DEVELOPMENT OF INTERNATIONAL ARBITRATION IN TURKEY

22.09.2015

 

Companies and individuals are in need of neutral international courts due to the fact that globalization increasingly causes international disputes in cross-border transactions. Agreements in international business transactions potentially can become the source of commercial and investment disputes. When the content of a conflict between the parties to business transactions exceeds the limits of national laws, special rules are needed to resolve it.

International arbitration is the method for resolving international disputes arising from international trade agreements. Arbitration can also be described as the recognition of arbitration-related judgments by countries with various legal systems in accordance with internationally recognized uniform rules. The international conventions considered to be among the milestones of the International arbitration are listed below:

 

1) The Geneva Protocol on Arbitration Clauses of 1923 was drawn up on the initiative of the International Chamber of Commerce (ICC) by the League of Nations in Geneva dated 24 September 1923.

2) The Geneva Convention for the Execution of Foreign Arbitral Awards of 1927 was signed by the League of Nations dated 26 September 1927.

3) The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 under the United Nations Treaties series.

4) The European Convention on International Commercial Arbitration of 1961 done at Geneva, April 21, 1961 adopted by the United Nations Economic Commission for Europe.

5) The Washington Convention of 1965 on the Settlement of the Investment Disputes between States and Nationals of other States dated 18 March 1965 [1]

6) UNCITRAL Arbitration Rules[2] of 1976 adopted by the United Nations Commission on International Trade.

7) The UNCITRAL Model Law of 1985 adopted by the United Nations Commission on International Trade in order to set the procedural rules that will be applied in the seat of arbitration.[3]

8) The ICC Rules of Arbitration of 1998 were adopted by the ICC International Arbitration Commission in order to settle the international disputes by means of arbitration.

9) Revision of the UNCITRAL Model Law by the United Nations in 2006.

 

Turkey has become a party to all the agreements stated above on different dates. Furthermore, numerous arbitration conventions have been signed between herself and various countries with respect to the recognition of the verdicts of the foreign arbitrators.

 

The most important benefit of international arbitration is the recognition and enforcement of arbitral awards. The recognition and enforcement of a foreign court verdict in Turkey is more difficult compared to the recognition and enforcement of an arbitral award. In order for the Turkish courts to recognize and enforce the verdicts of foreign courts, the reciprocity condition has to be met. However, the reciprocity condition disappears when a dispute is resolved in arbitration due to the fact that Turkey is a party to the New York Convention of 1958.[4]

There are three different types of arbitration agreements. In order for an arbitration agreement to be valid, the arbitration agreement has to be made in writing. However, especially according to the rules of the New York Convention, changing communication conditions are taken into consideration. Fax, electronic mail, data exchange, telegram and letter correspondences between the parties are also acceptable for the validity of arbitration agreements. The most commonly used arbitration agreement in a contract is the arbitration clause. The second type of agreement is the submission agreement which is made after the dispute has actually arisen.[5] Finally, the third one is an agreement to arbitrate which is deemed to arise under international instruments, such as a bilateral investment treaties entered into by one state with another.[6]

The arbitration clause must contain the applicable law of the arbitration, the number of arbitrators, the seat of arbitration, and the language to be used during the arbitration process. Every institution has its own standard forms of arbitration clause, set out in the institution’s book of rules. Some arbitration clause examples are shown below.

 

As Turkey began to assume more active role in the international arena, the quantity of foreign investment and capital entering the country also has increased proportionately. In order to keep abreast of global developments, it has become necessary to make Turkey’s legal system compatible with international legal norms. Turkey accelerated her efforts to modify her legal system in the 1990s and adapted the Foreign Direct Investment Law numbered 4875 in 2003. Herewith, consent procedures for the entry of foreign investment into Turkey have been transformed to a sole declaration procedure. The free entry of foreign capital has enabled the occurrence of important developments in the Turkish legislation.

Turkey recognized the supremacy of international arbitration in her national laws in 1991 by accepting the European Convention on International Commercial Arbitration of 1961 in Geneva, and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Decisions.

The European Convention regulates the establishment of the arbitral tribunal and the arbitration procedures while the New York convention opens the way solely to the recognition and enforcement of foreign arbitral awards in Turkey.  In this regard, in terms of regulating the consecutive stages of international arbitration, both conventions are like twins, and the two of them together complete the international arbitrations in many aspects.[7]

In order to harmonize Turkey’s internal law with international rules, the International Arbitration Law numbered 4686 was enacted in 2001 based on the rules of UNCITRAL (United Nations Commission on International Trade Law) to provide unity among the national legal systems of various countries especially in the fields of trade and investment.

The Code on International Private Law and Procedural Law (MÖHUK) numbered 5718 took effect in 2007. It regulates the law applicable to private law transactions and relations that contain a foreign element, the international jurisdiction of the Turkish courts, and the recognition and enforcement of foreign judgments. Furthermore, Turkey paved the way for implementing international rules to trade sales by approving the United Nations Convention on Contracts for the International Sale of Goods CISG convention of 1980 in 2011.

 

In 2003-2004 the Istanbul Chamber of Commerce (ITO) attempted to set up an Arbitration Center for Domestic and International Disputes. A commission of experts has drafted the Istanbul Rules for Domestic and International Arbitration in the light of UNCITRAL Arbitration Rules, taking into account the current arbitration rules of several arbitration institutions (i.e. ICC Arbitration Rules, Vienna Rules, Rules of German Institution of Arbitration, Swiss Rules of International Arbitration and others). The Union of the Chambers of Commerce and Chambers of Exchanges (TOBB) in Ankara has been in favor of the establishment of a nation-wide arbitration center. At present the “Law on the Istanbul Arbitration Center” (Istanbul Tahkim Merkezi Kanunu) has been published by the Ministry of Justice within the framework of the project for the “Istanbul International Financial Center” covering arbitration and other ADR methods.[8]

When taking the laws on arbitration and the international conventions, to which Turkey is a party, into consideration, it can be seen that Turkey is ready to become an arbitration center, playing a significant role in the Middle East and Asia. In conclusion, Turkish arbitral legislation is more than qualified to answer modern needs and requirements.

 

For the full text please contact info@ozgunlaw.com or mihran@ozgunlaw.com

 

[1] Prof. Birsel, Mahmut Tevfik, Türkiye’de Yabancı Hakem Kararlarının Tenfizinin Anayasal ve Küresel Boyutları, 2005, p.4: with (ICSID Agreement of Convention), an arbitration center included among the Organizations of World Bank  (International Centre for Settlement of International Disputes “ICSID”) has been established. This center manages the international arbitration carried out by applying the ICSID Arbitration Rules for the purpose of depolitization of the investment disputes to which the Governments are a party of.

[2]http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf

[3] http://webb.deu.edu.tr/hukuk/dergiler/DergiMiz7-ozel/PDF/birsel1.pdf

[4] Prof. AKINCI, Ziya, ““Yabancı Hakem Kararlarının Tanınması ve Tenfizine İlişkin New York Anlaşması ve Yeni Türk Devletler Özel Kanunu”, Yabancı Hakem Kararlarının Türkiye’de Tanınması ve Tenfizi, Bildiriler Tartışmalar, II. Tahkim Haftası, II. Arbitration Week, Ankara 1984, p.27

[5] Redfern and Hunter on International Arbitration, Fifth Edition, Oxford 2009, §1.39, p. 19

[6] Redfern and Hunter on International Arbitration, Fifth Edition, Oxford 2009, §1.40, p. 19

[7] Kalpsüz, İnşaat Sözleşmelerinde Tahkim, p.376

[8] Prof. ÖZSUNAY, Ergun, ÖZSUNAY, R. Murat, Arbitration in Turkey Analysis of the Turkish Legislation on Arbitration in the light of Uncitral Model Law