Trust Liability in terms of Groups of Companies

Article 209 of Turkish Commercial Code No. 6102 ("TCC") has set forth obligations that are subject to damage caused by the trust and reputation of the parent company, as created with society and the consumer. Accordingly, "in the event that the reputation of the parent company and the group of companies reaches a certain level which provides trust to society or the consumer, the parent company is liable for the trust created by utilization of this reputation".

Article 209 of Turkish Commercial Code No. 6102 ("TCC") has set forth obligations that are subject to damage caused by the trust and reputation of the parent company, as created with society and the consumer. Accordingly, "in the event that the reputation of the parent company and the group of companies reaches a certain level which provides trust to society or the consumer, the parent company is liable for the trust created by utilization of this reputation".

Conditions of Trust Liability

For the implementation of the liability of reliability under Article 209 of the TCC, the following conditions must be met:

(i) the group of companies has created a reliability to society and the consumer through the reputation earned;

(ii) the plaintiff has expectations due to the reputation of the group of companies; and

(iii) the parent company supports, explicitly or implicitly, the connection of the group of companies.

Group of Companies 

Implementation of the provision is subject to the existence of a group of companies in terms of Article 195 of the TCC. However, the parent of the group of companies is not necessarily required to be a company. Economic entities owned by real persons can also control a group of companies, and may be held liable within this scope.

Reputation

Not each group of companies is subject to this provision. A group of companies that created trust with society or consumers are within such scope. Such evaluation should be conducted separately for each separate case. The basis of orientation of the society and, in particular, orientation of the consumer, as well as increase of the market share of the affiliated company, is the trust and confidence that the company that is a member to such group of companies to act fairly, the information and tables and documents announced reflects the truth, the technology used is sufficient, and the quality is superior and everything is as it should be.

Such reputation should be deemed established in the event that the group of companies is perceived reliable and qualified, an opinion that the products of the group of companies are highly qualified, as well, the undertakings are fulfilled, the financial situation of the company is stable, and the statements are authentic and reflect reality.

Usage

Affiliated companies grant commercial benefit and customers through giving the name of their group of companies they are members of. The use of reputation is determined by established facts. The use of the name or logo of the group company is not required for usage. In the event that the standard provided by the affiliated companies does not match the parent's or group of companies' reputation, the parent company should be liable for the harmful consequences5. For this reason, the essential condition of liability is "use of reputation". In the event where the reputation is not benefitted from, "belonging" to the groups of companies does not cause liability6.

The requirement of using trust in relation to a particular business is also notable; in this manner, a private relation between the trusted and the trustful must be established. The Court of Appeal also requires the use of trust as related to a particular job in order for liability to be borne:

"…if the liability of the subsidiary is caused by tortious act, then the trust liability of the parent company may not be relied upon. For the origination of such liability (trust obligation), a transaction-based contact is required."

Liability

In the event that the persons that the Company abused its reputation through have suffered frustration and damage by mistaking that trust, such persons are entitled to initiate a compensation claim against the parent company. The scope of the liability consists of the damages caused by the expectation arising from the trust; otherwise, not all damages caused by the operations and decisions of the company that has benefited from the reputation, may be claimed against the parent company.

The use of the name or logo of the group company is not required for the parent company to be held liable; in the event that the standard provided by the affiliated companies does not match the parent's or group of companies' reputation, the parent company should be liable for the harmful consequences as it has failed to object to the use of its name.

The Court of Appeal also conditions its decisions upon the existence of the liability of the parent company to make statements and seeks to provide a certain level of confidence and established behaviors and explanations for their expectations:

"In the sense of trust liability, the source of liability is the parent company to create certain expectations before counterparts (i.e. the third party who trades with the affiliated company) through using the general confidence in the community but, however, does not meet the same expectation and, therefore, causes damage.

In other words, such provision protects the established trust, but not the abstract. Otherwise, the source of liability is not the trust of the society and the consumer of the group of companies and the group of companies' good faith or its qualified services.

Therefore, the uncollectible receivables of a subsidiary cannot be claimed from the parent company solely based on the membership of such subsidiary to a group of companies having a high-level reputation, unless the parent company makes statements and acts seeking to provide a certain level of confidence, and to create actual expectations."

The parent company that had been sued under Article 209 of the TCC, may give notice of the lawsuit to the board of directors members and it is entitled recourse to board of directors members, if it has been ordered to give recompense in the court decision. Rights of shareholders and creditors of the company to file a liability action against board members are also reserved.

Conclusion

In addition to the liability to shareholders and debtors of the parent companies in terms of Article 195 and their affiliates, they are also held liable to consumers. Through the above mentioned provision, Turkey became the first country that legalized the implementation of the Federal Court of Switzerland, trust liability, as decided by the Wibru/Swissair decision (BGE 120 II 331).

(First published on the website of Erdem&Erdem in April 2018: http://www.erdem-erdem.av.tr/publications/newsletter/trust-liability-in-terms-of-groups-of-companies/)

1 Battal, Ahmet, "Şirketler Topluluğunda Güvenden Doğan Sorumluluk" p. 1, (Access Date: 07.05.2018).

2 Preamble of TCC, p.143-144, (Access Date: 07.05.2018.)

3 Preamble, p.143-144.

4 Karahan, Sami, Şirketler Hukuku, 1. Edition, p. 154. 

5 Pulaşlı, Hasan, Şirketler Hukuku Şerhi, Volume I, Ankara,2011, p. 322.

6 Preamble, p.143-144.

7 Tekinalp, Ünal, Sermaye Ortaklıklarının Yeni Hukuku, Updated 4th Edition, İstanbul, 2014, p. 675.

8 Prof. Dr. Oruç Hami ŞENER, Teorik ve Uygulamalı Ortaklıklar Hukuku Ders Kitabı, 2015/II, p. 191-197.

9 Poroy/Tekinalp/Çamoğlu, Ortaklıklar Hukuku I, Rewritten 13th Edition, İstanbul 2017, p. 795.

10 Pulaşlı, Hasan, Şirketler Hukuku Şerhi, Volume I, Ankara,2011, p. 322.

11 Prof. Dr. Oruç Hami ŞENER, Teorik ve Uygulamalı Ortaklıklar Hukuku Ders Kitabı, 2015/II, p. 191-197.

12 Poroy/Tekinalp/Çamoğlu, p. 439.

13 Preamble, p.143-144.