Joint Venture Agreement has been regulated under “Special Debt Relations” in the 18th Section of the Turkish Code of Obligations (“TCO”). Joint ventures do not have any capacity and standing to sue or to be sued due to the fact that it does not have any legal entity. Yet, to file a lawsuit and initiate an execution proceedings against joint ventures is extremely common, the reason is that the notion of legal entity and its’ consequences.
Joint ventures appear when more than one natural or legal entity who are legally or financially independent, come together within the frame of a contract for the purpose of performing a specific work or an activity and making profit, by or without establishing a trading partnership and where they undertake to be severally liable. (1)
1- Mehmet BAHTİYAR, Corporation Law, İstanbul 2017, s. 27.
Joint venture has been regulated between the articles 620 and 645 of the TCO. The legislator has not set forth any form requirement for the joint venture agreement. The most significant difference between joint venture and other corporation types is that there is no need of any registration, allowance, etc. for the establishment of joint venture and that it does not have a legal entity.
Even though the joint venture is not subject to a legal entity and it is regulated differently than the other corporation types, it has also tax-related liabilities. Therefore, it has the obligation to establish a tax-liability. In terms of testation, despite the fact that there does not exist any registration related to establishment, the tax registry of the joint venture includes the tax-liability information, shareholding structure and share percentage. The legal entity provides independence in relations with 3rd parties. One of the most important outcome of the joint venture not to have any legal entity is that it cannot be a party of a lawsuit and an execution proceedings.
In one of the decision of the Supreme Court, it has expressed as; “Due to the fact that a joint venture, where two or more enterprises put together their contributions with a specific intention, does not have any legal entity, it also does not have any standing to sue or to be sued.”(2)
2-The decision of the 12th Circuit of the Supreme Court, dated 02.06.2014 and numbered 2014/13605 E., decision numbered 2014/15883 K.
In the legal transactions related to the joint ventures, the joint venture cannot be present in the capacity of a party. On behalf of the joint venture, which has not a legal entity, each of the partners of the joint venture must become a party in these kind of transactions. In case of a lawsuit to be filed or an execution proceedings to be initiated against the joint venture, the opposing party must be each of the partners, which constitute the joint venture. Since the joint venture does not hold active and passive capacity to sue, the lawsuits need to be filed by each of the partners and in accordance with the principal of joint liability, lawsuits to be filed against the joint venture should be directed to all partners, except for actions that can be requested from a single partner or several of the partners. (3)
3-Girgin, Ö. A. (2017). 6098 Sayılı Türk Borçlar Kanunu’na Göre Adi Ortaklıkta Temsil ve Borçlardan Sorumluluk. İstanbul: On İki Levha Yayıncılık
With another decision of the Supreme Court, it has been explained as; “Because of the fact that the joint venture does not have a legal entity, not only the joint venture does not have the capability of hostility but also only one of the partners do not have the right or power to file a lawsuit. In other words, in a lawsuit which has been filed in consequences of the disputes arisen by the works and transactions carried with a joint venture, all partners forming the joint venture must be shown as a party.” (4)
4-The decision of the 13th Circuit of the Supreme Court, dated 18.12.2017 and numbered 2015/32532 E., decision numbered 2017/12595 K.
To possess the capacity and the standing to sue or to be sued is a cause of action. The obligation to have the capacity and standing to sue or to be sued (5) has been clearly determined as one of the cause of action in the article 114 of the Turkish Code of Civil Procedure (“CCP”). The article 115 of the CCP, it is regulated that if there is a deficiency that can be corrected, the parties can be given time to correct it (6) . However, it is not possible to fill the deficiency of the capacity and standing to sue or to be sued. To this respect; the judge must made a decision as dismissal without prejudice in a lawsuit against the joint venture, which does not provide this cause of action. In case the court did not examine ex-officio the lack of the cause of action or made a decision despite a statement related to the deficiency of a party, it is commonly seen that the decision is reversed by the Superior Court.
5-Article 114/1(d) of the Turkish Code of Civil Procedure
6-Article 115/2 of the Turkish Code of Civil Procedure
Similarly, execution proceedings that has started against a joint venture must be dismissed without prejudice based on the same reason. One of the decision of the Supreme Court has expressed it as; “In the proceeding subjected to the complaint, the joint venture has been set as the debtor, also the order of payment has been sent to this joint venture. As it is explained above, since the joint venture do not possess the legal entity and accordingly the standing to be sued, the proceeding against the joint venture and the order of payment sent is not legal. Therefore, the written decision given is inappropriate while the mentioned issue should have been examined ex-officio by the court and the decision of the annulment of the proceeding should have been given.” (7)
7-The decision of the 12th Circuit of the Supreme Court, dated 02.06.2014 and numbered 2014/13605 E., decision numbered 2014/15883 K.
The Supreme Court has ruled that the decision of the Court of First Instance is not appropriate in the sight of law by reason of the execution proceeding initiated against the joint venture is not legal. Eventually, it is certain that the joint venture does not have the active or passive capacity of sue or to be sued based on the fact that it does not possess a legal entity. As to have the capacity and the standing to sue is a cause of action, it must be examined ex-officio by the Court and also the parties may allege the deficiency any time. It would be illegal from the beginning that a joint venture to be a side of a lawsuit or an execution proceeding. Nevertheless, in practice, the lack of legal entity is ignored and the lawsuits and execution proceedings are put into process.