ARBITRATION IN TURKEY

Introduction

As it is widely acknowledged, arbitration has many advantages including being faster than state litigation proceedings, allowing the dispute to be resolved by experts, and providing confidentiality to the parties. In this sense, arbitration is deemed to be a preferable alternative dispute resolution method in Turkey. 

Where to find the regulations regarding arbitration in Turkish Law?

Other than substantial rules to be applied in commercial disputes, Turkey has also enacted legislation applicable to the procedural aspects of the arbitration proceedings. The procedural regulations are twofold: a special regime for domestic arbitration proceedings and a model-law based law for international arbitration cases. Turkey is also a party to the The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) the provisions of which are applied as law, in accordance with Article 90 of the Constitution of Turkish Republic.

The main laws regulating arbitration in Turkey are the Turkish Civil Procedure Code numbered 6100 and International Arbitration Law numbered 4686. As it is well known, the parties to an arbitration can determine the seat of arbitration and the applicable law to the arbitration proceedings in the arbitration agreement.

The Turkish Code of Civil Procedure applies in domestic arbitration proceedings, in the event that the seat of arbitration is chosen by the parties as Turkey, whereas the law to be applied to the legal procedure has not been specified in the relevant arbitration agreement. As for the International Arbitration Law numbered 4686, this law applies in cases where the arbitration has the nature of an “international arbitration”. It must however be noted that, even in arbitrations that are deemed international and thus subject to the International Arbitration Law numbered 4686, where there is no provision in this law, the Code of Civil Procedure also applies. 

The following explanations are for the cases in which the seat of arbitration is Turkey, where the parties have not chosen the law to be applied to the procedure of the arbitration proceeding.  

What type of disputes can be resolved by way of arbitration according to Turkish law?

Article 1 of the Law numbered 4686 regulates what types of international disputes can be resolved by way of arbitration in Turkey. Pursuant to the aforementioned article, all disputes are arbitrable in Turkey, except for disputes regarding rights in rem on immovable properties located in Turkey and those disputes that are not subject to the will of both parties, e.g. criminal law and family law disputes. 

That being the case, an important point to be emphasized here concerns disputes arising from public procurement processes. In this regard, although public procurement is within the scope of administrative law in Turkey and therefore is not subject to the wills of the parties, in Turkish law, public procurement contracts are subjected to private law provisions. Thus, it is acknowledged that disputes arising from such contracts can be resolved through arbitration.

Do Turkish courts interfere with arbitration proceedings?

Pursuant to Article 3 of the Law numbered 4686, Turkish courts can only intervene in accordance with the provisions of that law to disputes arising from international arbitration. Therefore, the intervention of domestic courts to international arbitration proceedings seated in Turkey is limited and their role is rather supportive. In this context, it can be stated that there is a “pro-arbitration tendency” in Turkey and in Turkish regulations regarding international arbitration.

How should an arbitration agreement be drafted in accordance with Turkish law?

According to International Arbitration Law numbered 4686, an Arbitration Agreement:

• may be concluded by way of an arbitration clause in the main contract or as a separate contract.
• must be made in writing. In order to fulfill this requirement, it is sufficient for the arbitration agreement to be in a written document signed by the parties, made by means of a letter, telegram, fax, telex, or transferred to the electronic environment by means of e-mail. 
• is valid if it is in accordance with the law chosen by the parties to be applied to the arbitration agreement, or if there is no such choice of law, the arbitration agreement is valid if it complies with Turkish law.
• is separate from the main contract. Therefore, no objection can be raised against the arbitration agreement by arguing that the main agreement is not valid.

How should the arbitrators’ selection be made according to Turkish law?

According to Article 7 of the Law numbered 4686, the parties to the dispute are free to determine the number of arbitrators, but an odd number of arbitrators must be chosen. If the number of arbitrators is not agreed upon by the parties, three arbitrators would be selected.

Further, unless otherwise agreed by the parties,

• only real persons can be selected as arbitrators,
• if a sole arbitrator is to be chosen and the parties cannot agree on the selection of the arbitrator, the arbitrator is selected by the Turkish Civil Court of First Instance upon the request of one of the parties,
• if three arbitrators are to be selected, each party chooses one arbitrator; and the two arbitrators selected in this way determine the third arbitrator. If one of the parties does not choose an arbitrator within thirty days from the receipt of the other party’s request in this matter, or if the two arbitrators chosen by the parties do not determine the third arbitrator within thirty days after their selection, the arbitrator is selected by the civil court of first instance upon the request of one of the parties. The third referee acts as the chairman of the arbitral tribunal.

 Can an interim injunction be requested in arbitration proceedings in Turkey?

According to Article 6 of International Arbitration Law, the parties may request an interim injunction from the Turkish courts, in order to secure their receivables before and during the arbitration proceedings. Also, unless otherwise agreed in the arbitration agreement, the parties may request from the arbitrator or the arbitral tribunal to grant an interim injunction. However, while the parties to the arbitration are bound by the arbitral tribunal’s decision to this effect, the arbitral tribunal does not have the powers to grant an interim injunction or a precautionary attachment decision that must be enforced by the enforcement bodies or fulfilled by other official authorities, or which binds third parties.

In what language is the arbitration proceeding conducted?

Pursuant to Article 10 of Law numbered 4686, arbitration proceedings may be conducted in Turkish or in the official language of one of the states recognized by the Republic of Turkey. The language or languages to be used in the proceedings are determined by the arbitrator or the arbitral tribunal unless agreed between the parties. Unless otherwise stipulated in the agreement of the parties or in the interim decision of the arbitrators on the subject, this language or languages shall be used in all written statements of the parties, in hearings, in the interim decisions of the arbitral tribunal, in the final decision and in written notifications.

The arbitrator or the arbitral tribunal may decide that the documents which the parties submit are to be presented together with their translation in the language or languages used in the arbitration proceedings.

Which arbitration centers are generally preferred in Turkey?

The main arbitration centers preferred for international arbitration processes in Turkey are Istanbul Arbitration Center (ISTAC), Istanbul Chamber of Commerce Arbitration and Mediation Center, and the Turkish Union of Chambers and Commodity Exchanges Court of Arbitration.

What must arbitral awards contain?

According to Article 14 of Law numbered 4686, the following must be contained in international arbitral awards issued in Turkey:

• Names and surnames, titles and addresses of the representatives and proxies of the parties,
• The legal reasons on which the decision is based, its justification, and the amount of compensation awarded in claims for compensation,
• The place of arbitration and the date of the decision,
• Names and surnames, signatures, and dissenting votes of the arbitrator or arbitral tribunal that has rendered the decision,
• That an action for annulment can be filed against the decision must be stated in the arbitral award. 

Is it possible to annul the arbitral awards in Turkish law?

Unlike court judgments, arbitral awards are not subject to appeal. According to Article 15 of Law numbered 4686, parties can only file a lawsuit for annulment of the arbitral awards. A finite number of grounds for annulment are listed in the law, as follows:

• Incapacity of one of the parties to the arbitration agreement,
• The invalidity of the arbitration agreement according to the law which the parties have chosen to govern the agreement, or Turkish law, if there is no such choice of law,
• Failure to comply with the procedure determined in the agreement of the parties or stipulated in the Law numbered 4686 with respect to the selection of the arbitrator or the arbitral tribunal,
• Failure to render the decision within the specified arbitration period,
• The decision of the arbitrator or arbitral tribunal being unlawfully authorized or unauthorized,
• The decision of the arbitrator or arbitral tribunal being on a matter other than the arbitration agreement or failing to decide on the entirety of the claims or exceeding of its authority,
• Arbitration proceedings are not conducted in accordance with the agreement of the parties in terms of the procedure or, in the absence of such agreement, in accordance with the provisions of the Law numbered 4686 and this having an effect on the merits of the decision,
• Failure to observe the principle of equality of the parties,
• Non-arbitrability of the dispute that is subject to the decision of the arbitral tribunal according to Turkish law.
• The arbitral award being contrary to the public policy of Turkey.

 An action for annulment can be filed within thirty days. This period starts to run from the date when the arbitral award or the correction, interpretation, or completion decision is notified to the parties. The filing of an action for annulment automatically suspends the execution of the arbitral award.

The parties may appeal against the decisions rendered regarding the rejection of the action for annulment of the arbitral award. 

How are arbitrator fees and legal fees determined in Turkey?

According to Article 16 of the Law numbered 4686, unless otherwise agreed by the parties, the fee of the arbitrators shall be agreed between the arbitrator or the arbitral tribunal and the parties, taking into account the amount of the claim, the nature of the dispute and the duration of the arbitration proceedings. The parties may also determine the fee of the arbitrator or arbitral tribunal by referring to internationally established rules or institutional arbitration rules. 

If an agreement cannot be reached between the parties and the arbitral tribunal on the determination of the fee, or if there is no provision in the arbitration agreement regarding the determination of the fee, or if the parties do not refer to the established international rules or institutional arbitration rules on this matter, the fee of the arbitrator or arbitral tribunal is determined according to the fee schedule annually prepared by the Ministry of Justice by way of taking the opinions of professional organizations in Turkey. 

The expenses of the arbitration proceedings are described in the decision of the arbitral tribunal. These expenses include the arbitrators’ fees, the travel expenses and other expenses of the arbitrators, the fees paid to the experts appointed by the arbitrator or the arbitral tribunal and the other persons whose assistance is sought, as well as the discovery expenses, the travel expenses of the witnesses to the extent approved by the arbitrator or the arbitral tribunal, and other expenses incurred by the arbitrator or the arbitral tribunal, the attorney’s fee awarded for the attorney of the winning party, the court fees for the applications to be made to the courts, and the notification expenses related to the arbitration proceedings.

The arbitrator or the arbitral tribunal may request the claimant to make an advance payment for the costs of the proceedings. If the advance is not paid within the time stipulated in the decision of the arbitrator or the arbitral tribunal, the arbitrator or the arbitral tribunal may suspend the proceedings. If the advance is paid within thirty days from the notification of the parties that the proceedings have been suspended, the proceedings will continue; otherwise, the arbitration proceedings will come to an end.

Unless the parties agree otherwise, according to Turkish law, litigation expenses are paid by the wrongful party. If both parties are partially right in the case, the court costs are shared equitably between the parties.

How are arbitral awards enforced in Turkey?

If the time required for filing an action for annulment has elapsed or the action for annulment has been rejected, the arbitration award will become final. In this case, the Turkish Civil Court of First Instance gives a document to the requesting party upon application, which states that the arbitral award is enforceable. Afterwards, the arbitral award may be enforced just like a court judgment.