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Do the Contracts Need a Foreign Element to Choose Foreign Law?

The issue of whether a choice of foreign law would be valid between Turkish real persons and/or legal entities in a contract that does not contain a foreign element in the way of having certain connection with another jurisdiction, has led to the emergence of different opinions in the doctrine and Court of Cassation. Although the opinion that the existence of foreign element is required for the foreign law choice at the point that it creates the link between the place of the execution of the contract, place of performance or residence, or the citizenship of parties, it has been emerged a contrary approach in decisions and the doctrine.


In accordance to the recent approach in the doctrine, it is argued that the condition of existence of a foreign element in order to choose a foreign law for contractual relations is not necessary for the contracts between Turkish parties. According to this view, with the choice of a foreign law, the contractual relationship constitutes a foreign element by itself, which means the choice of foreign law becomes the foreign element between Turkish parties. In other words, if the parties have agreed that a foreign law will be applied, that choice of the parties, if they have made a foreign law choice for their contract, now constitutes a foreign element. Another basis of this view is the Article 24 of the Law No. 5718 on Private International Law and Procedural Law (“the PILP”), which allows the parties to choose a law freely and does not impose any restrictions on the choice of foreign law regardless of the foreign element. According to academicians who support this opinion, considering that the autonomy of will is the most fundamental principle in contractual relations, the acceptance of the choice of a foreign law in case of the parties’ mutual agreement would be more appropriate to the spirit of the law within the scope of freedom of will. Additionally, within the respect of the foreign element means "a transaction, event or relationship being in the relation to more than one legal order", it would be more appropriate to accept that the contract presents more than one legal order solely in the way of the determining a foreign law [1].


As the basis of this opinion, it has been shown that there is no legal obligation that requires the foreign element to be of an objective nature of the choice of law. In addition, it has been argued that in conflict of laws, it is also possible for the element of foreignness to occur solely depending on the will of the parties of the transaction or relationship. For example, if a couple marries in a country where they are not a citizen or two people make a contract in a foreign country, it is stated that the foreign element emerges entirely depending on the will of the parties. In this respect, the view that there is no obstacle in the participation of the foreign element and that it is possible and valid to make such a contract subject to a foreign law has also shown its existence with recent judicial decisions.


According to the decision of the 11th Chamber of the Court of Cassation numbered 2006/8585 [2], it was pointed out that in disputes arising from private law contracts, there is no requirement of the foreign element in order to apply foreign law to the contract between Turkish parties. It should be noted that the said decision is also based on the Article 76 of the former Civil Procedures Law no. 1086, which puts the burden of proof on the party who claims the foreign law. Likewise, in a decision of the 15th Chamber of the Court of Cassation numbered 2016/3365 [3], the Court of Cassation referred to Article 24/1 of the PILP and stated that this provision is in accordance with the principle that the parties can freely impose provisions that do not clearly contradict with the public order in the law of the judge (lex fori) in private law contracts. Accordingly, it has been decided that there is no requirement for the contract to contain foreign element in order to apply foreign law between Turkish parties under the consideration of that the PILP acknowledges any law designated by the parties.


It is analyzed that while the Article 76 of the former Civil Procedures Law no. 1086 puts the burden of proof for the choice of foreign law on the party that bases its claims on the foreign law, the Civil Procedures Law no. 6100 in force leaves this space to the provisions of the PILP. In other words, it has been explained in the Article 33 of the Civil Procedures Law no. 6100 in force, which replaced the Article 76 of the Law no.1086 that only the provisions of the PILP should be applied on the implementation of foreign law. Upon closer look to the Article 24/1 of PILP, it is shown that “The law explicitly designated by the parties shall govern the contractual obligation relations. The designation which can be concluded without hesitation from the provisions of the contract or is understood from the affairs of the case is also valid.” From this point, we believe that this change also plays a role to support the opinion on the acceptance of the choice of law between Turkish parties without necessarily seeking for an objective foreign element.


However, it should be noted that the opinions arguing that no choice of law can be made in contracts that do not have an objective element of foreignness still maintains its presence. According to the proponents of this opinion, in order to be able to talk about a choice of law according to Article 24 of the PILP, the contract should contain the foreign element at first, apart from the chosen foreign law.


As a result, even though there is still no legal consensus on this issue, we believe that it would be against the principle of freedom of will in contracts to prevent the Turkish parties from choosing foreign law even in case of the absence of the objective foreign element.


Footnote

[1] Cemal Şanlı, Emre Esen, İnci Ataman-Figanmeşe, Milletlerarası Özel Hukuk, Beta Yayınları, İstanbul, 2019, s. 283

[2] 11th Chamber of the Court of Cassation, merits number 2006/8585, decision number 2006/12877, dated 07.12.2006

[3] 15th Chamber of the Court of Cassation, merits number 2016/3365, decision number 2016/4525, dated 03.11.2016

Author: Bilge Derinbay, Hande Ülker Pehlivan

Contact: bilge.derinbay@nsn-law.com