When certain criteria are satisfied, Turkish law allows and respects the choice of the parties to a contract vesting jurisdiction in a foreign, non-Turkish court. The most important of these criteria is that there be a “foreign element,”^[1] such as when one of the parties is not a Turkish citizen or company.

In line with the above rule and established practice, an Istanbul court of first instance^[2] recently dismissed a case seeking damages for goods damaged in transit from the US for lack of jurisdiction. The basis for this dismissal was that the parties had designated in their contract for the transport of those goods “United States law” as the applicable law and the “Court of Houston, South Texas, USA” as the competent court. On appeal, however, the appellate court – applying the “principle of good faith”^[3] – reversed that ruling, finding the Istanbul court had jurisdiction.

More specifically, the goods to be transported were delivered to a Turkish shipping company at the Port of Baltimore in the US but were alleged to have been damaged during their loading. The cargo underwriter, exercising its rights of subrogation, subsequently initiated an action in Istanbul seeking nearly $300,000 in damages plus interest. The Turkish defendant moved to have the action dismissed, arguing the dispute should be adjudicated in Houston, Texas as provided for in the shipping contract. The Istanbul court agreed and dismissed the action for lack of jurisdiction.

On appeal, the Turkish Court of Appeals ^[4] overturned the lower court decision.^[5] Although it found the jurisdictional provision to be valid, the appellate court concluded in a 25 November 2015 decision that under the circumstances enforcing that provision would be contrary to the principle of good faith. In this regard, the Court of Appeals underscored that the proceedings had been initiated before an Istanbul Court, that Istanbul is where the defendant resided and that the defendant would be expected to defend its rights “better” before a court in its place of residence as opposed to a court in a foreign country.

As additional support for its decision, the Court of Appeals cited a 1984 decision of the General Council of the Court of Appeals, a decision in which the principle of good faith was also cited as the basis for reversing a decision that would have resulted in the action being dismissed for lack of jurisdiction.^[6] There, the General Council was considering the plaintiff’s unilateral choice of the Turkish court of first instance in which to initiate its action (as opposed to the situation in the more recent case, where both parties had agreed to the competent court in a contract). The Court of Appeals reversed the lower court’s ruling, which had found the plaintiff’s choice was contrary to Turkish procedural law, concluding the defendant’s objection to jurisdiction was merely a delaying tactic and therefore violated the principle of good faith.  

Perhaps needless to say, the most recent Court of Appeals decision has attracted much criticism from Turkish attorneys and law professors alike, with the criticism focused primarily on the appellate court having ignored the parties’ intent to adjudicate their disputes in Houston, Texas (as provided for in the shipping contract.)

Having courts ignore the intent of parties is certainly troubling. The application of the principle of good faith in both the recent and 1984 matters is also somewhat worrying, as just when a court may apply the principle, or not, is unpredictable. That said, the recent Court of Appeals decision can best be seen – in our mind – as one based on the unique factual situation before it, i.e. proof of the adage that bad facts make bad law.

For example, although not addressed in the decision, it is likely the shipping contract – really just a bill of lading – was not negotiated and was executed (if it was executed at all) without much thought by either party. In addition, certain parts of the bill of lading described in the decision are a bit non-sensical, e.g. it designated the applicable law as “United States Law,” when no such law exists (with, instead, each of its 50 states having its own law) and there is and was no “Court of Houston, South Texas.” Furthermore, there would appear to be no connection between Texas and either of the parties or the subject matter of the shipping contract, with indeed the alleged damage to cargo having occurred in Baltimore, Maryland. And the appellate court was correct to note that the Turkish defendant would be able to defend its right “better” in Istanbul, its place of residence. More can be said in this regard, but suffice it to say that, without the court expressly saying so, a conclusion similar to that of the Court of Appeals in the 1984 decision was arguably warranted here, i.e. the defendant was acting in bad faith when insisting on having the dispute heard in Texas.

About Balcıoğlu Selçuk Ardıyok Keki

Balcıoğlu Selçuk Ardıyok Keki Attorney Partnership is an Istanbul-based full service law firm with a team of 130+ lawyers and economists. Our practice focuses on a wide range of areas including real estate, corporate, mergers and acquisitions, banking, project finance, capital markets, competition and anti-trust, employment, litigation and arbitration, telecommunication, regulatory and public law and intellectual property. We represent and advise Turkish and multinational clients, including Fortune 500 companies, in the banking and finance, private equity, real estate, manufacturing, hospitality and leisure, retail, automotive, energy, information technology, life sciences, luxury fashion and beauty, and media sectors.