International Arbitration in Turkey and Its Types

Currently, there is no International Trade Court with jurisdiction worldwide. This gap is being filled through International Arbitration. The majority of disputes arising from international commercial and economic contracts are resolved through arbitration

1. International Arbitration in Turkey

Before 2001, Turkish law lacked a general regulation on international arbitration. This gap was filled with the adoption of Law No. 4686 on International Arbitration, which establishes the procedures and principles governing international arbitration in Turkey.

An arbitration agreement is a contract in which the parties agree to resolve all or some disputes arising from an existing legal relationship—whether contractual or non-contractual—through arbitration. (International Arbitration Law, Article 4) Based on this provision, arbitration may be applied not only to disputes arising from contracts but also to those originating from torts or legal provisions. Thus, the parties agree that any existing or potential disputes between them will be resolved by arbitrators instead of state courts.

The arbitration agreement must be made in writing, either as an arbitration clause within the main contract or as a separate agreement. The written form is a validity requirement. To meet this requirement, the arbitration agreement must be included in a signed written document by the parties, communicated through exchanged letters, telegrams, telexes, faxes, or electronic means, or referenced in a statement of claim where the defendant does not object to the existence of an arbitration agreement in their response. Additionally, if a document containing an arbitration clause is referenced as part of the main contract, a valid arbitration agreement is deemed to exist. (International Arbitration Law, Article 4/2)

This law applies to disputes involving a foreign element where the arbitration seat is determined as Turkey or where the parties, arbitrator, or arbitral tribunal have chosen to apply its provisions. However, it does not apply to disputes concerning in rem rights over immovable property located in Turkey or disputes that are not subject to the parties' discretion, even if an agreement is made otherwise. (International Arbitration Law, Article 1/4)

According to Article 2 of Law No. 4686, a dispute is considered to have a foreign element if it meets any of the following conditions:

1. The parties to the arbitration agreement have their domicile, habitual residence, or principal place of business in different states.

2. The domicile, habitual residence, or principal place of business of the parties is located in a state different from:
   a) The place of arbitration specified in the arbitration agreement or determined based on it,
   b) The place where a substantial part of the contractual obligations is to be performed, or the place most closely connected to the dispute.

3. At least one of the company shareholders, who is a party to the main contract underlying the arbitration agreement, has brought in foreign capital under foreign investment legislation, or the execution of the contract requires financing from abroad through credit and/or guarantee agreements.

4. The main contract or legal relationship underlying the arbitration agreement facilitates the transfer of capital or goods from one country to another.

If any of these conditions are met, the dispute is deemed to involve a foreign element. (International Arbitration Law, Article 2)

If any of the alternative conditions listed in this article for the existence of a foreign element in the dispute are met, the dispute will fall within the scope of the International Arbitration Law, regardless of whether the place of arbitration is in Turkey. [1]

The disputes covered by the arbitration agreement shall be resolved by the arbitrator or arbitral tribunal designated under Article 7 of this Law. However, since the arbitration agreement does not remove the jurisdiction of the courts, if a lawsuit concerning a dispute covered by the arbitration agreement is filed in court, the opposing party may raise an objection to arbitration. The arbitration objection must be asserted as a preliminary objection. If the arbitration objection is accepted, the court shall dismiss the case on procedural grounds. (International Arbitration Law, Article 5)

The parties are free to determine the procedural rules to be applied by the arbitrator or arbitral tribunal, provided that the mandatory provisions of this Law remain applicable. They may also specify the applicable rules by referring to a specific law, international arbitration rules, or institutional arbitration rules. In the absence of such an agreement, the arbitration proceedings shall be conducted in accordance with the provisions of this Law. (International Arbitration Law, Article 8)

The arbitrator or arbitral tribunal shall decide based on the provisions of the contract between the parties and the legal rules chosen by them to govern the substance of the dispute. In interpreting and supplementing the contract provisions, commercial customs, usages, and trade practices related to the chosen law shall also be considered. If a particular state’s law has been chosen, unless otherwise stated, it shall be deemed that the substantive law of that state has been chosen, rather than its conflict-of-laws rules or procedural rules. If the parties have not agreed on the legal rules applicable to the substance of the dispute, the arbitrator or arbitral tribunal shall apply the substantive law of the state most closely connected to the dispute.

The arbitrator or arbitral tribunal may render a decision based on principles of equity and fairness or act as an amiable compositeur only if the parties have expressly authorized them to do so. (International Arbitration Law, Article 12) The limits of the parties’ freedom to choose the applicable law are defined by the mandatory public law rules of the selected law, as well as public order and international public order under the law governing the contract. [2]

Arbitration proceedings terminate under the following circumstances, except when the claimant withdraws the case and the arbitral tribunal or arbitrator acknowledges the respondent's legal interest in the final resolution of the dispute:

• The claimant withdraws the case.
• The parties agree to terminate the proceedings.
• The arbitral tribunal or arbitrator determines that continuing the proceedings is unnecessary or impossible for any reason.
• A request for an extension of the arbitration period is denied.
• The arbitral tribunal fails to reach a unanimous decision despite the parties having agreed on such a requirement.
• A party loses its legal standing.
• The required advance payment for arbitration costs is not deposited.

(International Arbitration Law, Article 13)

A final arbitral award can only be challenged through an annulment action filed before the competent regional court of appeal, as specified in Article 15 of Law No. 4686, based on the location of the authorized civil court of first instance.

The authority of the arbitrator or arbitral tribunal also ceases upon the termination of the arbitration proceedings.

2. Structural Classification of International Arbitration

When drafting an arbitration agreement based on the principles explained above, the parties encounter two structurally different types of arbitration and must make a choice. These types of arbitration are ad hoc arbitration and institutional arbitration.

a) Ad Hoc Arbitration

In this type of arbitration, the entire or partial arbitration process is conducted by arbitrators based on specific rules and laws referred to by the parties or based on rules formulated by the parties themselves. At their discretion, the parties may also choose to adopt the arbitration rules prepared by UNCITRAL (United Nations Commission on International Trade Law).

According to Article 1 of the UNCITRAL Arbitration Rules,
"If the parties have agreed that disputes between them in respect of a defined legal relationship, whether contractual or not, shall be settled under the UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with these Rules, subject to any modifications agreed upon by the parties."

Concerns about bureaucratic oversight of arbitration procedures by institutional arbitration centers or the perception that such institutions serve as an instrument of "international capital" lead some parties to view ad hoc arbitration as a safer option.

b) Institutional Arbitration (Permanent Arbitral Tribunals): In this type of arbitration, the parties delegate the organization of the arbitration proceedings for resolving disputes arising or likely to arise from their legal relationship to an arbitral institution. The procedures and rules that the arbitral institution will apply to resolve the dispute are predetermined. Since the international trade community is familiar with these procedures and rules, they may prefer this method.

Additionally, some institutional arbitration centers are affiliated with professional and sectoral chambers or associations. As a result, international trade practitioners may choose institutional arbitration to benefit from the prestige of these organizations.

Today, some arbitration institutions are established directly by private individuals based on the foundations of local law, while others are created by organizations formed through agreements between states. Some institutions are established through agreements involving states or private individuals, others are founded by national trade and industry chambers, universities, centers, or institutes, and some are created by professionals or sector members operating in specific industries. [5]

3. Conclusion

The gap in international arbitration in Turkey was filled with the enactment of Law No. 4686 on International Arbitration in 2001, which regulates the procedural rules and principles related to international arbitration.

Since there is no international commercial court, parties attempt to resolve disputes arising from international commercial and economic agreements through international arbitration. Structurally, international arbitration is divided into two types: ad hoc arbitration and institutional arbitration. Due to the reasons explained above, ad hoc arbitration is often the preferred choice.

Zeynep Sude Sağlık

References

1. Kalpsüz Turgut, Türkiye’de Milletlerarası Tahkim, 2nd ed., Yetkin Publishing, Ankara 2010, p. 18
2. Kalpsüz Turgut, Türkiye’de Milletlerarası Tahkim, 2nd ed., Yetkin Publishing, Ankara 2010, pp. 97-98
3. ilsaedergi.com/milletlerarası-tahkimin-yapisal-ayrimi-ad-hoc-tahkim-ve-kurumsal-tahkim/
4. Şanlı Cemal, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm Yolları, 7th ed., Beta Publishing, Istanbul 2019, pp. 383-884
5. Şanlı Cemal, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm Yolları, 7th ed., Beta Publishing, Istanbul 2019, pp. 384-389