Jurisdiction

Turkey is a party to the New York Convention (NYC), which was approved by the Turkish Civil Procedure numbered 3,731 and entered into force on 21 May 1991. Turkey made two reservations permitted by the NYC: the ‘reciprocity’ and the ‘commercial’ reservations. The former provides that Turkey will recognise and enforce only those arbitral awards made in other states that are signatories to the Convention. If New York convention is not applicable, the award can still be enforced under the Turkish International Private Law Act. The commercial reservation limits the scope of recognition and enforcement only to arbitral awards that have been rendered with commercial nature.

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Turkey is a party to the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965), and to the Geneva Convention on International Commercial Arbitration (1961).

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Turkish International Arbitration Law (dated 2001, Law No. 4686) is based on UNCITRAL Model Law with some amendments and these amendments are mostly taken from Swiss international arbitration law.

The Turkish International Arbitration Law applies to all the international arbitrations that take place in Turkey. Domestic arbitration in Turkey is governed by the Turkish Civil Procedural Law. The articles of the Turkish Civil Procedural Law governing arbitration are also based on the UNCITRAL Model Law.

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The most prominent institution in Turkey for international arbitration is the Istanbul Chamber of Commerce Arbitration Institution. There are other arbitration institutions such as the Turkish Union of Chambers and Commodity Exchanges Court of Arbitration, the Ankara Chamber of Commerce Arbitration Institution and the Izmir Chamber of Commerce Arbitration Institution.

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Foreign arbitral providers can operate freely within Turkey and there is no legal restriction.

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There are no specialist arbitration courts in Turkey. The courts in the big cities such as Istanbul, Ankara and Izmir are especially familiar with the law and practice of international arbitration.

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The main requirement for the validity of an arbitration agreement is the common consent of the contracting parties to resolve the dispute through arbitration. The consent of the parties to take the dispute to arbitration must be explicit and free of any kind of doubt. There must be no doubt in the mind of the judge that the parties intended for the dispute to be finally settled through arbitral proceedings, that they agree to abide by the direction of the tribunal during the proceedings and they consider the award to be binding. In practice, there are frequently-used invalid clauses providing that ‘if the arbitrators fail to resolve the dispute the courts shall have jurisdiction’ or ‘the arbitrator’s decision shall not be binding’. Such clauses indicate an ambiguity in the mind of the parties to the arbitration agreement as to whether they consider the arbitral procedure and award to be finally binding.

The Turkish International Arbitration Code validates the arbitration agreement even if it is not in the written form required if, in an exchange of statements of claim and defence, the existence of an agreement is alleged by the claimant and not denied by the defendant (Article 4). Indeed, if the defendant defended only the merits and did not deny the validity of the arbitration agreement, then objecting to the jurisdiction of the arbitrators at a later stage, would violate the honesty rules and contradict the defendants previous behaviour. The Turkish Supreme Court also confirmed that if the jurisdiction of the arbitrators was not denied by the defendant and only the merit of the dispute was defended, then an allegation made against the validity of the arbitration agreement at a later stage is considered not to be in good faith. However, if the defendant has stated its objection against the jurisdiction of the tribunal as well as stating its defence on the merits of the case then this case is different. In such circumstances, since the defendant has stated its objection to the arbitrators jurisdiction, the validity of the arbitration agreement may be challenged in the later stages, ie, at the stage of setting-aside of enforcement.

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The question of whether a dispute is arbitrable is governed by Turkish law under TIAC Article 15.2(a). TIAC provides that ‘this Code shall not apply to disputes concerning in rem rights of immovable properties located in Turkey or to disputes that are not subject to the parties’ wills’. Under this Article, a dispute related to immovable property is not arbitrable if it has arisen from immoveable property ‘in Turkey’ and the dispute concerns in rem rights. This article does not apply to immovable property located outside Turkey

Under Turkish law, the disputes that are subject to the parties’ will are arbitrable. Thus, commercial matters are arbitrable under Turkish law. Family law disputes, administrative law disputes or criminal issues cannot be referred to arbitration. The Turkish Supreme Court held that bankruptcy disputes are also not arbitrable (IDD dated 13 February1969, numbered 1332/1729).

Similarly, in order to protect employees, the Turkish Supreme Court held that labour law disputes are not arbitrable. Employees are the weaker party to the employment contract and therefore the Turkish Supreme Court held that labour law disputes were not arbitrable. The amendment Article 20 of the Labour Code (numbered 4857) allows for the inclusion of an arbitration clause in the employment contract. This article provides that an employee whose contract was terminated can refer to arbitration as long as the collective employment contract has an arbitration clause or the parties have agreed to take the dispute to arbitration. The Turkish Supreme Court held that only disputes arising from termination and the consequences of the termination of the employment contract are arbitrable. Thus, disputes arising from the other matters of labour law have to be resolved by the Labour Law Courts. In a dispute before the Supreme Court the arbitrators also decided on the salary and annual vacation issues in dispute. The Supreme Court held that these issues were not arbitrable (Turkish Supreme Court 9th Civil Circuit decision dated 22 March 2004 numbered 5846/5621).

On the other hand, intellectual property rights are arbitrable. Parties can have an arbitration agreement for disputes concerning intellectual property rights. Such an arbitration clause establishes the arbitrators’ jurisdiction on IP disputes between the parties to the arbitration agreement. However, the arbitrators’ decision will have a binding effect only on the parties to the arbitration agreement. The infringement of an IP right by a third party, for instance, cannot be referred to arbitration.

The parties can refer disputes which have arisen between them to arbitration. In some circumstances, even though the contract does not provide an arbitration clause, the parties may agree that the dispute should go to arbitration after the dispute has arisen. In many circumstances the parties will have formulated an arbitration clause as a part of the main contract that refers to arbitration for disputes that have arisen or may arise between them. Existence of a legal relationship between the parties is enough to refer a dispute to arbitration.

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Under Turkish law, arbitration is possible only between or amongst parties who are party to the Arbitration agreement. Thus, a beneficiary cannot be a party to an Arbitration agreement. More importantly, even if the contract puts a third party under some obligation, the third party cannot be forced to be a party to the Arbitration agreement or clause. Under Turkish law, parties who control or manage a company are not bound by an arbitration agreement that was signed by the company in charge. The arbitration agreement binds only the parties who signed the arbitration agreement. It has also been acknowledged under Turkish law, that a jointly liable party or guarantor is not bound by the arbitration agreement that was signed by the principle debtor.

The principle that the arbitration agreement binds only the parties who are the party to the arbitration agreement has been well established under Turkish law. In a dispute the main contract was signed by the shareholder who did not have the authority to make a contract on behalf of the company. The Turkish Supreme Court held that although the contract was performed by the parties, which expressed the parties’ agreement regarding the substance of the contract, the arbitration clause should have been considered separately. Consequently, since the parties did not sign the arbitration agreement, the dispute was not referable to arbitration, although the main contract is valid due to the performance of the parties. The determination of who the parties to an arbitration agreement are is equivalent to the determination of which parties have consented to it or, as the case may be, of which parties should be barred from relying on an apparent lack of consent.

Turkish Court practice confirms the strict requirement of the arbitration agreement. In a case before the Turkish Supreme Court, the Court had to decide whether parties could rely on an arbitration clause concluded in a separate contract between the same parties. Within three contracts concluded by the parties, only one of them did not include an arbitration clause. The Turkish Supreme Court decided that the parties could not refer to arbitration for a dispute arising out of the contract which did not include an arbitration clause (Turkish Supreme Court 19th Legal Circuit dated 03.06.2001, numbered 9357/4209). The court found that the tribunal had exceeded its authority when it made an award on the dispute arising from the contract that did not have arbitration agreement. The court annulled part of the award against one of the parties, while confirming the remainder against the second party. This case is also a rare example of a court dividing an award into permissible and impermissible sections; Article V(1)(c) is the only defence in which this is possible, reflecting the pro-enforcement policy of the Convention being reflected in Turkish Supreme Court practice.

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Turkish International Arbitration Law does not govern the consolidation of the separate arbitration procedures. In case the arbitration rules that the parties referred to (such as ICC Arbitration Rules) governs consolidation, the request for consolidation will be dealt under such rules. Otherwise, Turkish law is silent on consolidation and the arbitral tribunal shall decide on the issue. If all the parties accept to consolidate separate cases there is no restriction under Turkish law to reject consolidation. If any party objects to consolidation the arbitral tribunal determine the question, the arbitral tribunal determine consolidation considering the circumstances if the dispute arose from the same arbitration agreement if not if the parties, legal relationship, arbitrators are the same.

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Principally, a corporation is treated as a separate legal person that is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Law enforcement authorities in criminal investigations will usually pierce the corporate veil where it is apparent that the proceeds of crime are sheltered by offshore companies or similar entities controlled by a fraudster. It is far more difficult to pierce the corporate veil in civil courts. Piercing the corporate veil can be discussed when the economic relationship between the defendant and the corporate entity holding the assets is apparent prima facie and is indisputable and the defendant is clearly sheltering behind a legal duality to obstruct enforcement proceedings.

A registered company is a legal entity separate to its members. However there are exceptions to the principle where the veil is lifted and the law disregards the corporate entity and pays regard to the economic realities behind the legal façade. The first question is whether ‘the veil of incorporation’ may be lifted in the case in question.

However, there are some decisions where the Turkish court accepted to pierce the corporate veil. In a decision by Izmir Court it was held that:

According to our court’s opinion as well, the second possibility, that is to say, even though from a legal aspect, there are distinct legal personalities, within the framework of theory of piercing the corporate veil”, due to the sister company relationship between them, there is an identicalness between each defendant company. The only defence of the defendant is that as the companies have distinct legal personalities, the other company is liable from the entire debt.

This defence is misuse of right within the context of art. 2 of the Civil Code. Because the person who has concluded the contract in question with the claimant company based abroad, who has received the goods, and who issued the letter of credit for the same container, is the common representative of both companies. On the said date, the shareholders of both companies were same persons.

Notion of distinct legal personalities may not be considered abstractly. The dispute between the parties must be assessed within the framework of its discord and good faith principle, and within the limits of the justice.

Defendant endeavors to impose the debts on the other company which does not have means to pay (the debt) and has a distinct legal personality in theory, should not be upheld. Therefore, consequently we have been convinced that both companies are liable from entire debt severally.

(Izmir 4. Commercial Court’s decision No. E. 2002/843, K. 2005/64 dated 7.2.2005)

The Turkish Supreme Court approved the decision of the First Instance Court stating that‘there is no inappropriateness in holding the defendant responsible by lifting the corporate veil’.

Lifting the corporate veil may help to recognise the true debtor. The corporate veil is generally pierced only if the use of a corporation is deemed abusive, because for example, the corporation's main purpose is to protect assets from the owner's creditors. Even if there is a court decision in Turkish law applying the piercing of the corporate veil principle, there is no court decision that allows the arbitration clause to be extended to a third party by applying the corporate veil principle. Especially, since the principle is that the corporate veil will be pierced only if the use of a corporation is deemed abusive. At the time the contract (and arbitration clause) was signed if the claimant was aware that the signing company did not have any assets but it was understood that a shareholder or a sister company held usable assets, it is not possible to claim abusive behaviour.

In Turkish law it is a fundamental principle that an arbitration agreement only binds the parties to the arbitration agreement itself and as such arbitration is possible only between or amongst parties who are party to the Arbitration Agreement. This principle is well established under the Turkish law.

In a dispute before the Turkish Supreme Court, the main contract had been signed by a shareholder who did not have the necessary authority to enter into a contract on behalf of the company. The Turkish Supreme Court held that although the contract was performed by the parties and this expressed the parties’ agreement regarding the substance of the contract, the arbitration clause should have been considered separately. Consequently, since the parties were not considered to have signed the Arbitration Agreement, the dispute could not be referred to arbitration, even though the main contract was valid due to the subsequent performance of the parties. The determination of who the parties to an arbitration agreement are is equivalent to the determination of which parties have consented to it or, as the case may be, which parties should be barred from relying on an apparent lack of consent.

In short, Turkish Court practice confirms the strict requirement of the arbitration agreement.

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The contract and the arbitration agreement are separate entities under Turkish law even if the arbitration agreement has been incorporated as a section of the contract itself. As such, the invalidity of the contract is different to the invalidity of the arbitration agreement. An arbitration clause which forms part of a contract can be treated as an agreement independent of the other terms of the contract and separable from the other parts of the contract. A decision by the arbitral tribunal that the contract is null and void does not extend ipso jure to a decision that the arbitration agreement is invalid. A null and void contract may contain a perfectly valid arbitration agreement.

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The doctrine of competence-competence, which holds that an arbitral tribunal may determine questions as to its own jurisdiction, is accepted in Turkish law. Under Artilce 7(h) of the Turkish International Law arbitrators may rule on their own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The doctrine of competence-competence, is largely based on Article 7 of TIAC that provides:

The sole arbitrator or arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration agreement.

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As stated above the main requirement for the validity of an arbitration agreement is the common consent of the contracting parties to resolve the dispute through arbitration. Thus, an arbitration agreement as simple as ‘arbitration in Istanbul’ is valid under Turkish law.

The consent of the parties to take the dispute to arbitration must be explicit and free of any kind of doubt. There must be no doubt in the mind of the judge that the parties intended for the dispute to be finally settled through arbitral proceedings, that they agree to abide by the direction of the tribunal during the proceedings and they consider the award to be binding.

In practice, there are frequently used invalid clauses providing that ‘if the arbitrators fail to resolve the dispute the courts shall have jurisdiction’ or ‘the arbitrator’s decision shall not be binding’. Such clauses indicate an ambiguity in the mind of the parties to the arbitration agreement as to whether they consider the arbitral procedure and award to be finally binding.

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In the international arbitration cases where Turkish parties are involved or place of arbitration is Turkey, international institutes and especially ICC is often agreed by the parties. UNCITRAL Arbitration Rules are the most popular known rules for ad hoc international arbitration. In practice, ad hoc arbitration is more often agreed for the domestic disputes.

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Though Turkish law does not have a provision specifically for multi-proceeding disputes, a multiparty arbitration clause can be drafted providing all parties’ consent to joinder and consolidation and dealing with other issues that may arise in the context of the multiparty project. In this special case of multiparty arbitration proceedings, the individual selection of arbitrators by each party will invariably be impractical.

Perceived unfairness in the selection process may give rise to enforcement issues. It is impossible to predict which of the parties will become a party to a dispute in the future of the project, and as such, the arbitration provisions will accordingly need to make provision for both bilateral and multilateral arbitration. A given party may not have to be involved in the whole process but it is often impossible to gauge when any given party may need to be involved in multiparty arbitration proceedings. In such cases, the timing of any joinder or the consolidation of proceedings should be given due consideration. An ‘umbrella agreement’ for multiple parties and multiple contracts (incorporated by reference into each of the agreements relating to the project) may be the best way to obtain the necessary consent from all the potential parties to a multiparty arbitration.

If the multiparties fail to appoint arbitrator, Article 7 of Turkish International Arbitration shall govern the appointment of arbitrator and unless otherwise agreed Turkish Courts of First Instance shall assist parties to appoint the arbitrator.

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Unless otherwise agreed, arbitration commence by a request for referring the dispute to arbitration. The parties may set out the date when the arbitration proceeding starts in the arbitration agreement. Unless the parties provides otherwise, commencing date of the time for arbitration is governed by TIAC. Article 10/B of TIAC provides that where parties are silent on this issue the sole arbitrator or the arbitral tribunal will render the award on the substance within one year from the appointment of the sole arbitrator or within one year of the date of the first minutes of meeting of the tribunal where there is more than one arbitrator.

If the parties’ agreement provides that both parties are to determine the arbitrators, then the time commences on the date on which the claimant notifies the respondent of his appointment; or if the name of the arbitrators are stated in the agreement, on the day which the counter party receives a request for the settlement of the dispute by arbitration. The time for the arbitration proceedings are deemed to have started from the date when a party has submitted its request for arbitration either to the arbitrators nominated in the arbitration agreement or in default of such designation in the agreement, from the time when a party has initiated the procedure for the constitution of the arbitral tribunal according to TIAC Article 10/B.

One final practical question relates to the interim measures or interim attachments that had been obtained before the arbitration proceeding commenced. If a party obtained an interim measure or interim attachment from a Court before the date of commencement of the arbitration time period; the parties then have a statutory obligation to commence the arbitration within 30 days. Otherwise, the interim measure or interim attachment is automatically lifted.

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In Turkish law, the principle of party autonomy entitles the parties to choose the applicable law. Where a given state’s laws are referred to, this reference is to be construed, unless otherwise expressed, as applying to the substantive law of that state; the reference is not generally extended to that state’s procedural law. Similarly, unless otherwise agreed, the reference to the applicable law of a state does not extend to the state’s conflict of laws rules according to Article 12 of TIAC.

The arbitrators are bound by the choice of the parties under the principle of party autonomy in that once the parties have chosen the applicable law, the arbitrators are obliged to apply it.The arbitrators can only act as amicable compositeur if they are so instructed by the parties.

When determining the substantial issues, the parties’ contract has to be taken into account in the first instance. Whilst interpreting and filling the provisions of the contract the accepted trade usages applicable to the transaction are also to be taken into account.

Under Article 12 of the Turkish International Law, in the absence of the choice of law to be applied to the substance of the dispute, the sole arbitrator or arbitral tribunal decides according to the law with which they consider the dispute to be most closely connected.

The arbitrators have great freedom over the method used to determine the law most closely connected to the dispute.

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Article 7 of the Turkish International Arbitration Code gives parties the freedom to select the sole arbitrator or members of the tribunal. The parties may also refer to the rules of an arbitration institute and this case the rules concerning selection of arbitration will be applicable. In short, party freedom to select arbitrators is a fundamental right and Turkish law respects the parties’ determination of the arbitrators.

Where the parties state the name of an arbitrator in the arbitration agreement, the Turkish courts take the view that the parties have agreed to arbitration only as long as the nominated individual acts as the arbitrator (Turkish Supreme Court 15th Civil Circuit decision dated 31 January 1989 numbered 2806/308) . In other words, the validity of the arbitration agreement then depends on the availability of the designated individual to act as an arbitrator in the dispute and if those individuals are unable or unwilling to do so the arbitration agreement is invalid (Commercial Circuit dated 4.4.1958, numbered 411/993 (SI 1958/127 p. 3667-3671); Commercial Circuit dated 19.2.1960, numbered 27/564).

If the nominated arbitrator cannot or does not accept the appointment, the respondent may object to the arbitration. The principle applies even if only one of the individuals whom the parties have nominated in the arbitration agreement to act in the arbitral tribunal cannot or does not act as an arbitrator (Commercial Circuit decision dated 4.4.1958 numbered 411/993 (SI 1958/127 p. 3667-3671); Commercial Circuit decision dated 19 February 1960 numbered 27/564 (Journal of Istanbul Bar 1961/1-2 p. 47-48). Since the Court takes such a strict policy on this matter, it is advisable for any parties who wish to specifically nominate their arbitrators in the arbitral agreement to also state alternative names or even to define an alternative person by qualification.

The strictness of the Courts on this issue can also be seen in the consequences of the nominated arbitrator not acting as arbitrator in the dispute. After the arbitration is started, if the arbitrator who is nominated in the arbitration agreement cannot or does not act as an arbitrator, the arbitration is terminated. This is stated in Article 7/G of the Turkish International Arbitration Law:

In the case where the names of the arbitrator or arbitrators are stated in the arbitration agreement, if the mandate of the sole arbitrator, the tribunal or the majority of the arbitrators’ needed to take a decision terminates, then the arbitration terminates.

Since it is the inclusion of specific names in the arbitration agreement that causes this problem to arise, it is a different situation where the parties nominate their arbitrator after the arbitration agreement has been made (Turkish Supreme Court 4th Civil Circuit decision dated 29 January 1980 numbered 10780/991 (JSCD 1980/8, p.1086-1087). If an arbitrator who is nominated after the arbitration agreement is made is unavailable then the arbitration agreement stands as it had already been incorporated without the specific names; it is not dependent on the availability of the nominated individual. The parties are then free to nominate an alternative individual.

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As stated above, Turkish International Arbitration Law accepts the freedom to select the sole arbitrator or members of the tribunal. The parties’ freedom to select the arbitrators also includes their freedom on the determination of the number, nationality, qualifications and appointing authority of the arbitrators. There are no requirements as to the professional qualifications or educational background of the candidates for arbitrators under Turkish International Law. The profession of the candidate as a lawyer, engineer, accountant, etc, or the nationality of the arbitrator, is irrelevant as a matter of Turkish law. The law does not set any qualifications for acting as arbitrator – any person chosen by the parties is qualified to act but sometimes the arbitration agreement will stipulate qualifications for the arbitrator.

In short, there is no restriction for the foreign individuals to act as arbitrator in Turkey.

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In case the dispute is to be resolved by a sole arbitrator and the parties fail to agree to the sole arbitrator, a party may ask the competent court to appoint the sole arbitrator. The competent court would be the First Instance Court where the defendant has its domicile, habitual residence or place of business or otherwise the First Instance Court of Istanbul.

In arbitration with three arbitrators, if a party fails to appoint its arbitrator within 30 days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment shall be made, upon request of a party, by the First Instance Court. The third arbitrator shall act as the chairman.

In their arbitration agreement, the parties may agree on an appointing authority to nominate the arbitrators. This authority may be an institute or an individual. The appointing authority may be selected by the parties in their arbitration agreement.

One should note that in the absence of any provisions in the arbitration agreement concerning the number of arbitrators that the parties wish to have, the arbitral tribunal will consist of three arbitrators.

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Under Turkish law, the legal relationship between the arbitrators and the parties is deemed to be contractual in nature. Arbitrators and parties are bound by an arbitral contract, the so-called receptum arbitri. This contractual relationship arises once the arbitrators have accepted their appointment.

The Turkish Supreme Court held that the contract between the parties and arbitrators is a mandate contract. Thus, the arbitrators have the duty and rights as provided in Article 394 of the Turkish Code of Obligations.

The arbitrators are free and independent to make their decision and not liable for appliying the law. The award may also be set aside, but it not so different from what can happen to state court decisions which are also subject to judicial remedies.

The arbitrator has civil liability for intentional acts causing damage. An intentional act is present only where the damage caused was intended.

In the circumstances where the arbitrator did not act diligently, efficiently or quickly and also in the circumstance where decision to accept an appointment by an arbitrator who later is removed or has to resign, the arbitrator’s negligence may be argued. However, there is no reported case on the liability of the arbitrator. In an old decision of the Turkish Supreme Court it was held that arbitrator and parties have contractual relationship and the articles governing mandate contract are applicable. Thus, the mandatee has to act in due care and violation of this obligation may require the arbitrator’s liability.

Even if the parties are not happy with the arbitral award, the natural target of attack by the parties is the arbitral award, not the arbitrators. Principally, arbitrators enjoy immunity and are not held liable for their wrong interpretation of the law. When acting in a judicial capacity, the arbitrators are in principle, liable only if they have caused damage as a result of intentional or grossly negligent behaviour.

As a rule, the fact that the award might subsequently be set aside by a court is not sufficient to establish the arbitrators’ liability. However, if the same arbitrators are appointed after the setting aside of the award, generally the arbitrators do not have to be paid a second time.

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Article 16/A of the Turkish International Arbitration Law governs the arbitrator’s fee. The parties may determine the fee of the arbitrator. Certainly, the arbitrators do not have to accept the fee determined by the parties. The arbitrators may refuse to accept the assignment.

The agreement on the arbitrator’s fee amongst the parties and arbitrators can be made before or after the arbitration proceeding has started. The parties may determine the fees of the sole arbitrator or arbitral tribunal by referring to internationally established rules or the rules of a particular arbitration institution. When the parties resort to institutional arbitration, the tariff of the institute referred to is to be taken into account. If it is ad hoc arbitration, the arbitrators ask the parties to deposit the whole or partial arbitration fee and then start arbitration.

Where an agreement concerning the arbitrator’s fee cannot be reached, it is to be determined by the sole arbitrator or the tribunal and the parties, considering the amount of the claim, the nature of the dispute and the length of the arbitration period. If the parties and the sole arbitrator or the arbitral tribunal fail to reach an agreement or if there is no provision in the arbitration agreement to determine the fees, or if the parties have not referred to the internationally accepted rules or the rules of a particular arbitration institute, the determination of the fees of the sole arbitrator or arbitration tribunal shall be made according to the tariff prepared by the Turkish Ministry of Justice every year in consultation with the relevant professional organisations with a public body nature. This tariff is published in the Turkish Official Gazette. The arbitrators cannot determine any other amount than stated in this tariff. The Turkish Supreme Court has decided that an arbitrator cannot make an award for his own payment, thus an award where the arbitrators determine the amount of money to be paid in arbitration fee is invalid. Thus, where no fee agreement amongst the arbitrator and the parties exists, the tariff published in the Official Gazette should be applied.

One should note that no additional fee is paid for the completion, correction or interpretation of the award (Article 16 of TIAC).

Unless otherwise determined by the parties, the fees of the chairman are 10 per cent more than the co-arbitrators.

Under Turkish law, the parties are jointly liable for the arbitrator’s fee. Article 395/1 of the Turkish code of Obligations governing mandate agreements provides that: “Where the agent has been appointed by several persons, they are jointly and severally liable to him.”

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Article 7 (c) of the Turkish International Arbitration Law governs the grounds on which one may challenge an arbitrator’s appointment. Accordingly grounds for challenging the arbitrator may be determined by the parties. Unless otherwise agreed, an arbitrator may be challenged if the appointed arbitrator does not meet the qualifications that the parties have determined. An arbitrator may also be challenged if circumstances exist or arise that give rise to justifiable doubts as to his impartiality or independence. Finally, an arbitrator may be challenged under any of the provisions for challenge under the arbitration law determined by the parties.

Parties are free to agree on their preferred procedure for challenging an arbitrator. Unless the parties agree otherwise, a challenge is possible only if it is made within 30 days of becoming aware of the circumstances that give rise to the challenge. Any party which wishes to challenge only one of the three or more arbitrators in the tribunal must in the first instance notify the arbitral tribunal about the request for a challenge stating the grounds for the challenge. The arbitral tribunal then considers the request for challenge. If the arbitral tribunal accepts the challenge then they will appoint a new arbitrator. If the arbitral tribunal rejects the challenge, the challenging party may, within 30 days of having received the notice of the decision rejecting the challenge, request the First Instance Court to overturn the Tribunal’s decision or to challenge the arbitrator or arbitrators.

If the challenge is to made against a sole arbitrator or the whole, or a voting majority, of the arbitral tribunal then the application for the challenge must go before the First Instance Court. The decision of the First Instance Court rendered shall be final.

If the First Instance Court accepts the grounds for the challenge to the sole arbitrator, or the whole, or a voting majority, of the arbitral tribunal, and rules in favour, then the arbitration terminates. A new appointment of the arbitrators will be made unless the name of the arbitrator was stated in the arbitration agreement.

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Turkish International Arbitration Law does not specify the types of interim measures that the Tribunal may order. The Tribunal would look to the various sources of law to evaluate the suitable interim measure. First, if the arbitration agreement or contract containing the arbitration agreement contains the procedure for interim measures the tribunal will certainly follow these procedures. If the relevant rules do not contain specific types of interim measures, the Tribunal will look to previous decisions made under those rules for inspiration.

The Tribunal will also look to the substantive Turkish law applicable as it is applicable to the dispute which contains certain specific measures. Under Turkish law the one of the most common category of interim measure is an in rem relief preventing the dissipation of assets which is functionally equivalent to a Mareva injunction. Another category of interim measure is used to shape the relationship between the parties during adjudication and to preserve evidence. This is a broad category under which all sorts of remedies can be subsumed.

The arbitral tribunal is not limited to Turkish-style interim measures of protection. However, the court may recast an arbitrator’s order if necessary for the purpose of enforcing the measure. The recast provision is in place to ensure that arbitrator-issued orders are translated into orders which fit the Turkish enforcement system.

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The parties may by contract agree upon the circumstances in which a tribunal may order security or they may preclude an order for security. If there is no such an agreement the claimant may question the respondent’s ability for the costs of the arbitration in case the claim is rejected. The only meaningful protection against such an outcome is a requirement by the tribunal, early in the case, that the claimant post security for the respondent’s costs.

Turkish International Arbitration Law does not provide security for cost against the risk. However, if the respondent convinces the arbitral tribunal that the claimant has to provide security for the cost there is nothing in Turkish law stopping the arbitrators to order so. As an interim measure the arbitrator may order security for cost.

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If the respondent fails to communicate his statement of defence, the arbitral tribunal shall continue with the proceedings without treating such a failure in itself as an admission of the claimant's allegations. In practice, a failure of the respondent to participate in the arbitration proceedings occurs more often and this does not stop the Arbitral Tribunal from making a decision on the dispute according to Article 11/C/3 of TIAC. Provided that the respondent was given the proper opportunity to present its case, such an arbitral award which is based on the respondent’s default will be valid and enforceable by Turkish Courts.

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Based on Article 11 of the Turkish International Arbitration Law, if the claimant fails to communicate its claim within the period of time set by the arbitral tribunal without showing sufficient cause for such failure the arbitral tribunal shall issue an order for the termination of the arbitral proceedings.

Similarly, if the respondent fails to communicate its Statement of Defence within the period of time set by the arbitral tribunal, the arbitral tribunal shall not assess this as an acceptance of the claimant’s claims but instead shall order that the proceedings continue.

If one of the parties fails to appear at a hearing or abstains from submitting its evidence without showing sufficient cause for such failure, the arbitral tribunal may proceed with the arbitration and render its award relying upon the evidence before it.

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Under Turkish International Arbitration Law the parties shall submit their evidence within the time limit determined by the sole arbitrator or arbitral tribunal. If the parties’ arbitration agreement governs the taking of evidence then it must be followed. Otherwise, the parties and the arbitrators may decide on the method of taking evidence after the arbitration has started according to Article 12/B of TIAC.

In deference to the principle of party freedom of choice, the parties may directly or by reference to arbitration rules, determine the arbitral procedure to be followed. The parties may agree that the taking of evidence should be made in accordance with the rules and practice with which they are familiar. The IBA Rules on Taking of Evidence in International Commercial Arbitration shall be applied only if the parties agree to do so. If the parties fail to agree to IBA Rules on Taking Evidence the arbitrators shall determine on the issues related to the evidences.

The time for the presentation of evidence is determined by the procedural order of the sole arbitrator or arbitral tribunal. The only limit to the freedom of the parties to select the procedure of their choice lies in the mandatory principles of ‘due process and equal treatment’. Accordingly, the arbitrators need to avoid giving a prohibitively short time limit to the parties or disproportionate time limits to each of the parties.

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A party may ask Turkish courts for fact-finding before the arbitration tribunal is constituted. Turkish courts may be asked to assist the arbitral tribunal for the document that the authorities possess.

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Turkish Law does not provide for a discovery or document production procedure. However, in accordance with an order of the Arbitral Tribunal or with the parties’ agreement, document production procedures can be conducted.

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Article 11 (c) of the Turkish International Arbitration Law provides that the arbitrators may decide to hold a hearing or to conduct arbitration proceedings on the basis of documents Unless the parties agree that no hearing shall be held, the arbitrators shall hold such hearings at an appropriate stage of the proceedings.

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Principally the arbitration proceedings have to take place in the place of arbitration. However, if it is more convenient, with prior notice to the parties, the sole arbitrator or arbitral tribunal may decide to meet in another place. In practice, the arbitrators can decide to meet in a place other than the place of arbitration for practical reasons or to save time and costs. The parties would have to be given notice early enough to be able to arrange their preparations for the different location.

Since the parties are not going to participate in the deliberation meeting, there is no need to give prior notice to the parties if the arbitrators to deliberate in a place different than place of arbitration.

Even if some or all of the meetings take place in a place other than the place of arbitration, it is very important that the award states the place of arbitration as was originally determined. The place of arbitration does not indicate a mere geographical location for the arbitration to be conducted but also has other legal consequences.

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The parties may agree in the arbitration agreement that the award is to be rendered unanimously. In such circumstances the award will not be valid unless it is rendered under the unanimous decision of all members of the tribunal and the arbitration will terminate due to the lack of a valid award if it is not thus rendered (The decision of the Turkish Supreme Court 4. Civil Circuit dated 4 October 1973) .

The parties’ agreement to accept an award only if rendered unanimously may be made after the arbitration has started and may also be set aside at any point by the parties’ mutual agreement.

In practice, a unanimous decision is not usually required. In fact, Article 7/A of TIAC specifically requires that the number of arbitrators is to be odd to enable the arbitral tribunal to make a majority award in case no unanimous opinion can be found on the dispute. If the tribunal cannot come to a unanimous decision, the majority opinion will become the award. In Turkish law, there is no rule that allows any special weight to the chairman’s opinion. Where no majority can be found, the chairman’s opinion does not have a deciding effect in constituting the award. On the contrary, if there is no majority award, the arbitration is terminated.

Besides making the award, the arbitrators may need to decide on specific questions of procedure. These procedural questions may be decided by a presiding arbitrator if the parties have authorised him to do so, or alternatively Article 13/A of TIAC gives this authority to the members of the arbitral tribunal.

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The Arbitral Tribunal may not grant remedies or relief with respect to matters that are not in the scope of the arbitration agreement. Therefore, if the parties have limited the subjects on which the Arbitral Tribunal may decide, relief or remedies shall be in the scope of this agreement. For instance, if the parties have decided in the agreement that any relief may not be granted regarding issues such as cancellation of the agreement or loss of profit, then the Arbitral Tribunal shall not grant remedies or relief thereof.

Parties authorise arbitrators as well as determining the limit of their authorisation by making an agreement. Accordingly, in a claim for nullity of an arbitral award, the remedies or relief which are in the scope of the arbitration agreement are separable from those which are not. Consequently, the arbitral award may be partially annullable within this context. Further, the arbitral tribunal may not grant remedies or relief more than that is requested by the parties.

Besides, since punitive damages are not recognised under Turkish legislation, national courts may cancel the award regarding the punitive damage on grounds that it is contrary to the Turkish public order as punitive damage is not considered a type of penalty.

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If there is no unanimous decision the majority’s decision shall become award. The minority arbitrator(s) can render a dissenting opinion. In practice, the dissenting opinion is attached to the award.

The arbitrators may also indicate the dissenting opinion in the award instead of attaching a separate dissenting opinion. Although it is not common in practice, such an award is valid. Sometimes the dissenting arbitrator may refuse to sign the award or even to participate in the deliberation meeting. Such circumstances do not affect the validity of the award.

An award made by a majority is valid even if there is a dissenting opinion.If a minority of the arbitrator(s) do not sign the award, this does not affect the validity of the award. The dissenting arbitrator does not have to state why it does not share the majority opinion. Lack of a specifically expressed dissenting opinion would not affect the validity of the award. However, if the dissenting arbitrator prefers to write a dissenting opinion he or she should be given a reasonable time to do so. However, this should not cause delay to the arbitration in bad faith.

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The award needs to be notified to the parties in order to be considered as final or in order to commence an application to challenge the award. The award shall be notified to the parties by the sole arbitrator or the Chairman of the Tribunal. The parties may ask for the award and the arbitration file to be deposited with the First Instance Court where the defendant has domicile or habitual residence or its place of business. If the respondent does not have a domicile, habitual residence or place of business, the First Instance Court of Istanbul has jurisdiction. In this case, the sole arbitrator or arbitral tribunal deposits the arbitration file and award with the Court and the arbitration file will be preserved by the Court. If the parties ask for the award to be deposited with the Court, they have to pay the expenses.

Unless otherwise agreed by the parties, any written communication is deemed to have been delivered if it is sent to the last known domicile, habitual residence, place of business or mailing address of the recipient. If none of these places can be found for the communication by a reasonable inquiry, a written communication is deemed to have been received if it is sent to the recipient’s last known domicile, habitual residence, place of business or mailing address by registered letter or any other means which provides a record of the attempt to deliver it according to TIAC Article 14/C.

The written communication is deemed to have been delivered on the day that the delivery was made in the required form. The time for delivery is particularly important in order to calculate the deadline for the action against the award.

The tribunal or sole arbitrator can notify the award simply by courier. As stated by TIAC in Article 14/C. the provisions concerning notification by the Court do not apply.

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Article 10/B of Turkish International Arbitration Law provides that where parties are silent on this issue the sole arbitrator or the arbitral tribunal will render the award on the substance within one year from the appointment of the sole arbitrator or within one year of the date of the first minutes of meeting of the tribunal where there is more than one arbitrator.

Unless the parties provides otherwise, commencing date of the time for arbitration is governed by TIAC. Article 10/B of TIAC provides that where parties are silent on this issue the sole arbitrator or the arbitral tribunal will render the award on the substance within one year from the appointment of the sole arbitrator or within one year of the date of the first minutes of meeting of the tribunal (Turkish Supreme Court 11th Civil Circuit decision dated 15 March 1990 numbered 5501/2191) where there is more than one arbitrator.

If the parties’ agreement provides that both parties are to determine the arbitrators, then the time commences on the date on which the claimant notifies the respondent of his appointment; or if the name of the arbitrators are stated in the agreement, on the day which the counter party receives a request for the settlement of the dispute by arbitration. The time for the arbitration proceedings are deemed to have started from the date when a party has submitted its request for arbitration either to the arbitrators nominated in the arbitration agreement or in default of such designation in the agreement, from the time when a party has initiated the procedure for the constitution of the arbitral tribunal according to TIAC Article 10/B.

Arbitration time may be extended by parties upon their agreement, and failing such an agreement, by the First Instance Court upon the request of either party. The parties have the freedom to agree to extend the arbitration time as many times as they like. The length of the extension to be given can be agreed as the parties’ desire.

One final practical matter relates to the interim measures or interim attachments that had been obtained before the arbitration proceeding commenced. If a party obtained an interim measure or interim attachment from a Court before the date of commencement of the arbitration time period; the parties then have a statutory obligation to commence the arbitration within 30 days. Otherwise, the interim measure or interim attachment is automatically lifted.

If the parties’ agreement provides that both parties are to determine the arbitrators, then the time commences on the date on which the claimant notifies the respondent of his appointment; or if the name of the arbitrators are stated in the agreement, on the day which the counterparty receives a request for the settlement of the dispute by arbitration. The time for the arbitration proceedings are deemed to have started from the date when a party has submitted its request for arbitration either to the arbitrators nominated in the arbitration agreement or in default of such designation in the agreement, from the time when a party has initiated the procedure for the constitution of the arbitral tribunal according to TIAC Article 10/B.

Another time-related issue is interim measures. If a party obtained an interim measure or interim attachment from a Court before the date of commencement of the arbitration time period; the parties then have a statutory obligation to commence the arbitration within 30 days. Otherwise, the interim measure or interim attachment is automatically lifted.

The correction or interpretation of the award can be asked for within 30 days of receipt of the award. The other party needs to be notified of an application for a correction or interpretation. Within this 30-day period and upon notice to the other party, a party may request the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. Indeed if the arbitrators omit to make a decision on any of the claims presented by either party, this may be a cause for the setting aside of the award under Article 15/A of TIAC. The sole arbitrator or arbitral tribunal has 60 days to render the additional award on the omitted claim if it considers the request to be justified. An additional award may be asked for a counterclaim as well. The sole arbitrator or the arbitral tribunal may reject the request if it considers that the request is not legitimate. A correction, interpretation or additional award must be notified to each party and will then form part of the award.

A correction, interpretation or additional award has to be notified to each party and forms part of the final award. The time limit for setting-aside the award starts to run from the date that the parties received the correction, interpretation or supplementary award according to Article 15 of TIAC. When the award is enforced, the correction, interpretation or additional award of the arbitral tribunal is to be taken into account.

An application for setting-aside has to be made within 30 days of the party receiving the award. When a party makes an application for a correction, interpretation or supplementary award the time limit for recourse against the final award starts to run from the date that the correction, interpretation or supplementary award is notified to the parties. Indeed, the correction, interpretation or supplementary award by the arbitrator may actually save the necessity to resort to recourse against the award.

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The parties may agree how to share the costs of the arbitration. For instance, the parties may agree that in any case, each party shall pay half of the arbitration cost. In this case the cost will be shared in accordance with the parties’ agreement.

Unless otherwise agreed by the parties, the losing party shall bear the cost of arbitration. If both of the parties win partly, the cost of arbitration shall be shared between the parties according to the proportions that they win.

The award of the sole arbitrator or arbitral tribunal, whether terminating the arbitration or confirming the settlement between the parties, shall also include the arbitration cost.

Arbitration costs include the fee of the arbitrators, the travel costs and other expenses of the arbitrators, the fees of the expert or other person who was appointed by the sole arbitrator or the arbitral tribunal to request his or her assistance and site visit expenses, the travel and other expenses of the witnesses to the extent approved by the sole arbitrator or arbitral tribunal, the fee of the attorney of the winning party which shall be determined by the sole arbitrator or arbitral tribunal in accordance with the minimum attorney’s fee tariff, court fees that are to be paid for the applications and the expenses of notifications related to the arbitral proceeding.

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The parties may agree to apply the rate of interest. If there is no such agreement, under Turkish law interest is governed by the applicable law to the merit. If Turkish law is the applicable law, there is a special law (Law No 3095) governing interest. The rate changes every year and rates under interest law are announced.

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Under Turkish law, the Courts cannot review the substance of the award and correctness of the arbitrator’s decision. In Turkish Law the only option of recourse against an international arbitral award is to apply to the Courts to have the award set aside. In Turkey there is no arbitration institute providing second instance arbitral tribunal.

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Turkish International Arbitration Law provides contains an exclusive list of limited grounds on which an award may be set aside that are identical to those in Article 36(1) of the UNCITRAL Model Law.

The grounds to set aside an award are as follows:

• a lack of capacity of parties to conclude arbitration agreement or a lack of a valid arbitration agreement;
• a lack of notice of appointment of an arbitrator or of the arbitral proceedings or an inability of a party to present his case;
• the award deals with matters not covered by submission to arbitration;
• the composition of the arbitral tribunal or conduct of the arbitral proceedings is contrary to the effective agreement of parties or, failing agreement, to the Model Law;
• non-arbitrability of the subject-matter of the dispute; and
• the violation of public policy, which would include serious departures from fundamental notions of procedural justice.

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Article 15 of Turkish International Arbitration Law allows the parties to partially or wholly waive their right to apply to have the award set aside. Such a waiver is permitted only if neither party has a domicile or place of habitual residence in Turkey.

The parties may waive their right to apply for the award to be set aside based on one more of these grounds. The parties are not under any time limit to agree on this waiver of the right of setting aside and can exclude the right of setting-aside at any stage.

If the parties have validly waived their right to apply for setting aside the award, the arbitral award is binding and enforceable without waiting for the application period for setting-aside to pass.

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If the award is set aside in the country where the award was made, Turkish courts may reject to enforce award. Thus, Turkish courts may not reject enforcement even if the award was rejected in the country where the award was made. However, there is no reported decision, made by the Turkish courts, enforcing an award that was set aside in the country of origin.

If the setting-aside procedure has started in the country where the award was made, the Turkish courts will suspend the proceedings until the decision on setting aside the award becomes final in that country’s courts because it constitutes a ‘prejudicial issue’ under Turkish Law. The granting of a stay of legal proceedings for recognition and enforcement is neither conditional nor dependent upon the provision of security.

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Turkish courts rarely reject enforcement of the foreign awards. Nevertheless, there are still some decisions of the Turkish Supreme Court that the enforcement are rejected. Generally speaking Turkish courts are very sensitive on the validity of the arbitration agreement and including non-contractual parties into the proceeding.

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Under Turkish law, there is no restriction preventing the Turkish state or its state entities from entering into arbitration agreements with other parties as long as the matter is arbitrable. They may then become a party to an international arbitration. Moreover, in 1999, the Turkish Constitution was amended to make concession contracts arbitrable. By this change, instead of the administrative courts’ exclusive jurisdiction, the parties were allowed to conclude a private law contract with an arbitration clause. This was particularly important for privatisation projects and BOT contracts.

Turkish courts can be asked to enforce an award against a state or state entity. Only the commercial assets of the states can be enforced. Under Turkish law, the assets of the state cannot be attached. This is because the state pays its debt. Indeed, Turkey and the state entities have been executed the awards willingly.

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Confidentiality is a fundamental principle in Turkish arbitration practice. Any party has the right to object to any person who is not a member of the parties’ team participating in the hearing. In practice, a list of attendees for the hearing is required from both sides. The parties, counsels, witnesses and experts are the most common attendees of the hearings. Due to the confidentiality principle in arbitration, the attendees are expected to be declared before the hearing. Like the parties, the attendees to the hearing are also under an obligation of confidentiality. Thus, if the confidentiality obligation is breached by any attendees, damages can be claimed.

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Only the parties to the enforcement litigation are allowed to have a copy of the documents filed with the court. Documents filed in legal proceedings for recognition and enforcement do not form part of the public record and therefore only the parties involved in the dispute can access the documents filed with the court.

In practice, enforcement decisions are taken by reviewing the parties’ statements and the documents filed, and hearings in enforcement disputes are extremely short. Since the courts do not review the substance of the dispute but only the enforceability of the award, in practice the hearing does not harm the confidentiality of the merits discussed during the arbitral proceeding. Although details of the award or dispute are not discussed during the hearings it should be noted that the names of the parties will be listed in the hearing room.

Some decisions of the Turkish Supreme Court are published. Both a private publisher and the Journal of the Supreme Court publish Supreme Court decisions that may be interesting for practitioners. On occasion certain decisions of the different Chambers of the Supreme Court may conflict with each other or it may become necessary to amend an established precedent. In such circumstances, the General Assembly of the Supreme Court may make a decision referred to as ‘unification of the decisions’. Exceptionally, unification decisions of the General Assembly of the Supreme Courts of Appeals are binding and set a precedent that has to be followed by itself and the lower courts. As a result unification decisions of the Supreme Court are published in the Official Gazette.

The names of the parties are not published and referred to only by their initials. For such important landmark decisions there is no recognized procedure for avoiding the publication of confidential information.

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Turkish Attorney Law governs the ethical rules that attorneys subject to. These ethical rules also apply to the dispute resolved by arbitration. Similar ethical principles of international practice accepted by the Turkish attorney law, such as conflict of interests and confidentiality.

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Arbitration time is a delicate issue in Turkey. The parties may extend the time limit for arbitration but unless otherwise agreed a party needs to make an application to Turkish Court for time extension. Otherwise, the award may be set aside.

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