• Constituent Elements of Redevance Contract

The redevance contract made between the licensee and the royalty holder is subject to the permission of the Ministry of Energy and Natural Resources. This contract is a consent contract, that is, a contract is established if the statements of the parties are mutual and compatible for the essential points of the contract; but it is suspended. The effect of the contract depends on the permission of the Ministry. If it becomes definite that the Ministry will not allow the contract, the contract becomes void. If the ministry permits, the redevance contract will rule from the beginning. According to additional clause 7 of the Mining Law No. 3213; “Redevance contracts between license holders and third parties are subject to the permission of the Ministry. Mining activities carried out with a redevance contracts without permission are stopped.” This provision is an imperative provision.

The legal fate of royalty contracts signed before February 18, 2015, which is the effective date of the law, is regulated in Provisional Article 23. It is obligatory to submit a copy of the previous royalty contracts to General Directorate of Mining and Petroleum Affairs (MAPEG) within three months from the effective date of Law No. 6592, that is until May 18, 2015. However, MAPEG accepts the delivery of the previous dated royalty contracts even after this date. For, Provisional Article 23 is not an imperative provision, but an order provision. Here, permission from the Ministry is not required and only delivery of royalty contracts is sufficient. MAPEG ceases the mining activities with royalty, which it determines to be executed without fulfilling the obligation to deliver the contracts.

Mining license holders in underground coal enterprises, except for public institutions and organizations and their affiliates, cannot make redevance contracts for production activities with third parties in some or all of the license areas. Therefore, it is prohibited to make redevance contracts for production activities in underground coal enterprises. The only exception in this regard is given to public institutions and organizations and their affiliates. Also time extension requests for license fields whose redevance contracts have not been terminated are not accepted.

In addition, as mentioned above if the business established on the mining site exceeds the annual turnover limit foreseen for the tradesmen, it will be considered as a commercial enterprise. Therefore, in addition to the operating license, a commercial enterprise will also be leased with a royalty contract. Contracts that cover commercial enterprises as a whole must be made and registered in the trade registry. This judgment is reached from the 3rd paragraph of the 11th article of the Turkish Commercial Code numbered 6102. Therefore, if a commercial enterprise is used at the same time as the royalty contract, that contract must be made in writing and recorded in the trade registry.

As the redevance contracts must be submitted to the Ministry of Energy and Natural Resources in accordance with the Law No. 6592 in the mine registry file, they are also annotated/registered in the mine registry. MAPEG registers the previous redevance contracts notified to it and the redevance contracts it allows.

According to a decision Civil Department 14th of Supreme Court; Since the royalty contract is a private law contract in nature and there is no special regulation on this subject in the Mining Law, the rights and obligations imposed on the parties of this contract and the termination of the contract are included in articles 357 and following of the Turkish Code of Obligations. Special provisions apply to product rent. According to the 14th Civil Department of the Supreme Court, a redevance contract is a type of revenue/product lease agreement. (20.02.2007 day and 2007/111 merits no, 2007/1552  decree no).

Judicial practices and opinions are predominantly in this direction. However, it cannot be said that the royalty contract is exactly like the product rent. According to decision of Civil Departmant 3th of Supreme Court; “Redevance Agreement; It has the characteristics of a bilateral Product Lease Agreement regarding the temporary allocation of the operating rights over the part or all of the mine site for which the license has been obtained to real or legal third parties.

In the stable application of the Supreme Court, it is accepted that the provisions of the contract will be applied in accordance with the provisions of the contract and the relevant provisions of the Mining Law and the provisions regarding the product lease regulated in the articles 357 and the following of the Turkish Code of Obligations.” (07.05.2019 day, 2019/2107 merits no, 2019/4221 decree no)

It can be said that in some of the exceptional decisions of the Supreme Court, it compares the redevance contract to the principal employer-sub-employer relationship, and accepts that the provisions regarding this relationship will be applied by analogy for the redevance contract. However, as stated above, it should be stated that the provisions of the Turkish Code of Obligations regarding product rent should be applied by analogy both in many decisions of the Court of Cassation and in doctrine.

According to Bünyamin Çitil; due to the complex nature of the royalty contract, interpretation based on the provisions regarding product rent alone will not lead us to the correct results. For this reason, royalty contracts will be interpreted primarily by referring to the Mining Law and Regulation and the provisions of the Commercial Code if there is no provision in them, and if these provisions are insufficient, the provisions of the Code of Obligations regarding product rent.

According to the new mining regulation, the royalty must have the license to own the mining rights specified in Article 6 of the Mining Law; 

“Mineral rights are given to the Turkish citizens who could use his civil rights, companies established by the Republic of Turkey Law, to the institution of the state-owned enterprises, subsidiaries and affiliates in other public organization and administration that has authority.

Mining rights are granted on behalf of only one natural or legal person. Civil servants, other public officials, casual and contracted personnel working in the central and provincial organizations of the General Directorate cannot obtain search, (…) and operating licenses.

Those who become civil servants while having the right to exploit or operate minerals are obliged to transfer these rights within 6 months of their transition to civil service.”

As can be seen, the only restriction imposed by this article is civil servants and about other officials. Any person outside of this group can obtain a license, provided that they also meet the financial sufficiency requirements. The same criteria will be applied for the royalty.

According to the additional article 2 of the stamp tax law, the activities of extracting coal against royalty for a foreign company within the scope of foreign exchange earning activities are excluded from the stamp tax, and foreign companies that are not established in accordance with the Turkish laws are the way to become royalty.

When the legal regime of royalty agreement is examined, it is seen that there is a product contract at the basis of the relationship. Normally, in the product contract relationship, the lessor is not directly involved in how the lessee operates the contractual property. However, the intervention of the lessor in the operating activity may increase depending on the sector where the product rent is applied. This is because the tenant has a good business debt and usually the rental price is somehow dependent on the product obtained. 

This intervention of the lessor reaches the final stage in the royalty contract. The license holder may intervene directly from time to time in the mining activity. Apart from the above, another reason for this intervention is that the operating license is not transferred in the royalty contract and the official responsible for mining activities is still the license holder. In addition, in practice, it is a reason for the license holder to be considered as the operating owner, that the establishment of the necessary business in the mining site is required as a condition for the operation permit. Because obtaining the operating permit is one of the liabilities of the license holder, in practice the license holder establishes the mining operation in some royalty contracts. Therefore, as a result, it would be reasonable to accept the license holder as the business owner and the royalty holder as the operator in the royalty contract.

After making this explanation about the license holder and royalty, it can be determined that; the license holder and the royalty owner will be jointly responsible for the losses arising from the mining activity carried out with the royalty method. This responsibility is a strict liability. Therefore, as a general rule, license holder and royalty holder are jointly responsible for any damages arising from mining activities. These damages include all material damages arising from mining activities. 

However, in 2010, changes were made in the Mining Law with the law numbered 5995. One of the changes is the following additional clause 7th ; “In the redevance contracts made by mining license holders with third parties in some or all of the license fields, the Labor Law, the administrative, financial and legal responsibilities related to occupational health and safety belong to the royalty. However, this situation does not eliminate the liabilities of the license holder arising from the Mining Law.”

The supervision and surveillance authority of the administration continues within the rules of royalty contract. According to the regulation, the transfer of royalty contracts should be notified to the administration. This information about financial sufficiency and other license conditions indicates the authority of the administration to intervene in the contract.

According to the article Regulation 101/9, changes made in direct/indirect shareholding structure and address information, including legal entities operating with redevance method, are reported to the General Directorate within one month. If there is a company with a share of more than 10%, the share information of this legal entity must also be reported. In addition, in the fourth paragraph of Article 10 of the Mining Law, it is stipulated that the person who does not fulfill the notification obligation will be warned that this error and deficiency will be corrected within 2 months, otherwise an administrative fine of 20,000.00 TL will be imposed. Considering the aforementioned notification obligation, it is clear that the addressee and party of the sanction will be the royalty, since it will not be possible for the licensee to know some issues regarding the partnership structure.

• The Right of Exploration

According to Mine Regulations, the right of exploration is; “the right of the license holder arising from the mine limited to the amount found appropriate by the General Directorate and declared as a visible reserve with the technical reports prepared in national/international standards during the exploration or operation license”.

It is clear that this right, which is registered in the mining registry, creates a credibility against the license holder and there is no party relationship between the discovery right holder and the royalty in terms of the payment obligation.

Due to the provisions of the product lease agreement between the licensee and the royalty, the discovery right is assumed by the royalty is a relationship between the royalty holder and the licensee. It is not possible for the discovery right holder to be affected by the terms of this contract. In this case, the owner of the right to discovery collects the cost of discovery from both the royalty owner and the license holder. Since the right of discovery is considered as a receivable arising from the lease relationship, its solution falls within the scope of the Civil Court of Peace.

• State’s Right Obligation in the Redevance Contract

If the redevance contract is accepted as product lease between the licensee and the royalty holder, it is not possible to accept that the payer of a public financial liability is changed by the contract. According to the rules of public law, the debtor of the state’s right will be the license holder, regardless of the content of the contract

According to the provisions of the contract, the condition that the state’s right will belong to the royalty does not have a direct consequence in terms of administrative law. However, this condition may have legal consequences between the license holder and the royalty holder in accordance with the provisions of private law.

On the other hand, although there is no explicit provision in the Mining Law, in the exceptional article 87 of the Mining Regulation, if the coal mining licenses of TKI in the Ereğli Coal Basin are operated through royalty, the royalty holder is directly assigned to this financial liability. Therefore, Turkey’s Eregli Coal Basin coal mine coal royalty by those operating licenses of Business, contrary to the principle of legality they are now debtors of this debt in terms of public law. Out of this scope, liability of the royalty holder for the state’s right should only be seen as a private law debt to the license holder due to the contract.

• Waybill in Redevance Contract

In the 48/2 article of the New Mining Regulation, it is regulated that the royalty holder can issue a waybill jointly or individually with the license holder in the license area. In addition, it has been regulated that the waybill title numbers will be recorded in a special book and followed up, and the waybill can be printed if the royalty holder applies alone. 

There may be two separate comments and conclusions that the royalty holder can print a waybill on behalf of the license holder or himself. From the regulation of the new Regulation on the subject, it is possible to conclude that the waybill can also be printed on the name of royalty holder.

For the termination of the contract, it is necessary to look at the product rental provisions and general termination reasons. The cases of release, renewal, merger of the titles of creditor and debtor, clearing, excessive performance difficulties, cancellation and impeccable performance are applied to the extent the nature of the contract is appropriate. In addition, on the basis of the fact that the redevance contract is a permanent contract, the parties may terminate the contract by complying with the 6-month termination preliminary in accordance with the articles 367-371 of the TCO, or in case of emergence of extraordinary termination reasons, the parties may terminate the contract precisely. In accordance with Article 362 of the TCO, the license holder may terminate the contract with a 60-day grace period if the fees are not paid on time.

In the license mergers, while the royalty agreement will continue on the new license as a result of consenting to the merger in the mergers outside the mining area according to the law, the royalty contracts on all the licenses that are candidates for merger within the scope of the Mining Area are terminated without the need for a second procedure.

As the royalty agreement ends immediately in mergers within the scope of the mining area, the investment expenses of the royalty will be paid by the new license holder company established in the mining area in which the consent to the merger participates. It will be covered by the Mining Administration.

In royalty contracts, the decision of the Ministry of Energy and Natural Resources was valid in the disputes between the license holder and the royalty, taking into account the provisions of the contract. While resolving the dispute, the ministry could only intervene in the fields concerning the Mining Law. The decision made was not a judicial decision but an administrative decision, it is subject to judicial review and may be subject to an annulment action.

Since, the redevance contract is seen as a type of revenue/product lease agreement, disputes arising from these contracts can be resolved in the Civil Court of Peace. Supreme Court decisions are mainly in this direction. However, it should be examined according to the cases.

Redevance contract, which assign mine searching rights and mining claims to a natural person or a legal person for a while, is signed between the license holder and royalty holder. Although there is no condition for form of the contract, the complete transfer of the operating right regarding the license area is considered as a commercial operation transfer and this transfer must be made in writing and registered with the trade registry. In addition, the permission of the Ministry of Energy and Natural Resources is required for the redevance contract made between the licensee and the royalty holder. As according the general decisions of Supreme Courts a redevance contract is a type of revenue/product lease agreement.

Stj. Av. Şeyda Fidan

Av. M. Talha Arslan