A person upon whom a payment order has been served may, if they consider that no such debt exists, notify their objection within the period allowed by statute. Not every objection is, however, well-founded in law. Objections advanced against a claim whose existence is beyond dispute, merely in order to delay the process or to wear down the other side, give rise to serious consequences for the debtor. In such a case the debtor’s liability is not confined to paying the principal debt; the payment of damages for wrongful denial of debt also arises.
This type of damages, frequently encountered in practice, was provided for in order to forestall baseless or bad-faith objections. The Enforcement and Bankruptcy Act No. 2004 provides that, where an objection is found to be wrongful, the debtor may be ordered to pay damages amounting to at least 20% of the claim. Accordingly, every declaration of "I owe nothing" that does not rest upon a legal footing may leave the debtor facing a financial consequence far greater than they expected.
In this briefing note we set out, in its current framework, the definition of the institution, the circumstances in which it is applied, how the rate is determined and the sum upon which the calculation is made. With examples from judicial decisions, we also address separately the cases in which an objection ends in an award of damages.
The Right to Object to a Payment Order
Enforcement proceedings mostly begin with recourse being had directly to the route without a judgment, the creditor holding no court decision, promissory note, cheque or similar document. In files of this kind the enforcement office serves a payment order upon the debtor, and the debtor is afforded the opportunity to contest that order.
Under Article 62 of the Enforcement and Bankruptcy Act No. 2004, the debtor may object to the proceedings within 7 days of the date on which the payment order was served. The objection must be communicated to the enforcement office in writing and must, where required, bear the debtor’s signature.
The scope of the objection is not confined to a single heading. The debtor may assert that the debt does not exist in its entirety or may contest only part of it; may take issue with the rate of interest indicated in the proceedings; may argue that they do not bear the capacity of debtor; or may open to debate the validity of the documents relied upon as the basis of the proceedings.
Upon the objection reaching the enforcement office, the proceedings are stayed automatically. From that point onwards, if the creditor is to advance the process it becomes necessary for them to have recourse before the general courts to one of the following: the setting aside of the objection, the annulment of the objection, an action for negative declaratory relief or an action for the claim.
There is a distinction here that must not be overlooked. Not every objection advanced by the debtor may be well-founded. Independently of whether the debt in truth exists, objections whose sole purpose is to leave the proceedings in abeyance or to deter the creditor are regarded as wrongful. This form of conduct does not merely prolong the process; from the debtor’s standpoint it gives rise to additional heads of liability such as damages for wrongful denial of debt.
The Concept of Wrongful Objection and Its Legal Character
A wrongful objection is an objection advanced, solely in order to stay the proceedings or to delay the creditor’s collection, by a person who knows that they are a debtor or who would be expected to know as much with reasonable care. Conduct of this character is characterised as the operation of the legal process contrary to the rule of good faith, in other words as an abuse of right.
Contesting proceedings is a fundamental power of the debtor arising from statute. Where that power is exercised in a manner irreconcilable with the rule of good faith and solely in order to postpone the creditor’s attainment of their right, however, a wrongful objection arises.
The Legal Basis of the Institution
A wrongful objection constitutes a direct breach of the rule of good faith (objective good faith) expressed in Article 2 of the Turkish Civil Code No. 4721.
In addition, Art. 67(2) of the Enforcement and Bankruptcy Act No. 2004 permits damages for wrongful denial of debt to be awarded in favour of the creditor by reason of the debtor’s wrongful and bad-faith objection.
The damages in question serve a twofold purpose: the redress of the loss suffered by the creditor and the deterrence of the debtor from such uses.
What Are Damages for Wrongful Denial of Debt?
Definition and Purpose
Damages for wrongful denial of debt are a special type of damages awarded in favour of the creditor against a debtor who has objected wrongfully or in bad faith to the proceedings commenced by the creditor and has thereby delayed collection.
The fundamental purpose of the provision is to prevent the proceedings from being stayed contrary to the rule of good faith and thereby to forestall loss being suffered by the creditor. In files where the debt is clear and legally valid, objections directed merely at prolonging the process harm both procedural economy and the creditor’s interests.
Damages for wrongful denial of debt are positioned precisely as a deterrent instrument against this form of conduct and are aimed at limiting the extent to which the creditor is compelled to bring proceedings unnecessarily.
Statutory Bases (Art. 67 of the Enforcement and Bankruptcy Act No. 2004 and the Related Provisions of the Code of Civil Procedure No. 6100)
The basis of the institution is Article 67 of the Enforcement and Bankruptcy Act No. 2004 and the provisions that follow it. Those provisions expressly regulate the possibility of damages for wrongful denial of debt being awarded in favour of the creditor where the objection directed by the debtor against the proceedings is found to be wrongful.
The provision operates through the following chain: the debtor objects to the proceedings; the creditor brings an action for the annulment of the objection; the court establishes that the debtor was in the wrong. Where these three links are completed, it becomes possible, upon the creditor’s request, for the debtor to be ordered to pay damages of not less than twenty per cent.
In addition, the rule of good faith contained in the Code of Civil Procedure No. 6100 (Art. 29 of the Code of Civil Procedure No. 6100) and the prohibition of the abuse of right in Article 2 of the Turkish Civil Code No. 4721 serve a complementary function in the characterisation of a wrongful objection. By emphasising that judicial processes must be conducted within a framework of good faith, these general provisions set limits upon abuse.
Conditions for an Award of Damages
Damages for wrongful denial of debt are a consequence attached to the debtor’s delaying, by a wrongful objection, the creditor’s attainment of their right. For an award to be made, however, all the conditions required by statute must be satisfied together.
The Proceedings Having Been Commenced by the Route Without a Judgment
The damages may arise only in respect of enforcement proceedings without a judgment. Where the creditor’s proceedings rest upon a court judgment or upon a document having the character of a judgment, that is to say where the proceedings are based upon a judgment, no such damages are awarded.
The principal types of proceedings in which the institution may arise are as follows:
- proceedings for rent claims that do not contain a demand for eviction or delivery
- the general attachment route, the most widespread form of enforcement without a judgment
- proceedings based upon a negotiable instrument in which the proceedings have been provisionally stayed
Since the debtor’s opportunity to object is kept limited in proceedings based upon a judgment, an award of damages is not possible even where an objection has been made. In proceedings specific to negotiable instruments, damages for denial arise only in cases where the proceedings have been provisionally stayed.
The objection dimension of the subject is addressed separately under the heading Objection to Enforcement Proceedings Without a Judgment and Its Legal Consequences.
The Objection Having Been Made Within the Statutory Period
It is required that the debtor notified their objection to the payment order that reached them within the period of 7 days and in accordance with the proper procedure. Upon that objection the proceedings are stayed automatically; the creditor’s ability to continue depends upon their bringing an action for the annulment or the setting aside of the objection.
If the debtor has not objected within the time limit the proceedings will not be stayed, and the conditions for damages for wrongful denial of debt therefore never arise at all.
The Creditor Having Recourse to an Action
Faced with proceedings stayed by an objection made within the time limit, the creditor has two options:
- An action for the annulment of the objection: even where no written document exists, the creditor may bring this action by proving the existence of the claim in accordance with the general provisions.
- An action for the setting aside of the objection: this route, which may conclude within a shorter time, is provided for a creditor able to rely upon a written document falling within Arts. 68 and 68/a of the Enforcement and Bankruptcy Act No. 2004 — such as a signed invoice or contract.
Both routes require adjudication. In those proceedings the creditor must both establish that the claim exists and expressly request that damages for wrongful denial of debt be awarded.
Judicial Determination That the Objection Was Wrongful
For damages to be reached, the creditor must succeed in the action and the court must determine that the objection advanced by the debtor was wrongful. That outcome means that the creditor has proved the existence of the claim.
The fact that an objection is found to be wrongful does not, however, of itself render it made in bad faith. The court may, upon the creditor’s express request, order the debtor to pay damages, assessing together the content of the objection, whether the claim is liquidated and the course of the proceedings.
The Existence of a Request by the Creditor
The court may not award these damages of its own motion. The creditor must advance the request expressly, and indicating its basis, in the statement of claim or in the course of the proceedings. If there is no request, the court may not decide the matter even where the conditions have been satisfied.
Establishing That the Objection Was Wrongful and the Liquidity Criterion
For damages to be awarded, intentional or bad-faith conduct on the part of the debtor is not required. The two elements required are these: that the objection be established to have been wrongful and that the claim bear an ascertainable (liquidated) character. Accordingly, where the debtor has denied the claim but the existence of the claim is established at the conclusion of the proceedings, the court may award damages for wrongful denial of debt.
Antalya Regional Court of Appeal, 11th Civil Chamber, Case No. 2018/1567, Decision No. 2019/675 (1 April 2019)
"Article 67(2) of the Enforcement and Bankruptcy Act provides that, where the debtor’s objection is found to be wrongful, the debtor, and where the creditor is found to be in the wrong in the proceedings, the creditor, shall upon the request of the other party be ordered to pay appropriate damages of not less than 20% of the sum adjudged. For damages for wrongful denial of debt to be awarded, in addition to the wrongfulness of the debtor’s objection the claim must be ascertainable (liquidated). In the present case, as the claim was liquidated and the wrongfulness of the debtor’s objection likewise emerged at the conclusion of the proceedings, the award of damages for wrongful denial of debt in favour of the claimant is in conformity with procedure and with the law, and the appeal of counsel for the respondent on this point is accordingly ill-founded."
The decision makes clear that two criteria are required together: the wrongfulness of the objection and the claim being of a character capable of calculation.
İstanbul Regional Court of Appeal, 45th Civil Chamber, Case No. 2020/114, Decision No. 2021/51 (20 January 2021)
"The claimant’s ground of appeal by way of joinder is that no damages for wrongful denial of debt were awarded against the respondent over the amount of the principal claim accepted by the court. It has been established from the records of the respondent company that the invoices in question were entered in its books. That being so, since the invoices in question are liquidated (knowable, capable of calculation) for the purposes of Article 67(2) of the Enforcement and Bankruptcy Act, damages for wrongful denial of debt ought to have been awarded in favour of the claimant, and the rejection of this head of claim in the manner set out has not been found to be correct."
In this second decision the liquidity criterion takes concrete form: invoices entered in the debtor company’s own records were assessed as a claim whose amount was knowable and capable of calculation, and the rejection of the claim for damages was for that reason found to be erroneous.
The Character and Amount of the Damages Awarded
Calculation of the Damages
Damages for wrongful denial of debt are fixed, so as to make good the loss suffered by the creditor by reason of the debtor’s wrongful objection, at at least 20% of the principal claim. Twenty per cent is a floor; having regard to the features of the file, the court may also award a higher rate.
The base of the calculation is constituted by the principal sum of the claim indicated in the request for enforcement or in the action. For example, where an objection has been made wrongfully to proceedings in the amount of TRY 100,000, the court may, upon the creditor’s request, order the debtor to pay damages of at least TRY 20,000.
Relationship with the Principal Claim and Interest
These damages are in the nature of an ancillary claim awarded alongside the principal claim. The creditor who succeeds in the action may collect the principal claim together with interest and may, in addition, seek damages for wrongful denial of debt.
The calculation is made upon the principal sum alone; accrued interest and other ancillary claims are not included in the base.
No direct connection can therefore be drawn between the amount of the damages and the level of the interest rate.
Assessment
Objecting to proceedings is one of the debtor’s fundamental statutory rights. Where that right is exercised otherwise than for its purpose, the legal order brings into play the instruments directed at protecting the creditor. Within that framework, wrongful objection and the damages for wrongful denial of debt attached to it are functional both in preserving procedural economy and in ensuring that the judicial apparatus is not occupied unnecessarily.
The hesitations and difficulties of proof encountered in practice make it essential that the process be conducted with care. For that reason, for both parties alike, the management of the process with legal support and the submission of evidence at the right time and in full are decisive in establishing that a right has been abused.
Assessed as a whole, damages for wrongful denial of debt should be read not merely as an instrument of sanction but as a mechanism that sets limits upon the abuse of right and supports the idea of a fair trial.
The Independent Legal Assessment
Damages for wrongful denial of debt are a head of claim frequently sought in actions for the annulment of an objection but advanced without their conditions being sufficiently examined. The real threshold determining the fate of the request is whether the claim is liquidated. While the prospect of damages rises in respect of claims whose amount can be calculated directly from a contract, an invoice or current account records, in files where the amount takes shape during the proceedings through an examination by a court-appointed expert the request most often goes unmet.
On the debtor’s side, the correct definition of the scope of the objection is of critical importance. Objecting by separating out the heads that are genuinely in dispute, rather than making a general declaration of denial directed at the whole of the claim, serves to limit the sum in respect of which the debtor is found to be in the wrong and the damages attached to it.
In a particular file the following points should be assessed as a matter of priority:
- analysing from the outset, on the basis of the supporting documents, whether the claim may be regarded as liquidated
- advancing the claim for damages expressly, and indicating its basis, in the statement of claim
- narrowing the risk when objecting by assessing the possibility of a partial objection
- calculating the seven-day period for objection without error, by reference to the date of service
- determining the sum claimed having regard to the fact that the calculation is made upon the principal sum
- clarifying in advance the distinction between proceedings with and without a judgment, for the purposes of the availability of damages
Independent Legal provides advisory services and conducts litigation in the conduct of actions for the annulment of an objection and in the management of claims for damages, within the processes of debt collection and enforcement proceedings.