AUTOMOTIVE AND MACHINERY

Working with Turkish Suppliers: Liability for Defects and the Supply Contract

With a broad supplier base, particularly in Bursa and Kocaeli, Türkiye has become one of the important sourcing locations for the European automotive and machinery industries. A defect in a series part, however, is rarely confined to a single delivery; line stoppages, contractual penalties towards customers and recall costs quickly exceed the value of the part many times over.

Practice shows that the outcome of such disputes depends less on whether a defect exists than on when and how it was notified and how the contract allocates liability. The following sets out the key points for companies buying parts from a Turkish supplier or selling parts to a Turkish customer.

Which rules apply

Türkiye is a party to the United Nations Convention on Contracts for the International Sale of Goods (CISG). In a sale of parts between Turkish and German parties, the rules on defects and notice therefore derive from the CISG unless the parties expressly exclude its application. A point often overlooked in practice is that merely choosing German law may not be enough to exclude the CISG, as the CISG forms part of German law; if it is not to apply, stating this expressly in the contract is the safest course. The choice of law itself is unproblematic; however, if a decision has to be enforced in Türkiye, it should be anticipated from the outset that a foreign judgment must first be recognised and declared enforceable, which lengthens the process.

In contracts governed by the CISG, the buyer must examine the goods within as short a period as is practicable in the circumstances and give notice of the lack of conformity, specifying its nature, within a reasonable time. In commercial sales where the CISG is excluded and Turkish law applies, by contrast, special rules come into play which set surprisingly short time limits for a purchasing department used to German practice.

Inspection and notice periods

Where the CISG is excluded, under the Turkish Commercial Code the buyer must notify the seller of an obvious defect within two days of receiving the goods. If the defect is not obvious, the buyer must examine the goods within eight days of receipt and, if a defect is found, notify it within the same period. For latent defects that could not be detected by an ordinary inspection, notice must be given immediately after discovery. Failure to give timely notice may result in the goods being deemed accepted with the defect.

In series production, these periods are closely linked to the scope of incoming inspection. In German supply relationships, incoming inspection is commonly limited by the quality assurance agreement to visible transport damage and identity checks. The same result can be achieved in a relationship governed by Turkish law; however, expressly regulating the scope of inspection and the notice periods in the contract is the safest way to avoid the court applying the short statutory periods.

Limitation

In sales governed by Turkish law, claims arising from defects are generally time-barred two years after delivery, even if the defect only becomes apparent later. Where the seller acted with gross fault or fraud, it cannot rely on this short period. For long-life parts, or for defects that appear years after the vehicle has been placed on the market, two years may clearly be insufficient; contractually extending the period or agreeing a longer warranty period is therefore a common solution in practice. Linking the start of the period to a different event, such as delivery to the end customer, may also be considered, but such clauses must be drafted clearly and with sufficient precision. In contracts governed by the CISG, on the other hand, the two-year period provided for in the Convention is not a limitation period but the outer limit for giving notice of a defect; the limitation period is determined separately under the applicable law.

Limitation of liability and standard terms

Suppliers seek to limit their liability, and buyers to extend it, through their own standard terms. Two rules are decisive here under Turkish law. First, agreements excluding in advance the obligor's liability for gross fault are void; a limitation of liability should therefore only cover slight negligence. Second, the rules on standard terms and conditions. Standard clauses that are disadvantageous to the other party are deemed not to form part of the contract if they were not expressly brought to its attention and it had no opportunity to learn their content. Given that the Court of Cassation also applies these rules to contracts between merchants, relying solely on terms printed on the back of an order form or referred to by an internet address can be considered risky.

Which terms apply where both parties refer to conflicting standard terms is not expressly regulated in Turkish law. A negotiated framework agreement removes this uncertainty and leads to a more predictable result for both sides.

Recalls and product safety

The safety of products placed on the market in Türkiye is governed by product safety and technical regulations legislation, which imposes recall and notification obligations on manufacturers and importers. Liability for damage caused by a non-compliant product does not depend on fault on the part of the manufacturer or importer; non-compliance, damage and the causal link between them must, however, be proven. This makes the recourse relationship between the links of the supply chain important, since a manufacturer held liable towards the end customer will seek to pass the loss on to the company that supplied the defective part.

Where the contract does not regulate how recall costs are to be shared, the dispute is decided under the general rules, and proving both the source of the defect and the amount of the loss requires lengthy expert proceedings. Cost sharing, the notification procedure and product liability insurance should therefore be set out in the supply contract from the outset.

Termination of dealership and distribution relationships

Foreign manufacturers working with a Turkish distributor in the sale of spare parts and machinery are often faced with an indemnity claim when the relationship ends. The Turkish Commercial Code expressly provides that the indemnity claim granted to commercial agents also applies, unless contrary to equity, to exclusive distribution and similar continuing relationships conferring exclusive rights, and the case law of the Court of Cassation follows this approach. Where the distributor has in effect transferred its customer base to the manufacturer and the termination is not based on a reason attributable to the distributor, this claim can reach substantial amounts. Not every distribution relationship automatically gives rise to this claim, but the risk should be assessed before termination.

Conclusion

The course of disputes in supply relationships with Türkiye is often determined by decisions taken on the day the contract is signed. A deliberate choice regarding the applicable law and the CISG, express rules on the scope of inspection and notice periods, and an early allocation of recall costs make it foreseeable what the parties will face if a defect arises. Questions of corporate structure, staffing and incorporation are dealt with separately on the pages of the relevant practice areas.