Freedom of Contract under Energy Law - Canberk Taze



Freedom of contract is the freedom of legal persons to form any contract in accordance with their free will. This freedom is under the protection of Article 48 of the Turkish Constitution. It is further protected under Article 19 of the Code of Obligations. Freedom of contract contains the freedom to form and terminate the contract, make alterations in the contract, and the freedom to choose the other side of the contract. This freedom arises from the perception that all legal persons are equal.


Undertakings that are in the dominant position in the market can insist on their general terms of contracts on smaller undertakings. These results in some exceptions to freedom of contract, most importantly, the obligation to make a contract. That prevents the smaller undertakings from being abused by the ones with more economical and bargaining power.

The market economy aims to maximize the consumer’s benefits on obtaining a good or service. That can be achieved only by a market where the undertakings are competing with each other. If the dominant undertaking is able to prevent entrance to the market, becomes a monopoly, or, in general, abuse that position in the market, the market economy will fail. In the case of energy, the prevention of a healthy market is so important that there are two state-owned mechanisms to regulate the energy market, which are Energy Market Regulatory Agency (“EMRA”) and the Turkish Competition Authority (“TCA”). Although TCA is not focused on energy only, one of its five departments is focused on energy undertakings only. These two mechanisms work in accordance with each other. When some undertakings do not abide by the Act on the Protection of Competition, EMRA sends a complaint to the TCA since TCA’s penalties are more preventative because they are calculated based on the undertaking’s turnover.


Obligation to make a contract leads to two results, the first being obliged to provide their services to the weaker party and second being if the dominant party is abusing their economic power, the obligation to make a contract with the optimal terms. Obligation to make a contract will only apply to a monopoly that arises from a state action or a natural monopoly. However, the prohibition of discrimination while making a contract does not require a monopoly or an undertaking in a dominant position. Therefore, the obligation to make a contract arises if a customer asks the undertaking to make a contract and the inability of the dominant party to change the contract; however, they wish.


The legal basis of the obligation to contract is accepted to be Article 2 of the Turkish Civil Code, which covers the “good faith” principle. That applies whether the monopoly is born out of state action, or it is an actual monopoly. However, there are instances which the law-maker has specifically made it necessary to form a contract. Some examples can be Code No. 4646 on Natural Gas Market Law 4/4/e/2, which orders legal entities to provide gas entrance within the seasonal, daily, and hourly flexibility ranges. If the legal entity fails to do so, customers may refer this to EMRA. Similarly, Code No. 4054, Act on the Protection of Competition’s fourth and sixth articles, which cover agreements, concerted practices and decision limiting competition and the abuse of dominant position, will dictate an undertaking to make necessary contracts to ensure a competitive market that maximizes consumers benefits from the market.


Legal persons who fail their obligation to contract under these laws will face the consequences if there is no valid reason for their failure. If a state-owned entity fails to ensure a contract is formed, the customer can refer the case to Turkish administrative courts for nullity or remedies. According to Ayranci, the decision for nullity by the court will not result in a contract to be formed between the parties, EMRA must take action to ensure the obligation to contract is fulfilled after the court decision. If the party still fails to make a contract, penalties will be applied. If the undertakings do not act in accordance with Act on the Protection of Competition, they will directly face penalties that are calculated from their turnover. TCA also orders the party to make a contract with the customer.


References

Ayrancı, Hasan. Enerji Sözleşmeleri. Yetkin Yayınları, Ankara 2010 p. 250-269

Code No. 4054 on Protection of Competition

Code No. 4646 on Natural Gas Market Law

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