International and Domestic Arbitration in Turkey

Our team has vast experience in conducting domestic and international arbitration including acting as counsel or sitting as arbitrator under all the major institutional and procedural rules. We represent parties in domestic and international arbitrations arising in a broad range of industry sectors, including aviation, banking, construction, energy, insurance and reinsurance, international finance, international trade and investments, intellectual property, maritime, media and communications, technology and telecommunications.

Arbitration in Turkey

International and Domestic Arbitration in Turkey

Arbitration in Turkey are governed by the Turkish International Arbitration Act and the Eleventh book of the Turkish Code of Civil Procedure.

Arbitration is an alternative dispute resolution mechanism based on the parties’ agreement to submit their dispute to a neutral third party, the arbitral tribunal, which renders a final and binding decision, the award. It is ‘alternative’ to going through the state court system.

One of the key features of arbitration is that it is based on the autonomy of the parties, who will usually decide to use arbitration by including an arbitration clause in the contract that has formed their relationship. However, it is also possible for the parties to agree to arbitrate a dispute once it has already arisen by making an arbitration agreement.  

Arbitral tribunal

The dispute will be decided by the arbitral tribunal, which is another way to call the arbitrator or arbitrators who have been designated by the parties to hear the dispute. The arbitral tribunal is not a permanent entity like a court, but it comes into existence once the parties initiate the dispute.

Normally, each party nominates one arbitrator and the third one (the Chair or President) will be appointed either by the co-arbitrators, or by an arbitral institution or another appointing authority.  

Place of the arbitration

As for the place of the arbitration, parties are generally free to choose it for themselves (this is for international arbitration). In fact, it is one important element to write in the arbitration clause, since the place of the arbitration is more than a geographical information, it defines the law that will govern many essential aspects of the arbitration (lex arbitri). 

Types of arbitration

According to the parties involved:

  • Domestic arbitration: resolves domestic disputes and is governed by the local arbitration act or law in the particular jurisdiction (e.g., arbitrations in Turkey are ruled by the Turkish International Arbitration Act and Eleventh Book of the Code of Civil Procedure.
  • International arbitration: resolves cross-border disputes with parties in different jurisdictions. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards applies to arbitral agreements that have some foreign or international element. 

According to its nature:

  • Commercial arbitration: between private entities regarding their commercial relationship. 
  • Investment arbitration:  between a private investor and a State.
  • Inter-State: between States.

According to its administration: 

  • Institutional arbitration: a specialised institution administers the arbitration process according to its own set of rules. Some examples of arbitral institutions are the ICC (International Chamber of Commerce), the ISTAC (Istanbul Arbitration Centre) and the LCIA (London Court of International Arbitration). Normally, the parties will choose the arbitral institution in their arbitration clause.
  • Ad-hoc arbitration: the parties administer the arbitral process, either based on the law of the seat of the arbitration or pre-formulated rules such as the UNCITRAL arbitration rules.

Finding an arbitrator

Parties are free to choose their arbitrators. According to the nature of the dispute, they can and should select an arbitrator with sufficient experience and expertise that meets the parties’ expectations. 

There are many online tools that can help the parties find an arbitrator. If the arbitration is being administered by an arbitral institution, the institution’s arbitral rules have their own standard for the appointment of arbitrators and most likely a data base with arbitrators from which the parties can choose. Selecting an appropriate arbitrator is key for the arbitration, since different arbitrators may reach different conclusions to a given case with the same facts and the same applicable law.

Some elements to consider when searching for an arbitrator are his or her previous experience as an arbitrator, fluency in the language of the arbitration, knowledge of the substantive law, knowledge of the specific field in dispute, availability to take the case, among others. 

Type of disputes subject to arbitration

 Generally, claims involving an economic interest can be subject to an arbitration agreement. Other claims not involving an economic interest can be arbitrable to the extent that the parties are entitled to conclude a settlement on the issue. Thus, arbitration agreements for disputes outside this scope (e.g., involving criminal offences, or matrimonial and succession matters) are null and void and will not be heard in arbitration. 

Stages of an arbitration

The arbitration process:

  • The party wishing to start the arbitration (Claimant) files a Request for Arbitration (RfA) either to the arbitral institution or to the other party directly. 
  • The opposing party (Respondent) provides an answer to the RfA and may also submit a counterclaim. 
  • The arbitral tribunal is constituted.
  • A Case Management Conference is held: the arbitral tribunal discusses with the parties the specific procedural rules to be applied in the proceedings (for example, regarding costs, number of rounds for submissions, duration of the arbitration).
  • Taking of evidence and hearing: the arbitral tribunal can decide to hold an oral hearing for taking of evidence, if required. 
  • Closing of proceedings: the proceedings are closed by the arbitral tribunal after the hearing or after the last admitted written submission. Afterwards, the arbitral tribunal deliberates regarding the final decision.
  • Award: the arbitral tribunal renders a final and binding decision to the exclusion of the jurisdiction of the state courts. This award has the same legal binding as state courts’ judgements and can be legally enforced. There are exceptional cases where an award can be set aside by a state court (e.g., serious procedural error), otherwise an award amounts to a last instance court judgement. 

Actors of arbitration

  • Companies: arbitration is an effective mechanism for business entities to resolve their commercial disputes, both domestic and international. 
  • States: they use international arbitration both for inter-state disputes (the arbitration clause will be found in a treaty) and for investor-state disputes (the arbitration clause will be found in a Bilateral -or Multilateral Treaty). 
  • Individuals: normally in the investor-state scenario.

Advantages of arbitration

  •  Confidentiality: Parties and arbitrators are often bound by strict rules of confidentiality. Thus, in commercial arbitration, business secrets and sensitive information can be protected from the public, media or competitors. 
  • Procedural flexibility: Parties enjoy a lot of procedural flexibility, they choose their arbitrators, the place of arbitration, the language of the proceedings, among others. Together with the arbitral tribunal, they agree on how to structure and time their proceedings. However, this freedom is not absolute: arbitrations follow a similar form as the court process, including pleadings, taking of evidence, hearings, cross-examination of witnesses, and the issue of a final decision. The tribunal may not deviate from the principles of fairness and equality or the right to be heard.  
  • Finality: arbitral awards are final and binding. They can only be challenged before a state court under exceptional circumstances. For example, arguing that the arbitration clause was void. 
  • Enforceability of awards: If the losing party does not comply with the decision, the winning party can go to the state courts of a state where the losing party has assets and request the enforcement of the award. Arbitral awards can be enforced in most countries worldwide. This is due to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (ratified by 167 States).

Disadvantages of arbitration 

  • No appeal: the finality of the award may be a disadvantage since there is no possibility to appeal to a higher instance and the grounds to request an annulment in front of the state court are very few and exceptional. 
  • Costs: if the amount in dispute is modest, the arbitrators’ fees can make the process a lot more expensive than if the case would be heard by a state court.
  • Speed: unless the parties agree to ‘expedited proceedings’ (see, for example, the ISTAC expedited procedure provisions), the average length of an arbitration from the date of the request for arbitration until the date of the final award is between 6 to 12 months, depending on each case (sometimes more).

Cost of arbitration 

Costs of arbitration vary in each case depending on several factors, for example, the complexity of the dispute. Costs of arbitration include:

  • fees and expenses of the arbitrators, which must be paid by the parties. 
  • administrative fees, in case of having the case administered by an arbitral institution.
  • expenses of hiring rooms for hearings and meetings. 

Sample arbitration clause

An effective arbitration clause must establish clearly the scope of the clause and an appropriate procedural framework. The arbitration clause must authorize the arbitral tribunal to decide all disputes that may arise between the parties; exclude state courts from the dispute resolution process; and establish a framework that secures the enforcement of the arbitral award.
An example: the ISTAC provides the following model clause for arbitration:

  • All disputes arising out of or in connection with this contract or its validity shall be finally settled in accordance with the Arbitration Rules of the ISTAC without recourse to the ordinary courts of law.
  • The arbitral tribunal shall be comprised of [please enter “a sole arbitrator” or “three members”]
  • The seat of the arbitration is [please enter city and country].
  • The language of the arbitration shall be [please enter language of the arbitration].
  • The rules of law applicable to the merits shall be [please enter law or rules of law].

Hong Kong International Arbitration Centre (HKIAC) International arbitrations of all types and is a common choice for transactions involving a party from the People’s Republic of China. 

Applicable law 

Various aspects of an international arbitration may be governed by different laws:

  • Law governing the dispute (lex contractus): this is also known as the substantive law. The parties may choose it by including a choice of law clause in their contract. Where parties have failed to agree, the arbitral tribunal will choose the law applicable depending on the facts of the case at hand, using criteria such as selecting the law with the closest connection to the dispute.
  • Law governing the arbitration proceeding (lex arbitri): this is the law of the seat. The content of the lex arbitri varies from state to state but it usually includes rules governing interim measures, rules entitling the local courts to intervene to support and/or supervise the arbitration. The parties may choose the seat of the arbitration. Normally they choose the national law as lex arbitri to govern the conduct and procedure of the arbitration.
  • Law governing the arbitration agreement: also known as the proper law, concerns issues relating to the validity, scope and meaning of the arbitration agreement (including the scope of the tribunal’s jurisdiction). If the parties have not agreed on it, the law applicable to the arbitration agreement is often found to be the law of the arbitral seat, but it may also be the law governing the parties’ contract or international principles. 

Enforcement of the award 

An award made by a tribunal under an arbitration agreement is final and binding on the parties. However, if the award is not honoured voluntarily, it has to be enforced through national courts, by court proceedings. Enforcement enables the terms of an award to be enforced in the same manner as a domestic award or judgment. 

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (NYC) provides a framework through which awards made in one country can be enforced in another, subject to limited grounds for resisting enforcement. 

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