AN EFFECTIVE AND ALTERNATIVE WAY FOR CLAIMING COMPENSATION FROM FINANCIAL INTERMEDIARIES

By: ALI BUGRA GOKAGACLI

1. INTRODUCTION

It is, now, unimaginable for any modern economy to grow and maintain itself without the constant circulation of capital. That is being said, without the confidence of the investors it is impossible for any economy to achieve so. In order to gain the trust of investors, it has become an almost unwritten rule for jurisdictions to devise legal remedies that can be tapped by the investors to settle their disputes and Turkey is not an exception. To that end, Turkish legislature has provided two sui generis (unique of a kind) alternative dispute settlement methods. First of these relates to “stock exchange transactions”. Under Turkish law a stock exchange transaction is defined as the matching of the orders which are convened to the Istanbul Stock Exchange (BIST) via intermediary institutions.[1] For the simplicity sake, however, this paper is merely going to explore the alternative dispute resolution method which relates to “non-stock exchange transactions”.

1. WHAT IS A NONE STOCK EXCHANGE TRANSACTION

According to the Turkish Capital Markets Authority (Authority), a non-stock exchange transaction is any kind of transaction which relates to capital markets but not carried out in the stock exchange[2]. To give an example, payments of commission fees to the intermediary organizations, mailing of the statements, or account maintenance fees all fall under this category. Thus, any investor seeking a remedy for such a dispute with her financial intermediary can set a motion going before a customer Tribunal of Turkish Capital Markets Association (TCMA) and claim compensation.

1. WHAT IS TCMA AND WHY DO ITS CUSTOMER TRIBUNALS MATTER

TCMA is a self-regulatory public legal entity established by the Capital Markets Act No:6362 (CM Act) in order to supervise and improve the sector standards and ethical code of conduct for all financial intermediaries operating in Turkey. According to CM Act, all financial intermediaries are required to become a member of TCMA. Furthermore, article 75 of the CM Act, stipulates that all of its members are required to abide by the decisions taken by TCMA.

TCMA Customer Tribunals (Tribunals), whose jurisdiction is delineated by the TCMA Instructions on Customer Tribunals (Instructions), are the bodies of TCMA designated to settle the disputes between the customers and intermediary institutions. Be that as it may, hence they are not constituted by the mutual agreements of the parties but by the law they are not considered as arbitral tribunals[3] i.e. they don’t have the capacity to render enforceable awards. However, article 14 of the Instruction sets out those verdicts that are reached by a TCMA Customer Tribunal to have the same effect of a decision taken by TCMA on the intermediary institutions. In other words, any decision made by a Customer Tribunal is actually a binding TCMA decision for the intermediaries and failure to fulfill its requirements means that TCMA will impose sanctions upon the financial intermediary such as fines.[4]

1. WHAT SORT OF DAMAGES CAN AN INVESTOR CLAIM BEFORE A TCMA CUSTOMER TRIBUNAL

Turkish law acknowledges two types of damages namely, moral damages and pecuniary damages. Article 8 of the Instructions explicitly envisages that the tribunals cannot exercise jurisdiction over moral damages, excluding them from being solicited before the Tribunals. As for the pecuniary damages, only limit set forth by the Instructions is that the damages need to be a result of a capital markets activity. Needless to say, however, general provisions on the limits of pecuniary damages claims are also relevant with regard to the amount of compensation.

However, for an investor to successfully bring a case before a Tribunal he/she needs to follow a somewhat complicated and rigid set of procedural requirements that are found in the article 8 and 9 of the Instructions. These requirements are:

1. No Adjudication Before the Courts Nor Arbitral Tribunals: Investors cannot make a dispute subject to a TCMA Customer Tribunal’s jurisdiction if they have already raised an action before a court or an arbitral tribunal for the same dispute.
2. Applying to the Relevant Financial Intermediary within 5 years: Investors need to apply to their financial intermediary and try to settle their dispute in an amicable manner. This application must be completed within a 5 year time period which commences at the date of disputed transaction.
3. Applying to the TCMA Customer Tribunal within 60 days: Investors need to resort to a Tribunal within 60 days after they receive the decision of their financial intermediary. Article 10 of the Instructions stipulates that intermediary institutions must reply its decision back in 30 days; however, if an intermediary fails to do so then 60 days’ time period commences on the following day which the intermediary was required reply back.

• PROCESS AND PROCEDURE

Applying to the Tribunal: According to article 11 of the Instructions, a customer willing to bring a case before a Tribunal must do so with a petition. The format of petition has to be in conformity with Compliance Template that can be found in the attachment of the Instructions. It is also important, to the mind of this writer, to notice that this initial petition is the primary source which Tribunals use to evaluate the customer claims. Event though, the article 14 of the Instructions allows Tribunals to ask for additional information if they deem necessary, this discretion, however, should not be interpreted in a way that would allow the claimant to alter or scoop her original claims but in a manner which sheds light upon the dispute. Indeed, article 2 of the Turkish Civil Code (TCC) lays down the principle of good faith which is applicable to the all private legal relationships and that an act venire contra factum proprium (no one may set himself in contradiction to his own previous conduct) shall not be protected[5]. Therefore it is essential that all the legal claims and their evidences are laid out coherently and professionally in this petition a.k.a statement of claim.

Application Costs: One of the most adventitious parts of applying to TCMA Customer Tribunal is that there is not application fee[6]. However, if a claimant abuses her right to apply to Tribunals causing TCMA to suffer damages, TCMA can sue the claimant back for compensation.

Reconnoiter: The customer applications are received by the TCMA Secretariat (Secretariat). The Secretariat’s tasks are to reconnoiter and reject the applications which do not conform to the requirements set out in the articles 8 & 9 of the Instructions[7].

Assessment of the Application: Those applications which are found to be in conformity with the pre-application conditions are then convened to a Tribunal by the Secretariat. The Secretariat also informs the relevant intermediary institution and requests that it submits all relevant counter evidences alongside with its counter arguments within 30 days upon which it receives the Secretariat notice[8]. It is vital for intermediary institutions to respond in the given time period; because if that they fail to do so the Tribunals are required to proceed and render their judgment solely based on the evidences and claims brought by the investors[9].

Instructions are quite vague when it comes to how the evidences are going to be assessed. They allow the Tribunals to hear additional witnesses and collect further evidences if they see fit for the purpose of the adjudication. The only boundary brought by Instructions is that the manner which Tribunals decide to assess the evidences is that it has to be accommodating the needs of the case at hand. However that does not mean that Tribunals have absolute freedom when it comes to deciding in terms of evidence assessment. They are still bound by the general procedural principles and rights that stem from the Constitution. According to the article 36 of the Constitution every person has the right to access justice and fair trial. As a result, every person who is a party to an adjudication process has the right to be heard at every stage of an ongoing trial[10]. Meaning that, when Tribunals decide to hear witnesses and evidences they always need to hear the both parties. Moreover, to the mind of this paper’s writer, they also need to abide by the standards of proof set out by the Civil Procedure Act No:6100.

The Verdict and the Objection: In principle, Tribunals need to render their final decision within 90 days upon the application[11]. The intermediary institutions are required to comply with the Tribunal decisions within 10 days[12]. All parties can object to Tribunal’s verdict before the Turkish Capital Markets Authority. The decision of the Authority is the final in terms of adjudicating the dispute between investors and financial intermediaries. However, the decision of the Authority can be challenged by raising an action against the Authority before the administrative courts.[13]

• CONCLUSION

It is often a nightmare scenario for investors to face with their intermediaries even when they know that they are right. It is so because they think that there is not a cost and time effective method which addresses their problem. However, TCMA Tribunals appears to be the nearly perfect solution for this problem. TCMA does not charge investors for using its Customer Tribunals. On top of that, the Tribunals are consisted of expert arbitrators who are quite competent and experienced on the capital markets disputes. In the bargain they are much faster than courts and ordinary arbitral Tribunals because they enjoy a much wider discretion on how they can proceed with the adjudication. All of these make TCMA Customer Tribunals an excellent alternative dispute resolution platform.

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[1] Sermaye Piyasası Kurulu(Capital Markets Board) Spk.gov.tr, http://www.spk.gov.tr/Sayfa/Index/3/9, accessed on 29.11.2018

[2] Sermaye Piyassası Kurulu(Capital Markets Board) Spk.gov.tr, http://www.spk.gov.tr/Sayfa/Index/3/9, accessed on 29.11.2018 

[3] Pekcanıtez/Atalay/Özekeş, Medeni Usul Hukuku/Vedat Kitapçılık,p.2017 579.

[4] Memiş/Turan, Sermaye Piyasası Hukuku/Seçkin/2017, p. 181.

[5] For more on this please see: Oğuzman/Barlas, Medeni Hukuk, Vedat Kitapçılık, 2014, p. 249, 296.

[6] See: Instructions article 11/3.

[7] See above: Section IV

[8] See: Instructions article:13/2

[9] See: Instructions 13/3

[10] Court of Cassation Grand Assembly of Private Law CN:2017/2803, DN: 2018/753, Date: 04.04.2018

[11] See: Instructions 14/2

[12] See: Instructions:13/5

[13] Memiş/Turan, Sermaye Piyasası Hukuku/Seçkin/2017, p. 38.