Guide to Internationl Arbitration in the Middle East: Turkey

This is the sixth in a series of Guides to International Arbitration in the Middle East.

In this guide, we will look at international arbitration in Turkey.

The information found in this guide is accurate as of January 31, 2022.

Is Turkey a signatory to the New York Convention?

Turkey is a party to the New York Convention.

As per Article 90 of the Constitution of the Republic of Turkey (the “Turkish Constitution”), international treaties which have duly entered into force have the force of law in Turkey.

There are two reservations to the general obligations of the Convention: (i) reciprocity and (ii) commercial reservation. Accordingly, the Convention is applicable to disputes arising from commercial relationships and to awards rendered in another contracting state.

In addition, the provisions of Turkish International Private and Procedural Law No. 5718 (the “IPPL”), which relate to the recognition and enforcement of the foreign arbitral awards and which are mostly parallel to the New York Convention, are applicable where the New York Convention is silent or is inapplicable.

What legislation applies to arbitration in Turkey?

In Turkey, arbitrations are regulated by two main legislations:

(i) the International Arbitration Law No. 4686 (the “IAL”) and

(ii) the Code of Civil Procedure No. 6100 (the “CCP”).

Both laws are mainly based on the UNCITRAL Model Law and the Swiss international arbitration law.

The IAL is applicable to disputes including a foreign element where the designated seat of arbitration is Turkey or when the parties or the arbitral tribunal choose IAL to be applied to the arbitration.

The CCP is applicable to the disputes which do not have a foreign element, as defined in the IAL, and where Turkey is the designated seat of arbitration.

What other arbitration-related treaties and conventions is Turkey a party to?

Turkey is a party to the European Convention on International Arbitration and to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).

In addition, Turkey has signed bilateral investment treaties (“BIT”) with 98 countries, 76 of them are currently in force.

Is the law governing international arbitration in Turkey based on the UNCITRAL Model Law? Are there significant differences between the two?

Both IAL and CCP are mainly based on the UNCITRAL Model Law. Where the provisions of IAL differ from the UNCITRAL Model Law, the provisions of the Swiss international arbitration law are mostly used as reference.

There are no significant differences between the two.

What arbitration institutes exist in Turkey?

The main arbitral institutions in Turkey are:

(i) Istanbul Arbitration Centre (“ISTAC”);

(ii) Istanbul Chamber of Commerce Arbitration and Mediation Centre (“ITOTAM”);

(iii) Turkish Union of Chambers and Commodity Exchanges Court of Arbitration (“TOBBArbitration”).

ISTAC was established in 2015 and its rules have not been amended since then.

Yet, it should be noted that ISTAC introduced the Mediation-Arbitration Rules (the “Med-Arb Rules”), an alternative dispute resolution procedure which has the characteristics of both mediation and arbitration, on November 15, 2019, and it also introduced the Online Hearing Rules and Procedures as of April 21, 2020.

The ITOTAM Rules of Arbitration have been recently amended, with the amended version going into force as of March 31, 2021.

The TOBB Arbitration rules have not been amended since 2016.

What are the validity requirements for an arbitration agreement under the laws of Turkey?

As per the provisions of the CCP and the IAL, an arbitration agreement shall be in writing. The relevant agreement can be embedded in a contract between the parties as a provision, or it can be a separate contract. An agreement is considered as made in writing if it is contained in a document signed (including by e-signature) by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the addressee’s confirmation of receipt. The reference in a contract to a document containing an arbitration clause also constitutes an arbitration agreement provided that the reference is such as to make that clause part of the contract.

Are arbitration clauses considered separable from the main contract?

Article 4 of the IAL and Article 412 of the CCP provide for the separability presumption by codifying that no objection can be made against the arbitration agreement by arguing that the underlying contract is invalid or that the arbitration agreement is related to a dispute which has not yet arisen.

Is there anything particular to note in Turkey with regard to multi-party or multi-contract arbitration?

There is nothing in particular to note vis-à-vis multi-party or multi-contract arbitration, except that they are common between domestic and foreign parties.

In what instances can third parties or non-signatories be bound by an arbitration agreement? Are there any recent court decisions on these issues?

There is no regulation under the Turkish law for the extension of an arbitration agreement to a third party.

In light of the principle of the privity of contracts, an arbitration agreement can only be binding between its signatories and accordingly, a third party cannot be bound by an arbitration agreement without its consent.

With that being said, there are certain exceptions to this principle such as where the explicit or implicit consent of the non-signatory exists, or there is an assignment of claim to a third party, or if a representative or agency that is acting on behalf of the non-signatory, or if there is a ground for lifting the corporate veil, etc.

In a recent decision by the 43^rd Chamber of the Istanbul Regional Court, dated April 22, 2021, with File no. 2020/291 and Decision no. 2021/528, the plaintiff in the arbitral process had assigned their receivable to a third party at the enforcement stage. The defendant debtor objected to the request for enforcement of the award by claiming, inter alia, that the third-party seeking enforcement was not a signatory to the arbitration agreement and that therefore the arbitral award could not have been extended to such third-party. Yet, the first instance court dismissed the defendant’s objections by stating that there was no need for the approval of the debtor for the assignment of receivable and since the receivable of the plaintiff had been duly assigned to the non-signatory third-party, there was no obstacle for the non-signatory third-party to seek enforcement of the arbitral award, even though it was not a party to the arbitration agreement.

Are any types of disputes considered non-arbitrable? Has there been any evolution in this regard in recent years?

Under Turkish law, only the matters which are at the parties’ free disposal can be arbitrated. The IAL and CCP govern that the disputes related to in rem rights in immovable properties and the disputes which are not subject to the free will of the parties cannot be arbitrated. In general, disputes related to bankruptcy law, criminal law, administrative law, family law and tax law are not arbitrable.

Are there any restrictions in the appointment of arbitrators in Turkey?

In general, the parties are free to determine the procedure for appointment of the arbitrators. However, both the CCP and IAL stipulate that the number of arbitrators must be an odd number.

In the event the parties cannot agree on the procedure, then the appointment shall be made as per the procedure set forth in the CCP or the IAL.

Both the CCP and the IAL set forth that, if the parties do not agree on the number of arbitrators, the tribunal shall consist of three (3) arbitrators.
Both laws stipulate that only real persons can be appointed as arbitrators.
As per the CCP, in the event the arbitral tribunal consists of more than one (1) arbitrator, then at least one of the arbitrators shall be a law graduate with at least five (5) years of experience in their field.
As per the IAL, parties are to follow the following principles: (i) in the event of the appointment of the sole arbitrator (or the third arbitrator), the arbitrator should be of a nationality other than those of the parties, and (ii) in the event of the appointment of a panel of three (3) arbitrators, it should be ensured that that two of the arbitrators not have the same nationality as any of the parties.

The parties to the dispute, judges or public prosecutors cannot be appointed as arbitrators.

Can the local courts intervene in the selection of arbitrators? If so, how?

The local courts can intervene in the selection of arbitrators, provided that:

One of the parties does not comply with the agreement;
The parties or the appointed arbitrators cannot agree on the third arbitrator;
The third party or institution, that has been authorized to choose the arbitrator or the tribunal, does not render a decision.

In any such case, the civil court of first instance appoints the relevant arbitrator(s), upon the request of one of the parties.

Can the appointment of an arbitrator be challenged? What are the grounds for such challenge? What is the procedure for such challenge?

The appointment of an arbitrator can be challenged, in the event any of the following apply:

If the arbitrator lacks the qualifications set by the parties; or
If a ground for challenging the arbitrator is present according to the procedure determined by the parties; or
If the circumstances or matters come up to justify doubt over the arbitrator’s impartiality and juridical independency.

Challenging an arbitrator by the party that has selected or has participated in the selection of that arbitrator may only be requested based on grounds that have arisen or became known to the party after the appointment of that arbitrator.

Both the CCP and the IAL stipulate that the parties can freely determine the procedure for challenging the arbitrators.

As per Article 418 of the CCP, the party who is challenging the arbitrator must file its request within two (2) weeks (as per Article 7 of the IAL, this period is thirty (30) days) from the date on which the arbitrator or the arbitral tribunal is selected, or the party has learned of a circumstance constituting grounds for challenging the arbitrator. The other party must also be notified in written form. If the arbitrator that is challenged fails to withdraw or if the other party does not accept the challenge, the arbitral tribunal shall decide on the matter.

The party who is challenging one or more of the arbitrators from the arbitral tribunal must state its reasons to the arbitral tribunal. The party that has learned that its challenge was rejected may apply to the court within one month (again, this period is thirty (30) days as per Article 7 of the IAL) from the date of the decision, and request a decision by the court regarding the challenge of the arbitrator or the arbitrators.

In the event that the challenging of the arbitrators results in the complete elimination or loss of quorum of the selected arbitrators or the arbitral tribunal, then such challenge shall be requested from the court. Decisions to be rendered by the court will be final and binding and cannot be appealed.

If the challenge of the arbitrators resulting in complete elimination or loss of quorum of the selected arbitrator or the arbitral tribunal is accepted by the court, the arbitration shall be terminated. However, if the names of the arbitrator or the arbitrators were not determined in the arbitration agreement, selection of new arbitrators will be carried out.

Are arbitrators immune from liability in Turkey?

As per Article 419 of the CCP and Article 7/E of the IAL, unless otherwise agreed by the parties, if the arbitrator that has accepted the duty refrains from carrying out their obligations without justifiable reason, they shall be obliged to compensate the damages incurred by the parties due to such act.

Are there particular rules governing evidentiary matters in arbitration? Will the local courts in Turkey play any role in the obtaining of evidence? Can the local courts compel witnesses to participate in arbitration proceedings?

The provisions of the CCP relating to evidence are not directly applicable to the arbitration proceedings initiated as per the CCP.

Within this scope, generally, the parties may freely determine the applicable rules and procedure regarding the obtainment of evidence. In general, written, and oral proceedings are conducted in line with the international arbitration practices and, in this respect, the parties usually incorporate the International Bar Association Rules on the Taking of Evidence in International Arbitration (the “IBA Rules on Evidence”).

If necessary, the parties or the arbitral tribunal may seek assistance from local courts in obtaining evidence where necessary. Other than this, the local courts do not have the authority to ex officio obtain evidence.

The local courts cannot compel the witnesses to participate in arbitration proceedings.

How are the costs of arbitration proceedings estimated and allocated?

As per Article 442 of the CCP,

“(4) Unless otherwise agreed by the parties, costs in arbitration proceedings shall be imposed on the party that is determined to be wrongful. If both parties partially prevail in the case, costs shall be allocated between the parties according to their rightfulness.

(5) Costs in arbitration proceedings shall also be designated in the decisions of the arbitrator or the arbitral tribunal terminating the proceedings or establishing the settlement between the parties.”

As per Article 16 of the IAL,

“D) Unless otherwise agreed by the parties, the costs of proceedings shall be borne by the unsuccessful party. If both parties’ claims are partially upheld in the arbitral award, the costs of arbitration shall be apportioned among the parties by taking into account the degree of justification of their claims.

The award of the arbitral tribunal that terminates the arbitral proceedings or that settles the case shall also contain the costs of arbitration.”

What legal requirements are there in Turkey for the recognition and enforcement of an award? Is there a requirement that the award be reasoned, i.e. substantiated and motivated?

If the arbitral award is rendered by a tribunal seated in Turkey (i.e., the award is a domestic award) then the award will be directly enforceable without any further need for enforcement proceedings. If the award is a foreign award, then it can be enforceable after the enforcement decision of a competent Turkish court.

The New York Convention and the provisions of the IPPL regulate the procedure for recognition and enforcement of foreign arbitral awards.

The enforcement of foreign arbitral awards must be requested from the competent court of first instance by a petition, where the party requesting the enforcement must attach:

The original or duly certified copy of the arbitration agreement or the arbitration clause;
The original or duly certified copy of the arbitral award; and
Translated and certified copies of the above documents.

In an enforcement action, the Turkish court will assess whether there are any grounds for rejecting the plaintiff’s application for enforcement. The grounds for refusing the enforcement of a foreign arbitral award are listed exhaustively under Article 62 of IPPL and are as follows:

There is no agreement between the parties to submit their disputes to arbitration.
The arbitral award is contrary to morality or public order.
The subject matter of the dispute is not capable of being settled by arbitration under Turkish law [1].
The parties have not been duly represented before the arbitral tribunal and have not provided subsequent consent to the procedures.
The party against whom the award is invoked was not given proper notice of the appointment of the arbitrators or of the arbitration proceedings or was otherwise unable to present their case.
The arbitration agreement/clause is invalid under the law to which the parties have subjected it or, failing any such indication, under the law of the country where the award was rendered.
The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the award was rendered.
The award deals with a difference not contemplated by or not falling within the terms of submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration (in this case, only the part of the award which does not fall within the terms of submission or goes beyond its scope may be denied enforcement).
The award has not yet become final and binding on the parties under the law to which the parties have subjected the arbitration or under the law of the country where the award was rendered or under the procedural rules to which it was subjected, or has been set aside by a competent authority of the country in which the award was made.

Article 14/A-2 of the IAL provides that the award shall contain legal grounds and reasoning. Yet there is no such provision under the IPPL. There have been conflicting decisions of different Chambers of the Court of Appeal in this regard. Within this scope, the General Assembly of the Court of Appeal on the Unification of Judgments rendered a decision dated February 10, 2012, with File no. 2010/1 and Decision no. 2012/1, where it was decided that even if a foreign court decision does not contain reasoning, it can be enforced in Turkey. Although this decision is related to foreign court decisions, it is also used for the enforcement of foreign arbitral awards by analogy.

What is the estimated timeframe for the recognition and enforcement of an award? May a party bring a motion for the recognition and enforcement of an award on an ex parte basis?

Recognition and enforcement of an award may be requested from a competent court of first instance where the courts, in general, render their decisions within six (6) to eighteen (18) months. The decision of the first instance court will be subject to an appeal before the Regional Court of Appeal and then the Higher Court of Appeal, where each appellate review approximately take another six (6) to eighteen (18) months.

A party is not allowed to bring a motion for the recognition and enforcement of an award on an ex parte basis.

Can arbitration awards be appealed or challenged in local courts? What are the grounds and procedure?

There is no appeal procedure for a foreign award or a domestic award.

The domestic awards will only be subject to set aside proceedings. The grounds for setting aside are governed by the IAL and the CCP, which are mostly parallel to the grounds for refusing the recognition or enforcement of foreign awards provided for by the New York Convention.

Conclusion

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[1] Article 408 of Civil Procedure Law provides, albeit in terms of domestic arbitrations, that disputes arising out of rights stemming from immoveable properties and disputes the resolution of which does not depend on the free will of the parties cannot be settled by arbitration