Foreign companies that contract with Turkish contractors, manufacturers and suppliers often encounter the same scenario. A price is agreed in Turkish lira, or in a currency that the Turkish party funds from lira revenues. Months later, the lira depreciates sharply, input costs rise, and the Turkish counterparty asks for a price increase, slows down performance, or announces that it will apply to court to have the contract adapted. Unlike many common law systems, Turkish law expressly allows a court to adapt a contract in cases of hardship. The doctrine is codified in Article 138 of the Turkish Code of Obligations (TCO) and, for construction contracts, in Article 480 TCO. The conditions are strict, and the Turkish Court of Cassation expects commercial parties to foresee ordinary currency volatility. But a foreign party that assumes the agreed price is untouchable may be surprised. This article explains how hardship works under Turkish law, how recent case law treats currency shocks, and how foreign parties can allocate the risk in their contracts.
1. Hardship in Turkish Law
The starting point under Turkish law, as elsewhere, is that contracts must be performed as agreed (pacta sunt servanda). Hardship is an exception grounded in the good faith principle of the Turkish Civil Code. It applies where performance remains possible, but an extraordinary change of circumstances has so disrupted the balance of the contract that requiring performance on the original terms would be contrary to good faith. It is distinct from impossibility, where performance can no longer be rendered at all, and from force majeure clauses, which usually address events that prevent or delay performance.
2. The Conditions of Article 138
A party may ask the court to adapt the contract if all of the following conditions are met:
- An extraordinary event has occurred that the parties did not foresee and could not have been expected to foresee when the contract was concluded;
- the event was not caused by the party seeking relief; a party already in default generally cannot rely on changes that occur during its default;
- the event has changed the circumstances to the detriment of that party to such an extent that requiring performance would be contrary to good faith; and
- the party has not yet performed, or has performed while expressly reserving its rights arising from the hardship.
If these conditions are met, the court may adapt the contract to the new circumstances or, if adaptation is not possible, allow the party to withdraw from it. For long-term contracts, termination replaces withdrawal. Article 138 expressly applies to foreign currency obligations as well, so a price denominated in euros or US dollars does not exclude the doctrine.
3. Currency Shocks and the Prudent Merchant: Recent Case Law
For foreign parties, the key question is whether a sharp fall in the Turkish lira qualifies as an extraordinary and unforeseeable event. Under Article 18(2) of the Turkish Commercial Code, a merchant must act as a prudent businessperson, and Turkish courts read this duty as including the anticipation of ordinary exchange rate and price movements.
A recent example is the decision of the 6th Civil Chamber of the Court of Cassation of 2 December 2025 (2025/1651 E., 2025/4133 K.). A contractor that had won a three-year equipment hire tender in 2021 sought adaptation after fuel and other input costs rose sharply. The first instance court dismissed the claim, holding that a prudent merchant could foresee the depreciation of the lira against foreign currencies and economic crises, and that economic fluctuations were not unforeseeable events under Article 138. The regional court of appeal upheld that decision, and the Court of Cassation affirmed it by majority.
The dissent is significant. It argued that the prudent merchant standard must be assessed objectively and cannot require a merchant to foresee an extraordinary downturn beyond foreseeable limits, giving the example of input prices rising by 400% at a time when general inflation was around 50%. In the dissent's view, Article 138 contains no exception for merchants, and reading the prudent merchant duty that broadly would amount to strict liability.
The practical message for foreign parties is twofold. A Turkish counterparty will not obtain adaptation simply because the lira has weakened or its margin has disappeared, and the prevailing approach gives a foreign employer or buyer a strong defence. At the same time, the door is not closed: where a Turkish party can show, with expert evidence comparing specific input costs with general inflation and exchange rates, that the increase went far beyond what a prudent merchant could have anticipated, the claim may succeed. A foreign party facing an adaptation claim should be prepared to contest foreseeability with objective market data.
Foreign currency pricing between Turkish residents is also restricted, which can force contracts into Turkish lira and make the allocation of currency risk even more important. We discussed these restrictions in this article.
4. Reservation of Rights and the Effect of Filing Suit
A party that continues to perform without reserving its rights cannot obtain adaptation for the part already performed. The Court of Cassation's 6th Civil Chamber clarified the position in a decision of 16 December 2024 (2023/2257 E., 2024/4883 K.) concerning a lump sum construction contract. It held that work performed and invoiced before the adaptation claim was filed could not be adapted, but that filing the claim itself amounts to a reservation of rights, so work performed after the filing date counts as performed under reservation. It also held that the absence of formal objections to interim payment certificates is not in itself a reason to reject an adaptation claim, because adaptation is distinct from a contractual price escalation claim.
For foreign employers and buyers, written notices, reservations in invoices and payment applications, and an early lawsuit by a Turkish counterparty are signs that its position on future performance is being preserved. Conversely, a long period of performance without any reservation can be an important defence for the part already performed.
5. Lump Sum Construction Contracts
Under Article 480(1) TCO, a contractor that agreed a lump sum price must complete the works for that price, even if they require more work or cost than expected. Under Article 480(2), however, where circumstances that could not have been foreseen at the outset, or that were foreseeable but not taken into account by the parties, prevent completion at the agreed price or make it extremely difficult, the contractor may ask the court to adapt the contract. If adaptation is not possible or cannot reasonably be expected of the employer, the contractor may withdraw; where good faith so requires, it may only terminate.
The reference to circumstances that were foreseeable but not taken into account makes Article 480 somewhat more favourable to contractors than the general rule, and it is frequently invoked by Turkish contractors on large projects. In public procurement contracts, special statutory rules on price adjustment and termination must also be considered.
6. How a Court Adapts the Contract
The court first looks at what the contract itself says. If the parties agreed a price adjustment, escalation or renegotiation mechanism, it will normally be applied first. If the contract clearly allocates currency risk to one party, for example by stating that exchange rate movements will not affect the price, adaptation becomes considerably more difficult, although such a clause may not cover events far beyond anything the parties could have contemplated.
Where the contract is silent, the court restores the balance by reference to the purpose of the contract and the parties' presumed intentions. In practice, the foreseeable part of the increase is often left with the party that bore the risk, and the extraordinary, unforeseeable part is shared between the parties on an equitable basis. Adaptation is not a means of shifting the entire risk to the other party; it aims to restore a reasonable balance. It applies only to performance not yet rendered, or rendered under reservation.
7. Force Majeure, the ICC Hardship Clause and Arbitration
Many international contracts with Turkish parties include a force majeure clause but no hardship clause. A currency devaluation will rarely qualify as force majeure, but it may still support a hardship claim under Article 138 if Turkish law governs the contract. Foreign parties that want to control this risk should address hardship expressly. The ICC Hardship Clause 2020 offers a widely used model: it requires renegotiation where performance has become excessively onerous due to an event that could not reasonably have been taken into account, and allows the parties to choose whether a judge or arbitrator may adapt the contract, terminate it, or neither.
Where Turkish law governs a contract with an arbitration clause, an arbitral tribunal can generally apply Article 138 and adapt the contract in the same way as a Turkish court, unless the parties have agreed otherwise. If the parties want to exclude adaptation by the tribunal, or define its powers, they should say so clearly. We discussed the drafting of arbitration clauses with Turkish parties in this article.
8. Drafting Checklist for Foreign Parties
- Decide deliberately who bears currency and cost risk, and say so in clear and specific terms.
- Where some sharing is commercially acceptable, use an objective price adjustment formula with defined indices, base dates and thresholds, rather than leaving the issue to a court.
- Include a renegotiation clause triggered by defined thresholds, with a fixed timetable and a clear consequence if negotiations fail.
- Treat force majeure and hardship separately; consider the ICC Hardship Clause 2020 as a starting point.
- If you wish to limit or exclude adaptation by a court or tribunal, state this expressly, bearing in mind that such clauses may not cover truly extraordinary events.
- Require notice and documentation of cost increases within fixed deadlines.
- Choose a dispute resolution mechanism suited to technical and financial evidence, such as arbitration with expert input.
9. When a Turkish Counterparty Asks for More
- Review the contract's pricing, risk allocation, notice and force majeure provisions before responding.
- Check whether the counterparty has reserved its rights, or filed suit, and since when.
- Assess whether the change was genuinely extraordinary and unforeseeable when the contract was signed, using objective market data; the prudent merchant standard is your strongest argument.
- Consider whether the counterparty is in default, which may weaken its position.
- Respond in writing, without accepting the claim, and keep a clear record of the negotiations.
- Consider a negotiated adjustment where continued performance is commercially important; a court-imposed adaptation may be less predictable.
10. Conclusion
Hardship gives Turkish law a flexibility that foreign parties used to strict contractual pricing may not expect. The key points are:
- Article 138 TCO allows a court to adapt a contract after an extraordinary, unforeseeable change that makes performance contrary to good faith, and it expressly applies to foreign currency obligations.
- The Court of Cassation generally expects merchants to foresee lira depreciation and economic fluctuations, but a recent dissent shows that increases far beyond foreseeable limits remain arguable.
- Performance without reservation bars adaptation for the part already performed; filing suit preserves rights for later performance.
- Article 480 gives contractors under lump sum contracts a specific route to adaptation.
- Courts look first at the contract and, where it is silent, often share the extraordinary part of the increase between the parties.
- Clear risk allocation, objective price adjustment formulas and a well-designed hardship clause are the most effective protection.
For advice on price adjustment and hardship clauses, responding to adaptation claims from Turkish counterparties and disputes arising from currency and cost increases, please contact us at info@guzeloglu.legal.