Delegates at this year’s GAR Live Istanbul looked at the progress of the city’s international arbitration centre and whether the support it receives from the Turkish government may be more hindrance than help.
Vodafone in-house counsel Miray Iliksoy kicked off the discussion by asking whether the existence of the Istanbul Arbitration Centre – known as ISTAC – is enhancing Turkey’s reputation as a place of arbitration among foreign investors and whether it could become a regional hub in the long term.
The president of ISTAC’s executive board Ziya Akinci revealed that the centre, which released its first arbitration rules and model clause in 2016, is already administering 20 cases. Of these, 53% are international in nature, with an overwhelming majority relating to the construction industry.
The ISTAC rules contain provisions familiar to all international arbitration practitioners and all the modern tools they might require, such as fast-track arbitration for smaller claims and emergency arbitration provisions, Akinci said.
He added the centre has benefited from the support of the Turkish government, which is actively promoting it as a place to arbitrate disputes involving foreign investors. In June last year, President Erdoğan issued a communique recommending that state-owned companies and local government bodies adopt the ISTAC clause.
Then in January, the government passed an Act which provides that if an investor prefers arbitration to resolve disputes regarding public procurement contracts then ISTAC arbitration is mandatory.
But Bora Kama, managing legal counsel at GAMA Power Systems in Ankara, questioned whether such regulation is likely to encourage faith in ISTAC. “Do you think that such assistance is in harmony with the essence of the arbitration practice? How independent and secure would you feel in trusting your case to an institution strongly supported by a certain government?” he asked.
Responding, Akinci stressed that while state entities are encouraged to use ISTAC, the new regulation only provides that disputes concerning public procurement contracts are to be referred to ISTAC or ad hoc arbitration instead of the national courts. The law had previously stated that all such domestic disputes must be referred to the Turkish courts, so the effect of the Act in January was to make them arbitrable. There is no change or restriction for international contracts that are not subject to public procurement law, he said.
Parties can still choose how they resolve other types of disputes, he said. “If you have a dispute over an international finance project, you can use any kind of institution for your arbitration”.
Serdar Paksoy of Paksoy in Istanbul said that in his experience, ISTAC is often a compromise choice where the parties cannot settle on another institution. “I once had a dispute between a foreign party and a Turkish state-owned entity. The foreign party wanted ICC arbitration, while the Turkish party, as a government agency, said it could only go to the Turkish courts. ISTAC arbitration was the compromise,” he said.
Ben Giaretta, partner at Mishcon de Reya in London, drew a parallel with the Indian state of Maharashtra where the local government has also ruled that for public contracts above a certain value disputes must be resolved by the local Mumbai Centre for International Arbitration, if they are referred to arbitration at all.
Giaretta warned that international companies are often wary of centres that are heavily promoted by the government or large companies in their country. In Indonesia, for example, the government promoted the arbitration institution in Jakarta, BANI, to resolve disputes arising from its oil and gas contracts – leading to a backlash from foreign companies and pressure to hold arbitrations outside the country.
“Starting a new institution is very difficult and it is great that ISTAC has started well, but where there is government support, the centre still needs to show it is independent,” he said.
Responding to the concerns later in the day, Akinci said that it is “healthy” for ISTAC’s relationship with the government to be questioned but there is no doubt that ISTAC is “economically and legally independent”.
“The income of ISTAC comes from the administration fees from our cases, and also from the Turkish Chamber of Commerce and the Turkish Bar Association,” he explained. “After seeing our international board, which includes some of the finest practitioners in this field [Jan Paulsson of Three Crowns, Hamid Gharavi of Derains & Gharavi, Bernard Hanotiau of Hanotiau & van Berg and Candan Yasan of Istanbul Bigli University Law School] one should not have any doubt that this is an international, independent institute.”
GAR Live Istanbul was held on 21 June at the Shangri-La Bosphoros and sponsored by ISTAC, Akinci Law Office, Cooley, Coşar Avukatlık Bürosu, Kabine Law Office, FTI Consulting, 4 New Square, Göksu | Aydın Attorneys at Law, Paksoy, Esin Attorney Partnerships, Erdem & Erdem and the Istanbul International Law Association.
The event was just three days before the Turkish general election, which saw Erdogan re-elected as president with 53% of the vote. Erdogan has since given himself substantial new executive powers, weakening the power of Parliament and abolishing the role of prime minister – leading opposition candidate Muhammed Ince to say that Turkey is entering a dangerous period of “one-man rule”.
Turkey currently faces two ICSID claims related to Erdogan’s crackdown on opposition to his rule, one brought by Belgian-registered Cascade Investments and another by a UK subsidiary of Turkish conglomerate Koza over the targeting of their interests including media outlets critical of the government. In both cases, Turkey alleges links between the claimants and Fethullah Gülen, an Islamic cleric now in exile in the US who Erdogan says was behind a failed coup in the country in 2016.