Our article addresses the review of general terms and conditions under Turkish law, explaining the elements of a general term, the three-stage review system, surprising clauses, interpretation against the drafter, the prohibition on unilateral amendment, content review and the sanction of being deemed unwritten.
The ten pages of standard terms behind a supply contract, the long text on the acceptance screen of a software service, a bank's pre-printed credit agreement, or the small-print provisions on the reverse of a carrier's waybill; what these have in common is that they are texts prepared in advance by one party on which the other has no real opportunity to bargain. The pace of commercial life makes such standardisation necessary; negotiating every contract from scratch is practically impossible. But this convenience has a price; the party drafting the text has the opportunity to insert provisions unbalanced in its own favour and to create risks that escape the other party's attention. The Turkish Code of Obligations has provided, against this danger, an exceptional regime of protection introduced as a limit on freedom of contract. The most striking aspect of this regime is that it applies to everyone, covering not only consumers but merchants as well. This article comprehensively examines the concept of general terms and conditions, their elements, the three-stage review system, surprising clauses, the principle of interpretation against the drafter, the prohibition on unilateral amendment, content review and the sanction of being deemed unwritten.
1. The Concept of General Terms and Conditions
General terms and conditions are contractual provisions prepared in advance and unilaterally by the drafter, with a view to using them in a large number of similar contracts in the future, and presented to the other party. Three elements emerge from this definition, and all three must exist together. The first element is that the provision has been prepared in advance and unilaterally by one of the parties; the other party must have made no contribution to the formation of the text. The second element is that the provision has been prepared with a view to use in a large number of contracts; what is required here is not that it has in fact been used many times, but that it was prepared for that purpose. The third element is that the provision has been presented to the other party. Where these elements exist together, it is immaterial whether the provisions appear within the body of the contract or in an annex, what their extent, typeface and form are, and whether the contract contains such terms. The law is exceedingly clear on this point; provisions presented on a separate sheet, written in small type or hidden behind a link are likewise general terms. This broad definition aims to prevent the drafter from escaping review by formal devices.
2. The Position of Negotiated Provisions
The only genuine way of falling outside the general terms regime is negotiation. The law provides that the character of general terms does not change unless a change is made in the nature or content of the contract or of its provisions. This means that, for a provision to cease being a general term, the other party must genuinely have influenced it and the provision must have been altered as a result of negotiation. Two important misconceptions arise here in practice. The first is the belief that inserting into the contract text a statement that the other party has read and negotiated all the provisions will suffice; such pre-printed statements do not of themselves prove that negotiation took place. The second is the assumption that sending the text to the other party and inviting comments amounts to negotiation; where the other party has received the text but has been unable to change anything, the provision remains a general term. As regards the burden of proof the position is likewise against the drafter; the party asserting that a provision was negotiated must prove it. For this reason, documenting the negotiation process through correspondence and draft versions is of great importance later on.
3. The Three-Stage Review System
The law has established a three-stage system of review against general terms, and the order of these three stages matters. The first stage is the incorporation review; the question asked here is whether the general term has entered the scope of the contract. Provisions failing this stage are deemed unwritten and there is no longer any need to examine their content. The second stage is the interpretation review; how the general terms that have entered the contract are to be interpreted is determined, and the principle of interpretation against the drafter comes into play here. The third stage is the content review; whether the provisions that have been incorporated and interpreted are valid as to their content is examined. The sequential operation of these three stages is not a technical detail; confusing the incorporation review with the content review is a frequent error in practice and leads to wrong results. Indeed, whether a provision is contrary to the other party's interests is the subject of the content review; this matter is not considered in the incorporation review. Determining correctly which stage applies in a dispute directly affects the outcome.
4. The Incorporation Review and Its Conditions
The incorporation review determines the conditions required for general terms to enter the scope of the contract. Three conditions are required for general terms contrary to the other party's interests to be incorporated. The first is that, at the time of the conclusion of the contract, the drafter gives the other party express information as to the existence of these terms; a general reference to the existence of the terms is not sufficient, an express warning is required. The second is that the other party is given the opportunity to learn the content of these terms; the text must be actually accessible and a reasonable opportunity to read it must be afforded. The third is that the other party accepts these terms. Where any one of these three conditions is not fulfilled, the general terms concerned are deemed unwritten. In practice, breaches of these conditions are seen most often in contracts concluded electronically; referring to a long text only by way of a link, designs allowing the user to proceed without reading the text, and notifying the terms after the contract has been concluded are typical breaches. Documenting that these conditions have been satisfied is of critical importance for the drafter.
5. Surprising Clauses
The second limb of the incorporation review concerns provisions known as surprising clauses. The law provides that general terms foreign to the nature of the contract and to the particularity of the business are likewise deemed unwritten. This regulation targets provisions the other party could not reasonably expect to encounter in a contract of that type. The assessment is made according to an objective standard; what is taken as the basis is not the personal expectation of the particular counterparty, but what a reasonable contracting party would expect in that type of contract. Typical examples of surprising clauses include a suretyship undertaking inserted into a service contract and unrelated to the service, a non-compete undertaking not to be expected in a contract of sale, a jurisdiction or arbitration provision bearing no connection with the subject matter of the contract, and automatic renewal or tie-in provisions incompatible with the natural course of the contract. For a provision to be regarded as surprising it is not necessary that its content be unfair; it suffices that it falls outside reasonable expectation. For this reason the drafter should highlight unusual provisions separately and prominently rather than burying them in the text.
6. The Sanction of Being Deemed Unwritten
The sanction for provisions failing the incorporation review is that they are deemed unwritten. This sanction differs from and goes further than the classic forms of invalidity. A provision deemed unwritten is treated as never having entered the contract at all; the result is as though that provision had never been agreed between the parties. The purpose of this approach is to prevent the drafter from binding the other party without having fulfilled its duty to inform. Although the legal nature of being deemed unwritten is debated in doctrine, its practical result is clear. As regards the scope of the sanction the law has introduced an important limitation; being deemed unwritten affects only the defective provision, and the remaining provisions of the contract retain their validity. Moreover, the drafter cannot assert that it would not have made the contract without these provisions; that is, it cannot penalise the other party by seeking the invalidity of the contract as a whole. This regulation is a fundamental safeguard preventing the protective regime from turning against the party it protects. The gap left by the provision deemed unwritten is filled through the interpretation of the contract and the supplementary provisions of the law.
7. The Principle of Interpretation Against the Drafter
At the second stage of the review, how the general terms that have succeeded in entering the contract are to be interpreted is determined. The law has adopted a special rule of interpretation on this matter; where a provision in general terms is not clear and comprehensible, or bears more than one meaning, it is interpreted against the drafter and in favour of the other party. This rule is the statutory expression of the settled principle, originating in Roman law, that unclear provisions are interpreted against the person who drafted them. The logic behind the rule is simple; the party drafting the text is the party with the opportunity to write the provision clearly and comprehensibly, and it should bear the risk of ambiguity. The practical consequence of this principle is exceedingly broad. From the drafter's point of view, seeking to obtain broad protection by writing a vague provision backfires; the vagueness is interpreted against it. Writing provisions that produce results in the drafter's favour, such as limitation of liability clauses, liquidated damages, termination and automatic renewal provisions, clearly, unambiguously and narrowly is therefore in the drafter's own interest.
8. The Prohibition on Unilateral Amendment
The law has introduced a further specific prohibition relating to general terms. Provisions contained in a contract containing general terms, or in a separate contract, giving the drafter the power unilaterally to amend a provision of the contract to the detriment of the other party or to introduce a new provision are deemed unwritten. This regulation directly targets unilateral amendment clauses, which are very widespread in practice. In long-term service, subscription, maintenance and licence contracts, provisions to the effect that the drafter may unilaterally change prices, the scope of the service or the general terms are frequently encountered; such clauses fall within the prohibition. The scope of the prohibition is notable; it applies even where the clause appears not in the main contract but in a separate contract, so it cannot be circumvented by moving it to another document. In the face of this prohibition the practical solution is, instead of a power of unilateral amendment, to tie amendments to objective and predetermined criteria, to give the other party notice of reasonable duration, and to grant the other party the right to terminate the contract if it does not accept the amendment.
9. Content Review
The third and final stage of the review is the content review. The law has adopted a general standard on this matter; provisions contrary to the rules of good faith and detrimental to the other party or aggravating its position may not be inserted into general terms. This provision makes it possible for provisions that have passed the incorporation and interpretation reviews, that is, that have been duly incorporated into the contract and whose meaning has been determined, nonetheless to be regarded as invalid on account of their content. The standard is the rule of good faith; it is assessed whether the provision disturbs the balance of interests between the parties in the drafter's favour to an extent incompatible with good faith. The typical types of provision questioned in content review in practice are as follows; clauses limiting or wholly excluding liability to an excessive degree, provisions placing the burden of proof on the other party, excessively short notice and objection periods, disproportionate liquidated damages, provisions granting the drafter a right of unilateral termination while binding the other party, and provisions rendering it practically impossible for the other party to exercise its statutory rights. Since content review is an exceptional intervention in freedom of contract, it is operated in a manner limited to provisions clearly disturbing the balance.
10. Applicability as Regards Merchants
The most characteristic aspect of Turkish law in this field, and the one producing most consequences in practice, is that the review regime relating to general terms applies to everyone, without distinction between consumers and merchants. In doctrine this choice has been regarded as sound from the point of view of ensuring justice within the legal order. This is notable from a comparative law perspective as well; in many legal orders protection relating to standard terms is directed primarily at consumers and applies more restrictively in relations between merchants. Under Turkish law, by contrast, even a large industrial company may benefit from this protection against a standard supply term presented to it. The practical consequences of this fact are very broad. Pre-printed purchase terms, general delivery conditions, service level annexes and standard maintenance contracts used in commercial contracts are subject to this review regime. In a dispute, the incorporation, interpretation and content review of the standard provisions in the contract may be raised even where the other party is a merchant. For this reason, acting freely in the preparation of commercial standard texts on the assumption that the other party is a merchant is a serious risk.
11. Whether the Review Is Conducted of the Court's Own Motion
Another matter debated in practice is whether the court may conduct the general terms review without a request from the other party. One view in doctrine maintains that the relevant provisions may be applied only where the other party so requests. The widely held view, by contrast, is that these provisions are mandatory in character and that, where a dispute becomes the subject of an action, the court must conduct the review for contrariety to the general terms provisions without awaiting a request and, where the conditions are met, apply the sanction of being deemed unwritten. The practical importance of this debate is great. Where review of the court's own motion is accepted, the court may examine the standard provisions even though the other party has not raised the matter at all in the action; and this creates an unforeseeable risk for the drafter. As regards litigation strategy, the safest course for the other party is to raise objections relating to general terms expressly and without delay; failing to raise them in reliance on review of the court's own motion creates unnecessary risk. In any event, preparing standard texts from the outset so as to withstand review is the soundest solution.
12. Contracts Concluded Electronically
Problems relating to general terms acquire particular intensity in contracts concluded electronically. In software, cloud services, platform use and online sales relationships, the terms are almost always presented as standard texts and the user has no opportunity to negotiate. In this environment, satisfying the conditions of the incorporation review requires particular attention. Referring to the existence of the terms only by a link, and allowing the user to proceed without opening the text, may lead to the conclusion that the conditions of giving express information and affording the opportunity to learn the content have not been satisfied. By contrast, designs in which the user sees the text, scrolls through it to the end and accepts it by a separate act of confirmation are far more resistant to review. Highlighting separately those provisions that are unusual or produce serious consequences in particular provides protection against a surprising clause objection. Another critical point is the subsequent unilateral amendment of the terms; the prohibition on unilateral amendment finds direct application here, and version changes must be supported by notice and termination right mechanisms. Recording the acceptance process technically is likewise essential as regards proof.
13. Protection Strategies for the Drafter
The party using standard texts can manage the review risk in several ways. The first strategy is to present unusual provisions and those producing serious consequences separately and prominently rather than burying them in the text; a separate heading and an emphasised layout should be used for provisions such as limitations of liability, liquidated damages and non-compete undertakings. The second strategy is to document the information and acceptance process; when the text was presented, and when and how the other party accepted it, must be recorded. The third strategy is genuinely to negotiate important provisions and to document that negotiation through draft versions; a provision altered through negotiation falls outside the regime. The fourth strategy is to write provisions clearly and unambiguously; since vagueness will be interpreted against the drafter, broad and uncertain wording produces risk rather than protection. The fifth strategy is to structure, instead of a power of unilateral amendment, amendment mechanisms tied to objective criteria together with a right of termination. The sixth strategy is to review standard texts periodically and to test them against the review standards.
14. Strategies for the Other Party
There are likewise certain strategies available to the party to whom a standard text is presented. The first is to request and examine the text before the contract is concluded; negotiating at the outset is always more effective than objecting afterwards. The second is to request a genuine change to provisions that cannot be accepted; having the provision altered through negotiation both provides protection as to content and takes that provision outside the regime. The third is to document the negotiation process through correspondence; which provision was discussed and left unchanged will matter in a later argument over the incorporation review. The fourth is, when a dispute arises, to raise objections relating to general terms expressly and in time; these objections should be ordered in accordance with the logic of the three-stage review, that is, first that the provision never entered the scope of the contract, then that, if it did, it is uncertain and must be interpreted against the drafter, and finally that it is contrary to the rules of good faith as to its content. This graduated structure ensures that the objection is presented in its strongest form.
15. Conclusion and Practical Recommendations
The review regime relating to general terms is an exceptional but exceedingly effective institution of protection introduced as a limit on freedom of contract. The basic considerations in this field may be summarised as follows. For a provision to be regarded as a general term it must have been prepared in advance and unilaterally, must carry the purpose of use in a large number of contracts and must have been presented to the other party; where and in what form the text appears is immaterial. The only way of falling outside the regime is genuine negotiation, and a pre-printed statement that the terms were negotiated does not achieve this. The review has three stages and their order must be preserved; incorporation, interpretation and content. Provisions failing the incorporation review are deemed unwritten, but this sanction affects only that provision and the drafter cannot assert the invalidity of the contract as a whole. Surprising clauses are determined according to an objective standard and it is not required that their content be unfair. Vague provisions are interpreted against the drafter. Clauses granting the drafter a power of unilateral amendment are deemed unwritten. Most importantly, this regime applies in relations between merchants as well; commercial standard texts must be prepared with this awareness.
The review of general terms is closely connected with the other fields of contract law. Our article on letters of intent, memoranda of understanding and pre-contractual liability, which addresses the binding force of pre-contractual documents, and our analysis of force majeure and hardship in international commercial contracts, which examines the subsequent disturbance of the contractual balance, address the matters connected with general terms.
For advisory services on the preparation of standard contract texts and making them resistant to review, disputes relating to general terms and the structuring of commercial contracts, you may contact us at info@guzeloglu.legal.