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International Arbitration in Turkey

INTERNATIONAL ARBITRATION AND TURKEY

The use and popularity of international commercial arbitration in Turkey has been increasing since the 2000s due to the increase in the globalization of trade and cross-border disputes involving Turkish businesses. This development has been accompanied by significant changes in Turkish legislation that reflect pro-arbitration policies endorsed by Turkey. Today, many complex and cross-border disputes relating to key industries such as energy, telecommunications, IT, infrastructure, intellectual property and construction, where one of the parties is Turkish, are routinely referred to international arbitration. Following a brief overview of this mechanism, we examine the developing relationship between Turkey and international commercial arbitration below.

Arbitration: Private International Commercial Dispute Resolution

Arbitration, as is well known, is a dispute resolution process, based on a private agreement between the parties, whereby one or more independent individuals are called upon to resolve a certain dispute in a final and binding manner, by applying the law that is chosen by the parties.

Advantages of Arbitration over Litigation

The perceived advantages of arbitration makes it the preferred means for international commercial dispute resolution. These advantages may be listed as follows:

Flexibility:

One of the essential characteristics of the arbitration process is the use of flexible procedures.  In contrast to national courts that are bound by rigid procedural rules, arbitration tribunals can decide on the organization of proceedings by taking into account the parties’ wishes and their underlying dispute for a fair and cost-efficient resolution of the dispute. The party autonomy principle underlies the whole arbitral process. It is the agreement of the parties that establishes the jurisdiction of the arbitrators, that determines the extent of their powers, the procedure, the seat and the language of the arbitral process, and the law applicable to the merits of the dispute.

The law that is applicable to the merits of an international dispute may be the law of a state, or legal principles not connected to any state’s legal order. One may add to the above that arbitral institutions are demand-driven and can respond more quickly to the changing needs of businesses, as we see in the innovative measures taken by arbitration institutions such as ICC, CAM and the Turkish international arbitration center, ISTAC during the Covid-19 pandemic.

Confidentiality:

Although there is no legally-enforceable guarantee of confidentiality in international arbitration, arbitral proceedings are, in principle, confidential. This confidentiality may extend to the very existence of the arbitration itself. Therefore, it is substantially more likely to produce a non-public process than national court litigation.

Neutrality:

Neutrality is a major concern for claimants in international litigation. Even where the judge is perfectly impartial, having to pursue a case according to the procedure and rules of the counterparty’s jurisdiction creates an additional challenge for foreign parties. This is what the parties can avoid by choosing arbitration, where they are provided with a neutral forum for dispute resolution, with the opportunity to present their cases to an objective and impartial tribunal.

Expertise:

In commercial arbitration, the parties have the ability to choose arbitrators having the required expertise, which is better suited for resolving complex technical, scientific or industrial disputes than resorting to court litigation, where judges, who may have little or no experience in the relevant fields, are randomly assigned to cases.

Ease of Enforcement:

1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, coupled with the policy around the world towards favorable treatment of international commercial arbitration awards makes it much easier for an arbitral award to be enforced in another country than court judgments. The arbitration laws of a large number of countries based on the UNCITRAL Model Law on International Commercial Arbitration provide for ready enforcement of arbitration agreements, court assistance with the conduct of arbitral proceedings and less court interference with arbitral proceedings.

Arbitration and Turkey

Previously, the use of arbitration was limited in Turkey. Although Turkey has been a signatory to the New York Convention, the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), the European Convention on International Commercial Arbitration and many bilateral investment treaties that foresaw international arbitration for dispute resolution, no distinction was initially made between domestic and international arbitrations.

Following the enactment of the Turkish International Private and Procedural Law, the conditions for the recognition and enforcement of foreign arbitral awards were aligned with Article V of the New York Convention, however, in practice, parties still faced strict and complicated procedures.

History of Arbitration in Turkey

The first major shift in Turkey’s approach towards arbitration was reached when the constitutional amendment in 1999 made it possible for concession contracts to contain arbitration clauses. This amendment allowed inserting international arbitration clauses into public infrastructure agreements entered into between foreign investors and the Turkish state.

With the adoption of the International Arbitration Act based on UNCITRAL Model Law on International Commercial Arbitration in 2001 and the regulation of domestic arbitration in the Turkish Procedural Code, Turkey endorsed a contemporary system of domestic and international arbitration, according to which arbitrations with their seat in Turkey and that contain a “foreign element” as specified in the law fall under the scope of the International Arbitration Act.

Legal Framework

According to this legal framework, all disputes that do not concern the in rem rights of immovables or the disputes subject to the parties’ disposal are arbitrable. While this means that disputes arising from family law, criminal law, administrative law, employment and consumer claims and bankruptcy cannot be settled by arbitration, commercial matters are resolvable by way of arbitration. In the case of international arbitrations that are covered by the International Arbitration Act, courts are allowed very limited grounds to interfere with the awards and they are under a general obligation of expediency and support.

Another significant step in Turkey’s consistent move towards becoming a truly arbitration-friendly jurisdiction was taken in 2015 with the establishment of ISTAC as Turkey’s international arbitration institution by Law No. 6570, to handle the resolution of both domestic and international disputes through arbitration or an alternative dispute resolution method. ISTAC rules contain provisions familiar to international arbitration practitioners, including modern instruments such as rules on emergency arbitration and fast-track arbitration for smaller claims.

ISTAC

Since its establishment, ISTAC has been showing steady progress in becoming an international center for handling arbitration cases with parties from different jurisdictions. The Center is also promoted by the Turkish government as part of arbitration friendly policies and regulations, according to which all public authorities should contemplate including arbitration clauses that refer to ISTAC in their domestic and international agreements and, within the scope of Public Procurement Law, in disputes with a foreign element, they have a choice of referring disputes to arbitration under ISTAC Rules or the provisions of the International Arbitration Act instead of national courts.

SUMMARY

As a result of all the pro-arbitration efforts outlined above, Turkey is now an arbitration friendly jurisdiction with a modern international arbitration law on par with other major jurisdictions. The advantages of arbitration as a dispute resolution method for the cross-border operations of Turkish businesses and state institutions alike also induce Turkish parties in key industries to choose arbitration for dealing with their disputes. It must also be mentioned that Turkey’s unique location and its close commercial and historical ties with both Eastern and Western countries present a great opportunity for Turkey to become a significant arbitration hub for international business.

Needless to say, when doing business in Turkey it is very important to receive the best legal services possible to ensure long-term business relationships. Lawyers that are well acquainted with key industries with a good understanding of the local business culture and an extensive experience in handling international arbitration cases can provide the most efficient legal assistance in every step of commercial transactions, from contract negotiations to dispute avoidance to dispute resolution.

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