Unfair Terms in Consumer Contracts

Att. Leyla Orak Celikboya, May 2014

Introduction

The Law on Consumer Protection No. 6502 (“LCP”) was published in the Official Gazette dated 28 November 2013 and numbered 28835. Pursuant to Art. 87 regulating entry into force, the LCP became effective six months after its publication, on 28 May 2014 and abrogated the former Law on Consumer Protection No. 4077 (“fLCP”). This amendment is aimed at ensuring coherence with European Union legislation, enacting provisions by also taking into account the consumer protection legislation of Switzerland, and establishing a framework which provides for efficient protection of the consumer, including market audits and the right to legal remedies[1].

The novelties introduced under the LCP, defective goods and services under the LCP have been assessed in various Newsletter articles[2]. This article focuses on the unfair terms in consumer contracts.

General Transaction Terms in Turkish Law

In practice, enterprises providing numerous goods and services usually prepare various contract types and form agreements, which in most cases are very long, written in incomprehensible wording, usually limiting the responsibilities of the party drafting such contract, and which are not submitted for review nor negotiation by the counterparty. This resulted in the increased need to provide protection, especially for consumers who become party to goods and services contracts, as these contracts usually include illegible and incomprehensible general terms.

This need resulted in an amendment to the fLCP by Law No. 4822, introducing a new Art. 6 governing unfair terms in consumer transactions, which regulated general transaction terms for the first time under Turkish law. Art. 6 fLCP defines general transaction terms and refers to unfair terms as “… contract terms which have been unilaterally included in the contract without negotiating with the consumer, which cause imbalance between the rights and obligations of the parties arising from the contract to the detriment of the consumer in violation of the bona fide principle”. The law regulates that such conditions will not be binding upon consumers.

Agreements between two merchants, which are not considered consumer contracts, were not subject to the provisions of the LCP, and Articles 19 and 20 of the abrogated Code of Obligations No. 818, governing invalidity, were applied in cases of unfair general terms. However, said provisions regulated the invalidity of agreements due to violation of the public order or morale, or whose subject matter was impossible; and did not enable any intervention in the content of the agreement. Nevertheless, unilaterally prepared contracts resulted in major problems, not just for consumers, but also for merchants.

In order to mitigate these problems, the Turkish Code of Obligations No. 6098 (“TCO”) regulated general transaction terms, to govern all types of agreements[3]. The TCO initially provides a definition of general transaction terms, and regulates the inspection of whether these terms became contractual terms (validity assessment), how these terms will be construed (interpretation assessment), and which terms will be deemed null and void (content assessment).

Art. 5 LCP readopted the provision of the fLCP governing unfair terms with a broader scope. This provision aims to provide more specific and comprehensive protection of consumers than the protection foreseen under the TCO. The underlying reason for this specific protection is that, a consumer is usually more vulnerable when faced with general terms, being in a position where he cannot exercise his freedom of contract, avoid general transaction terms, and is obliged to accept the terms and conditions set forth by the counter party. Thus ultimately, the consumer has to make a choice between accepting the transaction terms or renouncing the contract as a whole.

LCP Provisions

Definition and Consequences of the Unfair Terms

Art. 5 LCP defines unfair terms. Accordingly, a contract term will be deemed as an unfair term if two conditions are met.

First, said term should be included in the contract without being negotiated with the consumer. The wording of Art. 6 fLCP expressly stated that terms unilaterally included by the seller or the provider could be deemed unfair. Nonetheless, the LCP does not expressly specify the person who prepared or drafted a contract, but only requires that the term not be negotiated by the consumer in order to be considered an unfair term.

The law also specifies cases where a relevant contract term will be deemed non-negotiated. Accordingly, previously drafted clauses in standard form contracts whose content cannot be altered by the consumer are deemed to be non-negotiated. Moreover, if the party having drafted the contract alleges that a term had been negotiated with the consumer, he is under the burden of proof of such allegation.

Second, this term should result in an unfair imbalance between the rights and obligations of the parties arising from the contract, which is incompatible with the good faith principle.

Moreover, pursuant to the final paragraph of Art. 5 LCP, the Ministry of Customs and Trade (“Ministry”) shall define the terms which are deemed unfair terms with a regulation. The terms specified in the regulation shall be considered unfair terms, regardless of whether the above conditions are met or not.

After defining the unfair terms, the LCP regulates the consequences thereof. Accordingly, unfair terms are null and void. Further, it is worth emphasizing that the contract as a whole will continue to be effective, and solely the relevant unfair provision will become null and void. The counterparty of the contract cannot argue that it wouldn’t have concluded the contract in the absence of the nullified term. If there is a gap due to the unenforceability of the invalid term, in the event of a dispute, the judge shall fill the gap by applying ancillary provisions of law or a norm which it shall define, depending on the circumstances of a given case. The fLCP did not state as clearly and explicitly as the LCP that the invalidity related solely to the unfair term. Thus, the express provision of the LCP is important for clarity.

Interpretation

Pursuant to Art. 5/4 LCP, the written contract terms must be clear and comprehensible. The language should be easily comprehensible to the consumer. As emphasized in the legislative justification of the law[4], the biggest obstacle in practice before consumers is that the contract terms have very complicated wordings, as if incomprehensibility is the goal. The LCP aims to prevent this practice.

The same paragraph also regulates how unclear terms will be interpreted. Accordingly, if a contract term is not clear or may have various interpretations, it shall be interpreted to the benefit of the consumer. The interpretation of an average consumer shall be taken as a basis[5].

This provision introducing rules of wording and interpretation is not new in consumer law, as a similar provision was included in Art. 6 of the abrogated Regulation regarding Unfair Terms in Consumer Contracts[6] (“Abrogated Regulation”) which entered into force under the fLCP. We believe that the codification of this principle under law is positive.

Scope

The LCP governs consumer transactions and practices addressing consumers. Accordingly, it is understood that Art. 5 regulates consumer contracts and the unfair terms therein.

An important innovation under the LCP is defining the scope of applicability of Art. 5 based on the counterparty of consumer contracts. Pursuant to Art. 5/5 LCP, the fact that the drafting counter party of the consumer contract operates under permission granted by law or by relevant authorities shall not prevent the applicability of the LCP provisions. Thus, in the event there are unfair terms in adhesion contracts, contracts executed with persons providing water, communication, electricity, gas or similar goods and services, such terms shall also be subject to the provisions of the LCP[7].

Evaluation of the Unfairness of a Term

Art. 5 LCP regulates the method of evaluating whether a contract term is unfair or not. Accordingly, the unfairness of a contract term shall be determined based on the time of execution of the contract. The characteristics of the relevant good or service, the conditions present at the time of execution, and the provisions of the contract as well as other relevant contracts shall be taken into consideration in determining the unfairness. As explained above, there is an unfair term in the presence of an imbalance between the parties which is not coherent with the good faith principle; thus the LCP enumerates certain criteria which need to be taken into consideration when assessing such imbalance. As it is stated in the legislative justification, a contract term may be individually regarded as unfair, but when taking the contract as a whole, it may be accepted as fair.

In short, all these data should be taken into consideration in determining whether there is an imbalance between the parties as of the date of execution of the contract. In the event of an imbalance occurring after the date of execution, such imbalance shall not be regarded within the scope of Art. 5 LCP, but, if the conditions are met, within scope of the rebus sic stantibus principle instead.

Furthermore, the freedom of contract principle shall not be neglected. For this reason, Art. 5/7 explicitly states that the balance between the main obligations of the parties, or the balance between the actual price and the contractual price of the relevant good or service, should be disregarded in assessing whether a contract term is unfair or not. As long as the contract is clear and comprehensible, no intervention shall be made as to the balance of obligations of the parties, and the “actual price” should not be determined.

Secondary Legislation and Sanction

The LCP authorized the Ministry to issue secondary legislation in order to determine the procedures and principles for avoiding the inclusion in contracts and application of unfair terms, and the inspection thereof. As of the date of this article, the Ministry has not yet issued the secondary legislation. Pursuant to provisional Art. 1/3 LCP, until the entry into force of the regulations foreseen under the LCP, the provisions of the secondary legislation enacted under the fLCP not in contradiction with the LCP shall continue to apply. The Abrogated Regulation was replaced with the Regulation regarding Unfair Terms in Consumer Contracts enacted in compliance with the LCP[8] (“Regulation”).

Articles 5 to 7 of the Regulation repeat the general principles laid out in art. 5 LCP governing the definition, assessment and invalidity of unfair terms.

In addition to the LCP provisions, Schedule-1 of the Regulation non-restrictively provides certain examples of terms which are deemed unfair[9]. These terms referred to in the schedule are unfair terms. Nevertheless, other contractual terms may also be deemed unfair in the presence of conditions specified under the LCP and the Regulation.

Art. 8 Regulation regulates the inspection of unfair terms. The Ministry will grant thirty days, which may be extended to ninety days if necessary, in order for the removal of unfair terms in contracts drafted for systematic use. The party drafting the contract must notify the consumers explicitly, in writing or via electronic means, that the unfair terms are invalid and inapplicable. Upon this notification, unfair terms in consumer contracts will be deemed removed. In case of failure to remove unfair terms from the contract within the time period specified by the Ministry, an administrative monetary fine of two hundred Turkish Lira shall apply for each contract pursuant to art. 77/2 LCP.

Conclusion

The fLCP provided the initial legal framework for general transaction terms by regulating unfair terms in consumer contracts. However, as general transaction terms cause material problems, not just for consumers but also for merchants, the TCO regulated general transaction terms governing all types of contracts. In order to establish an efficient method of consumer protection, the LCP provides for a more detailed provision governing unfair terms in consumer contracts. Thus, the LCP aims to enforce the rights of the consumer, who usually has to choose between accepting the unilaterally prepared terms and renouncing the contract as a whole. Unfair terms resulting in an imbalance between the parties to the detriment of the consumer and in violation of the good faith principle are invalid, however the remainder of the contract shall continue to be effective. The counterparty may not request to not be bound by the contract in the absence of the unfair term.



[1] Draft Law on Consumer Protection, General Legislative Justification (“Justification”), http://www2.tbmm.gov.tr/d24/1/1-0787.pdf (accessed on 20 May 2014).

[2] See Alper Uzun, The New Consumer Law Has Entered Into Force, http://www.erdem-erdem.av.tr/en/articles/the-new-consumer-law-has-entered-into-force/ (accessed on 30 May 2014); Ceyda Büyükoral, Provisions Regarding Defective Goods In The Law On Consumer Protection No. 6502, http://www.erdem-erdem.av.tr/en/articles/provisions-regarding-defective-goods-in-the-law-on-consumer-protection-no-6502-2/ (accessed on 30 May 2014); Pelin Baydar, Provisions Regarding Defective Services In The Law On Consumer Protection No. 6502, http://www.erdem-erdem.av.tr/en/articles/provisions-regarding-defective-services-in-the-law-on-consumer-protection-no-6502/ (accessed on 30 May 2014).

[3] For detailed information on general transaction terms, see Berna Aşık Zibel, The Concept Of “General Transaction Terms” And Its Implications Under New Code Of Obligations, http://www.erdem-erdem.av.tr/en/articles/the-concept-of-general-transaction-terms-and-its-implications-under-new-code-of-obligations/ (accessed on 30 May 2014).

[4] Justification, art. 5.

[5] Prof. Dr. İ Yılmaz Aslan, Tüketici Hukuku Dersleri, 2006, p. 180.

[6] Published on the Official Gazette dated 13.06.2003 and no. 25137.

[7] Justification, m. 5/5.

[8] Published on the Official Gazette dated 17.06.2014 and no. 29033. The Regulation entered into force on its publication date.

[9] These examples include contract terms which relieve the contractor of liability in case of death, corporal or material damages of the consumer; which foresee disproportionally high compensation or liquidated damages to be paid by the consumer who does not fulfill its contractual obligations; which grant only the contractor, and not the consumer, the right to abstain from fulfilling its duties unless certain conditions are met, or to request the full contract price even if it renounces from the contract or from its performance; or which grant the contractor the right to unilaterally amend contract provisions.