TURKEY

1. ARBITRATION

A new arbitration institution, the Istanbul Arbitration Centre (ISTAC), has been recently established in Istanbul with the aim of developing Turkey as a hub for international arbitration attracting business from Eastern Europe, Central Asia, the Middle East and North Africa. ISTAC has its own Arbitration and Mediation Rules as well as Fast Track Arbitration Rules and Emergency Arbitration Rules. In addition to ISTAC, the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Istanbul Chamber of Commerce (ITO) also provide institutionalized arbitration services under their own arbitration rules and with respect to both domestic and international disputes. Very recently, the Turkish Capital Markets Board has announced the establishment of an arbitration panel by the Capital Markets Association to solve customer disputes arising out of over-the-counter transactions.

Commercial arbitration is widely used to resolve international disputes which require a highly technical expertise or which are of a complicated nature such as in the energy, construction, or maritime sectors.

The International Arbitration Code No: 4686 (International Arbitration Code)1 entered into force in 2001, and applies mandatorily to arbitration proceedings with a seat in Turkey and involving a foreign element (e.g. the place of residence or  the place of performance is abroad). It is based upon the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law (UNCITRAL Model Law) as well as the international arbitration section of the Swiss Federal Private International Law of 1987. The International Arbitration Code may also apply in cases where arbitrators decide to apply the International Arbitration Code in international proceedings with a seat outside of Turkey.

Generally, an arbitration agreement may be concluded between parties for both existing and future civil claims that may arise out of or in connection with a defined legal relationship. Exceptions include the following:

-Ownership or property rights on immovables located in Turkey;

-Matters which cannot be settled as per the intentions of the parties such as criminal law matters, insolvency law matters, labour law matters, competition law matters.

The arbitration agreement may be in the form of an arbitration clause in an agreement or in the form of a separate agreement. If the main agreement makes reference to a different document signed for the same legal relationship and including an arbitration agreement, the reference will be acknowledged as a valid arbitration agreement by incorporation. It is important to note that according to the jurisprudence of the Turkish Court of Appeal, arbitration clauses which grant only one party the right to file for arbitration proceedings are void since they are contrary to the principle of equality and public order. Similarly, arbitration clauses which state that disputes which cannot be resolved through litigation may be submitted to courts are void because the intention of the parties to resolve their disputes through arbitration is not definite.

The arbitration agreement must be made in writing. It must either be signed by the parties or included in an ex-change of letters, telegrams or any other means of telecommunication that provides a record of the agreement. Alternatively, the ‘written agreement’ requirement is also satisfied when a party refers to an arbitration agreement in court (i.e., challenges the court’s jurisdiction due to an arbitration agreement) and the counterparty does not object.

The parties may determine the specifics of the arbitral procedure; this is usually done by referring to the rules of a specific arbitral institution, such as the International Chamber of Commerce (ICC), the Vienna International Arbitral Centre of the Federal Economic Chamber (VIAC), ITO, or ISTAC. ICC is the arbitral institution most commonly preferred by Turkish parties.

Unless the parties agree on the rules governing the proceedings, refer to a set of international or institutional provisions or to a specific code, the default provisions of the International Arbitration Code regulating the most important procedural aspects will apply. For instance, in case of failure by the parties to determine the number of the arbitrators, the number will be three. Another example is that if the claimant fails to submit the statement of claim in time or does not correct any deficiencies within the period determined by the arbitrator(s), the arbitration proceedings will be terminated. If, however, the defendant fails to submit the statement of defence, this is not considered an admission of the claimant’s allegations and the arbitrator(s) will continue with the proceedings. In any case, it is imperative to comply with the mandatory provisions of the International Arbitration Code. Special attention must be paid to Article 10/B which states that the tribunal must decide within one year, in the case of a sole arbitrator from the appointment of the sole arbitrator, in the case of a panel of arbitrators from the first meeting of the arbitrators. This one year period is subject to extension upon agreement by the parties; in case such agreement fails, upon grant of approval by the court.

Furthermore, under the International Arbitration Code, the arbitral tribunal has the discretion to determine whether the proceedings will be based solely upon written submissions or to hold oral hearings. Unless the parties agreed otherwise, the tribunal will hold oral hearings upon request of a party at an appropriate stage of the proceedings.

Upon request by a party courts may grant a preliminary injunction order prior to or during the arbitration proceedings. Such a request does not jeopardize the authority of the arbitral tribunal. If the injunction order is granted prior to the start of the arbitration proceedings, the party in whose favour the order is provided has 30 days to file the claim and start the arbitration proceedings.

Pursuant to the International Arbitration Code, arbitrators also have authority to grant preliminary injunction orders. However, such authority may be removed by agreement of the parties. The authority of arbitrators to grant preliminary injunction orders is very limited. Orders that can solely be enforced by state authorities (e.g. seizure of a property) cannot be granted. Arbitrators are prohibited from issuing orders binding upon official authorities or third parties, who do not have the possibility to object to the decision of the tribunal. The arbitrators have the authority to ask from the party requesting a preliminary injunction order the deposit of a security to guarantee possible damages to the counterparty.

If the party against whom a preliminary injunction is ordered does not comply with the order of the tribunal, the other party may request execution from the court. If the court is of the opinion that the conditions for granting a preliminary order are not fulfilled, the request may be rejected. The preliminary injunction order ceases to be effective upon the final arbitral award becoming enforceable or the rejection of the claimant’s requests by the arbitrator(s).

The International Arbitration Code does not provide for the confidentiality of the proceedings. If the parties wish to keep the proceedings confidential, they are free to include a confidentiality clause in their arbitration agreement.

According to the International Arbitration Code the arbitrator(s) must decide as per the law chosen by the parties as applicable to their relationship, including the commercial practices and business customs pertaining to such law. Unless otherwise agreed by the parties, provisions regarding conflict of law as well as the procedural law provisions of the law chosen by the parties are not applicable. In the absence of choice of law provisions, arbitrator(s) shall apply the law which is most relevant to the conflict.

An arbitral award rendered pursuant to the International Arbitration Code can be challenged before national courts within thirty days after the notification of the award or a decision on correction, interpretation or completion to the party requesting its cancellation. The cancellation lawsuit is subject to expedited proceedings. The cancellation grounds include the following:

-Lack of legal capacity of one of the parties;

-Invalidity of the arbitration agreement;

-Procedural errors in the appointment of the arbitrators;

-Failure to grant the award within the mandatory period;

-Wrong decision on the competence of the arbitral tribunal;

-The arbitral award was granted on a matter outside of the competence of the arbitral tribunal, excess of competence or leaving some claims undecided;

-Procedural errors in the conduct of the proceedings;

-Unequal treatment of the parties;

-The subject matter of the proceedings cannot be resolved by arbitration under Turkish law; or

-The award is against public order.

The parties may partially or totally waive their right to file a cancellation lawsuit.

According to the International Arbitration Code, international arbitral awards rendered in Turkey may be enforced directly, i.e. without being subject to further proceedings, in Turkey.

2. ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applicable as of 2 July 1992.  However, Turkey’s participation in the New York Convention is subject to the following reservations:

-Turkey only applies the New York Convention with respect to the recognition and enforcement of an award rendered in a signatory state in accordance with the reciprocity principle;

-The New York Convention applies only to disputes arising from contractual or non-contractual legal relationships which are deemed commercial under Turkish law.

Articles 60-63 of the Law No: 5718 on International Private Law and Procedural Law2 apply to the enforcement of arbitral awards rendered in jurisdictions which have not acceded to the New York Convention. Turkey is also party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

PRACTICE TIPS

PROCEDURE AND ASSUMPTIONS

TYPE OF PROCEEDINGS

The law does not provide for document production procedure. However if procedural order of the arbitrator(s) or parties’ agreement provide for document production this would apply.

Approximate Costs

PROCEDURAL COSTS

Simple case

Complex case

ATTORNEYS’ FEES (NET)

Simple case

Complex case

-The costs of arbitration to a large extent depend on the arbitration agreement and the amount in dispute, the amount of documents, number of witnesses and whether expert opinions are required. The costs of arbitration also include the fees of arbitrators and administrative charges.

-The arbitrators usually have large discretion regarding the award of costs. However, in practice the award on costs often depends on the outcome of the case.

The procedural costs depend on whether a sole arbitrator or an arbitral tribunal of three members is appointed, the complexity of the case and the administrative charges.

The following two estimates are based on the procedural costs of the Rules of Arbitration of Istanbul Arbitration Centre (ISTAC).

Assumption: an amount in dispute of TL 4,970,000 (approx. EUR 1,000,000 based upon an exchange rate of 1 EUR = TL 4.97). Total costs: registration fee of TL 300 (approx. EUR 60), administrative fees of TL 31,350 (approx. EUR 6,308) and fees for a sole arbitrator of TL 162,100 (approx. EUR 32,616) for a panel of three arbitrators TL 261,500 (approx. EUR 52,615).

Assumption: an amount in dispute of TL 49,700,000 (approx. EUR 10,000,000). Total costs: registration fee of TL 300 (approx. EUR 60), administrative fees of TL 86,200 (approx. EUR 17,344) and fees for a sole arbitrator of TL 411,500 (approx. EUR 82,796), for a panel of three arbitrators TL 760,000 (approx. EUR 152,916).

Assumptions based on an amount in dispute of EUR 1,000,000: review of 100 pages of documents; no challenge to the jurisdiction of the arbitral tribunal; two exchanges of submissions; review of correspondence with arbitral tribunal; assistance with the preparation of 4 witnesses; review of 4 written witness statements; no experts; preparation of oral hearing and participation in an oral hearing; preparation and review of one post hearing brief. Total approximate fees: EUR 50,000.

Assumptions based on an amount in dispute of EUR 10,000,000: review of 1000 pages of documents; no challenge to the jurisdiction of the arbitral tribunal; two exchanges of submissions; review of correspondence with arbitral tribunal; assistance with the preparation of 8 witnesses; review of 8 written witness statements; document production up to 500 pages; preparation and review of expert opinions; preparation of oral hearing and participation in an oral hearing; preparation and review of one post hearing brief. Total approximate fees: EUR 150,000.

Depending on the complexity of the case the usual duration of arbitration proceedings is between 8 months and 2 years.

Approximate Duration

Arbitration Proceedings

Document Production

9 months to 1,5 years until a decision on recognition and enforcement is rendered in first instance. 1 to 2 months before the Regional Court of Appeal and 1 year before the Turkish Court of Appeal if the decision is appealed. The duration of execution proceedings depends mainly on whether the debtor has executable assets.

Although the court registration allows filing for the enforcement of an arbitral award with the deposit of a fixed amount which is negligible, there are decisions of the Court of Appeal ruling that the enforcement of arbitral awards is subject to a fee to be charged on a percentage basis.

Accordingly court fees are calculated on the basis of 68.31/1000th of the awarded amount. 1/4 of the fees so calculated is payable upon the application to the court for enforcement of the arbitral award.

Application for recognition/enforcement:

Simple Case: EUR 1,000 to EUR 3,000.

Complex Case: EUR 3,000 to EUR 10,000.

Enforcement of Foreign Arbitral Awards

Approximate Duration

Approximate Costs

COURT FEES

ATTORNEYS’ FEES (NET)

-For enforcement of awards under the New York Convention, the creditor must provide the court with the authenticated original award or a duly certified copy thereof and the original of the arbitration agreement or a duly certified copy thereof.

-Stamp tax in the amount of 0.98% of the awarded amount arises on arbitral awards (subject to the maximum cap of TL 2,135,949.30 (approx. EUR 429,768) arises on arbitral awards.

The information in this chapter was correct as of 1 January 2018. If you have any questions about the content of this chapter,

or would like further information about arbitration in Turkey, please contact

CONTACT

CEYDA AKBAL SCHWIMANN

Counsel

Wolf Theiss, Austria

+43 1 51510 5752

ceyda.akbalschwimann@wolftheiss.com