Our client, a major European car manufacturer, decided to terminate an import and distribution contract it had for more than 20 years with a Turkish car dealer following significant payment problems. Considering the termination to be sudden and unfounded, the Turkish car dealer initiated legal proceedings to obtain compensation for the alleged damage.
The Turkish car dealer notably had several issues: (i) it paid the car manufacturer in euro but sold the cars locally in Turkish lira; (ii) it was heavily in debt; and (iii) it had no foreign exchange hedge. In 2018, the Turkish currency and debt crisis began, characterised by the plunging value of the Turkish lira, mounting inflation, rising borrowing costs, etc. As a consequence, the Turkish car dealer was unable to face its debts and could not import any more cars. Ultimately, given its critical financial situation, the termination did not cause any damage to the car dealer; rather, it prevented the dealer from incurring further losses.
