A. LEGISLATION AND RULES
A.1 Legislation
Arbitration proceedings in Türkiye are governed by the International Arbitration Act 2001[1] (IAL)[2] for cross-border disputes and by the Code of Civil Procedure of 2011 (CCP)[3] for domestic disputes without a foreign element. Both legal frameworks, which are modeled on the UNCITRAL Model Law, are recognized for their inclusiveness and for facilitating the arbitral process. The Law on International Private Law and Procedural Law (IPPL)[4] in Türkiye, adopted in 2007, deals with the recognition and enforcement of foreign arbitral awards. In addition, Türkiye is a signatory to the New York Convention, which has been in force in the country since 30 September 1992. There were no amendments to the IAL, CCP, IPPL or other arbitration-related legislation in 2023.
A.2 Institutions, rules and infrastructure
Several domestic arbitration institutions operate in Türkiye, the most sought-after being the Istanbul Arbitration Centre (ISTAC), the Istanbul Chamber of Commerce Arbitration and Mediation Center (ITOTAM) and the Union of Chambers and Commodity Exchanges of Türkiye (TOBB) Arbitration Council. Notably, the Union of Turkish Bar Associations (UTBA) Arbitration Center emerged in 2022, launching its updated arbitration rules known as the UTBA Rules.
ISTAC, established in 2014, is widely recognized as a leading arbitral organization in Türkiye and provides efficient dispute resolution services for both domestic and international arbitration cases. In 2022, ISTAC implemented amendments to its rules concerning costs and fee scales. Prior to these changes, the costs associated with proceedings involving three arbitrators at ISTAC were, in some instances, higher than those of Turkish court proceedings, depending on the disputed amount. The recent adjustments to the rules on costs and fees have resulted in more cost-effective ISTAC arbitration, particularly for disputes valued at less than TRY 1 million.[5] These revised rules have further enhanced the affordability of ISTAC arbitration, which was already known for its cost-effectiveness. ISTAC did not make any substantive amendments to its rules in 2023. However, it was announced in early December 2023 that the monetary threshold for the application of ISTAC Fast Track Arbitration Rules has been increased from TRY 3 million to TRY 5 million.
ITOTAM, another respected and frequently chosen arbitration center in Türkiye, has been at the forefront of arbitration services since its establishment in 1979. Expanding its scope, the institution recently ventured into mediation services. A pivotal moment came in March 2021 with a substantial amendment to the ITOTAM rules, signifying a noteworthy modernization initiative. In 2023, ITOTAM maintained stability by refraining from introducing any additional amendments to its rules after the comprehensive update in 2021, whereby its rules were modernized. In 2023, ITOTAM signed the Equal Representation in Arbitration (ERA) Pledge, which aims to achieve equal and fair representation of women in the role of arbitrator.
The UTBA Arbitration Center, established in 2015 as an independent and impartial entity within the UTBA, initially focused on disputes arising from attorney-client relationships or conflicts between attorneys. While its activity was limited in its early years, a transformative moment occurred in 2022 with the introduction of amended arbitration rules. The UTBA Rules, aligning with the standards of internationally recognized arbitration centers in Türkiye and worldwide, came into effect in 2022, propelling the UTBA Arbitration Center into a more dynamic position among arbitration institutions in Türkiye.
With the amended UTBA Rules in force, UTBA expanded its offerings to provide institutional arbitration services for the resolution of all disputes, including those with an international dimension. After the substantial amendment in 2022, UTBA maintained stability by refraining from introducing any further rule changes in 2023, seeking to solidify its position as a reliable and evolved arbitration center in Türkiye.
Finally, the TOBB Arbitration Council is another notable and long-established arbitration center in Türkiye. It is worth highlighting that the arbitration rules implemented by TOBB have remained unchanged since 2016, demonstrating a consistent and reliable framework for dispute resolution.
B. CASES
B.1 Turkish courts are authorized to decide on the objections to an interim measure issued by Turkish courts in relation to a dispute involving a foreign element and subject to arbitration, even after the initiation of the arbitration proceeding[6]
The underlying dispute arose due to conflicting rulings from the 15th Civil Chamber of the Istanbul Regional Court (“15th Civil Chamber“) and the 45th Civil Chamber of Istanbul Regional Court (“45th Civil Chamber“).
The issue before the 45th Civil Chamber originated from a contractual dispute, where the parties had opted for arbitration seated in Geneva, Switzerland, for dispute resolution and designated the ICC as the arbitration institution. Before the arbitration proceedings commenced, Turkish courts granted an interim measure. However, after the proceedings began, the defendant objected to the interim measure before the Turkish court. In the first instance, the court dismissed the objection and ruled that the arbitral tribunal had the authority to address the objections as there was a pending arbitration process.
The defendant appealed the decision on the dismissal of the objection. The 45th Civil Chamber (i.e., the appellate court) ruled that the authority granted to the arbitral tribunal by Article 414 of the CCP to modify or revoke an interim measure was not applicable due to the foreign element involved in the dispute. The court further ruled that a foreign arbitral tribunal’s revocation of an interim measure granted by a Turkish court would be interference with the jurisdiction of Turkish courts. Thus, the appellate court concluded that in cases involving a foreign element, Turkish courts have the authority to decide on objections to an interim measure, even if there is a pending arbitration proceeding.
On the other hand, in the dispute before the 15th Civil Chamber, the construction contract between the parties stipulated that the disputes shall be referred to an arbitral tribunal outside of Türkiye. Before the initiation of the arbitral proceedings, a Turkish court granted an interim measure based on the plaintiff’s request. However, after the establishment of the arbitral tribunal, in response to the defendant’s objection to this interim measure, the 15th Civil Chamber ruled that, since arbitration proceedings were already underway, only the arbitral tribunal had the authority to address objections to interim measures, and, therefore, Turkish courts lacked jurisdiction.
Following these conflicting decisions, a request was made to the Court of Cassation of Türkiye (“Court of Cassation“) to resolve the inconsistency. The Court of Cassation ruled that the Turkish courts have the authority to decide on objections to interim measures issued by Turkish courts in disputes involving a foreign element and subject to arbitration, even if there is a pending arbitration process.
B.2 Not raising the arbitration objection during mediation is not contrary to the principle of good faith, and having different dispute resolution mechanisms under different contracts does not invalidate the will to arbitrate[7]
The 14th Civil Chamber of the Istanbul Regional Court issued a judgment regarding the timing of the objection based on the arbitration clause in a dispute arising from an amendment agreement related to a guarantee agreement. The guarantee agreement provides for arbitration as the dispute settlement mechanism.
The conflict arose when the plaintiff initiated execution proceedings to collect receivables based on both a framework loan arrangement and the guarantee agreement. The defendant objected to the execution proceedings, and the plaintiff filed an action for the cancellation of the objection (itirazın iptali davası) to resume the execution proceedings. The defendant filed the action for cancellation of the objection before the Turkish courts. The defendant objected to the jurisdiction of the Turkish court based on the fact that the guarantee agreement provided for arbitration.
The court accepted the defendant’s objection and dismissed the lawsuit based on lack of jurisdiction. The plaintiff appealed this decision, arguing that the objection based on the arbitration agreement was not raised during the mandatory mediation phase that took place prior to the filing of the lawsuit. The plaintiff contended that raising this objection for the first time during the execution phase (despite having had the chance to do so during the mediation phase) contradicted the principle of good faith.
After careful deliberation, the 14th Civil Chamber of the Istanbul Regional Court rejected the plaintiff’s appeal and concluded that objecting to the jurisdiction based on an arbitration agreement during the litigation phase despite not having not raised this objection during the mediation phase did not constitute a breach of the duty to act in good faith.
B.3 An arbitral tribunal’s ruling on penalty for unjust objection to execution proceedings was not contrary to Turkish public order[8]
The underlying dispute originated from a personal guarantee agreement, which included an arbitration clause in its annex. The agreement mandated that any disputes arising therefrom would be resolved in accordance with the ICC Arbitration Rules (“ICC Rules“). Although the parties chose German law as the governing law for the extension agreement related to the personal guarantee, they did not explicitly specify the law applicable to the arbitration agreement in the annex.
Following the bank’s initiation of arbitration against the guarantor and obtaining an arbitral award for extending the guarantee term, the guarantor applied for set-aside proceedings in Türkiye. The plaintiff alleged, among other things, that (i) the arbitral tribunal improperly applied German law during the arbitration proceedings and erroneously assumed jurisdiction; (ii) the arbitration agreement was not signed and therefore did not meet the formal validity requirement; (iii) the arbitral tribunal violated the principle of equality of the parties by helping the defendant to prove its damages; and (iv) the arbitral tribunal improperly assumed jurisdiction to decide on the penalty for unjust objection to the enforcement proceedings.
In response, the bank argued that the formal requirements for a valid arbitration clause had been met, and the parties had chosen German law. Upon examination, the regional court found that the annex extending the personal guarantee agreement contained a provision wherein the parties agreed to arbitrate any disputes related to the agreement under the ICC Rules, with the annex being signed by the plaintiff. The court also concluded that the arbitral tribunal’s assertion of authority to rule on penalties for an unjust objection to execution proceedings did not violate public order and, thus, did not constitute grounds for set-aside proceedings. As a result, the regional court dismissed the set-aside lawsuit.
Despite the plaintiff’s appeal, the Court of Cassation rejected the appeal request, upholding the regional court’s decision with the same reasoning and approving the dismissal of the set-aside lawsuit.
B.4 The arbitral tribunal cannot award interest if interest has not been requested by the parties as a part of their relief[9]
The underlying dispute arose out of a contract between a local administration and a construction company for the renovation of the irrigation systems of a dam in Türkiye. The contractor took the local administration to arbitration. The arbitrators ruled in favor of the contractor. The administration then sought to have the award set aside by the appellate court, claiming, inter alia, that (i) the arbitral tribunal had exceeded its jurisdiction by deciding on past progress payments and the manner in which the administration should pay future progress payments, whereas the contractor had not requested any such decision; (ii) the arbitral award contains provisions that are unclear; and (iii) the commencement date for the accrual of interest was not specified in the award, all three of which resulted in the arbitral award being contrary to Turkish public policy.
The contractor’s position was that it had requested that the arbitral tribunal determine the method of progress payment under the contract. The contractor argued that the arbitral tribunal had not exceeded its jurisdiction as the award was rendered within the scope of reliefs requested during the arbitration. The contractor further argued that the set-aside claim should be dismissed because the plaintiff had not raised any of the grounds for set-aside enumerated in the IAL.
The appellate court found that the arbitral award had been rendered in accordance with the contractor company’s requests and that, therefore, there was no reason to set aside the award under the IAL. The court also acknowledged that it could not review the plaintiff’s claims regarding provisions of the award on payments, as they were intricately related to the merits of the dispute. However, the appellate court decided to partially set aside the award based on the fact that the arbitral tribunal had issued an award for the payment of interest, even though the contractor company had not made such a claim. The appellate court thus held that the arbitral tribunal’s award on interest was contrary to public policy and partially set aside the award. The appellate court’s decision was upheld by the Court of Cassation, and the plaintiff’s appeal was dismissed.
B.5 The parties to a dispute subject to arbitration may apply to the local courts for an interim injunction or attachment before or during the arbitral proceedings[10]
The underlying dispute arose out of contracts for the sale of sunflower oil. The supplier had requested an interim attachment of the debtor’s assets from the first instance court due to nonpayment of the sale price, which totals approximately USD 20 million. The court granted the interim attachment, as the supplier had fulfilled the necessary legal requirements to obtain it. The debtor objected to the attachment by arguing that the sale contracts contained an arbitration clause and that the dispute should be resolved by arbitration. The debtor’s objections were rejected by the first instance court.
The debtor challenged the court’s decision before the appellate court on the grounds that, inter alia, (i) the dispute between the parties was to be settled by arbitration and (ii) the supplier had not commenced arbitration proceedings within 30 days of the issuance of the attachment decision, and, therefore, the attachment was automatically revoked by law. The debtor thus requested the appellate court to reverse the attachment decision.
The appellate court found that Turkish courts have the power to issue an interim attachment or interim injunction before or during the arbitral proceedings, as provided under the IAL. In light of this, the court concluded that the supplier’s request for interim attachment did not violate the parties’ arbitration agreement. With respect to the debtor’s claim that the attachment should have been lifted automatically because the supplier had not commenced arbitration proceedings within the 30-day period, the appellate court ruled that the determination of whether or not the attachment should be lifted could not be subject to the appellate review. Instead, the review had to be requested from the court that had issued the decision on the interim attachment. Therefore, the debtor’s appeal was dismissed, and the court’s decision was confirmed.
[1] The IAL is applicable to disputes when there is a foreign element and where the place (seat) of arbitration is Türkiye. It is also applicable if the parties agreed to its application or if the arbitral tribunal determines that the arbitral proceedings should be conducted pursuant to the IAL.
[2] International Arbitration Law No. 4686 of 21 June 2001.
[3] Code of Civil Procedure No. 6100 of 12 January 2011.
[4] International Private and Procedural Law No. 5718 of 27 November 2007, Articles 60-63.
[5] As of 9 December 2023, TRY 1 million corresponds to approximately USD 34,506 based on the conversion rate published by the Central Bank of the Republic of Türkiye.
[6] The 6th Civil Chamber of the Court of Cassation File No.: 2022/3529, Decision No.: 2022/4699.
[7] 14th Civil Chamber of Istanbul Regional Court File No: 2022/438, Decision No: 2023/610.
[8] 11th Civil Chamber of Court of Cassation File No: 2022/5454, Decision No: 2022/8276.
[9] 6th Civil Chamber of Court of Cassation File No: 2023/1231, Decision No: 2023/2851.
[10] 9th Civil Chamber of the Adana Regional Court File No: 2023/15, Decision No: 2023/658.
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