Individual Application

The Facts

The applicant initiated enforcement proceedings on 9 November 2010 against a private bank to receive the principal amount of 48,854 Turkish liras (TRY) on account of a housing loan dispute. The bank objected to the enforcement proceedings, resulting in their suspension. Subsequently, the applicant brought an action for annulment of the objection. At the end of the proceedings, the court ruled that the debtor’s objection be annulled and that the enforcement proceedings continue to collect the principal amount of the receivable, together with statutory default interest at an annual rate of 9% accruing from the date of enforcement until full payment of the debt. The court further awarded the applicant TRY 9,770.80 for enforcement denial compensation, which would be collected from the defendant, corresponding to 20% of the principal amount, pursuant to Article 67 of the Enforcement and Bankruptcy Law no. 2004, while dismissing the remaining claim amounting to TRY 738. As the judgment was not appealed by the parties, it became final on 1 July 2020. On 2 July 2020 the debtor paid a total amount of TRY 119,114.76, thereby discharging the debt.

Following payment, the applicant lodged a claim for further damages, arguing that the statutory interest paid over an approximately ten-year period had failed to compensate for the loss of value of his receivable due to inflation. Relying on Article 122 of the Turkish Code of Obligations no. 6098, the applicant sought payment of TRY 100,000, without prejudice to his rights to claim any excess, together with interest accruing from 2 July 2020. The court dismissed the claim. Hence, the decision was upheld on appeal and subsequently became final.

The Applicant’s Allegations

The applicant maintained that his right to an effective remedy in conjunction with his right to property had been violated, indicating that the damage he had sustained as a result of the loss of value, due to inflation, of his receivable arising from a debtor-creditor relationship, was not compensated.

The Court’s Assessment

Pursuant to Articles 35 and 40 of the Constitution, the State is obliged to establish the legal framework and mechanisms capable of remedying substantial losses in value suffered by receivables between private persons due to inflation. In this sense, the State must adopt certain measures in order to strike a fair balance between the interests of the parties in private law disputes.

Where a creditor receives payment of a receivable with delay, failure to compensate the loss of value caused by inflation prevents the creditor from obtaining the receivable at its real value, while allowing the debtor to discharge the debt at a value lower than its actual worth. This situation disrupts the fair balance between the parties to the detriment of the creditor and imposes an excessive burden on the latter.

Law No. 3095 on Statutory Interest and Default Interest was enacted to provide a legal avenue for compensating losses in value caused by inflation. The general legislative intent of the Law indicates that debtors benefit from delaying payment, that debts are generally not settled without recourse to judicial or enforcement proceedings, and that every delay during judicial or enforcement proceedings operates in favour of the debtor. It further notes that debtors also resort to all possible means to prolong such proceedings, and that the Law aims at preventing such bad-faith conduct and to adjusting statutory and default interest rates to present conditions. It is therefore evident that the legislature intended to address problems arising from inflation. However, it is set forth in Article 1 of Law no. 3095 that statutory interest rate may not exceed 24%. Accordingly, while the Law sets certain rates for different legal situations, it disregards inflation rates. In other words, the provisions included therein regarding interest rates, which were enacted to prevent the loss of value of receivables against inflation, do not have the capacity to offer any prospect of success in preventing loss of value, even at a theoretical level.

As a result of the examination of the annual interest rates and inflation data regarding the effect of the legal remedy envisaged by Law No. 3095 on the specific case, it has been observed that the interest rates prescribed in Law no. 3095 remained below the inflation rates. It is therefore clear that the applicant’s receivable, the payment of which was delayed due to the debtor’s failure to pay on time, suffered a loss of value due to inflation.

In disputes similar to the one in the present case, damages exceeding statutory interest have been sought to be redressed through actions for further damages under Article 105 of the former Code of Obligations no. 818 and Article 122 of the current Turkish Code of Obligations no. 6098. While certain judicial decisions since the 1980s have accepted inflation as sufficient proof of damage and granted such claims, others have rejected them on the grounds that claims for further damages must be based on tangible loss beyond the effects of inflation.

Accordingly, it has been observed that actions for further damages under Article 105 of Code no. 818 and Article 122 of Code no. 6098 do not secure compensation for the loss of value of receivables due to inflation, nor has the case-law evolved in a manner indicating the existence of an effective remedy in this regard. The Court therefore concluded that such actions likewise lack, at a normative level, the capacity to offer a reasonable prospect of success in compensating losses caused by inflation.

For these reasons, the Court has concluded that the domestic legal system fails to provide an effective legal remedy capable of compensating the loss of value suffered by the applicant’s receivable due to inflation.

Consequently, the Court has found a violation of the right to an effective remedy, in conjunction with the right to property, and decided to apply the pilot judgment procedure.