Liability of Contractors Under Previous and Current Turkish Code of Obligations and Laws No. 4734 and 4735 27 July 2015
Due to the latest amendments of the Turkish Code of Obligations; there is an ambiguity among the employers and the subcontractors who are party to a construction contract regarding the applicable liability periods to be imposed on the subcontractors related to the works performed by the same under such contracts. For that reason, we aimed with this article to answer some of the questions in minds with respect to such liability obligations under both New Code of Obligations and the previous one which is abolished as of July 1, 2012.
First of all, it should be noted that the previous Code of Obligations No:818 is no longer in effect as from July 1, 2012, since the enacted new code have replaced the same at the same date. Due to the reason that the Supreme Court decisions have not been rendered yet with respect to the new regulations included in Law No: 6098 (“Turkish Code of Obligations”) and the current approach of the Supreme Court judges shall most probably be applicable to the new articles, our below stated explanations not only cover the regulations imposed under the new code but also covers the previous regulations.
A) Defects Arising from Construction Contracts
The construction contracts are regarded as independent contractor contracts under the Turkish Code of Obligations and accordingly such contracts are subject to the provisions regulated under Articles 470-486 of said Code.
The Turkish Code of Obligations envisages two different types of defects, which are the “open defects” and “latent defects”. According to Article 477 of the said Code, “open defects” shall be the ones that could be detected during a normal course of inspection that shall cause the non-acceptance of the works. Any defect which cannot be detected during a normal course of inspection but can be detected after a certain period of time as from the acceptance of the works would have to be considered as “latent defects” unless the contractors intentionally hides such defects and somehow misleads the administration in such a way to show the defective works as non-defective.
B) Liability of the Contractor for Defective Works:
In the light of the above explanations regarding open defects; open defects should be determined and notified by the owner during the acceptance of the works. In the event that the works performed by a contractor are accepted by the owner despite of the existence of the open defects and that later on, if the owner claims that the works are defective so that they should be remedied by the contractor, then the owner would have to prove that such defects are latent ones.
According to Articles 126 and 363 of the previous Code of Obligations No. 818 related to status of limitation, the maximum term of liability of the contractors under the construction contracts was 5 years as from the delivery of the works. However; in case the contractor’s failure to complete the works in a proper and contractual manner arises from its willful misconduct or gross negligence, then such liability term of the contractor would extend to 10 years. It should be notified at this point that in accordance with the decisions of the Turkish Supreme court, the use of faulty materials or works by the contractors are also regarded as the gross negligence of the contractors and accordingly was subject to 10 years of term of liability in accordance with the previous Code of Obligations No. 818.
The commencement date for the periods of inspection and notification of defect is the date of the delivery of the complete works, in other words, provisional acceptance of the same by the owner.
Although the previous law imposed two types of lapse of time for the defects under the construction contracts, the new Code imposes three types of lapse of time and extends the period of 10 years to 20 years. It is stated under Article 478 of the Turkish Code of Obligations that if the contractor delivers a defective work, the lapse of time for the litigation case to be filed regarding such defect shall be 2 yearsfor the movables and 5 years for the immovable. However, if such defect is resulted from the gross negligence of the contractor, then the lapse of time shall be 20 years, regardless of the of the nature of the related work. We would like to remind once again that since the use of faulty materials or works by the contractors are regarded as the gross negligence of the contractors under Turkish jurisprudence; for almost every latent defect case; the contractors shall be liable for 20 years following the delivery of the related works as far as private law contracts which are not made under Turkish Public Procurement Law are concerned.
C) Limitation of Liability:
According to Turkish laws, it is possible to include in a contract a clause to limit or exclude some of the liabilities of the contractor. However, this exclusion and/or limitation cannot apply in cases of gross negligence, due to the regulation included in Article 115 of the Turkish Code of Obligations which states that;
“Previous agreements which cause the debtor to be discharged of his liabilities in case of gross negligence shall be deemed to be null and void.”
Given the obvious provisions of Article 115, even if the parties insert a clause in a contract for the limitation of liabilities of the contractor with a certain amount of money, this kind of limitation would not be valid in case of the gross negligence of the contractor.
In consideration of the foregoing, it may be said that the provisions of Article 115 would always apply in case of any liability which is caused by the gross negligence and the contractor shall be obliged to incur the losses and damages of the other party in such a case.
II) CONTRACTS UNDER LAW NO.4734 AND LAW NO. 4735
A) Liability of the Contractor for Defective Works:
According to Article 30 of the Law no.4735, “The contractor and the subcontractor shall be jointly and severally liable not only for the term of the contract starting from the completion date of the works till the final acceptance of the same, but also during a term of 15 years as from the final acceptance date of the construction works, for any loss or damage arising from:
a) the non-compliance with scientific/technical and professional rules while constructing,
b) the usage of faulty material and equipment and
c) Similar reasons.
Any loss and damage arising from above mentioned reasons shall be covered by the Contractor and Subcontractor according to general provisions.”
In order to be able to properly analyze the consequences of the provisions of Article 30, it is important to first understand as to what kind of liability the provisions of Article 30 refer to. We are of the opinion that this provision only refers to latent defects which cannot be detected during a normal course of inspection but be detected after certain period of time as from the final acceptance.
Although Article 30 mentioned above was intended to prolong the period of liability of the contractors for latent defects comparing to 10 years as envisaged under the previous Code of Obligations No. 818, considering the new lapse of time of 20 years as envisaged under the Turkish Code of Obligations, such 15 years imposed by the Law No:4735 will not be considered as an extension of the lapse of time, to the contrary may be regarded as a limitation of the liabilities of the contractors.
B) Limitation Clause:
Since the contracts under the Law No. 4735 are in standard forms as envisaged by the same Law, no amendment can be made to these standard contracts, which are prepared by the administration based on the instructions included in the related Law and regulations. For that reason, it would not be possible for the contractors to maintain the inclusion of a limitation clause to such contracts.
III) CONCLUSION:
As can be seen from the above stated explanations, different Codes impose different types of periods for the latent defect liability and such liability of the contractor cannot be limited by a clause included in the contracts in case of gross negligence and willful misconduct pursuant to Article 115 of the Turkish Code of Obligations.
When it comes to the limit and nature of the damages that should be covered by the contractors in case of discovery of latent defects, whether the contract concerned is subject to Turkish Code of Obligations or Laws No: 4734 and 4735, one should note that such damages are not only direct damages but also indirect damages, such as loss of productivity, loss of profit, etc., since the legislator has not made any categorization with respect to the damages and losses as may be claimed.
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