Trkiye

Turkey

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Key points
The International Arbitration Law (IAL) came into effect in Turkey in2001. The IAL is based on the UNCITRAL model law. The Union of Chambers of Commerce, Industry, Maritime Trade andCommodity Exchanges of Turkey and the Istanbul Chamber ofCommerce are the two main arbitration bodies in Turkey. Most commercial disputes can be settled through arbitration under the provisions of the IAL. As a result of the constitutional amendments in 1999, disputes arising from concession contracts regarding public services may be resolved through arbitration as long as the dispute contains a foreign element (article 125/I of the Constitution, article 1/V IAL). The IAL respects the principle of autonomy. The parties may decide the arbitration procedure, choose a set of arbitration rules and select the language of the proceedings. The IAL restricts the courts role to one of help and, in limited circumstances, supervision. The parties can apply to the court for relief such as injunctions, removal of arbitrators and enforcement of arbitration agreements as well as awards. The IAL provides the statutory basis for Turkish courts to order interim measures even where the seat of arbitration is not in Turkey. Arbitral awards under the IAL may only be set aside on limited grounds such as the invalidity of the arbitration agreement or substantive procedural irregularity.

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Parties whose habitual residences or domiciles are outside Turkey may waive their rights to file a set aside action. Notwithstanding the parties right of waiver, the court, which has to certify the enforceability of the award, will itself review the award and will refuse to certify it if it deems Turkish public policy has been violated by an abuse of process or the dispute in question is considered not arbitrable. Turkey is party to the New York Convention. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law and as long as none of the grounds under article V of the New York Convention are proved by the opposing party. Confidentiality The IAL does not contain a provision on confidentiality of arbitral proceedings. The parties are free to include a confidentiality clause in the arbitration agreement. The arbitration rules of the Union of Chambers of Commerce, Industry, Maritime Trade and Commodity Exchanges of Turkey and the Istanbul Chamber of Commerce provide that arbitral proceedings are confidential and oblige all participants in the proceedings to keep all the information confidential. For a model confidentiality clause, see the arbitration section on drafting arbitration clauses.

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Model arbitration clauses

Disputes arising from the application of this contract shall be settled by arbitration in accordance with the provisions of the Arbitration Rulesof the the Union of Chambers of Commerce, Industry, MaritimeTrade and Commodity Exchanges of Turkey. Union of Chambers and Commodity Exchanges of Turkey Disputes arising from this contract shall be settled by arbitration pursuant to the Arbitration Rules of the Istanbul Chamber of Commerce. Istanbul Chamber of Commerce See the Arbitration section for best practice in drafting arbitration clauses.

Weblinks www.tobb.org.tr Union of Chambers and Commodity Exchanges of Turkey www.ito.org.tr Istanbul Chamber of Commerce

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What arbitration bodies are there within the jurisdiction?

There are two main arbitration bodies in Turkey: the Union of Chambers ofCommerce, Industry, Maritime Trade and Commodity Exchanges of Turkey (in Ankara) and the Istanbul Chamber of Commerce (in Istanbul). Both bodies administer domestic and international arbitration, both hold a list of arbitrators, and, although they have separate arbitration rules, they have equal status. It is common for arbitrations under the rules of other international bodies (most commonly the International Chamber of Commerce the ICC) to have their seat in Turkey. Most international arbitrations take place in Istanbul. There are other domestic arbitration bodies in Turkey. Chambers of commerce of the main cities, such as Izmir and Mersin, also provide arbitration services to their members.

Is there an Arbitration Act governing arbitration proceedings and, if so, is it based on the UNCITRAL model law?

Turkey has a dual arbitration system: domestic and international. Domestic arbitration is governed by the Code of Civil Procedure of 1927 (the CCP), adapted from the Neuchatel Civil Code of Procedure of 1925. Articles 516 to 536 in the CCP concern purely domestic arbitrations. International commercial arbitration is governed by the International Arbitration Law No. 4686 (the IAL), which came into effect on 5 July 2001 and is based on the UNCITRAL model law (the model law). The IAL applies if the parties agree on Turkey as the place of arbitration for the

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resolution of a dispute involving a foreign element. The foreign element requirement is deemed satisfied where the parties have their domicile or habitual residence or place of business in different countries; or where these places are not in the same country as the place of arbitration or not in thesame country as the site of the actual business operation of the underlying contract; or where the relationship between the parties involves foreign investment. In an ad hoc arbitration, the parties or the arbitral tribunal can choose toadopt the IAL as procedural rules. Most commercial disputes can be settled through arbitration under the IAL. Only those disputes that relate to in rem rights over property and disputes that are not at the free disposal of the parties (certain matters arising, for example, from family law or bankruptcy law) are inappropriate for arbitration. There are no restrictions on the nationality of representatives in arbitral proceedings. However, only an attorney of Turkish nationality could be a representative before the courts in respect of any arbitration related actions.

What are the available rules?

With the exception of certain mandatory provisions, the parties are free to decide the rules of procedure: they can devise their own rules, refer to the IAL or to the law of another jurisdiction, or refer to a set of arbitration rules, such as those of the Istanbul Chamber of Commerce, the ICC or UNCITRAL. If the parties have made no agreement about the rules of procedure, the arbitral tribunal applies the provisions of the IAL. The IAL requires the tribunal to treat the parties with equality and to give them an opportunity

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to present their case. The tribunal decides, for example, whether to hold oral hearings or to conduct the proceedings on the basis of documents received. However, if a party requests an oral hearing, the tribunal has to hold one. Under the IAL (and as in the ICC arbitration), the terms of reference are prepared following the submission of the statement of claims and the response. The terms of reference state the place and term of arbitration, the applicable procedural rules and any issues to be decided by the parties. Timescale Unless the parties agree otherwise, the tribunal has to render its award within one year from the date of its first meeting. The term of arbitration may be extended if the parties agree to this. If they do not, the court of first instance may allow an extension if one party so requests. If the request is turned down and the tribunal fails to render its award within the required time frame, the arbitration is terminated and the dispute referred to the courts. Evidence Parties are expected to submit all their evidence with their pleadings within the period of time agreed by the parties or determined by the arbitral tribunal (article 10D IAL). The tribunal may ask the local courts to help in collecting evidence. The tribunal may appoint one or more experts to help it decide on technical issues and it may also hold on-site investigations. Parties may put questions to experts and may present experts that they have appointed.

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What supervision is there of arbitrators and their awards?

For arbitrations taking place in Turkey, there is in principle no supervision of the way arbitral proceedings are conducted by a tribunal. The supervision is done: at the stage of set aside for challenge or removal of arbitrators; and at the stage when, for enforcement of the award, an application for a certificate of enforceability of the award is made provided that no setting aside action has previously been taken. Where a tribunal follows the rules of an arbitral institution, arbitrators will be subject to the supervision of this institution (to the extent provided by its own rules).

How quickly can a tribunal be set up?

The parties are free to agree on the number of arbitrators and the procedure for appointment (article 7 IAL). The number of arbitrators mustbe an odd number. As long as the parties collaborate in good faith, an arbitral tribunal can beconstituted within three to four weeks. If there is no agreement on the number of arbitrators, the IAL provides that the tribunal comprises of three arbitrators. If there is no agreement on the appointment procedure, the IAL provides that, in the case of a sole arbitrator, the parties jointly appoint the arbitrator, and if the tribunal is to consist of three arbitrators, each party appoints one, and

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the two arbitrators thus appointed appoint the third. If the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the court appoints the third arbitrator as the chair.

What happens if one party refuses to participate in the process?

If one party refuses to participate in the process without justifiable cause, the IAL provides assurance that the arbitration will not be deadlocked (article 11C IAL). Where the claimant fails to submit a statement of case within due time, the arbitration terminates. Where the statement of case is not properly prepared (and is not rectified within the period of time set by the tribunal), the tribunal terminates the proceedings. Where the respondent does not submit a response, the tribunal continues the proceedings (without deeming that the respondent has accepted the claims of the claimant). Where one party does not attend the hearings or fails to submit evidence, the tribunal renders its award on the basis of what evidence has been presented. Where parties fail to jointly appoint the sole arbitrator or one of the parties fails to appoint its arbitrator within 30 days of a request to do so from the other party, the court appoints the arbitrator(s) instead when asked to do so by one of the parties. If one party has brought a claim (or counterclaim) before the courts, in breach of a valid arbitration agreement, the other party may request the court to stay the proceedings and refer the parties to arbitration (article 5 IAL).

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What interim measures are available?

The following measures depending on the circumstances of the case may be available either from the tribunal or from the courts: injunctive relief security for costs security for the amount in dispute preservation of evidence compelling witnesses.

Parties may request interim measures from the courts before or during the course of the arbitral proceedings. This request itself does not constitute a violation of the arbitration agreement. The arbitral tribunal has no authority to amend or terminate a courts interim measure. If one party does not comply with a tribunals interim measure, the other party may request assistance from a Turkish court. Turkish courts are permitted to grant interim measures of protection in support of arbitrations in or outside Turkey. The court shall grant its own measures by taking into account arbitral interim measures. The tribunal is authorised to issue its own interim measures and may require a party to post appropriate security. It cannot issue an interim measure that binds third parties. Under Turkish law, a tribunal has no coercive power. An interim measure by an arbitral tribunal cannot be enforced by official authorities. Unlike common law systems, it is not possible to have an interim measure covering all the respondents assets. Under Turkish law, interim measures are limited to the subject matter of legal proceedings or to those assets of the respondent which, when liquidated, would suffice to cover any award in favour of the claimant.
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Injunctive relief Interim injunctions are regulated under the CCP (articles 101 to 113/A IAL). They can be grouped into three categories: injunctions providing security (for instance, taking into custody an object in dispute) injunctions requiring a party to do something or to refrain from doing something injunctions regulating the relationship between the parties to the dispute. Security for costs The court may require a foreign applicant to deposit security to cover the other partys costs and charges for arbitral or court proceedings. In practice, the courts require a deposit of at least 15 per cent of the value of the subject matter of the legal proceedings. If the applicant has strong evidence justifying its claim, the court may exempt it from depositing security. Although the tribunal has the power to grant security for costs it is highly unlikely to do so. Security for the amount in dispute The court may order an interim attachment of the respondents assets upon the claimants request in order to secure the collection of an unsecured money claim provided that there is sustainable evidence showing the respondents indebtedness and default in payment of a monetary obligation at the date of maturity (Execution and Bankruptcy Code (the EBC) articles 257-666). Preservation of evidence The parties shall provide their evidence within the term determined by the arbitrators. The arbitrators, if they deem it necessary, may request

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from the competent court of first instance assistance in taking evidence. In such a case, the provisions of the CCP shall be applicable (article 12B IAL). Compelling witnesses Either the parties or the arbitral tribunal may ask the court to compel awitness to give evidence. The court will compel a witness to give evidence before the arbitral proceedings begin if there is a real risk that itmay be either impossible or extremely difficult to obtain a witness statement during the course of the proceedings.

What right is there to challenge the appointment of an arbitrator?

Arbitrators may be challenged if circumstances give rise to justifiable doubt as to their impartiality or independence, or if the chosen arbitrator does not possess the necessary qualifications agreed upon by the parties (article 7C IAL). The parties are free to agree a procedure for challenging an arbitrator. Failing such agreement, the party intending to challenge an arbitrator must within 30 days after becoming aware of any circumstance giving rise to its concern send the tribunal a written statement setting out the reasons for the challenge. Unless the challenged arbitrator withdraws or the other party agrees to the challenge, the tribunal will decide on the challenge. If the challenge is not successful, the challenging party may (within one month after the decision) appeal to the court. A challenge to the sole arbitrator or all members of the arbitral tribunal or a challenge to the members of the tribunal that may render void the decision making majority of the tribunal, shall only be made to the civil court of first instance. The courts decision is not subject to appeal.

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The IAL does not stop the tribunal (including the challenged arbitrator) from continuing the proceedings or from making an award while such a challenge request is pending. However, an award rendered before the conclusion of a successful challenge may be set aside by the challenging party, due to lack of authority of the arbitrators or public policy. If arbitrators become unable to perform their functions or for other reasons fail to act without undue delay, their mandate terminates if theywithdraw or if the parties agree on the termination. If an arbitrator does not withdraw or if the parties cannot agree on the termination, any party may ask the court to decide on the termination of the mandate (article 7F IAL). The parties are free to agree a procedure for the appointment of a substitute arbitrator. Failing such agreement, a substitute arbitrator is appointed according to the rules that applied to the arbitrator being replaced. If the arbitrators are specifically named in the arbitration agreement, the arbitration terminates upon removal or resignation of the majority of the arbitral tribunal. It is not advisable, therefore, to name arbitrators in the arbitration agreement.

Can a party appeal the arbitrators decision and, if so, are there any limits to be aware of or any unusual provisions?

The IAL distinguishes between the correction or interpretation, and recourse against an arbitral award. Correction and interpretation Any party may ask the tribunal to correct any errors in computation, any clerical or typographical errors or any errors of a similar nature in the award; to give an interpretation of specific parts of the award; or to make an additional award covering claims presented in the proceedings but

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omitted from the award. Unless otherwise agreed, the request has to be made within one month of receipt of the award and the tribunal then makes the correction (or gives the interpretation) within one month of the request. Any additional award is made within two months. The tribunal may correct an award on its own initiative. Set aside Parties may have recourse against an arbitral award within strict limits (article 15A IAL). An award may be set aside if the applicant can prove one of the following: a party to the arbitration agreement did not have the legal capacity toenter into it the arbitration agreement is not valid under the applicable law (or, if itis not clear what that law is, under Turkish law) the appointment of the arbitrators did not accord with the procedure provided in this law or by the agreement of the parties the award is not rendered within the term of arbitration the tribunal decided on its competence in breach of the law the award deals (in whole or in part) with matters falling outside the terms of the dispute referred to arbitration the composition of the tribunal or the procedure did not accord with an applicable provision of the IAL or with a binding agreement betweenthe parties, and this affected the award the principle of the equality of parties has not been respected.
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An arbitral award may also be set aside if the court finds that the subject matter of the dispute cannot be settled by arbitration under Turkish law orif the recognition or enforcement of the award leads to a result which conflicts with Turkish public policy. The review whether to set aside the award has to be carried out swiftly and as a matter of priority. Filing a legal action to set aside automatically stays the enforcement of the award. The decision of the court may be appealed. Where the domiciles or habitual residences of both parties are outside Turkey, parties may partially or entirely waive the set aside procedure at the time of, or after the conclusion of, the arbitration agreement.

10 Is Turkey a party to the New York Convention?

Yes. Turkey has been a signatory to the New York Convention since 1992. arbitration 11 Will anprocedure? award be enforceable in Turkey and, if so, what is the IAL awards Under Turkish law, an arbitral award rendered in Turkey under the IAL has the same effect on the parties as a final court judgment. Enforcement is only possible if the court certifies the award as enforceable (which it will do if there has been either no action to set the award aside or a final rejection of any appeal to set it aside).

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In cases where parties do not have recourse to the arbitral award or where the parties renounce their right to set aside the award, the court certifies the award as enforceable if it is satisfied that the subject matter of the dispute is arbitrable under Turkish law and the award is not against Turkish public policy (article 15B IAL). Unless the court decides otherwise, its review will be based on the written documents. New York Convention awards Foreign awards are recognised and enforced according to the New York Convention, without affecting the provisions of other bilateral or multilateral treaties (article VII(1)) and provided that none of the grounds under article V exist. The application for enforcement must accompany the award as well as the arbitration agreement (or certified copies) together with their certified Turkish translations. Turkey has exercised two reservations: it will only recognise and enforce foreign arbitral awards under the New York Convention which have been made in other contracting states; and secondly, the dispute must be of acommercial nature under Turkish law. Other foreign awards The New Private International and Procedure Law (PIPL) governs the enforcement of foreign arbitral awards that do not fall within the scope of the New York Convention. Foreign arbitral awards that are final and enforceable, or have become binding upon the parties in accordance with the applicable law or under the law of the place of arbitration, may be enforceable in Turkey (article 60 PIPL). The court must give leave for enforcement where the conditions that are set out in article 62 (similar to the conditions in article V of the New York Convention) are satisfied.

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The process The party applying for enforcement has to submit the award, duly finalised and enforceable, and the arbitration agreement or arbitration clause (or certified copies thereof) along with their translations. Enforcement proceedings are subject to a straightforward and fairly rapid adjudication process. The court serves the application on the other party and notifies the date of the hearing to both parties. The decision of the court is subject to appeal or review by the Court of Cassation. Foreign arbitral awards are generally enforceable in Turkey. Although, in the past, Turkish courts gave a broad meaning to public policy, recent decisions of the Court of Cassation demonstrate that it now provides a narrower interpretation of public policy. The legal proceedings for enforcement of a foreign arbitral award are similar to court proceedings, which require exchange of submissions between the parties. The proceedings may take one to two years.

12 What are the likely costs of the arbitration?

Unless the parties agree otherwise, the fees of the arbitrators are determined by the arbitral tribunal and the parties, taking into consideration the amount of the claim, nature of the dispute and the termof the arbitral proceedings. The parties may also determine the fees byreference to the international established rules or institutional arbitration rules. Where there is no agreement, the fees are decided according to a fees tariff prepared each year by the Ministry of Justice, based on the value of the dispute. Correction, interpretation of the award or rendering of an additional award does not attract an arbitrators fee.

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The tribunal may require the claimant to deposit an advance for the costs of the proceedings. The tribunal suspends the proceedings in the case ofnon-payment and notifies the parties. If the advance payment is not made by either of the parties within 30 days, the arbitration terminates. The tribunal allocates, by means of an arbitral award, the full costs of the arbitration. Unless the parties agree otherwise, the losing party bears the costs of the arbitration (based on its failure ratio) and reimburses the winning party (based on its success ratio). If, for example, the party lost overall but won on one issue, it would not pay the proportion of costs relating to the issue it had won. In a consent award (where the parties settle their dispute before the hearing), the tribunal also allocates the costs of the arbitration. The tribunal awards legal fees on the basis of statutory fees established in accordance with the amount in dispute. A legal action to set aside an arbitral award rendered in Turkey under the IAL and for enforcement of a foreign arbitral award is subject to a court fee. One quarter of this is payable in advance.

13 Are split clauses valid and enforceable?

A hybrid clause making reference to both court jurisdiction and arbitration is deemed invalid under Turkish law as it is considered an improper and insufficient reference to arbitration. Any other type of hybrid clause is expected to be upheld and therefore valid and enforceable. Such clauses should therefore be avoided if the seat of arbitration is to be Turkey. n

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