The Constitutional Court's Recent Approach to "Excess Damages (Munzam Zarar)" Claims

Statutory interest is designed to compensate the loss of value arising from inflation between the maturity date of a monetary receivable and the date of actual payment. The long-standing fact that statutory interest rates in Türkiye lag behind inflation has generated legal debates and extensive litigation for many years. To address the portion of loss not covered by statutory interest, the Turkish Code of Obligations (TCO) introduced the concept of excess (additional) damages under Article 122.

Since the high-inflation era of the 1980s, both the Court of Cassation’s case law and the judgments of the European Court of Human Rights (ECtHR) have produced fluctuating and inconsistent standards regarding the conditions for awarding excess damages, resulting in an unstable judicial landscape. It is difficult to assert that this debate has yet reached a fair and coherent resolution.

In a judgment delivered in July 2025, the Turkish Constitutional Court (TCC) addressed this structural issue and emphasized that a legislative intervention is required. Although a statutory framework does exist, the judicial practice shaped by the Court of Cassation’s case law effectively blocks the solution that the law could otherwise provide.

The TCC’s Pilot Judgment on “Loss of Value of Receivables Due to Inflation”: Caner Şafak (App. No. 2024/41763, 08.07.2025)

Summary

The Constitutional Court (Grand Chamber) found that the significant loss of value suffered by receivables due to inflation, combined with the lack of an effective domestic remedy to compensate this loss, violated not only the right to property (Art. 35) but also the right to an effective remedy (Art. 40).The Court triggered the pilot judgment procedure, notified the Grand National Assembly of Türkiye (TBMM), and postponed the examination of similar applications for six months from the date of publication in the Official Gazette (29 September 2025 → 29 March 2026).

Facts and Procedural Background

The applicant had initiated enforcement proceedings in a 2010 housing-finance dispute. Upon the debtor’s objection, the applicant filed and won a lawsuit for annulment of objection; the enforcement continued with annual 9% default interest on the principal receivable. The judgment became final on 01.07.2020, and the debt was paid on 02.07.2020.

Claiming that statutory interest did not cover the inflationary loss accrued over nearly a decade, the applicant sought additional compensation under TCO Article 122 (excess damages). The lower courts dismissed the claim.

Applicant’s Allegations

The applicant argued that the erosion of the receivable’s real value due to inflation violated the right to property, and that the lack of an effective remedy to address this loss violated Art. 40.

TCC’s Assessment

1) Right to Property (Constitution Art. 35)

The Court reaffirmed that receivables constitute property.It held that delayed payment combined with inflation may prevent a creditor from receiving the real value of the receivable, imposing a disproportionate burden.In this case, even though statutory interest was paid, cumulative inflation during the relevant period exceeded the interest, meaning the receivable was paid after suffering significant depreciation.

2) Adequacy of Domestic Remedies (Effective Remedy – Art. 40)

a. The statutory/default interest regime (Law No. 3095)The Constitutional Court emphasized that although the historical purpose of Law No. 3095 was to mitigate inflationary loss, the interest rates:— are not designed to track inflation,— have remained far below inflation in practice.

Therefore, even in theory, the regime cannot prevent the depreciation of receivables.

b. The excess damages (TCO 122) remedyThe Court found that:— judicial practice lacks stability;— case law has fluctuated for decades;— some judgments require proof beyond the mere fact of inflation;— therefore, the remedy is not sufficiently accessible, foreseeable, or effective to satisfy Article 40 standards.

3) The Rationale and Scope of the Pilot Judgment

Finding that the violation is structural, the Court:

• notified the Turkish Parliament (TBMM);

• stayed the examination of similar applications for six months.

Dissenting judges argued that the issue is interpretative rather than structural and could be resolved by harmonizing the application of TCO 122 through case law and ordering retrials, without legislative action.

Doctrinal and Practical Significance of the Judgment

1. The “Receivable as Property” Dimension

The TCC conceptualized inflation-based erosion of receivables as a problem affecting the essence of property rights and the fair balance requirement.This adds a constitutional layer not only to public-law debts but also to private-law receivables.

2. The “Effective Remedy” Standard: Functionality in Theory and Practice

A remedy’s mere existence is insufficient. It must be capable of preventing or redressing inflationary loss.This requires lower courts to update their evidentiary and reasoning standards (inflation data, real interest comparisons, financial indicators, etc.).

3. The Interest Regime and Legislative Call

The Court criticized the failure of statutory interest rates to track inflation and implicitly called for a redesign of the regime—potentially including:— inflation indexing,— variable rates,— simplified calculation methods.

4. A Turning Point for Excess Damages Practice

The Court’s reasoning may accelerate the shift from the doctrine that “inflation alone is insufficient” toward a standard that presumes excess damages when inflation, exchange rates or deposit yields systematically exceed default interest.

Dissenting Opinion and Overall Assessment

The dissent argued that harmonized interpretation of TCO 122 could resolve the issue without legislative action, especially by consistently recognizing excess damages in inflationary periods.The majority, however, preferred identifying a structural deficiency, invoking the pilot judgment mechanism and involving the legislature.

This approach enhances legal certainty and foreseeability but may also invite debate over judicial activism.

Conclusion

The Caner Şafak judgment elevates the issue of protecting receivables under high inflation to a constitutional level, simultaneously affecting the interest regime, excess-damages doctrine and evidentiary standards. Legal practitioners must now develop arguments aligned with real-value protection and incorporate value-preservation mechanisms into contracts, as these considerations will increasingly shape judicial outcomes.