Parties’ choice of international arbitration as a method of resolving disputes with a 'foreign element' (see 2.1 Governing Law, below) has been increasing, especially over the last decade. Moreover, the use of domestic arbitration has also increased in recent years. In many cases, arbitration is preferred to litigation for specific reasons; some are related to the flexibility of the proceedings (eg, parties’ freedom to agree on the procedure, keeping the proceedings confidential), and some are related to the complexity of the disputes (eg, complex and technical disputes where most of the underlying documents are in a language other than Turkish). It is generally considered that for the resolution of certain disputes requiring particular skills and expertise, arbitration is more convenient than resolving the matter through the national courts. Most international investors prefer international arbitration over litigation.
The Istanbul Arbitration Centre (ISTAC) was established in 2015 by Law No 6570 for the settlement of domestic and international disputes. The use of ISTAC is expected to increase due to certain legislative changes. A Prime Ministry’s circular (No 2016/25), published in the Official Gazette on 19 November 2016, states that public authorities are to consider including dispute resolution clauses providing for ISTAC arbitration in both their domestic and international agreements.
Furthermore, within the scope of Public Procurement Law No 4735, template contracts attached to Tender Application Regulations were amended with effect from 19 January 2018. According to Article 5 of Public Procurement Law No 4735, contracts made by the administration shall be based on the provisions of the template contracts. Before the amendment, the dispute resolution method provided in the template contracts only referred disputes to the Turkish courts. However, the amendment made it possible for the administration to include an arbitration clause. According to this, domestic disputes shall be resolved by ISTAC Arbitration Rules if arbitration is the preferred method. However, in relation to international disputes, either ISTAC Arbitration Rules or the provisions of International Arbitration Law No 4686 (IAL) may be chosen by the administration.
A wide range of sectors use arbitration; however, arbitration is more commonly used in disputes concerning oil and gas, chemicals, mining, construction, telecommunications, energy, IT and banking. Arbitration is mostly preferred in these sectors because disputes in these fields tend to be more complex, and the settlement of such disputes requires certain skills and expertise in the field. Moreover, the issue of confidentiality also makes arbitration an attractive choice for the parties in these sectors.
The most commonly used arbitral institution for the settlement of international disputes is the International Chamber of Commerce International Court of Arbitration. The Swiss Chambers’ Arbitration Institution, Stockholm Chamber of Commerce, and the London Court of International Arbitration are also frequently used. The use of ISTAC is expected to increase, due to the amendments explained above in 1.2 Trends.
International arbitration is regulated by the IAL, which came into effect on 5 July 2001. According to the IAL, if a dispute contains a 'foreign element' as described in Article 2 of the IAL, the arbitration gains an international nature.
The IAL is mostly based on UNCITRAL Model Law (1985), although it also covers certain issues that are not included in the Model Law. Matters concerning the cost of arbitration, such as the fees of the arbitrators, payment of costs, deposit of advance, and preparation of the terms of reference are among the issues that are provided for in the IAL, but not in the Model Law. Moreover, the IAL also includes additional circumstances that call for the termination of proceedings. The changes made in the Model Law in 2006 have not been included in the IAL.
Domestic arbitrations that do not involve any 'foreign element' are regulated by Section 11 of the Code of Civil Procedure, Law No 6100 (CCP). The provisions of Section 11 are generally in line with the provisions included in the IAL.
In 2018, both the IAL and Section 11 of the CCP were amended regarding the competent court to be applied to in order to file an action of annulment. Prior to the recent amendments, annulment actions were heard before the court of first instances. However, the changes made in the legislation require that actions of annulment should be filed before the regional judicial courts. Moreover, a new provision was also included in both the IAL and the CCP with the 2018 amendments, which designates that the competent courts for matters that are required to be conducted by the courts during the course of arbitration, are the civil or commercial courts of first instance, depending on the subject of the dispute.
The IAL provides that arbitration agreements shall be made in writing. The inclusion of the arbitration agreement in “a written document signed by the parties or a letter, a telegram, a telex, a fax exchanged between the parties, or in an electronic medium” is considered sufficient for this requirement to be satisfied. This is also applicable in cases where the respondent does not object to the existence of a written arbitration agreement in its statement of defence (the existence of which is declared in the claimant's statement of claim).
The parties may either include the arbitration agreement in the main agreement or they may make a separate agreement. They may also refer to a document that includes an agreement to arbitrate, provided that such agreement is intended to be part of their main agreement.
According to the Turkish Court of Appeals, the arbitration agreement must be clear and leave no doubt as to the parties’ intention to arbitrate. Moreover, under Turkish law, the representatives must be clearly and specifically authorised to make an arbitration agreement on behalf of their principals.
Disputes arising from the rights in rem over immovables and disputes that are not subject to parties’ will are not arbitrable under Turkish law. Therefore, commercial disputes are eligible for arbitration, while criminal disputes and disputes regarding family law or employees' payments in relation to labour contracts, for example, are not.
As explained above in 3.1 Enforceability, clear and specific authority is sought for the representatives who sign the arbitration agreement on behalf of their principals; otherwise, the agreement to arbitrate would not be deemed as binding on the principal (Court of Appeals, 19th Civil Law Chamber, 21 May 2007, File No 2007/380, Decision No 2007/5114).
In addition to this, arbitration agreements that grant one of the parties a superior position to the other are found to be against public policy, and therefore invalid, by the Court of Appeals (General Assembly of the Court of Appeals Civil Law Chambers, 12 February 1992, File No 1991/13-606, Decision No 1992/56; Court of Appeals Plenary Session of Civil Law Chambers, 9 June 1999, File No 1999/19-467, Decision No 1999/48).
The rule of separability of the arbitration agreement is accepted under Turkish law. The IAL provides that no objections to the arbitration agreement can be made based on the invalidity of the main agreement between the parties. It is further provided that the decision of the tribunal on the invalidity of the main agreement does not consequently make the arbitration agreement contained therein invalid.
Both the IAL and CCP (which regulates domestic arbitration) state that only real persons may be selected as arbitrators. On the other hand, in relation to domestic disputes, the CCP provides an additional criterion. According to this, if the tribunal is to be formed with more than one arbitrator, one of them should be a lawyer with at least five years of experience in their field.
Additionally, a person may be prevented from serving as an arbitrator as per certain special laws that are applicable to them. An example of this would be Turkish judges, who are not allowed to perform any official or private occupation other than one assigned to them by law.
Unless it is otherwise agreed by the parties, the default procedure regarding the selection of arbitrators contained in the IAL shall be applicable, which is as follows:
The IAL provides that the courts may be included in the selection of arbitrators upon the request of one of the parties, under the following circumstances:
When deciding on the arbitrator, the court shall take the parties’ agreement into account. Moreover, the court shall also consider the impartiality and independence of the arbitrators. It is also provided in the IAL that where the parties have different nationalities and a sole arbitrator is to be selected, the arbitrator should be of a different nationality to the parties. If three arbitrators are to be appointed, two of them should not have the same nationality as either of the parties. This procedure shall also apply to cases in which more than three arbitrators are to be appointed.
The provisions regarding the challenge to arbitrators in international arbitrations are included under Articles 7/C and 7/D. Article 7/C of the IAL provides that a challenge to an arbitrator can be made if the arbitrator does not have the agreed qualifications, if there is a ground for challenge that is foreseen in the arbitral procedure agreed by the parties, or if there are circumstances that give rise to justifiable doubts on the impartiality and independence of the arbitrator. The default procedure on the challenges is provided in Article 7/D of the IAL. According to this, a party may challenge the arbitrators within 30 days of their appointment or of becoming aware of the situation giving rise to the challenge. In a case where the arbitral tribunal rejects the challenge, such party may also apply to the court with the same request within 30 days after receiving the decision of the arbitral tribunal.
Challenges to the sole arbitrator, the whole tribunal or to a majority of the arbitrators in the tribunal can only be made through the courts. Where the court accepts such a challenge, the arbitral proceedings come to an end. On the other hand, if the arbitration agreement does not specifically state the names of the arbitrators, the process of selecting arbitrators shall restart.
According to the IAL, when someone is offered the chance to serve as an arbitrator, they shall disclose all the circumstances and conditions that may cause justifiable doubts as to their impartiality and independence, before accepting the appointment. Arbitrators are also under obligation to immediately inform the parties of any circumstances that may subsequently arise and cause justifiable doubts as to their impartiality and independence.
As stated above in 3.2 Arbitrability, disputes arising from the rights in rem over immovables and disputes that are not subject to the parties’ will are not arbitrable under Turkish law.
The principle of competence-competence is recognised under Turkish law. As such, the tribunal has the authority to decide on its own jurisdiction, which also includes challenges regarding the existence or validity of the arbitration agreement. It should be noted that the tribunal’s decision on its own jurisdiction may be reviewed by the courts during an action of annulment of the arbitral award (see 11.1 Grounds for Appeal, below).
Aside from the arbitration objection explained below in 5.7 Third Parties (with regard to the existence of an arbitration agreement), the courts may only review the jurisdiction of the tribunal during an action of annulment. When addressing the jurisdiction of the tribunal, the court reviews the validity of the agreement to arbitrate, the arbitrability of the dispute and the scope of the arbitration agreement.
As explained above, challenges to the jurisdiction of the tribunal can only be made to the tribunal during the course of the arbitration proceedings. According to Article 7/H of the IAL, objections to the tribunal’s jurisdiction must be made with the first answer, at the latest. It also provides that, unless raised immediately, the objection that the arbitrators exceeded the scope of their authority shall not be valid. On the other hand, the tribunal may allow later objections, if it decides that the delay was caused due to justifiable reasons.
Apart from the objections made to the tribunal, jurisdictional objections may only be brought to the courts during the annulment proceedings.
In relation to the jurisdiction of the tribunal, pursuant to Article 15 of the IAL, during an action of annulment, the courts may examine whether the tribunal’s decision on its own jurisdiction is in breach of the applicable law agreed on by the parties or, in the absence of this, Turkish law. The courts may also consider whether the tribunal decided on a matter that exceeded the scope of their authority or the arbitration agreement. In doing so, the court shall review all issues regarding the jurisdiction of the tribunal, although the scope of such review should be limited to that.
The review of the court shall be limited to the grounds for annulment as provided under Article 15 of the IAL, and thus the merits of the case are not reviewed. On the other hand, the Court of Appeals has come to different decisions on the prohibition to review the merits of the case and in some decisions, it has held that the merits may be partially reviewed in order to examine whether the award is in line with public policy (see 11.3 Standard of Judicial Review and 12.3 Approach of the Courts, below).
IAL Article 5 provides that if a party commences court proceedings despite the existence of an agreement to arbitrate, the other party may object to this as a preliminary objection. The objection must be made with the response to the statement of claim, at the latest, or the court shall not take the objection into consideration. If the court accepts the objection, it shall dismiss the case on the basis of procedural grounds.
Only the parties to an arbitration agreement are bound by the arbitration agreement. It is provided in IAL Article 6 that the tribunal cannot render an interim measure or an interim attachment that is binding on third parties. Moreover, the Court of Appeals has decided that a non-party, which is only a beneficiary to an agreement, cannot be bound by the arbitration agreement unless that party has consented to the arbitration (Court of Appeals 11th Civil Law Chamber, 25 June 2015, File No 2014/9538, Decision No 2015/8707).
In international arbitration, unless agreed otherwise, a tribunal is capable of granting an interim injunction or interim attachment at the request of one of the parties. It should be noted, however, that according to Article 6 of the IAL, the tribunal cannot grant interim injunctions or interim attachments that must be executed by the execution authorities or performed by other public authorities. Moreover, tribunal’s interim measures are not binding on third parties.
As stated in 6.1 Types of Relief, above, under the IAL, a tribunal’s interim reliefs cannot be executed by the execution authorities or performed by any other public authorities. Therefore, in a case where one of the parties fails to abide by the tribunal’s interim measure, the other party may seek court assistance in this regard.
Moreover, according to the IAL, parties may apply to the court in order to obtain interim relief (an interim injunction or interim attachment) before or during arbitration. It should be noted that if interim relief is obtained before the initiation of the arbitration, the arbitration must be filed within 30 days of obtaining the relevant decision. Otherwise, the interim relief will automatically cease to have effect. The preliminary relief granted by the courts will also cease to have effect, either when the arbitral award becomes enforceable or the tribunal dismisses the case.
The IAL has no specific provisions regarding the use of emergency arbitrators.
The IAL does not include any provisions regarding security for costs. However, the IAL does provide that the tribunal may ask the claimant to deposit an advance for the arbitration costs and if said advance is not deposited within the prescribed time limit, the tribunal may suspend the arbitral proceedings. The proceedings will continue if the deposit is made within 30 days after the suspension of the proceedings is notified to the parties. If not, the arbitration proceedings will be terminated.
Apart from the above, the IAL does not prevent the parties from applying to the court or the tribunal for security for costs, to be ordered in the form of interim relief (as explained in 6.1 Types of Relief and 6.2 Role of Courts, above).
Provided that the mandatory provisions of the IAL are preserved, the parties are free to agree on the governing procedural rules, or they may refer to a law or certain international or institutional rules of arbitration. In the absence of such agreement, the tribunal shall conduct the proceedings according to the provisions of the IAL. Parties having equal rights and powers during the arbitration and rendering of the award by the tribunal within the term of arbitration are both examples of mandatory provisions of the IAL.
As stated above in 7.1 Governing Rules, the parties can decide autonomously on the procedural rules while also preserving the mandatory provisions of the IAL. If there is no such agreement between the parties, the default procedure set out in the IAL shall be applied to the procedure.
Arbitrators are under an obligation to disclose any circumstances that may give rise to justifiable doubts as to their independence and impartiality before agreeing to serve as an arbitrator. They are also under obligation to inform the parties of a change in their circumstances during the proceedings, if such a change arises. Moreover, while conducting the proceedings, the arbitrators should also ensure that the parties are granted equal rights and powers, and that both have an opportunity to present their claims and defences.
Under the Turkish Attorneyship Law, the right to appear before the Turkish courts and to act as an attorney in Turkey is solely granted to Turkish lawyers. Nevertheless, the IAL provides that in international arbitration, the parties may also be represented by foreign persons. It should be noted that this provision is not applicable to applications made to the Turkish courts in relation to arbitration, such as the applications made to the courts for arbitrator selection or requests for interim relief.
As previously stated in 7.1 Governing Rules, the parties are free to agree on the governing procedural rules for arbitration, including the rules regarding the collection and submission of evidence, an example being the IBA Rules on the Taking of Evidence in International Arbitration. In the absence of party choice, the provisions of the IAL shall be applicable. Accordingly, parties can enclose their written evidence with their petitions or make reference to evidence they plan to submit. It is also provided under Article 12/B of the IAL that the parties are required to submit their evidence within the time limit prescribed by the tribunal. Arbitrators may also seek the assistance of the courts for taking of evidence; in such cases, the provisions of the CCP shall be applicable. Moreover, Article 12/A of the IAL states that the tribunal may decide:
The IAL does not include specific provisions regarding the use of witness statements.
For the rules of evidence in arbitral proceedings, see 8.1 Collection and Submission of Evidence, above. The rules of evidence applied in domestic litigation, which are included in the CCP, are not applicable to arbitration, unless stated otherwise in the IAL.
The IAL does not include specific provisions regarding the production of documents, with the exception of Article 12/A, which states that the tribunal may order the parties to provide explanations, documents and information to the experts. On the other hand, as the IAL provides party autonomy with regards to the determination of the procedural rules, parties may agree on certain rules that enable the tribunal to order document production.
The IAL has no rule regarding the attendance of witnesses; however, as a general rule, arbitral tribunals cannot give orders that are binding on persons who are not party to the arbitration agreement.
The IAL is silent regarding the confidentiality of the arbitral proceedings. However, parties may prefer to keep the proceedings (as well as the relevant evidence and pleadings) confidential by reaching an agreement in this regard, or by making reference to certain procedural rules that provide for confidentiality.
It should be noted that any court proceedings in relation to arbitration or enforcement of arbitral awards are subject to the general rules within the scope of the CCP, which provide that copies of the documents may only be obtained by the parties themselves or representatives who have the legal authority to act on behalf of the parties. On the other hand, there are no specific rules prohibiting the use of documents from the arbitration case records in other court proceedings.
Pursuant to the IAL, an arbitral award must contain the following:
Article 10/B of the IAL provides that the award regarding the merits of the case shall be rendered within a year after the selection of the sole arbitrator or, in cases with more than one arbitrator, from the date of the recording of the first meeting minutes. The parties may reach an agreement to extend the term. In the absence of such an agreement, the term may be extended by the court upon the request of one of the parties. The time limit for rendering of the award is particularly important, as not rendering the award within the term is listed as a ground for annulment under Article 15 of the IAL.
The type of remedies that an arbitral tribunal may award is a matter that is subject to substantive law applicable to arbitration. Nevertheless, such remedy should be within the authority granted to the tribunal by the parties, as awards that go beyond the scope of the tribunal's authority may be annulled. Moreover, neither punitive nor exemplary damages are accepted under Turkish law; thus, awards based on punitive or exemplary damages may be found to be against public policy and may subsequently be annulled.
In the absence of an agreement to the contrary, the costs of arbitration shall be borne by the losing party. In cases where both parties are successful to a certain extent, the costs shall be shared by both parties pursuant to their degree of success.
Whether the parties are entitled to interest is a matter of the substantive law applicable to the dispute. Under Turkish law, tribunals may award interest and legal costs. If there is no party agreement regarding the applicable interest rate, the Law on Legal and Default Interest No 3095 shall be applied.
Under the IAL, the parties are not entitled to appeal arbitral awards. The only method to challenge an award is to file an action of annulment. However, the court decision regarding the annulment action is subject to appeal.
The grounds for annulment of an award are listed under Article 15 of the IAL. According to this, the award may be annulled if the requesting party proves one of the following:
The award may also be annulled if the court ex officio determines that the subject matter of the award is not arbitrable under Turkish law or if the award is against public policy.
The grounds for annulment are limited to the grounds prescribed by Article 15 of the IAL. Nonetheless, it is possible for the parties to partially or entirely waive their right to file an annulment action with the inclusion of an explicit statement within the arbitration agreement. Parties may also agree to subsequently waive their rights in the form of a written agreement. However, such waiver can only be made by parties with domiciles or habitual residences outside of Turkey.
As stated in 11.2 Excluding/Expanding the Scope of Appeal, above, grounds for annulment are limited to the provisions of IAL Article 15, and the merits of the case shall not be reviewed. However, the Court of Appeals does not seem to have a uniform approach regarding the prohibition of reviewing the merits of the case. Although decisions to the contrary have been rendered, certain determinations from the Court of Appeals have found that partial review of the merits of the case may be necessary in order to determine whether the award is in compliance with public policy. Accordingly, awards that lead to a reduction in public income or awards that breach tax or customs laws may be found to be against public policy, and partial review of the merits of the dispute may be required for the determination of such violation (Court of Appeals, 13th Civil Law Chamber, 17 April 2012, File No 2012/8426, Decision No 2012/10349; Court of Appeals, 13th Civil Law Chamber, 16 March 2017, File No 2015/16140, Decision No 2017/3322).
Turkey is a party to the New York Convention, which was ratified on 2 July 1992, with two limited reservations. According to these, the New York Convention shall apply on the basis of reciprocity and only to disputes, whether contractual or not, that are commercial in nature.
Moreover, Turkey is also a signatory to the Geneva Convention on International Commercial Arbitration, ratified in 1992, and to the ICSID Convention, which came into effect in 1989.
Recognition and enforcement of awards are subject to International Private and Procedural Law No 5718 (IPPL) and the New York Convention. Enforcement of awards where the seat of arbitration is party to the New York Convention will be subject to Article V of the New York Convention. Other awards (those not rendered in a signatory country) shall be enforced pursuant to the provisions of the IPPL. Article 62 of the IPPL lists the grounds for refusing enforcement. The award will not be enforced if:
The question of whether an award that has been set aside by the courts in the seat of arbitration will be enforced is dependent on the provisions to which the award is subject (the IPPL or New York Convention). The IPPL provides that arbitral awards are required to be binding and enforceable on the parties in order to be enforced. Therefore, if an award has been set aside in a seat of arbitration that is a non-signatory to the New York Convention, it may not be enforced.
On the other hand, in an enforcement case for an award subject to the New York Convention, the Court of Appeals has held that the enforcement lawsuit should be suspended until the result of an action to set aside is determined, if such action has been filed in the seat of arbitration (Court of Appeals, 15th Civil Law Chamber, 2 February 2017, File No 2017/1094, Decision No 2017/3777). However, in another decision rendered by the Regional Judicial Court of İstanbul, it was held that the text of Article V of the New York Convention grants the enforcement judge the discretion as to whether to refuse the enforcement of an award that has been set aside in its seat (Istanbul Regional Judicial Court, 14th Civil Law Chamber, 11 October 2018, File No 2018/130, Decision No 2018/1042).
A state or state entities may raise a defence of sovereign immunity in relation to their sovereign powers. Therefore, they cannot enjoy sovereign immunity in matters regarding private law relations. There are no specific provisions concerning the enforcement of an award against a state, with the exception of Article 82 of the Code of Execution and Bankruptcy (CEB). Article 82 of the CEB mandates that state properties cannot be attached. On the other hand, the Court of Appeals held in a decision that this article only concerns the property of the Turkish Republic and not foreign states (Court of Appeals 12th Civil Law Chamber, 25 April 2004, File No 2004/6469, Decision No 2004/13007).
Enforcement cases have also been increasing in recent years, with the increase in the number of arbitration cases. Accordingly, the courts are gaining familiarity and experience in such cases, and are rendering more arbitration-friendly decisions. Nonetheless, as explained in 11.3 Standard of Judicial Review, although the standard of review is limited to the grounds for refusing enforcement as listed in the New York Convention or the IPPL (and there are also Court of Appeals decisions that maintain this view), in certain cases involving awards that result in the reduction of the state’s income, the Court of Appeals found that the facts and merits of the case may be partially reviewed to determine whether it is against public policy (Court of Appeals Plenary Session of Civil Law Chambers, 8 February 2012, File No 2011/13-568, Decision No 2012/47).
In relation to the requirement of public policy compliance, in a decision regarding the enforcement of a foreign court decision, the Court of Appeals held that the court should review whether the consequences of enforcing a foreign court decision would result in violation of Turkish public policy (Court of Appeal’s General Assembly for Unification of Judgments, 10 February 2012, File No 2010/1, Decision No 2012/1).
There are no specific regulations in the IAL regarding class action or group arbitration.
It is provided in Article 34 of Turkish Attorneyship Law that attorneys are to conduct their duties with care, accuracy and integrity. Further to this, attorneys shall also act in accordance with the professional rules provided by the Union of Bar Associations of Turkey. Examples of such rules are an attorney’s refusal to represent parties that have a conflicting interest, as well as their discretion regarding information that has been entrusted to them and/or obtained while performing their duties.
Turkish law is silent on the matter of third-party funding (except for legal aid to be provided by the state treasury under certain circumstances). In line with this, there are no rules pertaining to disclosure of the existence of third-party funding or the identity of the funders. Therefore, publicly available information on the use of third-party funding by Turkish parties is limited, with the exception of a few ICSID cases.
Legislation concerning arbitration does not make any provisions for the consolidation of separate arbitral proceedings. On the other hand, parties may agree on arbitral rules that regulate and allow consolidation provided that certain principles in the IAL are protected, such as granting each party equal rights and powers to make their claims and defences. It should also be noted that the Court of Appeals does not currently have a reported decision on this issue, and therefore its approach towards consolidation may diverge in a possible future case.
See 5.7 Third Parties, above.
International Arbitration Law No 4686 (IAL) is Turkey’s main legislation on international arbitration. The IAL is essentially based on the 1985 UNCITRAL Model Law on International Commercial Arbitration; however, it includes specific provisions that cannot be observed in the UNCITRAL Model Law. Although the IAL has been amended only once since its enactment on 5 July 2001, international arbitration is ever-changing, and this can be seen from findings of the Court of Appeals over the past 20 years.
According to the IAL, disputes relating to affairs separate to the parties’ wills cannot be arbitrated. Thus, commercial interests can be brought to arbitration, but disputes concerning criminal activity, family law or subjects related to employees’ payments originating from work contracts are ineligible. Moreover, claims relating to rights in rem over immovable properties located within the Republic of Turkey cannot be arbitrated, a principle also practised by the Court of Appeals (the Court). In a case concerning the annulment of land title deeds, the Court held that a dispute that necessitates a shift in the land register is not arbitrable because such a matter relates to public policy (Court of Appeals, 15th Civil Law Chamber, 18 June 2007, File No 2007/2680, Decision No 2007/4137; Court of Appeals, 15th Civil Law Chamber, 10 October 2011, File No 2011/4411, Decision No 2011/5792). Moreover, in another case, the Court of Appeals maintained that only disputes that can be concluded by the parties’ agreement without need of a court ruling are arbitrable. This finding showed that the arbitration clause in a company’s articles of association was void, as general assembly resolutions may only be nullified by the courts (Court of Appeals, 11th Civil Law Chamber, 5 December 2012, File No 2011/13485, Decision No 2012/19915).
Additionally, the IAL regulates many procedural issues, such as the format and validity of arbitration agreements, the arbitrator appointment process, methods to handle challenges to arbitrators, and the process for challenging awards and allocating the associated arbitration costs.
Under the IAL, agreements may be structured as either an arbitration clause incorporated in a contract or as an independent agreement, regardless of the parties’ legal relationship being contractual in character. Article 4 of the IAL specifies the valid forms in which an arbitration agreement may be concluded. According to this, the agreement is only valid if it is in writing; however, Article 4 provides various means to record such an agreement. In addition, a binding arbitration agreement is also concluded when a claimant introduces the existence of a written agreement in its statement of claim and the defendant does not challenge this in its statement of defence, or if there is a reference to an arbitration clause in a document that is meant to comprise part of the main contract. The Court of Appeals held in 2013 that the parties’ charter party agreement in electronic form was a valid arbitration agreement. This was because the charter agreement indicated the GENCON 1994 Charter, which incorporates provisions for an arbitration clause (Court of Appeals, 11th Civil Law Chamber, 18 April 2013, File No 2012/6961, Decision No 2013/7612). The Court has likewise upheld decisions regarding the validity of an arbitration agreement. One example is a case where the parties consented to present any dispute to arbitration but had also agreed that ''the dispute shall be resolved at the courts.'' As the parties’ objective to either arbitrate or settle the dispute in court was uncertain, the Court of Appeals found that no adequate intent to arbitrate existed, and the arbitration agreement was deemed invalid. Thus, parties must show explicit intent to refer a dispute to arbitration for an arbitration agreement to be lawfully binding (Court of Appeals, 15th Civil Law Chamber, 18 June 2007, File No 2007/2680, Decision No 2007/4137; see also: Court of Appeals, 15th Civil Law Chamber, 13 April 2009, File No 2009/1438, Decision No 2009/2153). However, in another decision, the Court of Appeals approved the decision of a local court, which deemed an arbitration clause as valid although the agreement also expressed that ''[i]n the event of a dispute, the Bursa Courts and Execution Offices shall have jurisdiction.'' The case was dismissed by the local court when the defendants brought an arbitration objection. According to the ruling, the provision allocating jurisdiction to Bursa courts and execution offices was relevant only to arbitration procedural issues required to be decided by the courts (such as interim reliefs), and as a result, it held that the arbitration agreement was valid. The Court of Appeals confirmed this decision by declaring that an arbitral tribunal has the capacity to decide on the validity of the arbitration agreement (Court of Appeals, 15th Civil Law Chamber, 1 July 2014, File No 2014/3330, Decision No 2014/4607).
Another aspect to consider is signatories to an arbitration agreement. In a 2007 case, by referring to Article 388/3 of the Code of Obligations No 818, the Court of Appeals stated that in cases where a party's representative signs an arbitration agreement, the power of attorney entitling the representative to act in place of the principal must unambiguously specify that the agent has been given the authority to sign an arbitration agreement (Court of Appeals, 19th Civil Law Chamber, 21 May 2007, File No 2007/380, Decision No 2007/5114). The Court of Appeals has similarly analysed changes and/or additions made to arbitration agreements signed by parties’ representatives. For example, it asserted that the power of attorney concerning the signatory of the terms of reference was only related to claims, defences and arbitrator appointment, but did not provide for making any revisions to the arbitration agreement or entering into a new one on the parties’ behalf. The Court of Appeals also determined that the terms of reference is neither an amendment to an arbitration agreement nor is it an altogether new arbitration agreement (Court of Appeals Plenary Session of Civil Law Chambers, 18 October 2006, File No 2006/15-609, Decision No 2006/656). Accordingly, arbitration agreements may only be entered into or modified either by the parties or by a party representative specifically bestowed with this power.
With regard to non-parties to an arbitration agreement, a court of first instance ruling concerning an arbitral award that derived from a case founded on a concession agreement was reversed in June 2015, as the claimant was not party to the arbitration agreement. In this annulment case, the Court of Appeals determined that being a beneficiary to an agreement with an arbitration clause does not, on its own, make the beneficiary party to the arbitration agreement (Court of Appeals, 11th Civil Law Chamber, 25 June 2015, File No 2014/9538, Decision No 2015/8707).
The principle of competence-competence is recognised in IAL Article 7(h). Moreover, Article 7(h) also adopts the principle of separability. Accordingly, when an arbitration agreement is in the form of an arbitration clause within a contract, this clause is considered separate from the overall contract in decisions regarding the tribunal’s jurisdiction. This means that in cases where the tribunal determines that the principal contract is invalid, this will not on its own render the arbitration clause invalid.
Jurisdictional objections should be raised during arbitral proceedings, according to the IAL. In a case decided by the Court of Appeals with regard to an arbitration agreement’s validity being argued before the Court, it was stipulated that in accordance with the IAL, this type of challenge should initially be brought before the tribunal. The Court of Appeals further concluded that the tribunal’s ruling on jurisdiction is open to review in an annulment action raised against the final award (Court of Appeals, 15th Civil Law Chamber, 27 June 2007, File No 2007/2145, Decision No 2007/4389). Another example on the subject of the tribunal’s jurisdiction is a ruling by the Court of Appeals regarding a case where, in its defence, the defendant applied for a reduction of the claimed receivables. The defendant further asserted that it retained its right to submit a counterclaim for this deductible, though in reality such a counterclaim was not filed. The tribunal decided in the defendant’s favour; however, rather than deducting said amount, it decided that the total deductible should be collected as though a counterclaim had actually been submitted. The Court subsequently determined that arbitrators are to act within the scope of parties’ requests and cannot execute a decision beyond the scope of these requests. Thus, it decided that the award should be annulled, as the tribunal had surpassed its authority (Court of Appeals, 15th Civil Law Chamber, 11 May 2011, File No 2010/7197, Decision No 2011/2857).
Challenges to an arbitral award are permitted under the IAL solely as an annulment action, though the Turkish court’s ruling in respect of annulment can be appealed. It is expressed in IAL Article 15 that an arbitral award may be annulled based on the existence of any one of the grounds listed therein. According to this provision, within the listed grounds, arbitrability and compliance with public order shall be reviewed ex officio by the Court, whereas the other grounds should be proven by the applying party.
Past rulings of the Court of Appeals have dealt with partial annulment of an arbitration award and the extent of a second adjudication in such situations. For instance, the Court ruled that an arbitration award may be annulled entirely or partially. In cases of partial annulment, non-annulled parts of the award will be regarded as procedural rights to the benefit of the party that succeeded on those parts that were not annulled. Only the annulled parts will then be reconsidered by the arbitrator or the tribunal and an award will be issued in that regard (Court of Appeals, 15th Civil Law Chamber, 15 November 2007, File No 2007/3708, Decision No 2007/7216).
There has been an amendment to the IAL relating to the competent court to hear an annulment action. As of March 2018, annulment actions brought against a final award are required to be submitted to the competent regional judicial court within 30 days, starting after the award is notified or after notification of any decision correcting, interpreting or supplementing the award. After an annulment action has commenced, enforcement of the award will be suspended.
Before revisions were made in 2018, the IAL designated the civil court of first instance as the competent court to hear annulment actions; however, this designation was differently construed by the Court of Appeals in certain decisions. For instance, the Court of Appeals decided that the Istanbul Commercial Court of First Instance was the competent court to hear an annulment action involving a defendant that did not have a residence, habitual residence or place of business within Turkey (Court of Appeals, 11th Civil Law Chamber, 15 March 2012, File No 2012/2110, Decision No 2012/3915). It was found that the site of a subsidiary incorporated in Turkey could not be acknowledged as the defendant’s place of business, as the defendant was a French company with headquarters in France. Therefore, the Court applied IAL Article 3, which provides that any mention made of a court within the IAL means the Istanbul Civil Court of First Instance when the respondent does not reside in Turkey; thus, the Istanbul Civil Court of First Instance would be competent to hear this particular case. The Court later applied the Turkish Commercial Code in this same dispute, which states that where commercial courts of first instance are set up, disputes of a commercial nature should be heard before these courts rather than the civil courts of first instance, as there is division of labour between the two courts. Subsequently, it decided that the Istanbul Commercial Court of First Instance would be the competent court to hear the annulment case under review. However, in another case, the Court of Appeals held that even if the dispute was a commercial one, the civil courts of first instance were competent to hear annulment cases under Article 15 of the IAL (Court of Appeals, 19th Civil Law Chamber, 12 February 2014, File No 2014/111, Decision No 2014/2806).
The 2018 IAL amendments also include clarification regarding the competent courts for cases other than annulment actions. With the revisions, IAL additional Article 1 provides that the topic of the dispute defines whether the competence granted to the civil court of first instance should be handled by civil courts or commercial courts of first instance.
Foreign Arbitral Award Enforcement
Turkey is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention); therefore, most foreign arbitral awards enforced in Turkey are subject to the New York Convention. The Court of Appeals has, as a result, published many decisions on enforcement under the New York Convention.
Regarding interim attachments before the enforcement of foreign arbitral awards, it was found that when a decision on enforcement has not yet been made, an interim attachment request can still be filed because the assets or rights of the debtor are not permanently attached by interim attachment requests. Thus, an interim attachment request does not necessitate that an enforcement decision of a foreign arbitral award should be admitted (Court of Appeals, 6th Civil Law Chamber, 14 April 2014, File No 2014/3906, Decision No 2014/4941).
One current matter that the Regional Judicial Court has examined is if enforcement of an award would be suspended when a party makes a submission to the tribunal for the correction and interpretation of such award. In this dispute, the court referred to Article V of the New York Convention, where enforcement of an award can only be denied under specific conditions. It determined that the award under review was final and enforceable; moreover, as per the New York Convention, a request to the tribunal for an additional award for correction and interpretation is not a condition for refusing enforcement. The court also referenced Article VI of the New York Convention and opined that commencement of an annulment action in relation to an award in the place of arbitration does not automatically bar its enforcement in another state. Thus, a request to the tribunal for an additional award would not prohibit its enforcement (Istanbul Regional Judicial Court, 14th Civil Law Chamber, 11 October 2018, File No 2018/130, Decision No 2018/1042).
Arbitral awards that are not rendered in contracting states to the New York Convention may nevertheless be enforced in Turkey under International Private and Procedural Law No 5718 (IPPL). IPPL Article 62 outlines grounds for enforcement, which are generally in line with those of the New York Convention. Rulings regarding enforcement requests are also subject to appeal.
As with the annulment of arbitral awards, the enforcement of foreign arbitral awards may also be denied entirely or partially as per IPPL Article 56(1). The Court of Appeals decided on a case involving a total of three separate party agreements, one of which did not contain an arbitration clause. It was decided that the court of first instance’s ruling to partially enforce the foreign award was not possible, and the enforcement application should be denied. The Court of Appeals stated that it was impossible to conclude which allotment of the awarded damages resulted from the agreement that did not have an incorporated arbitration clause (Court of Appeals, 19th Civil Law Chamber, 18 December 2003, File No 2003/7270, Decision No 2003/12888).
Arbitration and Public Policy
In recent years, the Court of Appeals has also ruled on public policy grounds in relation to a foreign award’s enforcement request, as well as under what circumstances a Turkish award can be annulled. The Court of Appeals ruled in 2012 that customs and tax laws are associated with public policy, and so foreign awards requesting receivables that violate Turkey’s tax legislation may not be enforced due to the public policy clause found in Article V of the New York Convention. The Court stated that the merits of the dispute can be partially examined when such occurrences arise; however, it held that partial review is permitted only to the degree needed to conclude whether the award is against public policy (Court of Appeals Plenary Session of Civil Law Chambers, 8 February 2012, File No 2011/13-568, Decision No 2012/47).
Following this, the Court of Appeals again ruled on awards concerning violating receivables. It was decided that foreign receivable awards that violate tax laws may be annulled because these laws are in the interest of public policy, and that it may be imperative to partially review the merits in order to analyse objections associated with public policy (Court of Appeals, 13th Civil Law Chamber, 17 April 2012, File No 2012/8426, Decision No 2012/10349). However, the Court of Appeals ruled differently on a dispute concerning enforcement of a foreign court decision, where it ruled that the principle regarding the prohibition of reviewing the merits of a dispute cannot be disregarded using discretionary rights in cases where a foreign decision is being reviewed as to its role in public policy (Court of Appeals Plenary Session of Civil Law Chambers, 26 November 2014, File No 2013/11-1135, Decision No 2014/973).
The Istanbul Arbitration Centre
The Istanbul Arbitration Centre (ISTAC) was established in 2015 by the Law on the Istanbul Arbitration Centre No 6570 (LIAC). According to LIAC Article 1, ISTAC is to handle the resolution of disputes, including those with a foreign element, through arbitration or an alternative dispute resolution method.
An increase in the use of ISTAC is expected as a result of certain legislative amendments. According to the Prime Ministry’s Circular No 2016/25, all public authorities should contemplate including arbitration clauses that refer to ISTAC in their domestic and international agreements. Moreover, effective from 19 January 2018, template contracts attached to the Tender Application Regulations (within the scope of Public Procurement Contracts Law No 4735) were revised. With these revisions, the administration has the choice to have an arbitration agreement in contracts made within the scope of the Tender Application Regulations, instead of a jurisdiction clause favouring Turkish courts. In the event that the administration includes an arbitration clause and the dispute is a domestic one, the dispute shall be resolved pursuant to ISTAC Arbitration Rules. However, if the dispute does have a foreign element, the administration may either choose ISTAC Arbitration Rules or the provisions of the IAL.