for EPC/Turnkey Projects, First Edition 1999, so called FIDIC Silver Book. EPC refers to Engineering, Procurement and Construction. Silver Book is a standard form of contract setting forth that the contractor performed the whole project as turnkey. FIDIC has adopted a different approach in the Silver Book compared to the other books previously issued by FIDIC, the Red and Yellow Books. The points for which a different approach has been adopted in the Silver Book are summarized in this article. Under the Red and Yellow Books, a risk sharing approach has been adopted, namely there is a balanced risk sharing mechanism whereas the 2011/I 42

T he risks to be borne by the contractor under the Silver Book is increased. In other words, allocation of risks is not set forth in a balanced way in the Silver Book but in such way that the contractor assumes responsibility for a wider range of risks with a fixed contract price. In Sub-Clause 4.12, it is clearly stated that by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works. Despite a wider range of risks, under the Silver Book the contractor is also granted an exit right in Sub-Clause 19.7 whereby it is discharged from further performance: if an event or circumstance outside the control of the Parties... arises which makes it impossible or unlawful for either or both parties to fulfil its or their contractual obligations... Silver Book is characterized with less risk allocated to the employer, full understanding and acceptance of a wider range of risks by the contractor and more certain contract price The contractor is given the opportunity before the contract is signed to examine requirements set out by the employer in order to cover the wider range of risks. The contractor should then verify all relevant information and data stated in the employer s requirements and carry out any necessary investigations prior to the execution of the contract in order to ensure the project can be completed entirely by the completion date in consideration of the fixed contract price to be offered at the tender. As stated in the Introductory Note of the Silver Book, if there is insufficient time or information for the contractor to verify the employer s requirements or to carry out design tasks and risk assessment studies, the standard form of FIDIC contract to be opted is not the Silver Book. Bearing in mind that the contractor shall assume a wider range of risks with a fixed contract price, the employer should realize that the contractor being aware of the increased risks will increase the tender price under the Silver Book. It should also be underlined that the responsibility of design shall solely be borne by the contractor under the Silver Book save for certain exceptions. Pursuant to Sub-Clause 5.1 of the Silver Book, the Contractor shall be responsible for the design of the Works and for the accuracy of such Employer s Requirements. Furthermore, in Sub-Clause 4.10, it is also stated that the Contractor shall be responsible for verifying and interpreting all such data (such data being, site data in the possession of the employer). Differently from the Red and Yellow Books, engineer is not set forth in the Silver Book. In lieu of the engineer, it is stipulated that the employer may appoint employer s representative who shall act on his behalf. The employer s representative shall be deemed to have the full authority of the employer under the Silver Book, except the right to terminate the contract. As to the Determinations, under the Red and Yellow Books the engineer shall make a fair determination if the parties do not reach an agreement whereas it is the employer under the Silver Book. However, departing from the Red and Yellow Books, under the Silver Book if the contractor gives notice of dissatisfaction with the determination within 14 days, he is not bound by the determination. At this stage, both parties may refer the matter to the Dispute Adjudication Board. In light of the foregoing, the Silver Book is characterized with less risk allocated to the employer, full understanding and acceptance of a wider range of risks by the contractor and more certain contract price (higher than the ones under the Red and Yellow Books). 2011/I 43

Solicitation of Employees as an Event of Unfair Competition Derya TAŞDEMİR A trade Article 56 of the Turkish Commercial Code ( TCC ) defines unfair competition as...the abuse of economic competition in any manner by means of deceptive acts or other acts incompatible with good faith. The said article enforces good faith, provided for under Article 2 of Civil Code, in the economic territory. The economic system based on free competition that individuals are engaged in commercial activities through their own efforts. Consequently violation of this principle, such as, taking advantage of third person s efforts is illegal. In this sense, good faith is seen as a criterion that serves to distinguish fair competition from unfair competition. Although Article 56 of the TCC which has general application, the legislative in Article 57 under 10 paragraphs sets forth everyday acts secret does not need to be absolutely new and original; information which could be obtained only after a long and expensive study is also a trade secret. deemed to be unfair competition. Thus, as a first step, Article 57 determines whether an activity constitutes unfair competition, in case that none of the listed acts apply, then the general concept provided for in Article 56 will be applied. Solicitation of an employee can be defined as encouragement and incitement of employee by a third person to terminate his/her contractual relation with his/her employer in order to draw up a new contract with the solicitor company. As is also understood from the definition, activities intended to cause an employee to quit his/her job, for example by encouraging an employee, that had no intention to quit, to leave by offering an overtly attractive job offer is accepted as solicitation. As a result of the solicitation, the solicited employee quits without respecting any notice period or without any just cause. Solicitation of an employee to obtain trade secret of rival employer company and use of trade secret of ex-employer by a solicited employee are two of the acts listed under Article 57(b)(7) and 57(b)(8) of TCC. A trade secret does not need to be absolutely new and original; information which could be obtained only after a long and expensive study is also a trade secret. In this aspect, lawsuits listed below could be filed against both the solicited employee and the solicitor employer in view of unfair acts stated in Articles 57(b)(7) and 57(b)(8). If a company, solicits an employee who has no trade secret with the intention of damaging a rival company, this act of solicitation is regulated under Article 56 of TCC. The intention behind the solicitation is taken into consideration to appraise whether an act of solicitation constitutes unfair competition, in other words, whether it is an act against good faith. If the solicitor s intention in soliciting an employee is to lessen the competitive power of its rival or to damage the rival rather than augment performance of its own company, this constitutes an act of unfair competition. For example, if an employer hires employees it needs by soliciting employees from the same rival company although there are other employees available to be hired with the same qualifications, it is accepted that the solicitation aims to destroy the rival company and is therefore an act of unfair competition. Solicitation can have serious impacts, for instance, if a director of rival company in a key position is solicited this may evoke the rival company to cease its commercial activities. Addition- 2011/I 44

ally, in case o many employees are solicited, the production process of the company will cease. In the event of solicitation, as the employee is solicited without the employer s knowledge, the employer is not given the chance to offer the solicited employee better working conditions. This kind of solicitation has no correlation with free competition, and such solicitor cannot be deemed an honest trader. The solicitation of an employee does not only mean the loss of know-how, but also the loss of the employer s investment, time and effort in order that the training the employees to provide this know-how and experience. The company also suffers loss of good-will that has huge benefits to the value of the company and management. In replacing the solicited employee the employer will spend as much money and time to educate the new employee. In the event of solicitation of an employee, the TCC affords the aggrieved employer the right to bring compensation lawsuits. Besides, Article 64 of the TCC stipulates a prison sentence from 1 month to 1 year in the event that the employee has been solicited by a company to obtain the trade secrets of a rival company. Providing GSM Services in Turkey and an Ongoing Discussion: Share Payments Seteney Nur ÖNER I. Background In line with the liberalization trend of the day, in 1993 it was decided telecommunication services were to be provided by private companies. After various attempts to make due changes in the relevant legislation and mainly in Telegraph and Telephone Law No. 406 ( Law No. 406 ), the General Directorate of Turkish Post, Telegraph and Telephone was divided into the General Directorate of Post and Türk Telekomünikasyon A.Ş. ( Türk Telekom ) to be incorporated as a state owned enterprise, under Law No. 4000. According to this new regulation, Türk Telekom would be authorized to conduct all kinds of telecommunication services and operate the telecommunication infrastructure, whereas the General Directorate of Post would be in charge of post and telegraph services. In 1994, revenue sharing agreements were executed between two GSM operators and Türk Telekom. According to these agreements the GSM operators were paying 67% of their total revenue to Türk Telekom as a kind of royalty payment. The remaining 33% belonged to the GSM operators together with all the operational costs. While Türk Telekom was operating like a regulatory body and making revenue agreements with GSM operators, studies for privatizing Türk Telekom were also continuing as the government did not give up despite the Constitutional Court s decisions to annul regulations for privatization of Türk Telekom. Within this scope, Law No. 4107 was published in the Official Gazette No. 22279 dated 6 May 1995, certain provisions of which was again annulled by the Constitutional Court on 28 February 1996. The government relaxed after enacting the Law No 4161 published in the Official Gazette No. 22718 dated 5August.1996, which was not challenged. As the ultimate aim was to privatize Türk Telekom and make it a player in the telecommunication sector, there was an evident need for two things: making new agreements with the GSM operators where Türk Telekom would not be a party 2011/I 45

G ross and establishing a regulatory body for telecommunication sector. In 1998, the Ministry of Transportation signed licence agreements which will be in effect for 25 years with the two GSM operators in consideration of USD 500 million, according to Article 4 of Law No. 4161, inserting Permanent Article 6 to Law No. 406. The article was providing that the Council of Ministers may decide to convert the revenue sharing agreements signed with the General Directorate of Turkish Post, Telegraph and Telephone into licence agreements, within the scope of the telecommunication services, before the effective date of the Law No. 4000. income was an ambiguous concept without any legal definitions and this ambiguity led to so many disputes between GSM operators, the Treasury and the Authority as the parties could not agree whether or not certain amounts - i.e. roaming fee, stamp tax, VAT- fell within the scope of the gross income. It took two more years to establish a regulatory body, and finally in 2000, the Telecommunication Authority ( Authority the name was then changed as Information Technologies and Communication Authority by Electronic Communication Law No. 5809 published in the Official Gazette No. 27050 dated 10November 2008- second edition) was established by Law No. 4502 published in the Official Gazette No. 23948 dated 29 January 2000. 2000 was a fruitful year for the sector as two more GSM operators were welcomed after March 2000. After introducing the regulatory body to the sector, it was deemed that the Authority should be the party to the licence agreements with the GSM operators. Therefore, licence agreements were renewed with GSM operators as concession agreements according to Temporary Article 4 of the Law No. 4673 published in the Official Gazette No. 24410 dated 3 May 2001. Under these concession agreements, GSM operators were paying shares to the Republic of Turkey Prime Ministry Undersecreteriat of Treasury ( Treasury ) and the Authority, in ratios of 15% and 0.35% respectively, over their gross income. However, gross income was an ambiguous concept without any legal definitions and this ambiguity led to so many disputes between GSM operators, the Treasury and the Authority as the parties could not agree whether or not certain amounts - i.e. roaming fee, stamp tax, VAT- fell within the scope of the gross income. II. The Milestone: 10 March 2006 Considering that the term of the licences is 25 years, finding a solution to such disputes was inevitable. There had been discussions and negotiations between the Authority and the GSM operators which then resulted in executing protocols for resolution of the ongoing disputes in certain cases, but ultimately in a consensus to amend the existing concession agreements. Therefore, Additional Article 12 and Temporary Article 36 were inserted to the Law No. 406 by the Law No. 5398 published in the Official Gazette No. 25882 dated 21 May 2005. Article 36 replaced gross income with gross sale as the basis for calculation of shares to be paid to the Treasury and the Authority. However, this amendment did not have a direct impact on the concession agreements and according to Permanent Article 12, GSM operators should have requested the amendment of their concession agreements in line with Temporary Article 36 within 1 month. All GSM operators requested the amendment in due time and all concession agreements were amended on 10 March 2006 after completion of the necessary formalities. III. The Ongoing Discussion on Share Payments Choosing gross sale as the basis for calculation of shares was intentional as gross sale refers to 60. Gross Sales account of the income statement accounts and is therefore an accounting concept defined by the relevant legislation. In theory, replacing the ambiguous term gross income with an accounting concept would have the effect of a magic wand. Unfortunately, it was not so happily ever after. After the amendment, the Authority and the Treasury claimed that shares must be calculated on the amounts obtained as a result of any and all operations and activities of the GSM operators without distinction between GSM services provided within the scope of the concession agreements or daily operational activities of the operators as being legal persons. This attitude of the Authority and the Treasury was challenged by GSM operators and everything went back to the beginning. Now there are pending arbitration cases about the share payments. Whether or not the Authority will try to find a solution to this battle is a matter of concern for the sector. However in the short run it seems that the Authority is determined to fight instead of finding a middle ground. 2011/I 46

Dispute Boards in Construction Projects Seda EREN I nvolvement Involvement of Dispute Board may be time and cost effective as it may allow the parties to set more effective procedural rules and timetable to deal with the dispute through the arbitral proceedings. Disputes arising from construction contracts generally cause outsized claims which deserve not only a proper dispute resolution mechanism but also a mechanism enabling settlement of disputes in shortest possible period. In anticipation to properly deal with the problems in a construction project, many institutions aimed to establish practical mechanisms. In that regard, FIDIC introduced dispute boards in its dispute resolution provisions. Provisions including this mechanism were set in the Orange Book in 1995 which have later been inserted in the Fourth Edition of the Red Book (1992) by its supplement published in 1996. 1999 Red Book, 1999 Yellow Book and 1999 of Dispute Board may be time and cost effective as it may allow the parties to set more effective procedural rules and timetable to deal with the dispute through the arbitral proceedings. Silver Book have all established such mechanism as a pre-arbitral step for settlement of disputes. The ICC established Dispute Board Rules in 2004 to serve for all business disputes as an intermediary step before settlement of disputes by arbitration or by the court of competent jurisdiction. The type of dispute board chosen by FIDIC is dispute adjudication board whereas the ICC Dispute Board Rules provides three types of boards, being the dispute review board, dispute adjudication board and combined dispute board. According to the Dispute Board Rules, parties to a construction contract may establish a Dispute Board at the time of entering into the contract, unless otherwise agreed by the parties. Except for the Silver Book of FIDIC 1999, FIDIC dispute resolution provisions likewise provide appointment of a Dispute Board at the beginning of the construction project. In general, Dispute Boards are considered to set a balance between the parties to construction contract. Where the Dispute Board is assigned by the parties at the beginning of the construction project, it is anticipated that the board becomes familiar with the project, relevant parties and the practices within the scope of the construction contract. Hence, in case of any disagreement, relevant facts may be better understood and quickly addressed by the Dispute Board due it is familiarity of the project. The Dispute Board s knowledge and information in relation to the construction contract gained as from the beginning may promote parties trust in the determinations of the board. As a result, parties may achieve time and cost effective resolution in short period of time to the satisfaction of the contracting parties without losing their primary focus on the construction work performed. Enforcement of Dispute Board s decision is indeed a matter of contractual obligation and will be admissible as evidence. Considering that the Dispute Board s decision/determination has been drawn up by persons who are accepted to be familiar with the construction project, who have been appointed by the parties and who are specialized in construction projects, determinations/ decisions thereunder may have great impact on the determinations of the tribunal. In respect of secondary determinations in relation to the dispute, Dispute Board s review of the circumstance may spare the parties to put additional efforts to identify the factual circumstances. Also, having reviewed Dispute Board s decision, parties may have a clearer awareness about the issues to be addressed and established through the arbitral proceedings. As a result, involvement of a Dispute Board may be time and cost effective for the purpose of arbitral proceedings since it may allow the parties to set more effective procedural rules and timetable to deal with the dispute. 2011/I 47

The United Nations Convention on Contracts for the International Sale of Goods A. Simel SARIALİOĞLU T his The yearly progress reports on Turkey s alignment with the European Union prepared and published by the European Commission forms an important part of the news during the month of November in Turkey and also the headstone of the discussions about Turkey s accession adventure to the EU. In Turkey s 2010 Progress Report, among other things, Turkey s capacity to cope with competitive pressure and market forces within the EU was evaluated. Quoting from the Report, overall, trade and economic integration with the EU remained high. Turkey was able to diversify part of its is a call for all those who trade goods internationally: your rights, obligations and liabilities are now regulated under the CISG. trade towards new markets, thereby partly alleviating the impact of crisis. Whilst the world s economic stability still fluctuates due to the most severe economic crisis the world has ever encountered, no wonder Turkey s economic integration with the EU has been defined as high and Turkey is said to have partly alleviated the impact of the crisis since Turkey has been taking the necessary measures to struggle with the worldwide effects of the collapsing banking systems and economies. Aside from the measures in the finance sector, Turkey started to adopt a more global approach in order to cope with the market forces and ratification of the United Nations Convention on Contracts for the International Sale of Goods in 2010 was only one of the global steps Turkey has taken on the way to the integration with the global trade dynamics. What is CISG? The United Nations Convention on Contracts for the International Sale of Goods, which is commonly known as the Vienna Convention on International Sale of Goods or the CISG, applies to contracts of international sale of raw materials, commodities and manufactured goods between parties whose places of business are in different states that are contracting states to the CISG or when the rules of private international law lead to the application of the law of a contracting state. Currently there are 74 contracting States to the CISG including Austria, Belgium, China, France, Germany, Greece, Italy, the Netherlands, Spain and the United States. Turkey became a contracting state to the Convention on 7 April 2010 without any reservations, upon the decision of the Council of Ministers, followed by the publication in the Official Gazette. Scope of application - Is it a law? Under Turkish law, the obligations and liabilities of the seller and buyer in an ordinary sale contract are regulated in the Turkish Code of Obligations. As for commercial sales between merchants, the relevant provisions of the Turkish Commercial Code, commercial customary rules and general provisions of the Code of Obligations apply. In contracts of consumer sales, the Consumer Protection Law and general provisions of the Code of Obligations apply and for overseas sale contracts (CIF, FOB, etc.) the relevant provisions of the Commercial Code, general provisions of the Code of Obligations and commercial customary rules regulate the obligations 2011/I 48

and liabilities of the seller and buyer. The CISG itself governs all of the above relationships as long as they fall within the Convention s sphere of application. As per Article 90 of the Turkish Constitution, all the duly enacted international agreements have the force of national law. Therefore, as of April 7, 2010, the CISG has become a part of the Turkish legislation. This is a call for all those who trade goods internationally: your rights, obligations and liabilities are now regulated under the CISG. What does the CISG bring? The CISG is divided into four parts: Part I sets out rules on its sphere of application and general provisions; Part II deals with the formation of contract; Part III relates to the rights and obligations of the parties, remedies for breach of contract, passing of risk, damages, interest; and, Part IV with the public international law provisions. It does not introduce major differences when compared to the current applicable legislation to the contracts of sale, however, there is a more flexible approach in respect of the liabilities of the parties. For instance, under the Code of Obligations, in case there is breach of contract, the seller/buyer has optional rights. To illustrate, in case the buyer breaches a contract of sale, the seller may declare the contract avoided but may not ask for positive damages, such as loss of profit and damages arising from the breach of contract. Only the negative damages may be sought such as the expenses incurred during the contract negotiations. Under the CISG, the seller has broader rights. In case the seller declares a contract avoided due a breach of the buyer, he may ask for damages for both breach of contract and loss of profit. Another difference brought by the CISG relates to the notification and time limitation periods. Under the Code of Obligations, in case there is a lack of conformity with the goods sold, the buyer should give a notice to the seller immediately after finding out about it. The notification must be made within 1 year. The time limit is even shorter in commercial sales. Pursuant to the Commercial Code, the notification period is 2 days for explicit defects; for defects which cannot be detected without making an inspection, the notification period is 8 days; and, finally, the limitation of time is 6 months. Under the CISG, in case there is a lack of conformity with the goods, the buyer should notify the seller within reasonable time after he has discovered it or ought to have discovered it and in any event the buyer loses the right to give a notice relying on a lack of conformity after 2 years. Examples of differences between the Turkish legislation and the CISG on the liabilities and obligations of the parties may vary. Do you have to apply it? The CISG does not deprive sellers and buyers of the freedom to mold their contracts to their specifications. The parties are free to modify the rules established by the Convention or to agree that the Convention is not to apply at all. Concluding remarks The CISG has been ratified by most of the major trading nations of the world and it exerts considerable influence over sales law across the world. As a common legal text, it also try to bring a uniform legal solution in resolving differences arising from different national laws of states; however, the different interpretation of the Convention provisions may lead to an inconsistency in the creation of case law. For lack of court precedents, the application and interpretation of CISG in Turkey remains to be undiscovered territory. Therefore, special thought should be given before excluding or including the CISG to contracts of international sale of raw materials, commodities and manufactured goods. For CISG text in English: http://www.uncitral.org/pdf/english/texts/ sales/cisg/v1056997-cisg-e-book.pdf 2011/I 49

Legal Aspects of Unlicensed Software Use Levent BELLİ - Can GEÇİM A s Computer programs have been taken under protection under the Code of Intellectual and Artistic Works (FSEK) No.5846, amended by law No.4110 which took effect on 12 June 1995. According to the Article 1 of the mentioned law; Computer program: Computer program means preparatory works that will provide the computer order system, which is set out in a way to enable the computer system to perform a specific procedure or duty, and the formation and development of this order system. Unlicensed use of computer programs occur when software protected by the Code of Intellectual and Artistic Works (FSEK) and international agreements to which Turkey accedes are duplicated, reproduced, distributed, used or generated without permission and authority. a result of the effective and comprehensive efforts, unlicensed software use declined in 2009 compared to 2008. Unlicensed use of computer programs usually occurs in the following ways; More Users Than the Number Stated in the Agreement: The software is used by more users than the number agreed in the agreement, which is concluded with regard to the original software. Installing Copies of the Original software to Computers by the Dealer: Copies of the original software are installed to computers and then sold to final user, generally by the firms selling computers. Duplication, Distribution, Sales, Trans- fer, Counterfeiting of Computer Software without Permission and against Law: Duplication, sales and distribution of original computer software through illegal ways and without permission. Installation of the Software to More than One Computer by the Final User: The final user, who purchased the original software, backs up the program in accordance with the law and uses it by installing to more than one computer, although not permitted by the license agreement. Internet Distribution of the Software: Generally occurs when the full version or the cracked file of the software is offered via current forum websites on internet. Leasing or Lending the Original Software: In case the computer program purchased via license agreement is leased or lent to third persons, the third persons copying the program to their computers. When the aforementioned circumstances occur, unlicensed software use will come into question. Such acts, also described as pirated software use, mean violation of copyrights and are covered by legal and penal protection as per the Code of Intellectual and Artistic Works, the Code of Criminal Procedure and international agreements to which Turkey accedes. Turkey, a member of World Trade Organization (WTO) with the participation of 150 countries in total, is a party to the TRIPS (Trade- Related Aspects of Intellectual Property Rights) agreement which is one of the main agreements establishing this organization. In the Article 7 of Annex 1/C of the TRIPS agreement acknowledged with the Regulation Indicating the Mode of Administration on Protection of Trademarks dated 29.1.1995 No.4067 and No.556, importance of taking intellectual property rights under pro- 2011/I 50

tection is underlined by giving place to the following statements; Protection and application of intellectual property rights should contribute to the progress of technological innovations, and the transfer and propagation of technology, and assist to social and economic welfare, as well as the balance of rights and responsibilities. and the purpose of this agreement is expressed as to ensure that both producers and users mutually benefit. On the other hand, in the Article 4 of the WIPO Copyright Treaty to which we are a party by means of the Law on Eligibility for Acceding to the WIPO Copyright Treaty dated 2.5.2007 No.5467; it is regulated that computer programs are required to be protected as literary works pursuant to the Article 2 of the Bern Convention and that such protection will apply to computer programs used without license under any circumstances whatsoever. As it is observed, Turkey, as a party to those agreements, has been endeavoring to take all precautions required on international basis to prevent unlicensed software use. Various arrangements have also been made in the national law to hinder unlicensed use of computer programs. As per Article 52 of FSEK: Agreements and acts regarding financial rights must be in writing and the rights subject thereof must be pointed separately. and, accordingly, lawful take-over of the right of use of an intellectual and artistic work can only be proved by submitting a written agreement separately indicating the taken-over rights. According to the regulation of the Article 76 of FSEK, if usage of any intellectual or artistic work is in question, the burden of proving such usage s compliance with law shall be mandatory upon the user of the work. Detection of unlicensed use of a computer program may only be possible by carrying out an examination on the computer to which the program is installed and on the computer records. In line therewith, making researches on the computer and computer records, taking copies, and decoding and textualizing the taken records are allowed by the Article 134 of the CMK where there is no other means of finding evidences. If unlicensed use of computer program is detected as a result of the examination made on the computer and the computer records, perpetrators are sentenced to prison or get fined. As per the said regulation, it is stated that 1 year to 5 years in prison or judicial fine will be imposed to those processing, duplicating or distributing a work without a written permission from the rightholder. However, it has been resolved that, if an unlicensed use of computer program according to the article 68 of FSEK is in question, the right holder can only claim a compensation amounting to maximum threefold of the price it may demand in case an agreement is concluded or the current price to be determined pursuant to the provisions of FSEK. Besides, there are other consequences of unlicensed software use imposing legal and penal sanctions. Accordingly, duplication, distribution, transfer of and giving a commercial status to the unlicensed software constitute offense and crime of unfair competition as required by Turkish Commercial Code. In the event that selling unlicensed software is detected upon court order, both dealers and buyers may confront with the accusation of Tax Evasion in accordance with the provisions of Tax Law. As a result of the effective and comprehensive efforts, unlicensed software use declined in 2009 compared to 2008. In order to prevent unlicensed software use, awareness-raising campaigns towards final users yield significant results. Because, works carried out in recent years, together with official authorities, private institutions and consumers, with a view to reduce the negative effects of software theft and pirated software use on technological development and economy in Turkey also play an important role for licensing software. Serious increases are observed in Licensed Software sales, through raising the awareness of final users about the results of using Unlicensed Software. If the aforementioned awareness-raising campaigns continue, it is expected that the Unlicensed Software use will considerably decline in the following years. 2011/I 51

The Liability of the State Arising from Enforcement and Bankruptcy Offices Gözde ERDOĞAN T he As there are debtors who fail to fulfill their obligations creditors have been granted legal remedies to seek assistance from the State in order to protect the creditors against the debtors. In this context, the enforcement and bankruptcy office which is the enforcing body of the State consisting of an Enforcement Officer, assistants, clerks, bailiffs and other civil servants and which, upon application of the creditor against the debtor who defaults in fulfilling its obligation, enforces the debtor to fulfill its obligation. This duty fulfilled by the enforcement and bankruptcy office is not an ordinary public law duty, therefore the enforcement and bankruptcy offices should act impartially and they should not act as a representative of debtor or creditor losses and damages to be incurred due to the negligent acts of the officers of the enforcementbankruptcy office shall be material or non-pecuniary. In order to rule for non-pecuniary. in performing their duties because these offices should execute the specific provisions Execution and Bankruptcy Law and when they perform their duties, they should aware of that they secure the justice and they should keep on the right side of the law. In other words, the bailiffs of the enforcement-bankruptcy office should assess the compliance of their actions with the interests of the concerned parties, laws and regulations and act accordingly. Otherwise, they shall be responsible of their negligent acts for any losses and damages suffered by the parties of the proceedings and third parties The losses and damages to be incurred due to the negligent acts of the officers of the enforcement-bankruptcy office shall be material or nonpecuniary. In order to rule for non-pecuniary damages, it is merely sufficient that the personal rights be attacked unjustly and grievously and it is not necessarily mandatory that the officers act in gross negligence. For this reason, seizing goods from a house or workplace known not to be owned by the debtor is considered as a grievous attack to the personal rights of the actual owner of the house or workplace and in this case, the governmennt liability will arise regarding the non-pecuniary compensation therefore the government should compensate the non-pecuniary damages of the actual owner of the house. The Ministry of Justice (State) is the primary responsible for the losses and damages incurred by the parties of the proceedings and third parties affected of the negligence acts of the officers of enforcement-bankruptcy office in performing their duties. This fact is stated in Article 5 of the Enforcement and Bankruptcy Law as follows: The actions for damages as arising from the faults of the officers of the Enforcement-Bankruptcy Office may only be taken against the Administration. The States reserves its right to recourse to the officers for the damages caused by their faulty acts. Such actions are heard before justice courts. The responsible authority is the Ministry of Justice due to the negligence acts committed by these officers, it is also in line with the the Article 129 of the Constitution of the Republic of Turkey states Actions for damages arising from negligence act committed by government officer and other public employees in the exercise of their duties shall be brought against the administration only. In this context, first of all, it is required to ascertain under which circumstances the officers of the Enforcement-Bankruptcy Office are held responsible before questioning of the responsibil- 2011/I 52

T hat ity of the Ministry of Justice. The first criteria in determining the responsibility is whether or not the officers have acted negligently in exercising their duties. Whereas, as a benchmark in determining whether or not the transaction performed by the officers of enforcement-bankruptcy office are negligently, whether or not the officer has performed his/her duties as an officer of enforcement-bankruptcy office having regular qualifications is taken into consideration. However, the fact that the act or transaction performed is negligently is not sufficient for the emergence of the responsibility. In addition to it is impossible that the aggrieved person appeal the government directly to request compensation because of the government officer s negligent act, firstly, they should be apply the execution offices to request compensation the negligently act, it is also required that creditor, debtor or third parties suffer losses and damages due to such faulty act and there is a causal link between the damages incurred and the faulty acts. In other words, the losses incurred by the concerned parties due to the faulty acts of the bailiffs of the enforcement-bankruptcy office should be an expected outcome of the faulty act on the basis of objective probabilities and their experience in real life. Another aspect that should be highlighted herein is that it is impossible that the aggrieved person appeal the government directly to request compensation because of the government offi- cer s negligent act, firstly, they should be apply the execution offices to request compensation. Please note that, if the aggrieved person shall not complain the officer because of his/her negligent act to the relevant authority, it is deemed as a concurrent negligence. In light of the above mentioned explanations, the following examples shall be given for the liabilities of Execution and Bankruptcy Officer : The seized goods are left with the debtor without the consent of the creditor, Seizing goods from a house or workplace known not to be owned by the debtor, The Enforcement Officer finalizes the proceedings and seizes the property and the property is sold despite the improper notice, The property is auctioned unjustly despite the improper notification of the sales announcement and the property is not repurchased despite the termination of the auction. Therefore, in case where there is a negligent transaction and where there are losses and damages arising from such negligent transaction, the suffering creditor, debtor or any third parties not involved in the proceedings may file an action for damages before general courts against the Ministry of Justice. However, the action for damages to be filed shall be statute-barred one year after the date on which the suffered party is informed of the losses but in any case in ten years after the date when the transacting giving rise to the losses has been carried out. The Ministry of Justice may recourse to the negligent officer of the enforcement-bankruptcy office after it has indemnified the suffering party due to the negligent acts of such officers. 2011/I 53

Legal Implications and Importance of Control in International Joint Ventures From The Turkish Law Perspective Onur YALÇIN I nsufficient Control is an important concept for successful management and performance of international joint ventures. With continued and rapid globalization of the world s economies, joint ventures have become an important element of many multinational corporations global strategies. These ventures involve two or more legally distinct organizations (which are often called parents ) each of which actively participates in the decision making activities of the jointly owned entity. If at least one parent organization is headquartered or ineffective control over an international joint venture may limit the parent company s ability to coordinate its activities, to efficiently utilize its resources, to effectively implement its strategy and more importantly, to take appropriate legal actions in case of a dispute. outside the joint venture s country of operation, or if the joint venture has a significant level of operations in more than one country, then it is considered to be an international joint venture. An alternative to wholly-owned subsidiaries, international joint ventures are commonly used by firms as a tool within today s highly competitive and globalised economic activities. International joint ventures also represent an effective way of dealing with the increasing competitive and technological challenges of today s environment. Indeed, it is also a very common practice in today s business approach to set up the special purpose vehicles in the form of international joint ventures. A special purpose vehicle is a financial entity created for the purpose of fulfilling a very specific and limited use and to isolate the parent company from various risks such as tax liability or bankruptcy. Therefore, it is obvious that the more role of joint ventures and special purpose vehicles increase in today s globalized world, the more the management of these entities becomes an important issue to be dealt with. The term of control refers to the process by which one entity influences the behaviour and output of another entity through the use of power and authority. There should be also no doubt that control plays an important role in the capacity of a firm to achieve its goals. Insufficient or ineffective control over an international joint venture may limit the parent company s ability to coordinate its activities, to efficiently utilize its resources, to effectively implement its strategy and more importantly, to take appropriate legal actions in case of a dispute. In turn, exercising control over some or all the activities of an international joint venture helps protect the firm from facing unexpected and undesirable setbacks in its investment through the joint venture and/or the special purpose vehicle. It is widely accepted that there are three types of ownership regimes in the joint ventures which are (i) joint control (50-50), 50 plus one share (50-2011/I 54

plus) and outright majority control. A variety of mechanisms are available to firms for exercising effective control of a joint venture: Right of veto, representation in management bodies and special intercompany arrangements related to the management, namely, how the joint venture will be engaged and what will be the degree of representation. Further, among these control options, the nomination of the joint venture board of directors, the appointment of key personnel, the reporting relationships and a variety of informal mechanisms can be particularly cited. Turkish corporate law, like many other jurisdictions in either civil or common law, attribute significant importance to the concept of majority. Save for exceptional circumstances where a unanimous vote is required, the decision quorum in the shareholders meetings of joint stock corporations is the majority of the attending shareholders. Likewise, the decision quorum in the board meetings is also the majority of the attending directors. Therefore, holding a majority stake in an international joint venture set up in Turkey which is subject to the Turkish law would lead absolute control over the entire activity of the company accordingly. However, unexpected implications of the concept of control may arise even in case where the international joint venture is established abroad. In particular, a special purpose vehicle incorporated in the form of an international joint venture and having an interest in Turkey is a significant example demonstrating how the concept of control might play an important role in the event of a dispute. To illustrate, if the interests of one of the parties of the special purpose vehicle in the form of an international joint venture under the joint control are damaged requiring immediate action related to the investment in Turkey, the degree of representation of the joint venture entity would have vital importance. In other words, if the interests of one party are damaged by its own joint venture partner and if the joint venture itself needs to take actions under the strict requirements of the Turkish law, it could lead to total inactiveness of the joint venture vehicle thereby resulting in the total loss of the entire interests. The only means to overcome such a deadlock between the joint venture partners is to create the necessary mechanisms allowing the joint venture to take the required actions in a dispute. Therefore, the concept of absolute joint control should not be a preferable and viable option for any operation in Turkey or even anywhere else to be handled through an international joint venture and/or a special purpose vehicle given the potential risks of the legal circumstances requiring the joint venture to take action on its own. Multi-Step Dispute Resolution Clauses Seda EREN- İdil KURT Multi-step clauses (also referred to as multi-tiered or escalation clauses) provide a sequence of multi-levels of dispute resolution processes. Along with the fact that arbitration is preferred relying on its fast and cost-effective nature, parties may give preference to other dispute resolution methods as a preliminary step before arbitration. The parties often draft the agreement with a wording as to set forth the first step as an option to have the dispute resolved by the mentioned methods. Under these circumstances, this system provides an alternative for the resolution of the disputes as a right, yet, does not require the parties to execute such methods as an obligation. This approach may be based on many different reasons such as avoiding costs of all proceedings or the intention not to threaten the commercial relationship between the parties mostly in longterm business deals. The difference between these methods to be regarded as a right or an 2011/I 55

obligation arises out of the agreement to agree and agreement to negotiate approaches that was given rise in the Channel Tunnel Case. Therefore, the wordings of the concerned articles are of extreme importance regarding the revealing of parties intentions with respect to the binding nature of the preliminary dispute resolution methods. In the event that the preliminary dispute resolution methods are fix ADR methods, as per Article 6.2 of the International Chamber of Commerce Rules of Arbitration, ICC International Court of Arbitration has the power to determine that the arbitration cannot proceed. If the agreement executed by and between the party s sets forth an obligatory ADR procedure and if a party raises an objection, the Court must determine whether Article 6.2 requires it to prevent the arbitration from proceeding or it must direct this question to the arbitral tribunal in order for it to render its decision. Following the mentioned procedure, the arbitral tribunal will be under the obligation to decide on the effect of the multi-step clause. No doubt that each case shall be determined on its own merits diligently and the same key does not unlock all doors. Yet again, it is worthwhile to mention that the following elements are of importance in multi-step clauses referring to ADR Rules: (i) nature of the dispute, (ii) reasonable attempt to initiate ADR proceedings (intention to fulfill the obligation arising out of the agreement in good faith with respect to contractual fidelity principle), (iii) whether costs of the ADR methods would be unreasonably high, (iv) whether ADR methods have a reasonable prospect of success and also tests the good faith of the parties. Turkish law approach does not have clear-cut jurisprudence regarding this specific issue hereof and again interpretation of parties intentions is the key to determining whether preliminary dispute resolution methods constitute a right or an obligation. New Claim/Counterclaim Seda EREN - Tuğçe Aslı TURÇAL Parties may not go beyond to the scope of arbitration agreement and may not bring a claim or counterclaim which does not fall within this scope One may not have all necessary components, calculations or data to set the exact claim/counterclaim at the initial course of arbitral proceedings. Hence, it is of great importance to identify until when or whether new claim/counterclaim may be raised during pending arbitral proceedings. The determination of this issue rests on the arbitration agreement, applicable rules and the rules adopted in course of the proceedings. According to the ICC rules, the parties may raise a new claim/counterclaim by the approval of the court against the other party arising out of the transaction in a pending arbitration case, as per Article 4/6 of ICC Rules of Arbitration; provided that the terms of reference have not been signed or approved by the court yet. Once the terms of reference have been signed or approved, those claims/counterclaims may only be included to the pending case subject to Article 19 of the same set of rules. Article 19 sets out the prohibition applicable to both parties of bringing new claims/counterclaims falling outside the limits of the terms of reference unless the party has been authorized to do so by the Arbitral Tribunal. According to this article, the Arbitral Tribunal shall consider the nature of such new claims/counterclaims, the stage of the arbitration and other relevant circumstances to decide on the issue. New claims/counterclaims falling out of the terms of reference requested for submission after signing are prohibited in principle. However, as stated 2011/I 56

I t above, the Arbitral Tribunal may authorize the party to bring those claims; if not, then the party may make such claims in a new case. The Japan Commercial Arbitration Association (JCAA) rules provide a more strict cutoff date to submit counterclaims compared to Article 19 of the ICC rules. According to the JCAA rules, further claims/counterclaims amending or is of great importance to identify until when or whether new claim/ counterclaim may be raised during pending arbitral proceedings. extending the main claims of parties are subject to the approval of the arbitral tribunal as regulated under Article 20 of the JCAA Rules stating that the application of the party is required to be in writing and the claim/counterclaim shall be covered by the same arbitration agreement. London Court of International Arbitration (LCIA) Rules provide in Article 22 a less strict approach stating which write that unless the parties at any time agree otherwise in writing, the Arbitral Tribunal shall have the power, on the application of any party or of its own motion, but in either case only after giving the parties a reasonable opportunity to state their views: (a) to allow any party [ ], to amend any claim, counterclaim, defense and reply. In relation to the arbitral proceedings subject to the Turkish International Arbitration Law No. 4686, Article 10/D-2 provides a more lenient approach stating that the parties, unless they have agreed otherwise, may amend or extend their claims and defenses during the course of arbitral proceedings. That is, in the arbitration process, extending or amending a claim is not prohibited in principle; it is rather up to the will of parties. Nevertheless, this leisure approach should not be considered an unlimited and left to the will of parties in full. The arbitrator or the tribunal may bring limitation to these extensions and amendments under the equality of arms principle by opposing amendments that place the other party in a difficult position. It is worthwhile to note that the amendment or extension of claim or defense so as to exceed beyond the scope of arbitration agreement is not permitted. 2011/I 57

Role of Local Courts in International Arbitration: Preliminary Injunctions A. Simel SARIALİOĞLU Seteney Nur ÖNER T he local court order regarding a preliminary injunction should explicitly state that the injunction is granted pursuant to the International Arbitration Law. This is important because a preliminary injunction granted pursuant to the Code of Civil Procedure becomes ineffective automatically by the end of the trial process unless explicitly otherwise stated in the court s decision. Whereas, an injunction granted according to the International Arbitration Law remains in effect until the arbitral award becomes enforceable. Recent arbitration figures of the International Chamber of Commerce ( ICC ) International Court of Arbitration indicate that, slowly but surely, Turkey is to become an arbitration country. The number of Turkish parties in the ICC arbitration during 1998-2009 had a concrete increase. Whilst the total number of Turkish parties in the ICC arbitration was 8 in 1998, the number increased to 36 in 2008 and to 62 in 2009. Triggered by the adoption of the Turkish International Arbitration Law, based on the UNCITRAL Arbitration Rules, known as the Model Law, the arbitral breeze is likely to pick up pace in the future. Being a civil law country with its convenient location and considerably cheap accommodation opportunities, Turkey is no different to big brothers such as Geneva, Zurich, Vienna, London, etc. in terms of being an arbitration friendly country. The welcoming approach of Turkish courts towards arbitration is also an undeniable factor in the growing tendency. The assistance of national courts has always been a popular topic of debate in international arbitration but in the big pool of various themes, this article intends to give brief information on obtaining preliminary injunctions from Turkish courts during or before arbitration. Talking of arbitration in Turkey, noting the difference between domestic arbitration conducted according to the Turkish Code of Civil Procedure and international arbitration subject to the provisions of the Turkish International Arbitration Law is important. Within this framework, this article is concerned with granting of preliminary injunction by local courts in international arbitration. Why obtain an injunction? From the perspective of international arbitration, preliminary injunctions are granted for a variety of reasons such as to prevent irreparable harm, preservation of evidence, to facilitate the enforcement of the award and production of evidence. However the Turkish approach to the need of the preliminary injunction is limited in comparison to the general international attitude. In general terms, Turkish courts can be requested to grant preliminary injunctions to prevent 2011/I 58

irreparable harm or significant loss that may arise until an award is given by the arbitral tribunal. Obtaining a preliminary injunction is of paramount importance especially when the other party may impose sanctions in case the requested disputed amount is rejected to be paid. Evidently the party requesting an injunction should convince the court of the existence of the irreparable harm or significant loss which is in fact quite perceptual rather than being objective. How to do it? In principle, the International Arbitration Law is applied if there is a foreign element and the place of arbitration is Turkey. However, preliminary injunctions may be requested from Turkish courts where necessary, even when the place of arbitration is not Turkey. Both the national court and an arbitral tribunal may grant a preliminary injunction before or during the arbitration. For domestic arbitration, it seems that the parties will no longer have this option, since the new Code of Civil Procedure which shall be enforceable as of 1 October 2011 provides that the parties may apply to the courts to obtaining a preliminary injunction if the arbitral tribunal will fail to take the relevant action in due time or effectively. Other circumstances when parties can request a preliminary injunction from the courts are if permission is granted by arbitral tribunal and relevant agreement of the parties in writing. The courts intervention to the arbitration is possible when and only if permitted by law but in Turkish practice, this intervention should not be contrary to the arbitration agreement between the parties. According to Article 10/A of the International Arbitration Law, if a party obtains a preliminary injunction before a local court prior to the arbitration, the arbitration should be initiated within 30 days. Otherwise, the preliminary injunction will automatically become ineffective. This period is different from and longer than the 10 days period provided in the Turkish Code of Civil Procedure. It suits the complex structure of the international arbitrations. In case a party seeks a preliminary injunction in Turkey, he should do it before the competent courts at the venue of domicile or habitual residence or workplace of the respondent and if the respondent does not have a domicile, habitual residence of workplace in Turkey, Istanbul Civil Court of First Instance. If a preliminary injunction is granted for a limited period of time or until the fulfilment of certain conditions, it automatically becomes ineffective when the determined time expires or the conditions are fulfilled. If the preliminary injunction was granted before initiating arbitration, the arbitration should be initiated within 30 days. Otherwise the preliminary injunction becomes ineffective. What should be in it? The local court order regarding a preliminary injunction should explicitly state that the injunction is granted pursuant to the International Arbitration Law. This is important because a preliminary injunction granted pursuant to the Code of Civil Procedure becomes ineffective automatically by the end of the trial process unless explicitly otherwise stated in the court s decision. Whereas, an injunction granted according to the International Arbitration Law remains in effect until the arbitral award becomes enforceable. Having said the above, in practice it may take longer than expected for an arbitral award to become enforceable. Especially for arbitrations governed by the International Arbitration Law, the parties may apply to Turkish courts for the annulment of the arbitral award. Therefore, when requesting a preliminary injunction pursuant to International Arbitration Law, it should be made clear that the injunction is requested under this relevant law. The request should also explicitly list the items for which a preliminary injunction is requested and should also be mentioned in the relief sought because the courts base their decisions on the relief sought. What about the practice? In international practice, all of the important international arbitration rules allow the parties to seek judicial recourse for purposes similar to those available in Turkish law. The ICC Arbitration Rules have long recognized the right of the parties to apply to the courts for preliminary injunctions. It is no different with the LCIA Rules which accepts that the power of the Arbitral Tribunal shall not prejudice howsoever any party s right to apply to any state court or other judicial authority for interim or conservatory measures before the formation of the Arbitral Tribunal, and in exceptional cases, thereafter. The 1961 European Convention on International Commercial Arbitration also favors having the parties apply to the courts for provisional measures. 2011/I 59

Project and Finance: Real Estate Investment Companies In Turkey Mustafa Yiğit ÖRNEK R eal Turkey adopts its capital market regulations in conformity with worldwide developments. Among others, Real Estate Investment Companies ( REICs ) became capital markets players as of late 90s and they have developed gradually; thus investors now have a more secure and liberal environment to invest in real estate through REICs. In Turkey there are currently thirteen REICs which have obtained permission of establishment and twenty-one REICs which have been offered to the public. The value of their collective assets as of June 30, 2010, is TRY 4.524.117.679. This shows the intention of the investor to make investments in real estate sector through REIC, which has also been incentivized by Turkish laws. Estate Investment Companies ( RE- ICs ) became capital markets players as of late 90s and they have developed gradually; thus investors now have a more secure and liberal environment to invest in real estate through REICs. REICs are principally governed by the Capital Market Law no.2499 ( Law ) and Communiqué on Principles Regarding Real Estate Investment Companies Serial VI No. 11 ( Communiqué ). Establishment and Share Capital REICs may be established as a new joint stock companies or may be established through the conversion of an existing joint stock company into a REIC by amending their Articles of Association ( AoA ). The formation of a REIC is subject to the Communiqué as well as the approval of Capital Market Board ( CMB ) and Turkish Ministry of Industry and Commerce. In both cases REICs are required to have a minimum capital of TRY 20,000,000 and must adopt registered capital system. If issued share capital of a REIC is less than TRY 50 million, at least 10% of its issued shares should be issued with cash consideration, and if the issued share capital of the REIC is equal to or more than TRY 50 million, shares representing at least TRY 5 million of its issued shares should be issued with cash consideration. Another requirement for REIC is that at least one of the current shareholders should be a leading shareholder which is defined under the Communiqué as a shareholder/s having at least 20% of the total capital who have fulfilled the conditions stipulated under the Communiqué. If the leading shareholder is a person, the total current value of his assets shall be at least TRY 10,000,000, if there is more than one leading shareholder in the company, the total value of their whole assets should be at least TRY 20,000,000. In addition to the above, the company shall not sell out any privileged securities and real estate certificates other than shares permitting nomination of candidates in election of members of board of directors. Besides, once the shares of a REIC have been offered to the public, no privilege can be issued including the privilege enabling its holder to nominate a candidate to the board of directors It is also stated under the Communiqué that the privileged share ratio which would enable management control, may only be owned by the leading shareholders during the incorporation or conversion process and until the expiry of two (2) years from the date of completion of sale of shares that is required to be offered 2011/I 60

to public under the Communiqué. The transfer of privileged shares is subject to the CMB approval. Please also note REICs shall in no way aim to control the capital and management of any company that they participate in and their shareholding in subsidiary company may not exceed 5% of the capital and voting right of such company. Public Offering At least 25% of issued capital of REICs have to be offered to public. REICs must apply to the CMB for public offering within 3 months after their incorporation if it is a newly established company or within 3 months after the registration of the amendment of AoA with the Trade Registry if it has converted into a REIC. REIC status will be cancelled in case a public offering is not realized with the permitted period. Longer periods are permitted for REICs which were established prior to 31 December 2009. Management and Asset Structure According to Article 17 of the Communiqué, members of Board of Directors and auditors should have graduated from a higher educational institution of four year term and have experience of minimum three years in fields such as law, construction, banking and finance which are di- rectly related to real estate investments. At least 1/3 of the board members have to be independent and they should not represent shareholders. At least 50% of the assets of REICs are required to be invested in real estate or rights to real REICs are required to invest at least 50% of their portfolios in real estate, real estate backed rights or real estate projects. The sum of a REIC s investments in capital markets instruments, deposits, share certificates and participations in subsidiaries is permitted by law to constitute up to 50% of its portfolio, while investments in time and demand deposits may constitute up to 10% of its portfolio. Furthermore, REICs may invest up to 49% of their portfolio in foreign real estate and foreign real estate backed rights. REICs cannot invest more than 10% of their portfolios in idle land which remains vacant for a period of at least five years. Tax benefit As an important advantage, all profits of RE- ICs are exempt from corporate tax. Although there is tax exemption for corporate tax, a 15% internal withholding tax, regardless of whether or not the profits of the REIC are distributed, is applicable. Nevertheless, currently, the rate of internal tax withholding rate is 0%. Recent Developments in Public Offerings Ferda DUMRUL Capital markets facilitate fund raising opportunities which generate investment to achieve sustainable growth. Public offerings play a pivotal role in ensuring that goal and offer a wide range of opportunities for companies, including low-cost funding, institutionalization, liquidity for shareholders, and credibility. Having noted that only a small proportion of the major companies in Turkey are listed at Istanbul Stock exchange ( ISE ), Capital Markets Board ( CMB ) enacted the Communiqué on Principles Regarding Sales and the Registration of Shares (Serial I, No. 40) and the Communiqué on Principles regarding Sales Methods in Public Offerings (Serial VIII, No. 66) to ease burdensome public offering procedures and to make necessary alignments with European Union standards. These communiqués came into force as of 3 April 2010 and overruled the former communiqués. Communiqué Serial I, No.40 The Communiqué Serial I, No.40 not only made crucial amendments to former provisions 2011/I 61

but also introduced new sales methods and market instruments in an attempt to promote and streamline the process. As regards the amendments; first and foremost, the requirement to meet the minimum initial public offering rates and comply with the mandatory underwriting requirement is lifted. With derogation from these rules the issuers are afforded an important degree of flexibility in determining the volume of their initial public offerings as well as freedom to agree on the terms and conditions of underwriting of their shares with intermediary institutions. Secondly, the new legislation provides for electronic application process whereby registration of shares and submission of draft prospectus and circular are made online and published on the CMB website and public disclosure platform. The obligation to prepare and submit pre-prospectus throughout the book building process and requirement to obtain the CMB approval for book building through announcement method are also annulled. In addition, the format of prospectus is enhanced to provide extensive information to investors. Another notable innovation is that the new communiqué allows companies to make advertisements and announcements prior to obtaining the CMB s approval for registration of shares subject to fulfilment of certain criteria. In addition to the above, several requirements provided under the former Communiqué were abolished to make the procedure simpler and more efficient; for instance requirement for all consortium members to sign the prospectus, submission of price determination report to CMB (in case the sale price is different than the nominal value) and provision of 3 months interim financial statements are lifted. These amendments are considered to be important initiatives fostering effectiveness, standardization, transparency and expediency in public offerings. The shelf registration system had already been introduced by the former communiqué however in limited scope. The principles governing the system and implementation thereof are clarified. According to the current provisions, companies registered with the system may offer their shares at any time during the calendar year commencing from the date of registration without the need to go through the full and lengthy legal procedures once again. The newly introduced method of sales to eligible investors is another remarkable innovation of the new legislation whereby issuers may sell their shares to a particular target of investors defined as domestic and foreign investment funds, investment trusts, intermediary institutions, insurance companies, portfolio management companies etc., without the need to prepare and publish prospectus and circular. Likewise, the obligation of submission of prospectus and circular is also annulled in allocated sales of listed companies granting the companies dynamism and freedom to sell the shares to particular investors with great ease. There is no qualitative or quantitative restriction as to sales to eligible investors, nevertheless targeted investors must not exceed 100 in allocated sales method. Communiqué Serial VIII, No. 66 The most significant amendment introduced by Communiqué Serial VIII, No. 66 is the liberalisation of determination of price, sale and distribution methods. In order to ease the sale and disposition requirements to the benefit of companies and investors several other amendments are introduced as well. First of all, the minimum allotment rate requirement, namely mandatory offering to domestic individual and corporate investors is reduced to 10% for each group whereas the former communiqué, was requiring 30% or 50% depending on the total sale amount. The new communiqué also provides that minimum allotment rate requirement would not be applied if stock exchange selling method is used. In addition to above companies are afforded the facility to amend the allotment rates in 20% margin provided that they reserved their right to exercise this right in the prospectus. There are also new incentives for payment of sale of stocks and new payment methods are introduced. Cash and non-cash promotions can be allocated to certain investor groups upon approval of CMB provided that the implementation thereof is explicitly explained in the prospectus. As regards payment methods, CMB enabled the requests to be placed through deposit of liquid funds, government debt securities and foreign exchange etc., as long as the responsibility is borne by issuer, selling shareholder or intermediary institution. The important changes in the legislation are very much welcomed by the companies, investors as well as the intermediary institutions. These amendments are expected to increase the volume of public offerings and create the synergy and dynamism to accelerate the development of market. 2011/I 62

Banking Regulation and Supervisory Agency Control of Factoring Transactions in Turkey Mustafa Yiğit ÖRNEK - Ferda DUMRUL F actoring sector has a rapid progress in financial markets and has succeeded to be one of the popular financial instruments in recent years. Factoring, meaning an assignment of due or future receivables which must be evidenced by an invoice or similar records, is a financial tool introduced in Turkey in the late 1980s. Factoring terminology entered banking legislation with the enactment of the Decree Regarding Loan Transactions published in the Official Gazette on 6 October 1983 No. 18183. In line with developments in the finance sector, more detailed provisions came into force with the Regulation on Principles Regarding Incorporation and Activities of Financial Leasing, Factoring and Finance Companies published in the Official Gazette on 10 October 2006 No. 26315 ( Regulation ). Factoring sector has a rapid progress in financial markets and has succeeded to be one of the popular financial instruments in recent years. Many sectors especially textile, apparel, metal, machinery, food, plastic, automotive, and furniture benefit from factoring services. With the experience of several financial crises in the past, strict provisions are stipulated regarding establishment of factoring companies. Currently, incorporation and activities of factoring companies are regulated by the Banking Regulation and Supervision Agency ( BRSA ). Incorporation of a factoring company is subject to the BRSA permit and operations are inspected by the BRSA as well. Factoring companies must be established as a joint stock company with a minimum paid capital amount of TL 5,000,000, shares must be registered. In addition the BRSA examines whether or not shareholders have sufficient financial capacity. Factoring companies cannot undertake assignment and collection of receivables lacking the evidentiary background of a sale such as an invoice. Breach of such requirement may lead to cancellation of the factoring license. Within the scope of its supervision duty on factoring transactions, the BRSA recently enacted the Circular Regarding Factoring Transactions dated 8 July 2010 ( Factoring Circular ) which draws attention to some irregularities and introduced certain measures to avoid illegal practices adopted in market. Throughout the inspections of the BSRA, it has been determined that certain factoring companies have acted without carrying out necessary due diligence to ensure the accuracy of invoices or other relevant records submitted by their customers; they omitted to control whether the invoices are forged or false as a result of which forged and copied invoices have deliberately been used to provide financing. The BRSA also determined those factoring companies illegally provided financing against cheques or promissory notes issued/endorsed to factoring companies which are to be considered as security rather than the subject matter of the transaction itself. In its Factoring Circular, the BSRA requires that finance shall only be provided to customers who provide respective invoices issued for sale of goods or services and factoring amount and interest or commission generated as factoring revenue shall not exceed the total amount of 2011/I 63

invoices. In case of international factoring where the factoring coverage is 100%, commission and interest may be charged additionally. With respect to the cheques/promissory notes provided as security of the collection of due receivables, the chain of endorsement must be controlled assuring that the endorser is actually the creditor and endorsee is the debtor as per the invoice issued for receivable. A cheque/promissory note which is independent from the underlying contract may also be requested, nevertheless, no financing shall be utilized for such negotiable instruments, financial records should annotate that negotiable instruments are kept as security and they may not be pursued in the absence of default under the factoring transaction. The Circular stipulates that factoring companies should work on know your client basis and refrain relying on statements or verbal confirmation of clients in respect of respective factoring transaction. Accordingly, factoring companies have to carry out necessary investigations on customers and monitor compliance and accuracy of information stated in invoices. Internal control systems have to be established in order to verify the accuracy of invoices/documents and to analyze financial status and reputation of customers. Necessary checks should also be undertaken in respect of debtors of invoices. Invoices should be kept properly with a sticker stating the amount assigned to factoring company and customer should seal such sticker with company seal. The assignment list has to be signed by customers. In order to avoid negative impacts of cancellation of invoices factoring companies must act prudently and an undertaking must be obtained from customers regarding notification of cancellation or reissuance of invoices. As factoring companies are responsible of identifying whether invoices are forged or not, they should keep relevant records with respect to inquiries and investigations that they have conducted and submit such investigation report to the BRSA if requested. Privatization of Motorways Ahmet ÖZTÜRK - Ferhan KARADENİZ The first attempt to privatize eight toll motorways and two bridges (which are under the responsibility of the Turkish Highways General Directorate ( THGD )) via transfer of operating rights was made by the Privatization Administration ( PA ) with its decision dated April 19, 2007 and numbered 2007/25. The PA resolved that the privatization proceedings would be finalized by December 31, 2008. Upon application of the Association of Protection of Consumers ( APC ), on August 4, 2008 the Council of State, rendered a stay of execution decision since underlying legislation was missing. The Council of State stated that scope and limits of privatization of motorways and bridges should be clearly regulated with relevant legislation the Council of State further underlined the necessity of regulating the rights and obligations of the government and private sector pertaining to the post-privatization era. Based on the foregoing, the Council of State ruled that motorways and bridges may not be privatized unless the legal framework regarding proceedings for priva- 2011/I 64

T he tization stipulated under the Privatization Law No. 4646 is reflected in the legislation concerning motorways. The PA objected to such decision of the Council of State; however such objection was rejected on April 16, 2009 and accordingly the privatization of motorways and bridges had to be postponed. On June 25, 2010, the Turkish Grand National Assembly adopted the Law on the Establishment and Duties of Turkish Highways General Directorate ( Law No. 6001 ). The rationale behind this enactment was to fill the legislative gap identified by the Council of State. Some of the new arrangements introduced by the Law No. 6001 are as follows: Council of State ruled that motorways and bridges may not be privatized unless the legal framework regarding proceedings for privatization stipulated under the Privatization Law No. 4646 is reflected in the legislation concerning motorways. The THGD is clearly entitled to transfer its operational rights over motorways to private operating companies pursuant to Privatization Law No. 4646; Maintenance, repair and operation facilities and service facilities in connection with the roads and motorways are defined; Toll rates will be calculated each year as per the methods stipulated under the concession contract executed between the government and operating company; The motorways will be kept as toll motorways during the privatized period; In case of need for expropriation in relation to privatized motorways, the THGD will carry out such expropriation procedures. Costs of expropriation may be partially collected from the operating company pursuant to the contract executed by and between the government and operating company; The penalty fees for unpaid tolls will be collected by the operating company and 60% of the penalty fees will be transferred by the operating company to the Treasury; The issues pertaining to infrastructures (such as construction and transfer of water, gas and oil pipelines and electricity lines) over the privatized motorways will be governed by contract executed by and between the government and operating company. Following the enactment of the Law No. 6001, the PA cancelled its previous decision (dated April 19, 2007) and adopted a new decision (dated October 15, 2010 and numbered 2010/88) in which it ruled that operation of all motorways and bridges within the scope of the privatization would be transferred to one operator only and for a period of 25 years (the Second Attempt ). The motorways under of the privatization program are as follows: 1 Edirne-İstanbul-Ankara Motorway 2 Pozantı-Tarsus-Mersin Motorway 3 Tarsus-Adana-Gaziantep Motorway 4 Toprakkale-İskenderun Motorway 5 İzmir-Çeşme Motorway 6 İzmir-Aydın Motorway 7 Bosphorus Bridge 8 Fatih Sultan Mehmet Bridge 9 Gaziantep-Sanlıurfa Motorway 10 İzmir, Ankara and Fatih Sultan Mehmet Bridge Ring Roads Although Law No. 6001 was enacted to avoid further cancellation attempts, the APC announced on its website that it has initiated another lawsuit against the Second Attempt of the PA on October 25, 2010; however, the details of the APC s arguments have not been disclosed yet. The new deadline for the completion of proceedings has been envisaged as December 31, 2012. The maintenance, repair and operation facilities, service facilities and toll collection units and other service areas located over the aforementioned motorways, ring roads, connection roads and bridges are also included in the scope of privatization. When compared to the previous attempt of the PA, the scope of the privatization remained the same except for inclusion of other units relating to production of equipment and services. Timing for the launch of tender is not stated in the recent decision of the PA. It is expected that the tender shall be launched in 2011. As local press indicates international investors such as Australian Macquarie, Spanish Abertis, Portuguese Brisa, French Bouygues, Japanese Ithochu Corp and Italian Autostrade are interested in privatization of motorways. The PA is also keen to have a very competitive tender and it has recently contacted 15 firms. 2011/I 65

Sukuk and Its Emergence in the Turkish Capital Market Ferhan KARADENİZ R ecently, According to the conservative estimates of the ten-year framework and strategies, Islamic investment principles govern more than $1.2 trillion of assets. Such principles form part of Shari ah, which is often understood to be Islamic Law, but it is actually broader than this as it also embodies general spiritual and moral obligations in Islam. In the Persian Gulf and Asia, Standard & Poor s estimate that 20% of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile. a new capital instrument has been introduced in the Turkish capital market which is similar to sukuk representing ownership in tangible assets. Islamic capital markets are expected to grow in line with the development and deepening of the financial markets generally, the increased issuance of new Shari ah-compliant stocks and sukuk. Sukuk (legal instrument, deed, check), the plural of sakk, is the Arabic name for financial certificates and commonly refers to a financial paper demonstrating entitlement of the holder to the amount of money shown on it. It is the Islamic equivalent of bonds. Since fixed income and interest bearing bonds are not permissible in Islam, sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibit charging, or paying interest. * The central merit of sukuk structure is that it is based on real underlying assets. This approach discourages over-exposure of financing facility * http://www.ibisonline.net/en/policy_dialogue/ten- YearFrameworkAndStrategies.pdf beyond the value of the underlying asset, given that the issuer cannot leverage in excess of the asset value. Types of sukuk are basically as follows: sukuk representing (i) ownership in tangible assets (ii) usufruct or services (iii) equity share in a particular business or investment portfolio and (iv) receivable or future goods. The sukuk markets are expected to receive a huge boost from the dynamism of real estate markets, sovereign needs to finance infrastructure projects, and corporate needs for stable income-generating financial instruments. Recently, a new capital instrument has been introduced in the Turkish capital market which is similar to sukuk representing ownership in tangible assets. Turkish Capital Market Welcomes Lease Certificates The Communiqué on Principles Regarding Lease Certificates and Asset Leasing Companies with the serial III, no: 43 (the Communiqué ) entered into force upon its publication in the Official Gazette on April 1, 2010. The Communiqué enables private sector companies to provide funds from capital markets through issuance of lease certificates. A new type of company has been introduced with the enactment of the Communiqué, namely, Asset Leasing Company ( ALC ). What a lease certificate is and how it is structured? A lease certificate is an instrument which is very similar to sukuk securities. By means of lease certificates, companies may generate funds through ALCs. Basically, the system works as follows; owner of leasable assets, which is a joint stock company (Transferor) transfers such assets to an ALC, the ALC leases such assets to the Transferor and generates rental revenue, the ALC issues lease certificates based on rental 2011/I 66

G iven revenue and the ALC transfer assets back to the Transferor company. Rental revenue is distributed among the lease certificate holders pro rata with their shares. Lease certificates are therefore regarded as a genuine alternative to the conventional interest-based banking system. Under the Communiqué, a Transferor transfers its own assets or leased assets from third parties to ALCs for the purpose of leasing these assets back from ALCs. An ALC is structured as a special purpose vehicle in the form of a joint stock company and minimum requirements for the widening range of debt instruments in capital markets, Islamic bonds further support development in financial markets and extend investors choices. incorporation are stipulated under the Communiqué. ALCs may only be incorporated by intermediary institutions, banks or Transferors as a joint stock company solely for the purpose of issuance of lease certificates. Articles of association of ALCs should be drafted in line with the provisions of the Communiqué and approved by the Capital Market Board. An ALC may only deal with assets owned by one Transferor and each time only one type of lease certificate may be issued. ALCs may not obtain loans of whatsoever nature and may not engage in any other activity. Payment dates under lease certificates are determined by the board of an ALC and such information has to be disclosed in the offering circular. The offering circular should include the details required by the Capital Markets Board. In case of allocated sale or sale to qualified investors, there is no need for an offering circular. ALCs should comply with public disclosure requirements. Lease certificates have to be registered with the Central Registry Agency. Lease certificates may be traded at stock exchange. Redemption of lease certificates is regulated in a contract. Given the widening range of debt instruments in capital markets, Islamic bonds further support development in financial markets and extend investors choices. The new practice of the Capital Market Board presents a favourable opportunity for investors to play a more pro-active role in the real estate market. In order to enhance the use of lease certificates, Turkish Republic Central Bank very recently executed an agreement with International Islamic Liquidity Management Corporation (IILM). Accordingly, participation banks may purchase certificates from IILM via Central Bank and in consideration of certificates they could satisfy their liquidity needs. This is a really important development for participation banks since they are trade conventional bonds. The Public Offering of Foreign Capital Instruments in Turkey Ahmet ÖZTÜRK The first public offering of a foreign company on the Istanbul Stock Exchange ( the ISE ) was launched in the last quarter of 2010. The Viennabased DO&CO Restaurants & Catering AG ( Do&Co ), a catering company having a joint venture in Turkey with Turkish Airlines ( THY ) named THY DO&CO İkram Hizmetleri A.Ş, received a record demand of 1.14 billion Turkish Liras (approx. USD 730 million) and 28.90% of 2011/I 67

T he its shares have been traded on the ISE since December 2, 2010. The public offering took place just after the execution of the new Communiqué on Principles regarding Registration of Foreign Capital Instruments and Depository Receipts (Serial No. III and No. 44) (the Communiqué ) which is more flexible than the previous one. The Communiqué is applicable to (i) initial public offering of foreign capital instruments ( FCI ) and depository receipts; (ii) private placement of FCIs and depository receipts and/or sale of such to qualified investors; and (iii) issuance of gratis shares of foreign partnerships that are listed on the ISE. Please note that public offering of foreign investment funds is not covered by this Communiqué. Pre-Conditions for Listing of Foreign Capital Instruments FCIs may be offered to the public by a foreign investor, representative or depository agent. In Communiqué aims to facilitate integration of the Turkish capital markets with global markets and to increase offering of more FCIs in Turkey. case a representative is used a written contract has to be executed. A written contract is also a must between representative and depository agents in case of issuance of depository certificates. If a depository institution qualifies as a representative as defined in the Communiqué, it could also act as representative. A representative must be an intermediary institution based in Turkey or banks that do not accept deposits. A representative should ensure that financial and administrative rights attached to foreign capital instruments are used in accordance with the laws of the state where the foreign partnership is incorporated. A representative is responsible for accuracy of the information disclosed in the offering circular, it should also fulfill the disclosure requirements pursuant to Turkish capital market legislation, and disclose daily close price of listed shares. The pre-conditions that need to be satisfied prior to public offering of FCIs are as follows: FCIs must be listed on at least one a stock exchange. In case a FCI is not listed, being not listed shall not be due to protection of investors. The value of FCIs must be denominated in foreign currencies for which daily exchange rates are announced by the Central Bank of the Republic of Turkey. There must be no restrictions over FCIs regarding their sale or attached rights or payment conditions in Turkey; There must be no restrictions regarding transferability and circulation of FCIs or restrictions prevent its owners to dispose his rights. Furthermore, there should be no usufruct right attached to such shares. Foreign partnership issuing such shares must have an investment grade among the long term credit ratings from a rating agency that are approved by the Capital Market Board of Turkey ( CMB ). The Communiqué does not discriminate local shares and FCIs regarding registration process with the CMB, preparation of prospectus and circular, and offering and sale of FCIs, accordingly same rules will apply. The application for quotation at the ISE and registration application to the CMB must be completed simultaneously. What s new in the Communiqué? The Communiqué aims to facilitate integration of the Turkish capital markets with global markets and to increase offering of more FCIs in Turkey. The main developments introduced by the new Communiqué could be listed as follows: It is no longer mandatory to realize the public offering of FCIs via depository receipts. In case of public offering of FCIs via depository receipts, the requirements pertaining to foreign partnership (such as being incorporated at least two years before offering and making profits in its last year s audited financial statements) have been lifted. The FCIs do not need to be listed on a stock exchange. The initial application procedure (to verify whether the FCIs, depository receipts and the issuers comply with the CMB s regulations) set forth under the old communiqué do not exist in the new Communiqué. Financial statements of foreign partnerships need to be prepared in accordance with the standards set forth for the listed companies by the CMB regulations or, if approved by the CMB, in accordance with international accounting standards. 2011/I 68

The consolidation of the infrastructure market in Turkey and its legal framework Francesco FERRARI Investors are usually surprised to discover that Turkey put BOT concessions and other similar schemes in place more than 25 years ago and that it successfully used them since. For example, the first piece of legislation setting out the regime of BOT and Transfer of Operation Rights (TOR) schemes applies to the energy sector and dates back to 1984 (Law no. 3096), while the 1988 Law on Assignment of Construction, Maintenance and Operation of Highways (Law no. 3465) regulated the application of the BOT scheme to the construction, maintenance and operation of motorways under private law. Since then, many other sectors introduced similar schemes and procurement methods, in 1994, transportation and water supply were allowed to use BOT schemes; in 1997, thermal power plants followed; in 2005, the air transportation sector was opened to TOR schemes of up to 49 years for airports and terminals; also in 2005, the healthcare sector was reformed, first creating the Turkish legal framework for PPP contracts and later enacting an ad hoc PPP Regulation that actually made them happen. As the above legislation was being passed, Turkey started developing an ambitious privatization programme that often involved TOR schemes, and that led to the establishment in 1994 of the Privatization Administration, which so far has raised more than USD 40bn for the government to invest in other sectors, as well as rescue the country from the financial crises of 1994 and 2001. A New Era Turkey is now beginning a new era with another batch of ambitious projects: the USD6bn Gebze-Izmir motorway, running 420km and including a 3km bridge, is now working towards financial close, an impressive USD5bn privatization of toll roads (8 motorways and the 2 bridges over the Bosphorus) will be tendered in the first quarter of 2011, the launch of seven new PPP hospitals worth hundreds of millions of dollars, with the first 1,500 bed Kayseri hospital expected to be awarded soon, and, finally, other assets, mainly in power generation, still in the hands of the Privatization Administration will be privatized in 2011. In this ambitious environment, investors may wonder whether Turkey really needs a PPP law and what the status is of the legislation that has been attempted many times. The confusing and sometimes contradictory legal framework described above has, after all, accomplished much in recent years, as is evident in the projects that have been procured, awarded and even completed. The Ministry of Health (the Ministry ) developed its own PPP regulation, on the basis of Law no. 5396, to procure and develop PPP projects aimed at reforming and changing radically the shape of Turkish hospitals and healthcare services for generations. A PPP unit responsible for the procurement of the new projects was also established within the Ministry. Based on the said law, the Ministry may initiate new projects (the scope and conditions of projects are predetermined by the Ministry in line with High Planning Council decision), over ministry or Treasury land through lease which shall not exceed 49 years. Projects shall be realised via public tender. Tender method, eligibility criteria of contractor, scope of contract and other relevant issues shall be prepared jointly by the Ministry of Finance, 2011/I 69

The Ministry, State Planning Organization and Treasury and shall be implemented by Council of Ministers decision. The draft PPP law has been circulating in various government and parliamentary offices for more than three years and it is hard to see anything other than political reasons for it not being enacted. Whatever the reason, the market has developed and rapidly expanded without it. Benefits of the New Law Though it would be early to make an assessment as the draft PPP law is not as yet finalized, some advantages can already be identified based on the current text. First of all, PPPs will not be left only to the initiative of the more proactive ministries, but will be a tool accessible to all ministries and sectors. We may eventually see the development of PPP schemes for schools, universities, prisons, social housing, street lighting, waste disposal, waste to energy, water distribution network, light rail, etc. Secondly, participants in all industries will be able to operate in an environment where the same rules and principles apply, although of course some sector specific issues will be left to be resolved by the authorities competent for that sector. A uniform and stable set of rules and principles will help create confidence in the market, especially among international investors, local and foreign banks, and the infrastructure investment funds that have yet to jump into the Turkish arena. The draft law provides for different schemes applicable to PPP projects: BOT, BO, TOR and similar schemes. Also, the partnership to be established between the private and the public sector will never see the latter holding the majority of the shareholding in a project, as the public authority s shareholding can be between 0% and 49%. The draft law says PPP contracts between the public sector and the private sector will be subject to private law, but it also provides that tenders of PPP projects will not be subject to the Public Tender Law no. 4734, but to a separate and tailor-made set of procurement rules more in line with PPP standard tender requirements. The duration of the PPP contract cannot exceed 49 years, which seems a reasonable term even if some countries and some sectors have gone higher on certain rare projects. Finally, the public sector will be entitled to provide guarantees (such as traffic guarantees, occupancy rates, other demand guarantees), as long as such guarantees comply with market standards. 2011/I 70

Competition Turkey Welcomes its New Merger Control Regime Kübra ŞIVGIN A brand As of January 1, 2011 Turkey welcomed its new Merger Regulation or officially referred to as the Communiqué Concerning The Mergers and Acquisitions Calling for the Authorization of the Competition Board No:2010/4 (Communiqué No. 2010/4). Albeit various shortcomings and flaws were encountered in practice with the old Communiqué the use of market share threshold versus turnover threshold that jeopardized legal certainty, mergers and acquisitions that need to be notified to the Turkish Competition Board (the Board ) under the new regulation will have to comply with extended requirements compared with the previous regulation, Communiqué No. 1997/1. Short form notifications under the new regime are available for those transactions that new concept that has completely changed the overall merger control regime is the notion of affected markets. meet certain requirements as detailed below, yet for those that fail to meet the requirements, long form notifications will have to be performed, which certainly entail more disclosures than its counterpart. It is clear that the development of Turkish economy since 1997 necessitated this change in the law, where in which transactions have become more complex, demanding additional disclosures than before. Nevertheless, it is clear that Turkish competition law is being further harmonized with European Union competition law as the new Turkish regime resembles that of EU s Merger Regulation *. The ensuing discussion shows the changes that have come about with the new regulation while comparing it EU s regime. While the old Communiqué used a system of market share thresholds that resulted in legal uncertainty, Communiqué No. 2010/4 uses a threshold system that is based on turnovers which eases the undertakings to make their assessments. More specifically, transactions have to be notified if: (a) Total turnovers of the transaction parties in Turkey exceed 100 million TL, and turnovers of at least two of the transaction parties in Turkey each exceed 30 million TL, or (b) Global turnover of one of the transaction parties exceed 500 million TL, and at least one of the remaining transaction parties have a turnover in Turkey exceeding five million TL. ** It should be emphasized that in the calculation of the turnovers, in case of a transfer of those parts of the transaction parties with or without legal personality, only the turnover of the part transferred will be taken into account with regards to the transferor. In addition to calculation of the turnover, another relevant concept that is new for Turkish law but familiar to EU s Merger Regulation is the concept of conditional/closely related transactions. *** * Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EU Merger Regulation) ** It should be underlined here that the Board has reserved the right to re-establish the thresholds every two years. *** Communiqué No. 2010/4 Art 8(5) states: Two or more transactions under paragraph 2 of this Article, carried out between the same persons or parties within a period of two years, shall be considered as a single transaction for the calculation of turnovers listed in Article 7 of this Communiqué. Similarly, Art 5(2) of EC Regulation No 139/2004 states two 2011/I 71

T he More importantly, a brand new concept that has completely changed the overall merger control regime is the notion of affected markets. It entails the relevant product markets that might be affected by the transaction to be notified and includes horizontal relationships where two or more of the parties are commercially active in the same product market and vertical relationship where at least one of the parties is commercially active in the downstream or upstream market of any product market in which another party operates. The affected market concept also plays a role where the transaction does not affect any markets, the parties do not need to file a notification form with the Board. The lack of necessity to notify here is qualified in terms of joint venture transactions for which notification is not required as long as the thresholds are exceeded. The Board s authorization of the notified transaction will also cover those limitations which are directly relevant and required for the affected market concept also plays a role where the transaction does not affect any markets, the parties do not need to file a notification form with the Board. implementation of the transaction, hence ancillary restraints. By this, the Board will no longer devote a separate part of its decisions to ancillary restraints and thus the parties themselves shall assess the ancillary status of the restraints contained in their transactions. Thus, as long as the major transaction is approved, so will its ancillary restraints, such as non-compete and/or nonsolicitation clauses. This once again resembles the EU s regime where the ancillary restraints benefit from the Commission s approval of the main concentration. * As far as procedural changes, it could be argued that the new system works in favor of the notifying parties as they can opt for a so-called short form where either one of the transaction parties acquires full control over an undertaking in which it had joint control, or, for any affected market within Turkey, the sum of the market shares of the transaction parties is less than 20% for horizontal relationships, or the market share of one of the transaction parties less than 25% for vertical relationships. For all other instances, the parties still have to notify with a long form, which necessitates disclosures on import conditions, suppliers, customers in the affected markets, market entry conditions as well as a detailed analysis of efficiency gains. In merger or acquisition transactions, the date of implementation is the date when the control is changed, which once again harmonizes the Turkish regime with that of EU. Likewise, joint notifications are to be made with a single form. As in the EU, a copy of the final or current version of the agreement concerning the notified merger or acquisition can be enclosed with the Notification Form. Hence, this would permit the parties to file before the transaction document is signed, whereas in the old regime executed document was required. Last but not least, the M&A s existence will no longer be confidential. The Board now publishes the notified transactions on its official website, together with the relevant undertakings and their fields of operation, extracting commercial secrets. As such, competitors or any other interested third parties can submit electronic information on the Board s website that is relevant to the transaction. Overall, the new system has introduced a brand new form that certainly requires a lot more information, yet is more harmonized with the EU s Merger Regulation. Short form and long form distinctions are welcome as the short form permits parties to save significant time. The new system brings more clarity, especially in terms of threshold calculations. Nevertheless, given the Board will review applications based on this form for the first time, uncertainties hang as far as the Board s interpretations to the new terms (i.e. affected markets) which will only get clearer with time. or more transactions within the meaning of the first subparagraph which take place within a two-year period between the same persons or undertakings shall be treated as one and the same concentration arising on the date of the last transaction. * EC Regulation No 139/2004 Art 6(1)(b) A decision declaring a concentration compatible shall be deemed to cover restrictions directly related and necessary to the implementation of the concentration. 2011/I 72

Intellectual Property Rights versus Competition Rules: Parallel Imports Ayşe GÜNER T he A recurrent conflict between Intellectual Property law and Competition law in Turkey stems from parallel imports defined as the legal importation of a good by third parties after the good has been placed on the Turkish market with the consent of the right holder. The key question always hangs on whether the Intellectual Property Right ( IPR ) holder may legitimately oppose the importation of a particular good into Turkey. A quick look at the current state of law in other jurisdictions, such as the European Union, shows that once the goods are placed anywhere in the common market, the IP rights are deemed exhausted, and the parallel importation of such goods cannot be restricted as it would violate the key question always hangs on whether the Intellectual Property Right ( IPR ) holder may legitimately oppose the importation of a particular good into Turkey. freedom of movement of goods. Turkish law, on the other hand, takes a protectionist approach in terms of IPR exhaustion (also referred to as the first sale doctrine) given that the principle of national exhaustion prevails over that of international exhaustion. As such, if a particular good has never been marketed in Turkey, its supplier could rightfully seek an injunction to stop the importation of the goods on the basis of a registered copyright, trademark or a patent license. Take, for instance, an international cosmetics manufacturer who finds out that their most recent shampoo bearing their TM was just import- ed into Turkey via an alternative chain of supply from a country bearing the same TM where the product was first marketed into, and the supplier for various reasons withheld its marketing in Turkey. Certainly, the importation into Turkey was without the supplier s authorization. In such a case, IP rights would most certainly prevail over any competition policy. In many instances, however, the issue is not as simple because the goods have already been launched in the Turkish market. In that case, unless the goods were imported via illegal means, from illegal producers or constitute counterfeit goods, competition policy would not permit restriction of the imports. Parallel imports in Turkey have been considered by its courts from various angles, particularly under the Trade Mark Act as well as Act No 4054 on the Protection of Competition. Both Turkish Trademark law as well as Turkish Competition law fails to provide explicit reference to parallel imports. The Decree-law No 556 (Trade Mark Act) in Article 13 provides exhaustion of trademark rights where the product has been put on the market in Turkey by its proprietor or with his consent. Once that first sale with the registered mark affixed on it has been made, the right holder can only prevent changes to the condition of the good or impairment of such. * Under Act No 4054, the Competition Board ( Board ) evaluating competition-law aspects of parallel imports looks to whether a vertical agreement, one that is solely to restrict parallel imports exists between the supplier and its authorized distributor in Turkey [Article 4(d) analysis], or in the alternative, it looks to determine whether the undertaking supplying the goods in a particular brand holds a dominant position * Decree No 556, Article 13 2011/I 73

O verall, where it would be deemed abusing that position if it prevents another entity from entering into that market [Article 6(a) analysis]. * Under both analyses, any restriction against parallel imports would violate either Article 4(d) or Article 6(a). While recognizing that IP rights protect from free-riding, as parallel imports provide intrabrand competition, the Board in its relevant case law underlines that the IPRs must be balanced with competition rules so as to ensure consumer wellfare. ** One way to safeguard consumer wellfare through parallel imports would be to guarantee that the imported goods are not hindered from competing with the authorized distributor s prices. Moreover, the Board has touched upon international price discriminations, where the goods sold into Turkey via selective distribution system differ in price from the goods sold into other countries. The suppliers may do this, for instance, to either achieve market presence in countries where they either newly enter or else seek to increase their market presence. Parallel the Board sides with the idea that the more bans on paralel imports are attempted by suppliers and their autorized distributors, the less consumer wellfare would be achieved. torized distributors, the less consumer wellfare would be achieved. Nevertheless, any allegations of anticompetitive acts would fail provided that either no agreement/concerted practice exists to ban parallel imports or the product does not have a significant market share. As the Board has so far only considered the same products being imported, one issue that remains is where the goods and products that are imported are not exactlly the same quality, but are rather similar quality, for instance those with of lower quality (cheaper product variants). Given international exhaustion of IPRs in Turkey is not yet recognized, it could be argued that where the goods are of less quality and where they have never been placed into the Turkish market, a supplier or its distributor hold more convincing arguments that such goods can be banned from sale. Nevertheless, global consumer wellfare would suggest that in such cases, not only intrabrand but also interbrand competition would be implicated. It can be further suggested that parallel importation of similar products should be permitted under competition policy. imports are one way to balance these price variations in different countries. Overall, the Board sides with the idea that the more bans on parallel imports are attempted by suppliers and their au- * Act No 4054, Article 4(d) prohibits agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly by complicating and restricting the activities of competing undertakings, or excluding firms operating in the market by boycotts or other behavior, or preventing potential new entrants to the market. Article 6 provides that the abuse, by one or more undertakings, of their dominant position in a market for goods or services within the whole or a part of the country on their own or through agreements with others or through concerted practices, is illegal and prohibited. One such abusive case under Art 6(a) is preventing, directly or indirectly, another undertaking from entering into the area of commercial activity, or actions aimed at complicating the activities of competitors in the market. ** See for example Case No 00-44/472-257 and Date: 6.11.2000; Case No 07-63/767-275 and Date: 2.8.2007; Case 05-79/1099-316 and Date: 24.11.2005 2011/I 74

IPT Turkey s Signing the Convention on Cybercrime Tolgahan KARKIN Burak ÖZDAĞISTANLI T he The Convention on Cybercrime The rapid and almost uncontrollable revolution in information technologies changed the society and we believe it will continue to do so. According to recent stats there are around 2 billion internet users worldwide. * Considering the current total population of the world, it is clear that more than 28% of the world population is directly or indirectly open to the impact of cybercrimes. The increasing importance of cybercrimes can be understood by looking at internet usage statistics. When compared with 2000, the number of internet users has increase almost 444 %. It is clear that such an increase cannot be ruled out and necessary steps should be taken in order to regulate this area. signing of the Convention is very significant because it is expected to create co-operation between signing states. Recognizing this need, the Council of Europe drafted the Convention on Cybercrime following 5 years of work by committees and subcommittees and the Convention s final text was presented for signature in Budapest on November 23, 2001. Although the Convention has been prepared by the Council of Europe, it was open for both member and non-member states to sign because combating cybercrimes is a global issue and the Convention is the first international trea- * http://www.internetworldstats.com/stats.htm ty dealing with crimes committed using means of internet and computer technology. The Convention has been a huge step forward for regulation and description of crimes by means of internet and computer technology. It sets forth the internationally accepted definition of types of cybercrimes. The aim of the Convention is to develop common regulations in the signing states and to create a common policy to protect the society against cybercrime by creating and easing international co-operation between signing states. The Convention primarily deals with crimes such as copyright infringement, data interference, system interference, violations of network security, child pornography and computer related fraud and forgery. Procedures and powers related to search and seizure of the computer data and collection of internet data are also regulated under the Convention. The Convention was signed by 26 member and 4 non-member countries on the day of opening for signature. Member countries including the UK, France, Germany and Italy and non-member countries including the U.S.A., Japan and Canada are within the countries which signed the Convention on its date of opening for signature. Since November 23, 2001, 47 countries signed the Convention, Turkey being the 47 th. Turkey signed the Convention on Cybercrime w. ETS no. 185 and the Additional Protocol to the Convention on the Transfer of Sentenced Persons on November 10, 2010. Combat Against Cybercrimes in Turkey and Impact of the Convention As stated above, Turkey s signing of the Convention is very recent and the Convention has 2011/I 75

not been ratified by the Grand National Assembly of Turkey as yet. Once the ratification process is complete, national laws will be aligned with the Convention. However until the ratification, the Turkish Criminal Law w. No. 5237 and Law No. 5651 will continue to be the most important pieces of legislation regarding combating cybercrime in Turkey. The Turkish Criminal Code w. no. 5237 came into force in 2004. Due to being a new law, most of the crime types regulated under the Conventions have already been stipulated by the Turkish Criminal Code w. no. 5237. Crimes such as illegal access to computer systems and prevention of the functioning of a system and deletion, alteration or corruption of data, recording of personal data etc. are regulated under the Turkish Criminal Law no. 5237. Although most of the cybercrime types are already regulated under Law no. 5237, prosecution and investigation of such crimes constitute the main difficulty and this confirms the need for effective regulation regarding cybercrimes. Due to broad accessibility and mobility brought by Internet, cybercrimes can be committed from other countries regardless of geographical distances and therefore the prosecution and investigation of such crimes become difficult to prosecute due to differences in jurisdictions and poor co-operation between judicial authorities in different jurisdictions. The signing of the Convention is very significant because it is expected to create co-operation between signing states. In this respect, it is believed that more states should sign the Convention and be a part of this cooperation process. We believe that following Turkey s ratification of the Convention, cross-jurisdictional cooperation will improve and the enforcement authorities will make use of international resources. In this regard, Turkey has taken a very important first step towards modernising its legislation bringing it in line with international laws against cybercrimes; however there is still substantial work to be done. In order to complete this transition, the Convention should be carefully examined and the local legislation should be adapted rapidly. Furthermore, like the other signing states, local preparations such as establishment of 7/24 contacts should be completed as soon as possible to realize the requirements of the Convention. Combatting Counterfeit Healthcare Products Süleyman SOYSAL - Alize TUFAN The trend in illegal trade of counterfeit goods continues to increase. Healthcare products, including pharmaceuticals, still constitutes an important product category upon which counterfeiters concentrate. There are actually many reasons for this. First of all, there is a consistent and increasing demand for pharmaceutical product consumption. Second, as counterfeit pharmaceutical products are manufactured very close to their genuine versions, it is really hard for an average consumer to notice if he/she has purchased a counterfeit product. As counterfeiting in healthcare products affect not only the rightholders but also 2011/I 76

O ne the patients in general, enforcement authorities should carefully monitor this issue and take exofficio action where needed. Pharmaceuticals The Turkish Criminal Code contains two provisions regarding the prevention of trade of counterfeit/spoilt pharmaceutical products. Pursuant to Article 186, one who sells, provides or possesses spoilt drugs that may affect others lives and health shall be subject to 1 to 5 years imprisonment and a judicial fine. Further, Article 187 stipulates that manufacturing such spoilt products shall require the same penalties. If these offences are perpetrated by officials, such as doctors or pharmacists, the penalties are aggrevated by one third. As stated above, there are sufficient and effective criminal sanctions in criminal legislation against manufacturing and selling of counterfeit pharmaceutical products. However, in practice, who sells, provides or possesses spoilt drugs that may affect others lives and health shall be subject to 1 to 5 years imprisonment and a judicial fine the offence that is frequently observed is not the sale of fake products but fake packaging and price tags. Packaging and Price Tags As it is very easy to obtain pharmaceutical packaging from any printhouse, perpetrators tend to commit such offence in order to gain illegal benefits by cheating the reimbursement system. Unfortutanely, the provisions stated above regarding fake drugs, cannot be applied to such offences, as the wording of the Criminal Code provisions is limited to drugs and food. If the circumstances of each case allow, i.e. if the fake packaging or price tags are actually used to obtain illegal benefit from the reimbursement authorities, the provisions on forgery and fraudelent activity can be applied. If such are not submitted to any authority, then the remaining action to be taken isunder the protection of trademark rights. Recently, the Ministry of Health ( MoH ) in- troduced pharmaceutical tracking system, where products will be identified by 2D barcodes starting from the manufacturing phase. It is possible to process each product in the reimbursement system only once, as each barcode allows one single transaction. It is expected that this new system, will help a lot in reducing the fake packaging and price tags. Medical Devices and In Vitro Test Devices Another group that counterfeit products are sold to the customers are the medical devices and in vitro test devices. As stated above, there is a legal gap for these products as well, as the Criminal Code explicitly prohibits only pharmaceuticals and food. Rightholders also face parallel import of expired or spoilt devices. In such case, they are able to apply to the courts and prosecution offices with the request to cease trademark infringement, as spoilt or expired products can not be presented to the market under a protected trademark. Otherwise, the original trademark would be harmed. It is also possible to make administrative complaints to the relevant departments of the MoH, as the use of such devices constitutes hazard to the patients health. Combat with Counterfeit Pharmaceuticals in Practice Police units have developed their skills to investigate the sources of counterfeit products and packaging. The products seized during the police investigations are examined by the MoH and the results are submitted to the prosecution offices. In the recent term, the most frequently observed counterfeit products are slimming pills, afrodisiac products and products used for preventing hair loss, etc. Another increasing trend is the increase of selling pharmaceutical products via the Internet. This is definitely in breach of legislation, as in Turkey only pharmacies are authorized to sell pharmaceutical products. Another vital aspect to combat this issue is public awareness. Consumers should be educated via newspapers, TV and radio channels, to purchase pharmaceutical products only from pharmacies and to avoid any proposal from third parties to get involved in claiming their payments from the reimbursement authorities. 2011/I 77

Reform of the Turkish Constitution & Privacy Rights Ayla ÖZENBAŞ One of the most prominent and spoken about changes in 2010 was reform of the Turkish Constitution. On September 12, 2010, a referendum was held as a result of which the Constitution reform package was adopted introducing sweeping changes largely affecting the political and judicial system in Turkey. Amongst these changes, the right to protection of personal rights and privacy enshrined in the constitution has been bolstered. Although, the Constitution before the reform protected privacy rights at a certain level, as a result of the reform, protection of personal data has been strengthened whereby the new rights have been granted, the scope of existing rights has been expanded and new positive measures have been introduced for the protection of privacy. The changes echo the principles laid down in the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data and consequently data processing is more controlled and individuals have been provided with rights available under EU legislation. New Laws & Liabilities Prior to the amendment, the Constitution afforded protection of personal data and set forth neither a person nor private papers, nor belongings, of an individual shall be searched nor seized without legal reason or excuse. These rights have been reinforced and everyone has the right to ask for protection of his/her personal information including the right to be informed of personal data pertaining to such person, the right to access, delete and/or correct such data and the right to find out whether the data is being used in accordance with the purpose for which it was collected. It can be seen that there is a notable difference whereby data processing is more controlled and individuals have been provided with more specific rights similar to those available to individuals in the EU. In 2008, Turkey prepared a Draft Law on Data Protection ( Draft Law ) in accordance with the European Union Data Protection Directive No.95/46/EC and Commission Decision 2001/497/EC of 15 June 2001, which in light of the recent changes to the Constitution is expected to be enacted shortly. The provisions of the EC Directive have been mirrored in the Draft Law and it practically affords the same protection and imposes similar duties on those involved in processing data. Broadly speaking, the Draft Law sets forth that everybody has the right to know whether their personal data has been recorded and confidentiality of all data collected must be guaranteed by law. Another important development is that it clearly establishes individual rights but more importantly focuses on control and monitoring of data processing. In general terms, the Draft Law permits personal data to be processed to meet legal obligations, where the data subject provides consent or if the processing of the data is necessary and in the public interest. It imposes strict conditions for processing data ensuring data stored is obtained and processed fairly and lawfully, for specified and legitimate purposes and not used in a way incompatible with those purposes. The right to access data stored to check accuracy and where necessary correct, modify or delete data, as well as, specific regulation for sensitive personal data has been introduced. It has also defined procedures and governing principles to be applied when dealing with data processing, increasing liability and obligations of those involved in data processing to ensure data protection when data is collected, stored or transferred. Furthermore, a Data Protection Authority shall be established to monitor and govern compliance and provisions regarding enforcement stipulating criminal liability and monetary fines have been included. 2011/I 78

Compliance & Considerations As a result of the amendment to the Constitution, individuals are more aware of their rights and liability of data processors. It is expected that the Draft Law and recent amendments to the Constitution shall act as a catalyst for change in the manner in which data is processed and managed. It is without doubt that the amendment of the Constitution will result in improved protection and has placed those processing data under a legal duty to process data lawfully. The Draft Law clearly sets forth obligations under which data processors are to operate and an authority for regulation and monitoring of data processing shall be established. This is a significant development as although there are laws in place and sanctions for breach, enforcement of data privacy leaves a lot to be desired and in practical terms, there is little stimulus for those processing data to ensure privacy of such data is respected. The new developments will appease concerns and will inspire confidence in Turkey s attitude towards privacy. Consequently, all busi- nesses shall need to seek legal advice and reconsider policies and business ethics in light of their obligations with regards to data protection. The issue of data protection compliance is unavoidable as with today s global economy, the free flow and exchange of information is indispensable in operating almost any business. The need to transfer and share data, be it, employee data, customer data, marketing data, and other information is essential to run an efficient and competitive business. Sharing data has obvious benefits but with the current focus on privacy and data protection it also carries compliance issues for multi-national businesses. In this respect, it is vital that businesses are aware and properly advised of the boundaries and obligations of the law to ensure compliance and avoid legal repercussions. Seeking advice from experts that closely monitor the advancements and follow the statutory changes and adoptions is a necessity, as is seeking sound legal advice at an early stage rather than when compliance becomes an issue, prevention is always better than cure. Public Discounts in Reimbursement of Pharmaceutical Products İbrahim YAMAKOĞLU Comparing to the reimbursement practices of various countries in the past decades, today it can be observed that the general trend in the world with respect to reimbursement of healthcare expenditures by the governments is that in order to ensure the social security principle, governments allocate a considerable budget for healthcare expenditure. In most countries the largest part of the budget is allocated for healthcare expenditures whilst the remaining part of the budget is allocated for other public services in the said countries such as education, military defense etc. Likewise, the budget for the reimbursement of pharmaceutical products has the largest share amongst all the other healthcare services. In this article we will deal with the recent issues and changes in the legislation in Turkey with respect to reimbursement of pharmaceutical products. In the Turkish Constitution, the State has the responsibility to establish healthcare institutions to ensure the health of the public and to establish the social security system for the same purposes. 2011/I 79

I t Therefore, the Turkish State established a Social Security Institution ( SGK ) in order to provide the social security services to the public as provided in the Turkish Constitution. The major responsibilities of the SGK may be listed as the protection of public health and financing of general health security and healthcare expenditures of the citizens. Pursuant to the relevant legislation, the healthcare expenditures that are reimbursed by SGK are, inter alia, pharmaceutical products, medical devices, vaccine, medical disposables. In order to reduce the pharmaceutical product related expenditures of the State, in recent years, the Turkish government has amended the legislation to reduce pharmaceutical product prices and to increase the public discounts for the pharmaceutical products that are purchased by the government. In this respect, the reference price system was introduced in 2004 whereby the highest ex-factory price of a pharmaceutical product in Turkey must not exceed the lowest is natural that governments may provide legislative changes in order to control public expenditures. However, such unexpected and high increase in public discounts in the recent term negatively affected investment and operational plans of the pharmaceutical companies in Turkey. ex-factory price of the same product in the 5 reference countries (France, Italy, Spain, Portugal, Greece) markets. Since then to date the reference price system has changed to some extent; however, basically today the price to wholesaler of an original product can be maximum 66% of the lowest price to wholesaler of the 5 reference countries as well as the origin country or the country where the product is imported from. In Turkey, the main purchaser of the pharmaceutical products is the Turkish government with a 90% percent purchase volume in the pharmaceutical market; thus it can be argued that in order to survive and generate meaningful profits in the Turkish market, pharmaceutical companies should make the most of their products placed in the reimbursement list of the SGK. Therefore, right after the product is granted with the marketing authorization, pharmaceutical companies apply to the SGK in order to place the product in the reimbursement list. Although being reimbursed by the State brings certain advantages, it also has a down side where additional public discounts are imposed by the State for the sales to the public. In Turkey, the principles for the reimbursement of healthcare expenditures and the relevant public discount ratios are regulated under the Social Security Implementation Communiqué ( SUT ) which was issued by the SGK. In 2008, the public discount rate in the SUT was determined as 11% both generic and original pharmaceutical products unless the products price was below TL 3.56 for which the public discount ratio was 4%. Then in December 2009 a change was made in SUT whereby the public discount ratio for original products which have no generic in the market was increased to 23%. According to the most recent legislation change on December 11, 2010 in the SUT, for original products which have no generic in the market the public discount has been determined as 32.5%; whereas for the original products which have generic in the market and for all the generic products the public discount rate has been determined as 20.5%. It is a fact that due to the recent global financial crisis many countries have been applying certain measures for financial stability. The Turkish Government allocated a budget of TL 14.6 billion for pharmaceutical products expenditures and in order to achieve this target, it decided to reduce pharmaceutical product prices and to increase public discount rates if the said budget is exceeded. According to the retrospective evaluation of SGK for 2010, it was determined that the said budget of TL 14.6 billion has been exceeded and accordingly the Government started negotiations with the players in the pharma sector in order to understand their willingness to contribute in compensating the said budget deficit. Although the pharmaceutical companies were not happy to be imposed additional public discounts, they had to accept such additional 9.5% ratio. In 2011, it is expected by the sector that, these measures will be reviewed every 3 months and decreased if there are grounds to do so. It is natural that governments may provide legislative changes in order to control public expenditures. However, such unexpected and high increase in public discounts in the recent term negatively affected investment and operational plans of the pharmaceutical companies in Turkey. For instance some companies had to decide for layoffs, and some decided not to continue importing certain products. For the future, a compromise should be found in order to strike a balance between decreasing public costs and allowing public to access new treatments. 2011/I 80

Clinical Trials Sinem TEOMAN In Turkey, clinical trials was first regulated by the Regulation on Pharmaceutical Researches published in the Official Gazette dated 29 January 1993 with no. 21480 and Good Clinical Practices Guideline dated 29 December 1995. With the publication of the Regulation on Pharmaceutical Researches and relevant guidelines, implementation of clinical trials became much more stable. However, new needs and institutional requirements were raised and a new regulation, namely, the Regulation on Clinical Trials ( Regulation ), which is in parallel with the EU Directives 2001/20/EC and 2005/28/EC for the purpose of harmonization, was published by the Ministry of Health ( MoH ). The Regulation was published in the Official Gazette dated 23 December 2008 with no. 27089 and finds its basis in Article 43 of Decree Law on Organization and Duties of the MoH with no 181 and Article 3/1(k) of the Law on Healthcare Services with no. 3359. The Regulation sets forth the principles and procedures regarding design, conduct, record keeping, reporting, validity, volunteer rights and other aspects of clinical trials to be conducted within the framework of EU standards and Good Clinical Practice. Following the publication of the Regulation, the Turkish Medical Association filed a lawsuit with no. 2009/3991 E. for annulment of some provisions of the Regulation with a stay of execution request before the 10 th Chamber of Council of State, which is the high administrative court and appeal authority in Turkey. Although this lawsuit is still pending, so far two important suspension decisions have been issued, i.e. first by the 10 th Chamber and the latter by the Highest Assembly of the Council of State, i.e. the Assembly of Administrative Chambers. With the first suspension decision dated 13 November 2009, only some of the provisions of the Regulation had been suspended. The Council of State, in light of the local laws, Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine dated 4 April 1997 and the Helsinki Declaration, decided for suspension of the provisions on informing subjects before the commencement of the trial, payments regarding pharmacokinetic and bioequivalence studies, rewards provided to subjects, the Clinical Trials Advisory Board which was established under the MoH and Regional Ethics Committees, simultaneous application to ethics committee and the MoH and silence of the MoH for amendment requests in clinical trials. Pursuant to Article 28 of the Administrative Procedural Law, the administrative authority is required to establish a transaction in accordance with the suspension decision within 30 days of the notification; therefore, the MoH made amendments on March 2010 in accordance with the first suspension decision. However, later on 15 July 2010 a second suspension decision was issued in accordance with the objection made by the Plaintiff Party, i.e. the Turkish Medical Association, which caused suspension of the whole of the Regulation. The reasoning of this second suspension, in summary, was that the Regulation had been published without a legal basis, despite the constitutional requirement that integrity of the human body can be limited only by law. It is stated in the decision that although Article 43 of the Decree Law and Article 3/1 (k) of the Law No. 3559 were referenced as a basis of the Regulation, there is no provision which grants authority to the MoH regarding regularization of clinical trials performed on human subjects. Consequently, the Regulation is not applicable as of today. All the relevant parties are looking for a solution and we are in a transition phase, where the government is expected to en- 2011/I 81

act a law. Meanwhile, only, the ongoing studies which were previously approved and permitted continue. Although enactment of a new law is awaited, the MoH published various announcements and guidelines on performance of clinical trials in December 2010 on the official website of the General Directorate of Pharmaceuticals and Pharmacy, i.e. Guideline on Ethical Approaches at Clinical Trials Performed on Pediatric Population, Guideline on Collection, Confirmation and Submission of Reports on Adverse Event/Reaction Occurred During Clinical Pharmaceutical Researches, Guideline on Means of Application to Ministry of Health at Clinical Trials, Guideline on Performance of Audits Regarding Good Clinical Trials Concerning Sponsor and Contract Research Organization, Guideline on Independent Data Monitoring Committees. First of all, it should be noted that only enforcement of the Regulation was suspended, but the MoH still has administrative and executive power over clinical trials. In other words, effect of the suspension decision is limited and merely ceases implementation of the Regulation, it does not absolutely conclude or abolish all clinical trials. Constitutional Law sets forth Excluding medical obligation and circumstances stipulated at the law, bodily integrity of persons shall not be harmed and scientific and medical trials shall not be experimented without consent of the relevant person. Furthermore, Article 3/1(k) of the Law No. 3559 states ( ) Usage of the pharmaceuticals and combinations on human with the intention of scientific research is forbidden without obtaining permissions of Ministry of Health and relevant person even if these products are permitted or registered. Production, importation and sales of pharmaceuticals and combinations which are not permitted or licensed in accordance with its specific legislation are also forbidden. In the light of the abovementioned provisions, we evaluate that the MoH still has power to grant permission regarding commencement and performance of clinical trials and clinical trials can be carried out in accordance with the principles published by the MoH, although the Council of State indicated in the second suspension decision that Article 3/1 (k) of the Fundamental Law does not authorize the MoH to regulate clinical trials. The MoH s authority to grant permission is also confirmed by Article 90/2 of the Turkish Criminal Code, also confirms this situation as it sets forth permission of competent committees or authorities are required for the performance of clinical trials on human subjects. As stated above, all provisions of the Regulation have been suspended within the ongoing administrative lawsuit. The Council of State has not issued its final decision yet, however the suspension decisions surely indicate that a cancellation decision is likely. Consequently, we anticipate that new legislation to be enacted will be in line with that amended regulation. On the other hand, we evaluate that during the transition period, clinical trials can be performed in accordance with the guidelines of the MoH with regard to authority given under Article 3/(1)k of Law No. 3559; however permission of the MoH should be obtained under any circumstances. 2011/I 82

Loss Compensation Funds Sinem TEOMAN In various business sectors, companies expand their operations to other jurisdictions. In that respect, they establish subsidiaries in accordance with the local legislation of respective counties. Also in Turkey, several companies with foreign capital have been formed in the past decades under the provisions of the Turkish Commercial Code (TCC). Due to various reasons, such as sector specific problems or general economic fluctuations, businesses may face financial losses and their equity capital may become insufficient to continue operations. In Turkey, pharmaceutical companies frequently lived through such process and had to request their shareholders to inject capital through loss compensation funds in order to prevent technical bankruptcy. These amounts are not recorded as revenue into the balance sheet but transferred to passive balance sheet accounts under the name of loss compensation fund. However, this practice has been criticized by tax inspectors and led to tax assessments. Tax authorities believe that such amounts should be deemed as revenue, as in reality they are received in return of providing services to the parent companies such as promotion and marketing of services. The tax authorities also argue that commercial companies are established for profit. As some of the pharmaceutical companies generated loss for several years, this has drawn attention of the tax inspectors. Consequently, corporate tax and VAT are assessed with respect to the revenue deemed loss compensation funds. Companies that are subject to such tax and fine assessments have three options: (i) accept the outcome of the inspection (ii) to apply for reconciliation (iii) to file a lawsuit before tax court. However, if the finding does not lead to a tax and fine assessment but only ends with correction of tax declaration, the only resort is to initiate tax litigation. The main argument of the taxpayers in challenging tax authorities findings is Article 324 of the TCC. It stipulates that if a commercial company s capital becomes insufficient in certain ratios, it is required to take the necessary precautions; otherwise it would face the outcome of technical bankruptcy. The first level tax courts reach different decisions within the lawsuits filed by taxpayer companies. Some have simply concluded that a commercial company cannot continue to generate loss for so long, thus this constitutes a strong indication that the loss compensation funds have been received in return of services. While others have decided that the dynamics of the pharmaceutical sectors should be carefully examined, and without doing that it would not be legally appropriate to conclude that the loss compensation funds had been received in return of services. Parties of these litigations have appealed the cases. Therefore, as of today, there are several lawsuits waiting to be finalized by the Council of State, which is the highest administrative appeal authority. So far, the 4 th Chamber of the Council of State issued some decisions, where it decided that the purpose of the taxpayer in continuing its activities despite the ongoing loss is that it operates in Turkey on behalf of its parent company. In light of this, we can state that 4 th Chamber does not have a favorable approach. However, it is believed that, it can issue different precedents by taking the specifics of each case into account. Furthermore, VAT disputes are examined by the 9 th Chamber, therefore 9 th Chamber may display a different view in this issue. 2011/I 83

Copyright Infringements on Internet Özge YURDAL A special Due to the accelerated trend of sharing intellectual and artistic works on the Internet, copyright infringements in the digital world are increasing. In Turkey, copyright on intellectual and artistic works is governed by the Law on Intellectual and Artistic Works with no. 5846 ( Copyright Law ). Although there are certain provisions in the Copyright Law that address the rights of copyrightholders, the Law is not sufficient in finding solutions to prevent and cease the copyright infringements, as such infringements are committed by using advanced technological tools. Like the other rights on intellectual and artistic works, rightholders have a monopoly over the right to distribute and publish their works in the digital world. Article 25 of the Copyright Law clearly stipulates that rightholders are entitled to present their works to the public and they have the authority to prevent presentation of their works to the public without their consent. notice & take down procedure was introduced to the Copyright Law with the 2004 amendment, which allows rightholders to obtain quick removal of infringing content from the Internet. A special notice & take down procedure was introduced to the Copyright Law with the 2004 amendment, which allows rightholders to obtain quick removal of infringing content from the Internet. Pursuant to Supplemental Article 4 of the Law, rightholders first apply to content providers with the request of removal; and if such do not react positively then they have the right to proceed to the public prosecutor to cease services provided by the service provider to the content provider which continues to publish infringing content. The Ministry of Culture, who is in charge of improving the copyright legislation, has plans to amend Supplemental Article 4. One of the proposed changes is that the rightholders should submit certain information, such as the details of the allegedly infringing content and a copy of rightholdership certificate. The reason for such change is to prevent groundless applications. Further, if the Supplemental Article 4 is amended, it will be necessary to obtain approval from the relevant criminal court to process the decision of the prosecutor. The Copyright Law does not contain definitions of content provider, service provider, hosting provider etc. For this, the definitions stated in the Law on Regulating the Transmission on Internet and Fight Against Crimes Committed Through These Transmissions w. no. 5651 should be taken into account. Furthermore, there is also another procedure stipulated in Law No. 5651 to prevent access to websites that contain certain criminal content. However, this Law is only for certain offences which in practice are called catalogue crimes, such as obscenity, provision of narcotic drugs etc. Therefore, such procedures cannot be applied in copyright infringement cases. Pursuant to Law No. 5651 and the Regulation published for its implementation, content, access and hosting providers who act with commercial or economic purpose should display certain identification information on their websites. In practice, as most of the websites do not contain such information, some rightholders skip the phase of informing the content provider and directly apply to the prosecution offices. This results in website being unnecessarily ceased. Therefore, it is debated in the relevant circles that the content providers should be properly informed before applying for cease of their websites. Once the public prosecutor decides restriction, such is mostly applied by IP or DNS restrictions. However, as a matter of global approach, these sorts of restrictions are limited within domestic borders; therefore do not provide an effective solution as they will not be binding on content providers in other countries. For this reason, instead of IP or DNS restrictions, URL restrictions would be more effective which will also provide restriction only to the alleged content instead of whole website. 2011/I 84

E-Commerce Gateway to The World Eda YIKILMAZ T he With the rapid development of the Internet and information technologies, the world is witnessing the various results and applications of technology. E-commerce is one of these, which complements the New World order called Globalization. E-commerce can be defined as the exchange of information, goods, services and payments by electronic means. It has become the driving force for the innovation of every industry. The belief is that the increased levels of Information Technology usage and diffusion provide enhanced economic benefits and opportunities for economic growth. In 1997 the High Council for Science and Technology of the Government established a special committee dealing with e-commerce issues, service provider shall send no commercial communications by e-mail unless the addressees of such material have explicitly notified the service provider that they wish to receive that material. and the administration for science and technology called TUBITAK and the undersecretary of foreign trade of the prime ministry were assigned to this project. The E-Commerce Coordination Commission (ETKK) held its first meeting in 1998, and three different work groups were formed to draft necessary resolutions for the government to regulate e-commerce. As part of the process of adapting to EU legislation, Turkey made it a national goal to complete harmonization studies with more flexible audiovisual rules by the end of 2010. To this end, the Ministry of Trade and Industry prepared a draft E-commerce Law ( Draft Law ) The Draft Law was significantly influenced by the EU E-commerce Directive 2007/31/EC ( Directive ). The Draft Law aims to provide rules to remove legal obstacles and create a more certain legal environment for e-commerce. It seeks to provide equivalent treatment for users of paper-based documentation and for users of computer-based information. As a framework law, however, it does not set out all the rules or cover every aspect of the use of e-commerce. The aim of the Draft Law is the creation of awareness, confidence, transparency among consumers and service providers. In accordance with the Draft Law service providers (real or legal persons providing information services), must provide a registration number or if they do not have registration numbers, they shall provide other information which identifies the service provider regarding their commercial and professional activities before executing an agreement with electronic communication tools. Electronic orders In accordance with the Draft Law, if a customer submits his/her orders with electronic communication tools, the service provider must explicitly display the total amount of order and the terms of agreement before entering the payment information. Additionally the service provider has to acknowledge the receipt of the recipient s order without undue delay and by electronic means, the order and the acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them. During the e-commerce activities the real or legal person on whose behalf the commercial communication is made shall be clearly identifiable. Also if the service provider would like to give promotional offers on their website, promotional offers such as discounts, premiums and gifts shall be clearly identifiable and the conditions which are to be met to qualify for them 2011/I 85

shall be presented clearly and unambiguously. Spam e-mails According to the Draft Law, the service provider should obtain prior written consent from recipients before sending commercial e-mails. The service provider shall send no commercial communications by e-mail unless the addressees of such material have explicitly notified the service provider that they wish to receive that material. The content of commercial e-mail should be appropriate and compatible with the recipients consent and requests. On the other hand please note that, when the service provider sends e-mail to merchant, there is no need to obtain prior consent. Recipients have the rights to reject to obtain these e-mails at any time. Data Protection The service provider is responsible and must guarantee confidentiality of recipients personal data. Personal data may only be passed on to third parties with the data subjects consent or on account of a legal duty. Indemnifications The service providers who do not fulfill their obligations arising from the Draft Law, are im- posed to administrative fines varying between 1.000 TL and 100.000 TL. If the service providers send e-mail or SMS to recipients without consent, they shall be imposed administrative fines varying between 10.000 TL and 100.000 TL In the preamble of the Draft law, it is mentioned that the Draft Law has been prepared in accordance with the EU Directives to provide harmonization with the EU directives. However, there are several issues that need to be addressed in order to achieve harmonization of legal and regulatory systems for e-commerce that could be acceptable to Turkey. Parallel to the developments observed within Europe and the rest of the world, Turkey has to be aligned with the progress in e-commerce technologies. E-commerce concept should be introduced, developed and spread among Turkish businesses and citizens. E-commerce should be welcomed as a national project and should be perceived as a priority. Therefore, enactment of the Draft Law is awaited with great anticipation. To benefit from the changes in the law and ensure compliance it is important that advice is sought to avoid missing out on the new advantages and avoid being penalised for non-compliance. Misleading Advertising Hatice EKİCİ Apart from the quality of a product, its promotion and presentation to the consumer are vital. Day by day, it is getting more and more rapid for a consumer to form his/her purchasing decisions. Advertisers are well aware of this fact and they use all means of technology and media to reach to the mind and heart of the consumer and affect his/her perception. In that respect, the importance of the advertising sector has intensively increased in parallel with competition. Although the vast majority of the advertisers act with good faith and prepare and publish their advertisements with proper content, there are also ones who tend to mislead consumers to obtain unfair advantage by providing incomplete or incorrect information. The consumer protection legislation prohibits misleading advertisements. Under the EU Directive on Misleading and Comparative Advertising number 2006/114 ( Directive on Misleading Advertising ), misleading advertising is defined as: any advertising which in any way, including its 2011/I 86

T he presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor. Misleading advertising is also regulated in Turkish law under the Consumer Protection Law ( Consumer Law ) together with the Regulation on Principles and Application Essentials Regarding Commercial Advertisements and Announcements ( Advertising Regulation ). Misleading advertisement is not clearly defined neither under the Consumer Law nor the Advertising Regulation. However, in light of various provisions of the said legislation and the decisions of the Advertisement Board, the elements of misleading advertisement can be summarized as follows: Advertisement Board strictly applies that if the accuracy of the information provided in the advertisement cannot be proven; such advertisement would be considered misleading. Advertisements with lack of sufficient information or deceiving context Content that mislead or likely to deceive a reasonable consumer The level of misleading should be material to the extent affecting the consumer s purchasing decision. The Advertisement Board, which operates under the Ministry of Industry and Trade is the authorized body to investigate whether an advertisement is compliant with legislation. Either upon complaint or ex-officio, the Advertisement Board reviews the advertisements, requests certain information, documents and views from the advertisers and then reaches a decision, where it can decide for cease or correction of the advertisement or application of an administrative fine. The decisions of the Advertisement Board can be challenged by filing lawsuits before the Administrative Courts of Ankara, where the Board is located. There is another authority called Advertise- ment Self-Audit Board which has been established by the advertisement industry. The purpose of the process before this authority is to resolve disputes between the advertisers amicably before the issue becomes a legal dispute. The Self-Audit Board is very efficient in terms of providing rapid solutions. The difference between the Advertisement Board and the Self-Audit Board is that the Advertisement Board performs its evaluation from the consumer protection perspective, while the Self-Audit Board forms its decisions in accordance with the advertisement rules established internationally. As a matter of fact, the Advertisement Board requires evidence as per the accuracy of the information provided at the advertisements during the evaluation of misleading advertising. The Consumer Law and the Advertising Regulation clearly stipulate that the burden of proof is borne by the advertiser. The Advertisement Board strictly applies that if the accuracy of the information provided in the advertisement cannot be proven; such advertisement would be considered misleading. Moreover, especially precise expressions such as 99.9% success, first and only in the world need to be soundly evidenced. For instance in a case, fuel efficiency up to 11.3% was considered misleading on account of the fact that it is not accurate for all vehicles. It is a fact that it is quite expensive to publish an advertisement, in particular on a TV channel. For this reason, advertisers are under pressure of delivering certain messages in limited time slots. This sometimes may have a negative impact whereby the viewers do not understand or misunderstand the message that is being delivered. Therefore, the Advertisement Board officers should evaluate the advertisements in light of this fact. Furthermore, they should develop their sectoral knowledge, as every sector has different characteristics and to evaluate an advertisement properly the specifics of each sector should be taken into account. While the advertisers on one hand should balance their eagerness to promote their products with providing correct and reliable information, the officers of the Advertisement Board on the other should not only restrict themselves to the wording of the legislation but also consider the internationally accepted rules and standards of advertising. 2011/I 87

Employment Obtaining Work Permits for Foreign Employees in line with Recent Changes in the Law Katharina S. Cihan AKYÜREK A In Turkey, the application procedures for working permits are covered by the Law on Work Permits for Foreigners and the Application Regulation for the Law on Work Permits for Foreigners. Additionally, employees who fall under the scope of the provisions of the foreign direct investment legislation and foreign employees who are employed independently, or dependently, in Turkey are also subject to the aforementioned legislation. s in many countries, Turkey is concerned with high unemployment amongst its nationals and therefore issuing work permits to foreigners is a sensitive issue. To avoid disappointment and providing a frivolous excuse to reject an application, it is essential that the application is made in due time, legal criterion is satisfied and conditions set by the Ministry of Labour and Social Security are fulfilled. The Direct Foreign Investment Law and the Regulation concerning Foreign Personnel Employment in Foreign Direct Investments regulates the provisions and procedures regarding obtaining a work permit for foreign key personnel employed in special direct foreign investments or liaison offices. In order for a company or branch to be considered a special foreign investment, it must fall within the scope of the Direct Foreign Investment Law and shall fulfil at least one of the conditions indicated in the Regulation, such as, the last year s turnover, capital shares of foreign shareholders, last annual export, minimum number of personnel of the company or branch in question and minimum fixed investment amount foreseen for investments. Personnel engaged mainly in high-level management and executive posts, in possession of knowledge of technology and management, research equipment and services of foreign direct investments possessing particular characteristics as set out in the Regulation, or, a single person in a liaison office who has been issued a letter of authorization by the principal company abroad are considered foreign key personnel. As in many countries, Turkey is concerned with high unemployment amongst its nationals and therefore issuing work permits to foreigners is a sensitive issue. To avoid disappointment and providing a frivolous excuse to reject an application, it is essential that the application is made in due time, legal criterion is satisfied and conditions set by the Ministry of Labour and Social Security ( Ministry ) are fulfilled. Application Procedure Applications for work permits can be made either abroad or in Turkey. In this context, a foreigner residing abroad should apply to the Turkish consulate of either his/ her country of residence, or his / her country of citizenship. However, since August 2, 2010 it is mandatory for an employer to apply to the Ministry for a foreign employee s work permit through an online application system. The employer shall also submit the required application documentation to the Ministry within 10 days of the application date. Work permits granted to foreigners become valid upon obtaining a valid residence permit. Therefore, foreigners who obtain work permits 2011/I 88

should apply for an entry visa within 90 days of obtaining a work permit and then apply to the Ministry of Internal Affairs for a residence permit within 30 days of entering the country. Foreigners who already have a residence permit valid for a minimum of 6 months, except for residence permits for educational purposes, or their employers can apply directly to the Ministry to change his or her residence permit to a residence permit for work purposes and this must be completed within 30 days of obtaining a work permit. As of August 2, 2010 the online system shall also be used for such applications. The Ministry may issue the following types of work permit: A work permit for a definite period valid for a maximum of 1 year and may be extended for up to 3 years on the condition that the employee is working in the same workplace or enterprise and in the same job. At the end of the 3 year legal working period, the terms of the work permit may be extended for a maximum of 3 more years to work in the same profession with any employer. A work permit for an indefinite period may be granted to foreigners who have resided in Turkey legally and continuously for at least 8 years or who have worked for a total of 6 years in Turkey. An independent work permit may be granted to foreigners who work independently, on the condition that they have resided in Turkey legally and continuously for at least 5 years. In exceptional cases, certain groups of foreigners set out in the relevant legislation may be granted work permits notwithstanding the terms stipulated by the law, on condition that they do not act contrary to national regulations and that they comply with the regulations on professional services. In comparison to a regular application obtaining work permits for foreign personnel is a swifter procedure. In this procedure, documentation proving that the company or branch is a special foreign investment and the foreign personnel is a key personnel shall be submitted to the Ministry. Criteria Recently, amendments have been made to work permit applications. In line with the amendment of the Application Regulation for the Law on Work Permits for Foreigners, when considering the employment of a foreigner rather than a Turkish national, the Ministry considers the nature of the business, foreigner s educational background, contribution of the workplace to the national economy; and the appropriate wage level in conformity with such qualifications and employment status. Thus, the Ministry s decision set out certain evaluation criteria which have been applied since August 2, 2010. A workplace which requests a work permit to employ a foreigner should employ at least 5 Turkish nationals. If the foreigner requesting a work permit is a partner of the company, the Ministry will request fulfilment of the requirement to employ 5 nationals for last 6 months of the 1 year work permit. If work permit applications for more than 1 foreigner are submitted, the requirement to employ 5 Turkish nationals applies for each foreigner to be employed. Moreover, the following financial requirements apply: The paid-up capital of the company must be at least TRY100,000; or Its annual gross sales shall be at least TRY800,000; or It must have exported goods to the value of at least $250,000 in the past year. If the foreigner requesting a work permit is a co-partner of a company, that person shall own at least 20% of the shares in the company and this percentage shall correspond to at least TRY40,000. The wage declared by the employer to be paid to the foreigner shall comply with the foreigner's position and competence. In this context, minimum wages for certain positions (e.g., senior managers, engineers and architects) are determined by considering the minimum wage amount effective as of the application date. The legal requirements for the work permit application and evaluation criteria may change depending on the occupation of the foreigner and the sector. The Ministry carefully examines whether the position in question can be filled by a Turkish national because the government's policy is to combat unemployment. In this context, obtaining work permits for persons such as engineers and architects is more difficult as there are complex legal requirements that must be fulfilled. Accordingly, before issuing a work permit the Ministry requests approval of the Higher Education Council and the Union of Chambers of Turkish Engineers and Architects for certain issues. Moreover, companies that plan to employ foreign expert personnel for engineering, architecture, construction and consultancy services should also employ Turkish nationals in the same profession and prove their employment by submitting copies of their payslips. Therefore, the specifics of each case should be considered independently for each work permit application. 2011/I 89

Impact of Certain Events that May Occur in the Course of Lawsuit for Reinstatement to Work Ezgi ÖZDEMİR E ven As per the Labour Law No. 4857 (the Labour Law ), an employee who has worked for at least 6 months under an employment contract for an indefinite period at an employer s workplace, where 30 or more employees are employed shall benefit from job security provisions. Hence, an employer who intends to terminate an employment contract of such employee can only terminate the contract for reasons determined under the Law and must follow the procedures specified. In this context, in accordance with the Law, an employer who wishes to dismiss an employee who benefits from job security provisions should base such termination on an objective valid if the employment contract of an employee is terminated prior to the transfer of business, in case an employee initiates a Reinstatement Lawsuit within the prescribed term, employment contract of subject employee shall be deemed to continue during the proceedings. cause. The Law enumerates situations which constitute an objective valid cause relating to efficiency or behaviour of such employee or necessities (requirements) of the enterprise, workplace or work. The scope and content of each category of objective valid cause has been clarified by precedents of the Court of Appeals. In addition to basing the termination on a valid objective cause, an employer must respect statutory notice periods stated under the Law and provide the employee with the statutory period of notice. In the event the employer does not want the employee to work during notice period, the employer must pay the employee an amount equivalent to the pay he/she would have received if he/she had worked the term of notice (notice pay). An employee that benefits from job security provisions may initiate a lawsuit for reinstatement to work ( Reinstatement Lawsuit ) in case of invalid termination, i.e. termination without an objective valid cause. The burden of proof substantiating that the contract was terminated for a valid objective cause rests with the employer. Upon the labour court s final ruling in favour of an employee stating termination was invalid, an employer must either reinstate an employee to work or must pay the employee reinstatement compensation not to be less than an amount equivalent to four months and no more than eight months salary of the employee. This compensation is paid in addition to notice pay and severance pay (which at this point should have already been paid assuming that such payments are made upon termination). Regardless of whether the employee is reinstated to work or not, the employer pays an amount equivalent to up to four months salary of an employee and other entitlements for the time s/he is not reinstated to work until the issuance of the labour court s final ruling. Within this article, we have explored the impact of a number of events that may occur in the course of a Reinstatement Lawsuit. A. Inviting the Employee to Work An employee may be invited to work by the same employer that is party to the proceedings in the course of a Reinstatement Lawsuit. In this case, unless an employee explicitly withdraws 2011/I 90

from the lawsuit, the proceedings shall continue and the court shall evaluate the validity of termination taking into consideration conditions during termination. If the court decides invalidity of termination, a payment in an amount equivalent to up to four months salary of the employee and other entitlements for the time an employee is not reinstated to work shall be awarded, this amount shall be determined by taking into account the termination date until reinstatement to work. However, proceedings in respect of reinstatement to work of such employee shall be over and no payment of reinstatement compensation shall be awarded since the employee has already been reinstated to work. Additionally, it shall be deemed that the employment relationship between the employee and employer prior to termination still continues. An employee may reject the invitation to work and such rejection shall be considered to validate termination by the employer. Hence, a Reinstatement Lawsuit shall not continue and the court shall reject the lawsuit in favour of the employer. However, the employer should invite the employee to the same position under the same working conditions otherwise the employee is not obliged to accept the invitation of employer. B. Death of an Employee In case of death of an employee in the course of a Reinstatement Lawsuit, an employee will not be able to be reinstated to work. Consequently, proceedings shall not continue in respect of reinstatement to work and reinstatement compensation. However, according to the recent decisions of the Court of Appeals, although the employee is dead, proceedings shall continue to determine validity of the termination effected by the employer for the purposes of social consideration. If the court rules that termination of employment is not valid, the court will also rule for payment to be made by the employer for the time the employee is not reinstated to work until his/her death and such amount shall be paid to heirs of an employee. C. Closing of a Workplace Closing of a workplace in the course of a Reinstatement Lawsuit shall not validate termination by an employer. Even if a workplace has been closed during proceedings, the proceedings shall continue and the court shall decide for reinstatement to work in the event that a termination is not valid. However, since the employer will not be able to reinstate an employee to work due to closing of a workplace, reinstatement com- pensation and an amount for the time the employee is not reinstated to work shall be paid to the employee. Therefore, the closing down of the workplace or liquidation of the company at the time of employee s application for reinstatement does not carry any significance; hence such cannot be regarded as impossibility of performance. The defendant employer could be held liable for the legal consequences of not reinstating the employee to work. D. Retirement of an Employee An employee is entitled to request his/her retirement in the course of a Reinstatement Lawsuit. Such request in the course of proceedings shall not change the fact that an employment contract of an employee has been terminated by an employer. The proceedings shall continue and the court shall evaluate validity of the termination. E. Employment of an Employee by Another Employer during Proceedings An employee may be employed by another employer in the course of a Reinstatement Lawsuit. In the event that the court rules reinstatement to work of an employee and payments for the time employee is not reinstated to work as a result of a proceeding, salaries/wages paid to an employee by another employer shall not affect the amount to be paid for the time an employee is not reinstated to work. According to the precedents of the Court of Appeals, salaries/ wages paid to an employee by another employer shall not be deducted from the payment which is awarded for the time employee is not reinstated to work. An employee who is employed by another employer in the course of a lawsuit should apply to his/her former employer within ten days for reinstatement to work upon the court s final ruling. Otherwise, termination of employment by a former employer shall be deemed valid; consequently, an employer shall not pay reinstatement compensation or an amount for the time s/ he is not reinstated to work to an employee. F. Transfer of Enterprise As per the Labour Law, in case an enterprise or a section of an enterprise is transferred to another person by a legal transaction, all employees employed in that enterprise or the relevant section is also transferred to the transferee together with their existing rights and obligations arising from their employment contracts on the transfer date. Even if the employment contract of an employee is terminated prior to the transfer 2011/I 91

of business, in case an employee initiates a Reinstatement Lawsuit within the prescribed term, employment contract of subject employee shall be deemed to continue during the proceedings. If the court rules that the termination was groundless, the transferor employer would either reinstate the employee back to work or pay him/her the reinstatement compensation together with the amount for the time he/she is not reinstated to work until the issuance of the labour court s final ruling. Regardless of the fact that the work- place where the subject employee is employed is transferred during the proceedings, or the possibility that the defendant employer is in the process of liquidation upon the transfer of business and does not have any other workplace to reinstate the employee to work, such would not be regarded as impossibility of performance for the purposes of reinstatement to work, it would be clearly expected that the employee be reinstated to work by the transferee employer. Disclosure of Business Malpractice (Whistleblowing) under the Turkish Labour Law & Duty of Fidelity Gülce SAYDAM Whistleblowing is a new issue gaining attention in the theory and application of labour law. Whistleblowing can be defined as revealing of faults in the workplace to the public or disclosure of business malpractice, illegal acts or omissions by the employees. Whistleblowers inform employees superiors, related public authorities or media about matters such as abusive, negligent or illegal activities carried out by the employer. Currently, there is no specific protection for whistleblowers under Turkish legislation. Thus, due to the lack of specific legal regulation we refer to the general principles of law to determine the limits of disclosure of business malpractice, illegal acts and omissions. Whistleblowing is to some extent founded in the right to petition under Article 74 (1) of the Turkish Constitution providing that citizens and foreigners have the right to file an application to the competent authorities and Grand National Assembly of Turkey with regard to requests and complaints related to their own and/or public interest. There are also some provisions under the Turkish Criminal Law that impose the obligation to notify an act constituting a crime to the competent authorities if one is aware of such crime. However, the scope of Article 74 (1) of the Turkish Constitution has an excessively broad scope while provisions under the Turkish Criminal Law only cover specific infringements and certain incumbents as regards whistleblowing. Whistleblowing & the Duty of Fidelity The intersection between whistleblowing and the Turkish Labour Law is the employee s duty of fidelity. The duty of fidelity is considered an ancillary obligation. Ancillary obligations are mainly related to employee s conduct with regard to the protection of his/her employer s interests and arise either from the Turkish Labour Law or from the rule of good faith regulated under Article 2 of Turkish Civil Law. In accordance with the law, an employee is under an obligation to fulfil his/ her ancillary obligations as well as performing his/her main duties. 2011/I 92

A n The duty of fidelity includes non-disclosure of any information of a confidential nature concerning the business of the company which the employee became aware of during the course of his/her employment with the company to third persons as well as the avoidance of any conduct which may be detrimental to the employer or the workplace, avoidance of committing to dishonest acts, notification to the employer of any misconduct at the workplace, the performance of the duties in a diligent manner, and an employee s non-competition obligation. employee s duty of confidentiality becomes an issue in case trade/ business secrets which the employee is aware of include information regarding acts contrary to law. However, an employee s duty of confidentiality becomes an issue in case trade/business secrets which the employee is aware of include information regarding acts contrary to law. For instance, in the event that an employee becomes aware of the fact that there is malpractice at the workplace regarding accounting issues, the employee notifying his/her superiors in the company, to competent authorities outside the company or to the media of such malpractice may not be regarded as a violation of his/her duty of confidentiality arising from the employment relationship. Hence, the employee may disclose his/her company s confidential information in the event that such information constitutes a crime or if public interest requires disclosure. On such an occasion, public interest prevails over the employer s interest in maintaining confidentiality. There are also several decisions of Court of Appeals which provide public interest takes precedence over an employee s duty of confidentiality. For instance, in one of its rulings, the Court of Appeals held that a Company partner and accountant who files a complaint before the official authority stating the Company is not complying with tax obligations does not violate the duty of confidentiality. Protection for Whistleblowers under the Turkish Labour Law The Turkish Labour Law protects employees against invalid or unjust dismissals through affording employees that are covered by job security provisions the right to claim reinstatement to work or payment of compensation by the employer. Article 18 (3)(c) of the Turkish Labour Law states that recourse to competent administrative or judicial authorities or participation in proceedings against an employer in order to pursue the rights or fulfil the obligations arising from the legislation or contract cannot be considered a valid reason for termination of an employment contract. This provision derives from Article 5(c) of ILO Convention 158 Termination of Employment Convention 1982, which states that the filing of a complaint or the participation in proceedings against an employer involving alleged violation of laws or regulations or recourse to competent administrative authorities shall not constitute valid reason for termination. Other than that, the Turkish Labour Law also provides a level of protection to employees as Article 25 (2)(b) of the Turkish Labour Law states that if the employee makes groundless accusations or notifications against the employer affecting his honour or dignity; and Article 25 (2) (e) of the Turkish Labour Law states that if the employee commits a dishonest act against the employer such as a breach of trust, theft or disclosure of the employer s trade secrets, the employer may terminate the employment contract for just cause without the need to comply with notice periods regulated by law. This provision can be interpreted that the employee is afforded a degree of protection as any accusation or notification which has a justified ground would cause the effected terminations unjust, and thus the employee would benefit from legal protection. Since Article 25 (2) which enumerates immoral, dishonourable and malicious misconduct, is not a restrictive clause and allows wide interpretation, the above stated provisions may be interpreted to offer protection to those making accusations or notifications based on factual information. Thus, in case an employer terminates an employment contract for just or valid cause provided that the employee (whistleblower); acted honestly and with genuine good faith, did not act for personal gain, has a reasonable belief that the disclosure is substantially true, and initially raised the relevant facts internally, unless this cannot be reasonable expected, and made the facts known externally in appropriate manner commensurate with the situation or directly made the facts known externally provided that internal reporting is not possible or does not lead to corrective action; Provided the above conditions are pres- 2011/I 93

ent, the employee (whistleblower) shall benefit from the provisions of the Turkish Labour Law which protect the employee against invalid or unjust dismissal. Thus, to some extent, the Turkish Labour Law offers protection to employees (whistleblowers) whose employment contracts are terminated due to disclosure of business malpractice, illegal acts or omissions. Moreover, the Turkish Labour Law has also foreseen provisions protecting employees who are discriminated against, suspended, demotivated, transferred, socially excluded, threatened or harassed etc. by the employer due to whistleblowing. Article 10 of the Turkish Constitution on equality principle, and Article 5 of the Turkish Labour Law on prohibition of discrimination against employees in an employment relationship, would protect the employees from any discriminatory or derogatory treatment of employers, in case they have lodged any factual compliant or accusations against their employers. The Turkish Labour Law has also foreseen the sanctions to apply in the event of violations. If the employer violates equal treatment principle and applies differential treatment to employees due to above reasons, the employee may demand compensation up to her/his four months salary plus other claims which s/he was deprived of. The provisions of the Turkish Labour Law stated above are indirectly related to protection of whistleblowers. Thus, currently Turkish labour courts resolve this issue by evaluating the relation between duty of fidelity of an employee and employer considering the specifics of the present case. Execution of Contracts on Cessation of Employment In Light of Job Security Provisions of Turkish Labour Law Ahu Pamukkale GÜNBAY The parties may draw up and terminate a contract depending on the principle of freedom of contract. The contract drawn up to terminate another contract by mutual understanding is called cessation (rescinding) contracts. In order to terminate an employment contract, the cessation contract may be constituted upon proposal of one party to the employment contract to the other party. Execution of cessation contract by employee and employer is not a unilateral or a resignation offered by the employee. In other words, concentration of wills in termination of an employment contract cannot be deemed as one party termination. Please note that the employers started to execute cessation contracts after the enactment of the Labour Law numbered 4857 (the Labour Law ) 2011/I 94

I n in 2003 which regulated job security provisions and protected the employees from invalid unilateral terminations effected by the employers. There is no regulation regarding the form or procedure of execution of the cessation contract under the Labour Law. However Court of Appeals accepts the cassation contracts as valid if certain requirements are fulfilled by the employers. Although employees execute cessation contracts by their own free will, sometimes in practice employers may face reinstatement to work lawsuits filed by employees in order to be entitled to job security compensation. In such case, the Court of Appeals seeks the validity of the cessation contracts and certain issues are considered for such validity. These issues may be listed as the employee s consent, the employee s will and reasonable interest provided to the employee. case it is signed under duress or by mistake and this is proven by the employee, the contract shall be deemed void and null and as it is an invalid termination carried out by the employer the employee shall be successful in its reinstatement to work claim. Firstly, it should be clearly understood that the employee agrees to the termination of the employment contract by a mutual understanding. In case an employee signs the contract with an annotation stating that s/he reserves his/her rights for future claims, it can be clearly understood that unconditional consent has not been given by the employee and such cessation contract shall not be deemed as valid. Secondly, the cessation contract shall be signed by the employee by his/her own free will. In case it is signed under duress or by mistake and this is proven by the employee, the contract shall be deemed void and null and as it is an invalid termination carried out by the employer the employee shall be successful in its reinstatement to work claim. In practice, employees usually claim that they signed the cessation contract under the employer s pressure; they had no will or intention to terminate the employment contract; the employer threatens the employee saying that employment receivables of the employee will not be paid to the employee. Therefore, it is advisable for the employer to explicitly state each amount that will be paid to the employee as per the cessation contract; explain the amounts that the employee will be deprived of, in particular unemployment insurance payment; provide the employee a reasonable period of time for him/her to review the cessation contract; and if the employee requests, to allow him/her to discuss the terms of the contract with his/her lawyer. Thirdly, a reasonable interest shall be provided to the employee this is satisfied by offering payment under a redundancy package. Since the employee would be entitled to his/her employment receivables such as severance payment, notice payment or other unpaid receivables such as annual pay, the employer shall provide benefits other than the employment receivables to the employee, otherwise, there will be no reason for the employee to execute the cessation contract and the cessation contract shall be deemed invalid. The amount of the redundancy package to be provided to the employee shall be evaluated as to whether it is in favour of the employee or not, this issue is considered on a case by case basis, and if such amount favorably benefits the employee, the cessation contract shall be deemed valid. However, as a matter of fact reasonable interest cannot be defined and is subjective. Only making payment of certain amounts is not enough for determination of validity of the cessation contract. Thus, the interest of the employee is significant in determination of validity of the cessation contract. However, if the employee has signed the cessation contract under pressure, such cessation contract shall be deemed invalid. The amount of such redundancy package may be determined considering the reason for executing the cessation contract, the seniority of the employee, the financial position of the business, the general practice of workplace and the amount of job security compensation varying between 4-month and 8-month salary of the employee as per the provisions of the Labour Law. Mostly, 4-month wages of the employees are deemed as reasonable interest for the employee besides the payment of other employment receivables of the employee. Thus, a redundancy package which is over the minimum limit of the job security compensation besides the amount corresponding to severance payment and notice payment shall be accepted as reasonable interest provided to the employee. Since the employment contract is not terminated by the employer and the results of termination cannot occur, the severance payment and notice payments cannot be paid to the employees. As per the Income Tax Law, while notice payment is subject to income tax, severance payment 2011/I 95

I n is not subject to income tax. However, in case of execution of cessation contract, the amount corresponding to severance payment paid to the employee based on the cessation contract is not the severance payment regulated under the Labour Law, thus it shall be subject to income tax in addition to stamp tax. Such deduction makes a big difference when compared to severance payment to be paid in case of a termination. The employee shall also be informed regarding such tax related issues and that s/he will be paid less amount comparing to the legal severance payment. In order to protect the employer from the employees initiating legal proceedings relating to termination of their employment relationship and minimise the risk, certain additional provisions may be inserted into the cessation contracts. case the employer does not inform the employee, the cessation contract may be deemed as invalid due to keeping the employee in ignorance. Consequently, if a cessation contract is executed by the parties, there would be a very low legal risk of the employee initiating a labour claim against the employer by claiming the invalidity of termination and requesting reinstatement to work. However in order to protect the employer from the employees initiating legal proceedings relating to termination of their employment relationship and minimise the risk, certain additional provisions may be inserted into the cessation contracts. For instance, with an additional clause regu- lated under the cessation contract, penalty payment in the amount of the additional payment may be claimed in case any actions are initiated by the employee against the employer with respect to any of her/his employment rights notwithstanding release given under the cessation contract. Also, under the cessation contract it may be regulated that the additional payment shall be taken back by the employer since such payment may be deemed to be an unjust enrichment of the employee based on the fact that such entitlement is granted to the employee to hinder her/him filing a labour lawsuit against the employer for reinstatement to work which could be argued as an illegitimate intention. Furthermore, in addition to the foregoing amounts, the employer may state that all expenses, court fees and legal costs paid during the lawsuit and the whole amount of the attorney fees agreed between the legal counsel and the employer shall be claimed by the employee since the employee breached the contractual terms agreed under the cessation contract. As per such provisions regulated under the cessation contract, the employee will evaluate the risks of initiating a legal proceeding and then give her/his final decision whether s/he will file a lawsuit. Finally, it would be advisable to stipulate that redundancy compensation shall be paid to the employee on the signing date of the contract apart from the other entitlements of the employee. In case the court and Court of Appeals decide that the cessation contract is invalid due to not providing any reasonable interest to the employee, all the provisions of the cessation contract become unenforceable and in such a case, it shall be deemed that the employment contract has been terminated without any valid cause and the employee shall be entitled to job security provisions. 2011/I 96

Recent Changes in Favour of Female Employees and Inclusion of Maternity Leave in Service Periods as Per Recent Changes in the Law Hikmet ÖZKAYA U nder Turkish law granted the right of inclusion of maternity leave into service periods to the female employees for the first time under the Social Security and General Health Insurance Law No. 5510 ( Law No. 5510 ). As such, female employees who suspend their work due to maternity will be able to recover unpaid premium days. Law No. 5510, female employees that give birth to a child are able to convert both maternity leave and the term that they did not work following maternity into insured days. In other words, they have a borrowing right. Under Law No. 5510, female employees that give birth to a child are able to convert both maternity leave and the term that they did not work following maternity into insured days. In other words, they have a borrowing right. The Law No. 5510 provides that female employees may borrow unpaid maternity periods which are granted to the insured females by the related law twice, provided that the female employee did not work under an employment contract for a term which is not more than two years as of birth and the child is alive, the female employee may include these borrowed terms into service periods. The periods which may be borrowed as per the Law No. 5510: 1- A total period of sixteen weeks which is granted to the female employee eight weeks prior and eight weeks subsequent to the birth in accordance to Article 74 of the Labour Law and in case of multiple pregnancy, two weeks are added to eight weeks before birth; 2- Unpaid leave up until six months which is granted upon request of the female employee following the expiration of sixteen weeks period, in case of multiple pregnancies following the expiration of eighteen weeks period; 3- The term which may be requested by the female employee a maximum of two times and provided that the female employee did not work under an employment contract for a term which is not more than two years as of birth and the child is alive. The conditions of inclusion of maternity leave into service periods according to the Law: 1- Female employees who are insured by the Social Security Institution ( Institution ) and are employed by one or more employer through an employment contract (Law No. 5510, Article 4/a) may only benefit from the right to include maternity leave into service periods. Female employees who are self employed (Law No. 5510, Article 4/b) and female employees who work at public administrations (Law No. 5510, Article 4/c) cannot benefit from this right. 2011/I 97

2- Female employees shall benefit from this right for a maximum of two children. 3- Since the female employee may include two years term into the service period at most for one child, the total term which may be included into the service period of a female employee shall be 4 years. 4- Female employees shall be entitled to include maternity leave into the service period for births following the commencement date of the insurance. 5- The child must be alive to include the whole two years term in the service period, in the event the child dies within this period; the term up until the date of birth may be included into the service term. 6- If a female employee gives birth to another child before the expiry of two years term following her first birth, such female employee shall include the term from her first birth until her second birth and two years term which may be wholly included into the service term for her second birth. However, the right to include maternity leave in the service period which is granted by Law No. 5510 has been restricted by communiqués and circulars published contrary to the Law and this triggered problems regarding the application of the right. According to the Law No. 5510, it is not mandatory for a female employee to be insured who is actively working and whose social security premiums are paid prior to birth to benefit from this right. In addition, female employee does not have to resign for the birth. It is sufficient for the female employee to be registered with the Social Security Institution as an insured person to benefit from the right to include maternity leave in the service period. The Law further states that if a female employee who did not work for a term of two years following her first birth becomes pregnant at the end of such two years term prior to starting work and gives birth to a child, she shall be entitled to include maternity leave into service period relating to the second birth. However, according to the regulations of the Institution, a female employee who did not work as an insured during this term shall not be entitled to this borrowing right. On the other hand, it is required that the female employee resign due to birth and work as an active insured as stated above. Besides, birth should take place within 300 days of the date on which the female employee resigned. Applications of the Institution contrary to the Law have been revoked by a newly published decision of the 10 th Civil Chamber of the Court of Appeals. As a result, the conditions of the right to include maternity leave to service period have been clarified. The Court of Appeals has shed light on whether this right shall be applied for confinements before 01.10.2008, which is the effective date of the right and female employee should be an active insured. 10 th Civil Chamber of the Court of Appeals decided that Article 41 of the Law No. 5510 relating to the right to include maternity leave in service period is in favour of the insured and no regulation which prevents the application of this right to confinements prior to the effective date of the Law No. 5510 exists. The Court of Appeals further ruled that it is sufficient to formerly fulfil mandatory insurance registration of the female employee before the Institution due to employment to benefit from this right and it is not required to be an active insured. According to the decision, it should be accepted that the female employee shall benefit from this right provided that the female employee did not work under an employment contract for a term which is not more than two years as of confinement and the child is alive without observing any other right. Furthermore, if the female employee who had her first confinement following the registration before the Institution becomes pregnant again and has her second confinement before the expiration date of the two years term and prior to commencement of work may include her service period the term as of her first confinement until the second confinement together with the two years term to be included to the service term for the second confinement. Upon the decision of the Court of Appeals, the Institution published a Circular and amended the conditions regarding the application of borrowing right to the benefit of the female who has a birth. In this way, the conditions have become in compliance with the Law. This right which has been granted to the female employees by the Law No. 5510 is significant in terms of preventing them to be economically harmed while fulfilling family responsibilities. 2011/I 98

LEGAL TEAM Ahmet Öztürk aozturk@yukselkarkinkucuk.av.tr Ahu Pamukkale Günbay agunbay@yukselkarkinkucuk.av.tr Alize Dikmen Tufan atufan@yukselkarkinkucuk.av.tr Ayla Özenbaş ayla.ozenbas@dlapiper.com Ayşe Güner aguner@yukselkarkinkucuk.av.tr Ayşe Nur Şanlı ayse.sanli@dlapiper.com Batuhan Uzel buzel@yukselkarkinkucuk.av.tr Berat Hamzaoğlu bhamzaoglu@yukselkarkinkucuk.av.tr Burak Özdağıstanlı bozdagistanli@yukselkarkinkucuk.av.tr Burçak Ünsal bunsal@yukselkarkinkucuk.av.tr Bünyamin Yılmaz byilmaz@yukselkarkinkucuk.av.tr Ceren Berispek cberispek@yukselkarkinkucuk.av.tr Cüneyt Yüksel cyuksel@yukselkarkinkucuk.av.tr Derya Taşdemir dtasdemir@yukselkarkinkucuk.av.tr Dilek Çolakel dcolakel@yukselkarkinkucuk.av.tr Eda Yıkılmaz eyikilmaz@yukselkarkinkucuk.av.tr Ekin Gökkılıç egokkilic@ yukselkarkinkucuk.av.tr Ezgi Özdemir eozdemir@yukselkarkinkucuk.av.tr Fatih Yiğit fyigit@yukselkarkinkucuk.av.tr Ferda Dumrul fdumrul@yukselkarkinkucuk.av.tr Ferhan Karadeniz fkaradeniz@yukselkarkinkucuk.av.tr Francesco Ferrari francesco.ferrari@dlapiper.com Gizem Göker ggoker@yukselkarkinkucuk.av.tr Gökhan Gökçe ggokce@yukselkarkinkucuk.av.tr Gözde Erdoğan gerdogan@yukselkarkinkucuk.av.tr Gülce Saydam gsaydam@yukselkarkinkucuk.av.tr Hatice Ekici hekici@yukselkarkinkucuk.av.tr Hazal Korkmaz hkorkmaz@yukselkarkinkucuk.av.tr Hikmet Özkaya hozkaya@yukselkarkinkucuk.av.tr İbrahim Yamakoğlu iyamakoglu@yukselkarkinkucuk.av.tr Jonathan Clarke jonathan.clarke@dlapiper.com Katharina Cihan Akyürek kozsen@yukselkarkinkucuk.av.tr Levent Belli Melek Onaran Yüksel Merve Arslan lbelli@yukselkarkinkucuk.av.tr myuksel@yukselkarkinkucuk.av.tr marslan@yukselkarkinkucuk.av.tr Merve Çıkrıkçıoğlu mcikrikcioglu@yukselkarkinkucuk.av.tr Meryem Kübra Şıvgın ksivgin@yukselkarkinkucuk.av.tr Mine Alten malten@yukselkarkinkucuk.av.tr Muharrem Küçük mkucuk@yukselkarkinkucuk.av.tr Murat Karkın mkarkin@yukselkarkinkucuk.av.tr Murat Öztürk mozturk@yukselkarkinkucuk.av.tr Mustafa Yiğit Örnek yornek@yukselkarkinkucuk.av.tr Nihan Palta npalta@yukselkarkinkucuk.av.tr Onur Yalçın oyalcin@yukselkarkinkucuk.av.tr Oya Uğur ougur@yukselkarkinkucuk.av.tr Özge Yurdal oyurdal@yukselkarkinkucuk.av.tr Seda Eren seren@yukselkarkinkucuk.av.tr Selen Sümer ssumer@yukselkarkinkucuk.av.tr Sena Nur Çelik scelik@yukselkarkinkucuk.av.tr Serkan Saygılı ssaygili@yukselkarkinkucuk.av.tr Serpil Doğan sdogan@yukselkarkinkucuk.av.tr Seteney Nur Öner noner@yukselkarkinkucuk.av.tr Simel Sarıalioğlu ssarialioglu@yukselkarkinkucuk.av.tr Sinem Teoman Soner Dönmez Süleyman Mert Soysal Tamsyn Mileham Tolgahan Karkın Tuğçe Aslı Turçal Zeynep Ergün steoman@yukselkarkinkucuk.av.tr sdonmez@yukselkarkinkucuk.av.tr ssoysal@yukselkarkinkucuk.av.tr tamsyn.mileham@dlapiper.com tkarkin@yukselkarkinkucuk.av.tr tturcal@yukselkarkinkucuk.av.tr zergun@yukselkarkinkucuk.av.tr İdil Kurt ikurt@yukselkarkinkucuk.av.tr 2011/I 99

YükselKarkınKüçük Attorney Partnership Büyükdere Cad. No: 127 Astoria Tower A, Floors: 6-24-26-27 34394 Esentepe Istanbul, Turkey Tel : +90 (212) 318 05 05 Fax: +90 (212) 318 05 06 www.yukselkarkinkucuk.av.tr info@yukselkarkinkucuk.av.tr