Law and regulation of consequential damages clauses in the energy sector in Turkey

1. Do the words “consequential loss” have a given meaning in law?

The words “consequential loss” do not have a given meaning under Turkish law. However, similar concepts and legal terms are known and used in Turkey; such as indirect loss (dolaylı zarar) or subsequential loss (yansıma zarar). 

Even these concepts and terms are not explicitly defined in the Turkish Code of Obligations No. 6098 (“TCO”); but rather recognised and developed in Turkey through doctrine and jurisprudence. 
According to Turkish law, a compensation or indemnification (tazminat) requires, as a general rule, the following conditions which need to be fulfilled cumulatively: liability causing act (sorumluluğu doğruan fiil), fault (kusur), causality (illiyet bağı) and damage/loss (zarar). 1 Oguzman/Oz, Borclar Hukuku, vol. 2, Istanbul, Vedat Kitapcilik, Ninth Edition, 2012, p.40.

The term ”consequential loss” may be described and recognised as an umbrella term encompassing any damage caused by direct loss. In this regard, direct loss could be described as the decrease of active acts or increase of liabilities (fiili zarar) as a result of a damaging event. Against this background an indirect, subsequential or consequential loss is generally recovable if the condition of causality is met pursuant to Article 49 et. seqq. of the TCO.

2. Are the words “consequential loss” used in contractual exclusion of liability clauses?

Yes, the words ”consequential loss” are frequently used and common in the contractual exclusion of liability clauses in Turkey. Within in the framework of the TCO, the parties may agree on the limitation or extension of their contractual liability at their own discretion. Consequently, as a general rule, parties can agree that each party may or may not be liable for consequential loss. 

Furthermore, in addition to consequential loss exclusions, clauses concerning the exclusion of the contractual liability for (i) loss of profit, (ii) loss of reputation, (iii) loss of data or (iv) loss of production are also frequently used in Turkey. Please note that, such exclusion clauses usually do not define ”consequential loss” or the abovementioned terms but provide examples aiming to preclude any liabilities to the greatest extent possible. 

However, such exclusion clauses shall not be  invalid, unlawful or unenforceable under Turkish law. In this regard, Article 115(1) of the TCO, subtitled “Non-liability Contract Clause” (sorumsuzluk anlaşması), deems contractual exclusion clauses which preclude liabilities based on (i) gross negligence and (ii) intention null and void: 

Article 115 of the TCO – Non-liability Contract Clause

  1. The contract clauses on exclusion of liability for gross fault [ağır kusur] in advance are void.
  2. Any contract clauses on exclusion of obligor’s liability towards the obligee for any obligations caused by service contracts in advance are void. 
  3. If a service, profession or art which requires specialisation can only be performed with the permission of the law or competent authority, the agreements on exclusion of obligor’s liability for slight negligence in advance are void.  

In practice, exclusion clauses which cover consequential losses are common in commercial contracts as well as in energy industry-related contracts governed by Turkish law, such as power purchase agreements (PPAs) or energy saving contacts (ESCs). 

3. If so, what meaning is attributed to the words “consequential loss” in contractual exclusion clauses?

There is no uniformly accepted definition of consequential loss under Turkish law. As the term is still being developed based on doctrine and case law, it is not possible to clearly state what “consequential loss” means under Turkish law when used in a contractual exclusion clause unless it is expressly specified in the contract. Accordingly, the meaning attributed to the words “consequential loss” in contractual exclusion clauses must be determined on a case-by-case basis. In this respect the interpretation of the entire contract and the determination of the parties’ real intention and will (tarafların gerçek iradesi) are essential in order to identify the meaning attributed to the words “consequential loss” in contractual exclusion clauses in Turkey. In the event of any doubt over the meaning of such exclusion clauses, either the contractual parties may agree on the scope and content of the clause or, in the event of a dispute, the competent court may provide a supplementary interpretation which will reflect as closely as possible the real intention and will of the contractual parties when agreeing on such an exclusion clause. 

As mentioned above, “consequential loss” is an umbrella term and refers to direct losses pursuant to the TCO. In this regard, direct loss could be defined as the decrease of active assets or the increase of liabilities (fiili zarar) as a result of a damaging act. However, one approach would be that consequential loss may be deemed, according to Turkish law, as any damage arising from such a direct loss (e.g. loss of profit, loss of production, etc.). In a dispute, the competent court is expected to evaluate any claim within the framework of the contract and in line with the intentions of the parties when concluding the contract in question. 

Furthermore, Turkey's legal system is adapted from the civil law system; the principle of stare decisis is not applicable as a general rule. For instance, the Turkish Court of Appeals (Yargıtay) rendered a decision, which is not accepted by some other courts, stating that the losses of third parties related to the sufferer are also in the scope of indirect loss, even if the defendant does not directly cause harm to them 2 Please see also the decision of Supreme Court Assembly of Civil Chamber’s, Case No: 2012/17-215, Decision No: 2012/413, Date: 27.6.2012. . Accordingly, even though there are doctrines and case law, when deciding on a case, courts are not bound by a previous decision regarding a similar case. Therefore, each case is individual and expected to be determined by examining every aspect of the entire case; this general rule under Turkish law would also apply for the meaning attributed to the words “consequential loss” in contractual exclusion clauses.

4. Where a clause includes other heads of loss alongside consequential loss, how will the law approach such clauses?

The concept of “consequential loss” is not regulated or explicitly definied under Turkish law. Hence, where a clause includes other heads of loss alongside consequential loss, the legal approach – the approach of Turkish courts – is hard to predict precisely. 

Under the principle of freedom of contract, if a clause includes other heads of loss alongside “consequential loss”, it does not affect the effectiveness of the clause.

However, in the case of any inconsistency about the different type of losses and “consequential loss” that would be covered by an exclusion clause, each exclusion shall be interpreted on its own by considering the real intention and will of the parties at the time of signature of the contract. During this interpretation process, the competent court will evaluate every circumstance in light of the evidence submitted by the contracting parties in order to determine the extent of the exclusion clause including consequential loss and other heads of loss. In this respect, Turkish courts may appoint an independent expert or a group of experts (bilirkişi heyeti) in order to examine the case and submit a report regarding the respective exclusion clause. 

5. Do consequential loss exclusion clauses have an impact on non-damages claims?

No, legal actions as to non-damages claims can be taken under Turkish law regardless of the existence of exclusion clauses. Therefore, consequential loss exclusion clauses  will not affect the contractual obligation of specific performance (aynen ifa) or other non-damage claims under Turkish law.

Portrait of Döne Yalçın
Döne Yalçın
Managing Partner Turkey