Commercial arbitration, as an alternative dispute resolution method, is a means of settling commercial disputes by referring them to a neutral person, an arbitration tribunal which might consist of a single arbitrator or several arbitrators. The parties agree in advance that the decision or award will be accepted as final and binding.
In Turkey, the modern legal framework for commercial arbitration was laid down when the Law on International Arbitration number 4686 (the “Turkish Law on International Arbitration”) was enacted in 2001. The Turkish Law on International Arbitration is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, also known as the UNCITRAL Model Law. Moreover, Turkey is a contracting party to the 1958 New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), the European Convention on International Commercial Arbitration and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”). Another Turkish law which governs commercial arbitration in Turkey is the Civil Procedure Law number 6100 (the “Turkish Civil Procedure Law”) that is also based on the UNCITRAL Model Law. Several other Turkish laws which contain provisions pertaining to arbitration exist.
Benefits of Commercial Arbitration:
Arbitration can offer several advantages as an alternative to litigation:
- Flexibility – The form and type of arbitration can be tailored to suit the parties.
- Speed – The process can be started and resolved quickly, without waiting for court dates. Discoveries and preliminary processes are kept to a minimum.
- Efficiency – Although the parties must pay the costs of the arbitration, it is often more efficient than litigation in the courts.
- Confidentiality – With few exceptions, proceedings take place in private and awards are not published without the consent of the parties.
- Voluntary – Arbitration takes place only by the parties’ mutual consent. This consent may be given when the parties enter a contract, or later when the dispute arises.
- Final – The arbitrator’s decision is final and binding, and court appeals are rare.
Types of Arbitration:
An institutional arbitration is one where a specialized institution is appointed and takes on the role of administering the arbitration process and case management. In institutional arbitration, the arbitrators follow the arbitration rules and procedures of that particular arbitration institution when carrying out the arbitration process. Each institution has its own set of rules which provides a framework (such as timelines
for the filing of documents or procedures for making applications etc.) for the arbitration and its own form of administration to assist in the process.
Common international arbitration institutions include the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the American Arbitration Association, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) and the International Centre for Settlement of Investment Disputes (ICSID).
The most prominent Turkish arbitration institutions are the Istanbul Arbitration Centre (İSTAC), the Istanbul Chamber of Commerce Arbitration and Mediation Center (İTOTAM) and the arbitration institution of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).
Ad Hoc Arbitration:
In the case of ad hoc (or non-institutional) arbitration, the rules and procedures that are to be followed in an arbitration process are not determined by an arbitration institution, but by the parties themselves. Ad hoc arbitration means that the arbitration should not be conducted according to the rules of an arbitral institution. Since, parties do not have an obligation to submit their arbitration to the rules of an arbitral institution; they are free to state their own rules of procedure.
In a Turkish context, domestic (or national) arbitration is an arbitration process where all the parties to an arbitration process are Turkish nationals and the place/seat of arbitration is in Turkey, i.e. arbitration processes which do not contain a so-called “foreign element” are deemed as domestic arbitration processes. In Turkey, domestic arbitration is usually carried out in accordance with the Turkish Civil Procedure Law.
Pursuant to Article 407 of the Turkish Civil Procedure Law, the provisions of the arbitration section (Articles 407 – 444) of the Turkish Civil Procedure Law are applicable to legal disputes which do not contain a “foreign element” as defined in the Turkish Law on International Arbitration and where the specified seat of arbitration is located in Turkey.
Again in a Turkish context, international arbitration is an arbitration process which contains a “foreign element”, as defined by Turkish law and where the seat of arbitration is located in Turkey. In Turkey, international arbitration is governed by the Turkish Law on International Arbitration
According to Article 1 of the Turkish Law on International Arbitration, “[t]his Law shall be applicable where a dispute has a foreign element and the place of arbitration is determined to be in Turkey or where this Law is chosen as the governing law [of arbitration] by arbitrating parties or their sole arbitrator or arbitral tribunal.”
Article 2 of the Turkish Law on International Arbitration defines the term “foreign element” as follows:
“The existence of any of the following circumstances demonstrates that the dispute has a foreign element and, under such circumstances, arbitration is considered as international:
- where the parties to the arbitration agreement have their domiciles or habitual residences or places of business in different States;
- where one of the following is situated outside the State in which the parties have their domiciles or habitual residences or places of business;
- the place of arbitration, which is determined in, or pursuant to, the arbitration agreement; [or]
- a place where a substantial part of the obligations arising from the underlying contract is performed or a place where the dispute has the closest connection;
- where a shareholder of the company which is a party to the underlying contract that constitutes the basis for the arbitration agreement has brought foreign capital [into Turkey] in accordance with the laws concerning the encouragement of foreign capital or where a loan and/or guarantee agreement needs to be signed for the execution of the underlying contract;
- where, in accordance with the underlying contract or with the underlying legal relationship, the movement of capital or of goods shall be made from one country to another.”
Legal Disputes Which Cannot Be Arbitrated:
Pursuant to Article 408 of the Turkish Civil Procedure Law, disputes which arise from real rights (rights in rem) pertaining to immovables (immovable property, i.e. real estate) or which arise from matters/affairs/businesses that are not at the parties’ disposal cannot be subject to arbitration.
Article 1 of the Turkish Law on International Arbitration defines the same subject in a very similar manner and states that the Turkish Law on International Arbitration “shall not be applicable to disputes related to real rights concerning immovables and to disputes that are not within the parties’ disposal.”
An arbitration agreement is a written contract in which two or more parties agree to settle a dispute outside of court and by means of arbitration. The arbitration agreement is ordinarily a clause in a larger contract, in which case, it is referred to as an arbitration clause.
An arbitration agreement or clause must be in written form. Both the Turkish Civil Procedure Law in (Article 412) and the Turkish Law on International Arbitration (in Article 4) specify that an arbitration agreement or clause must always be in writing. A written arbitration agreement or clause is a legal requirement for the validity of such arbitration clause/agreement.
Recognition Enforcement of Foreign Arbitral Awards in Turkey:
In Turkey, the recognition and enforcement of foreign arbitral awards is subject to the relevant provisions of the Act on International Private Law and Procedure Law number 5718 (the “MÖHUK”) (Article 1 and Articles 60 – 63) and to the New York Convention. Moreover, Turkey has also signed various bilateral and multilateral agreements pertaining to the recognition and enforcement of foreign arbitral awards.
As a rule of thumb, in Turkish legal practice, the recognition and enforcement of a foreign arbitral award shall be carried out in accordance with the New York Convention if the country where the relevant arbitral award originates from has ratified the New York Convention. However, if the country where the relevant arbitral award originates from has not ratified the New York Convention, the recognition and enforcement of a foreign arbitral award in Turkey should be carried out in accordance with the MÖHUK.
In both cases, the recognition and enforcement of a foreign arbitral award in Turkey requires a ruling by the Turkish court with jurisdiction in the relevant matter.
 Legal proceedings which require a ruling by a state court, such as criminal proceedings or divorce proceedings or bankruptcy proceedings can be named as examples of matters that are not subject to the parties’ disposal.