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March 30, 2020

Corona Virus And Dissolution Of Commercial Contracts

Coronavirus Pandemic, Contracts Law

As it is known, the corona virus (“Coronavirus“) emerged in China on December 2019 has affected many countries, especially China, Italy and the United States. Due to the Coronavirus, as of the writing date of this article, approximately 20,000 people died worldwide and a curfew was declared in countries such as Italy, France and Spain.

The fatal Coronavirus, led to the announcement of a pandemic by the World Health Organization, calls in our country by the Ministry of Health (“Ministry”) not to go out unles it is necessary and also it has profoundly affected social and commercial life. Our country has taken and continues to take restrictive measures in this context.

Whether Coronavirus will be counted as a force majeure due to its economic and socioeconomic effects has been the subject of debate. Since the force majeure is not defined in the legislation, in the light of the decisions of the Supreme Court, the force majeure conditions shall be counted as the situation that; (i) the parties cannot anticipate, (ii) occurred without the wishes of the parties and (iii) prevents the performance of the contract partially or completely. Therefore, whether the Coronavirus may be counted within the scope of force majeure and whether contracts can be terminated within this framework should be evaluated according to the subject of each contract and the rights and obligations imposed.

Nevertheless, whether the Coronavirus is a force majeure can also be determined by examining the relevant provisions of the contracts. In this context, (i) the issue of whether epidemic diseases (pandemic) are included within the force majeure provisions and (ii) the rights and obligations of the parties will come to the fore. Within the extent permitted by the terms of the contract,   restriction and/or postponement of rights and obligations, or termination of the contract shall be mentioned.

However, in the event that there are no force majeure provisions or epidemic diseases are not covered by the existing force majeure term within the contract concluded between the parties; the impact of the Coronavirus on the performance of the contract will have to be examined. It is recommended that the party, who could not fulfill the contract due to Coronavirus or who has difficulty in performing it, shall act in accordance with the good faith, since the goodwill becomes crucial. In other words, the party -who cannot fulfill the obligations, undertaken within the contract, due to the Coronavirus- to examine its options and negotiate with the other party/parties of the contract in order to overcome this situation. As a result of the negotiations, should the parties cannot reach an agreement and/or should at least one of the parties is deemed unable to fulfill their obligations as a result of the effects of the Coronavirus, the contract may be terminated by complying with the notification rules.

Therefore, if at least one of the parties cannot be expected to fulfill their contractual obligations due to the Coronavirus or if the execution of the contract will result as the loss of at least one of the parties; we are of the opinion that “Impossibility of Performance” or “Excessive Performance Hardship”, which are regulated in Articles 136 to 138 of the Turkish Code of Obligations No. 6098, may be mentioned. In this case, although the contract may be terminated or withdrawed, the options for each contract must be evaluated within the context of the concrete event, within the framework of the legislation and Supreme Court decisions.

As a matter of fact, in case a party, who does not make efforts to eliminate the  obstacles of Coronavirus to the performance of the contract, terminates the contract unjustly by putting forward the Coronavirus, may face the positive and/or negative losses.

As a result, it is recommended that the parties shall carry out solution-oriented negotiations with good faith and Contracts that cannot be executed, due to Coronavirus, despite all efforts shall be terminated.

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