A new arbitration institution, the Istanbul Arbitration Centre (ISTAC), has been recently established inIstanbul with the aim of developing Turkey as a hub for international arbitration attracting business fromEastern Europe, Central Asia, the Middle East and North Africa. ISTAC has its own Arbitration andMediation Rules as well as Fast Track Arbitration Rules and Emergency Arbitration Rules. In addition toISTAC, the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Istanbul Chamberof Commerce (ITO) also provide institutionalized arbitration services under their own arbitration rules andwith respect to both domestic and international disputes. Very recently, the Turkish Capital Markets Boardhas announced the establishment of an arbitration panel by the Capital Markets Association to solvecustomer disputes arising out of over-the-counter transactions.
Commercial arbitration is widely used to resolve international disputes which require a highly technicalexpertise 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, andapplies mandatorily to arbitration proceedings with a seat in Turkey and involving a foreign element (e.g. theplace of residence or the place of performance is abroad). It is based upon the Model Law on InternationalCommercial Arbitration of the United Nations Commission on International Trade Law (UNCITRAL ModelLaw) 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 InternationalArbitration 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 claimsthat 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 aseparate agreement. If the main agreement makes reference to a different document signed for the samelegal relationship and including an arbitration agreement, the reference will be acknowledged as a validarbitration agreement by incorporation. It is important to note that according to the jurisprudence of theTurkish Court of Appeal, arbitration clauses which grant only one party the right to file for arbitrationproceedings are void since they are contrary to the principle of equality and public order. Similarly, arbitrationclauses which state that disputes which cannot be resolved through litigation may be submitted to courts arevoid 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 inan ex-change of letters, telegrams or any other means of telecommunication that provides a record of theagreement. Alternatively, the ‘written agreement’ requirement is also satisfied when a party refers to anarbitration agreement in court (i.e., challenges the court’s jurisdiction due to an arbitration agreement) andthe counterparty does not object.
The parties may determine the specifics of the arbitral procedure; this is usually done by referring to therules of a specific arbitral institution, such as the International Chamber of Commerce (ICC), the ViennaInternational Arbitral Centre of the Federal Economic Chamber (VIAC), ITO, or ISTAC. ICC is the arbitralinstitution most commonly preferred by Turkish parties.
Unless the parties agree on the rules governing the proceedings, refer to a set of international orinstitutional provisions or to a specific code, the default provisions of the International Arbitration Coderegulating the most important procedural aspects will apply. For instance, in case of failure by the partiesto determine the number of the arbitrators, the number will be three. Another example is that if theclaimant fails to submit the statement of claim in time or does not correct any deficiencies within the perioddetermined by the arbitrator(s), the arbitration proceedings will be terminated. If, however, the defendantfails to submit the statement of defence, this is not considered an admission of the claimant’s allegationsand the arbitrator(s) will continue with the proceedings. In any case, it is imperative to comply with themandatory provisions of the International Arbitration Code. Special attention must be paid to Article 10/Bwhich states that the tribunal must decide within one year, in the case of a sole arbitrator from theappointment of the sole arbitrator, in the case of a panel of arbitrators from the first meeting of thearbitrators. This one year period is subject to extension upon agreement by the parties; in case suchagreement fails, upon grant of approval by the court.
Furthermore, under the International Arbitration Code, the arbitral tribunal has the discretion to determinewhether the proceedings will be based solely upon written submissions or to hold oral hearings. Unless theparties agreed otherwise, the tribunal will hold oral hearings upon request of a party at an appropriatestage of the proceedings.
Upon request by a party courts may grant a preliminary injunction order prior to or during the arbitrationproceedings. Such a request does not jeopardize the authority of the arbitral tribunal. If the injunction orderis granted prior to the start of the arbitration proceedings, the party in whose favour the order is providedhas 30 days to file the claim and start the arbitration proceedings.
Pursuant to the International Arbitration Code, arbitrators also have authority to grant preliminary injunctionorders. However, such authority may be removed by agreement of the parties. The authority of arbitratorsto 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 uponofficial 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 thedeposit 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 forgranting a preliminary order are not fulfilled, the request may be rejected. The preliminary injunction orderceases to be effective upon the final arbitral award becoming enforceable or the rejection of the claimant’srequests by the arbitrator(s).
The International Arbitration Code does not provide for the confidentiality of the proceedings. If the partieswish to keep the proceedings confidential, they are free to include a confidentiality clause in theirarbitration agreement.
According to the International Arbitration Code the arbitrator(s) must decide as per the law chosen by theparties as applicable to their relationship, including the commercial practices and business customspertaining to such law. Unless otherwise agreed by the parties, provisions regarding conflict of law as wellas the procedural law provisions of the law chosen by the parties are not applicable. In the absence ofchoice 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 beforenational 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 toexpedited 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 beenforced directly, i.e. without being subject to further proceedings, in Turkey.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applicable asof 2 July 1992. However, Turkey’s participation in the New York Convention is subject to the followingreservations:
-Turkey only applies the New York Convention with respect to the recognition and enforcement ofan 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-contractuallegal 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 theenforcement of arbitral awards rendered in jurisdictions which have not acceded to the New YorkConvention. Turkey is also party to the 1965 Convention on the Settlement of Investment Disputes betweenStates and Nationals of Other States.
The law does not provide for document production procedure. However if procedural order ofthe arbitrator(s) or parties’ agreement provide for document production this would apply.
ATTORNEYS’ FEES (NET)
-The costs of arbitration to a large extentdepend on the arbitration agreementand the amount in dispute, the amountof documents, number of witnesses andwhether expert opinions are required.The costs of arbitration also include thefees of arbitrators and administrativecharges.
-The arbitrators usually have largediscretion regarding the award of costs.However, in practice the award on costsoften depends on the outcome of thecase.
The procedural costs depend on whether asole arbitrator or an arbitral tribunal of threemembers is appointed, the complexity of thecase and the administrative charges.
The following two estimates are based onthe procedural costs of the Rules ofArbitration of Istanbul Arbitration Centre(ISTAC).
Assumption: an amount in dispute of TL4,970,000 (approx. EUR 1,000,000 basedupon an exchange rate of 1 EUR = TL 4.97).Total costs: registration fee of TL 300(approx. EUR 60), administrative fees of TL31,350 (approx. EUR 6,308) and fees for asole arbitrator of TL 162,100 (approx. EUR32,616) for a panel of three arbitrators TL261,500 (approx. EUR 52,615).
Assumption: an amount in dispute of TL49,700,000 (approx. EUR 10,000,000).Total costs: registration fee of TL 300(approx. EUR 60), administrative fees of TL86,200 (approx. EUR 17,344) and fees for asole arbitrator of TL 411,500 (approx. EUR82,796), for a panel of three arbitrators TL760,000 (approx. EUR 152,916).
Assumptions based on an amount indispute of EUR 1,000,000: review of 100pages of documents; no challenge to thejurisdiction of the arbitral tribunal; twoexchanges of submissions; review ofcorrespondence with arbitral tribunal;assistance with the preparation of 4witnesses; review of 4 written witnessstatements; no experts; preparation of oralhearing and participation in an oral hearing;preparation and review of one post hearingbrief. Total approximate fees: EUR 50,000.
Assumptions based on an amount indispute of EUR 10,000,000: review of 1000pages of documents; no challenge to thejurisdiction of the arbitral tribunal; twoexchanges of submissions; review ofcorrespondence with arbitral tribunal;assistance with the preparation of 8witnesses; review of 8 written witnessstatements; document production up to 500pages; preparation and review of expertopinions; preparation of oral hearing andparticipation in an oral hearing; preparationand review of one post hearing brief. Totalapproximate fees: EUR 150,000.
Depending on the complexity of the case the usual duration of arbitration proceedings isbetween 8 months and 2 years.
9 months to 1,5 years until a decision onrecognition and enforcement is rendered infirst instance. 1 to 2 months before theRegional Court of Appeal and 1 year beforethe Turkish Court of Appeal if the decision isappealed. The duration of executionproceedings depends mainly on whether thedebtor has executable assets.
Although the court registration allows filingfor the enforcement of an arbitral award withthe deposit of a fixed amount which isnegligible, there are decisions of the Courtof Appeal ruling that the enforcement ofarbitral awards is subject to a fee to becharged on a percentage basis.
Accordingly court fees are calculated on thebasis of 68.31/1000th of the awardedamount. 1/4 of the fees so calculated ispayable upon the application to the court forenforcement 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
ATTORNEYS’ FEES (NET)
-For enforcement of awards under theNew York Convention, the creditor mustprovide the court with the authenticatedoriginal award or a duly certified copythereof and the original of thearbitration agreement or a duly certifiedcopy thereof.
-Stamp tax in the amount of 0.98% ofthe awarded amount arises on arbitralawards (subject to the maximum cap ofTL 2,135,949.30 (approx. EUR429,768) 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