Turkey: A Comprehensive Guide To International Arbitration In Turkey: Part V (Turkish Approach To Lex Mercatoria And The Effect Of EU Competition Law)

1. Can arbitrators in TURKEY (under the arbitration law or arbitration institution rules) apply the "lex mercatoria" to a dispute : (a) When it is chosen by the Parties as a legal system? (b) When it is not chosen by the Parties? What is "lex mercatoria"?

a) When it is chosen by the Parties as a legal system, can arbitrators in TURKEY apply the "lex mercatoria"?

The Code of International Arbitration (no4686) provides a clear answer to this question in its Article 12/C, which states, "The arbitrator or arbitral tribunal decides in accordance with the terms of the Parties' contract and the rules of law they have chosen to apply to the merits of the dispute." Article 12/C of the International Arbitration Law allows the Parties to choose the "rules of law" as the applicable law. The deliberate use of the phrase "rules of law" is considered a clear sign to encompass lex mercatoria by the Code itself¹. This methodology is praised by Turkish scholars as it is a modern approach to arbitration law and is compatible with French, Swiss, Dutch, and German systems; in each of these nations, the Parties can choose a "law" or/and "rules of law" as the applicable law to a dispute². Turkish legislator, who is a party³ to the 1961 European Convention on International Commercial Arbitration, preferred to accept and declare the priority of the Parties' will in determining the applicable law.

The title "Legal Rules to be Applied to the Basis of Dispute" in Article 25 of the ISTAC Arbitration and Mediation Rules can be considered to be in accordance with Article 12/C of the Law. Therefore, the ISTAC Rules acknowledge that arbitrators will apply lex mercatoria as applicable rules of law when parties it is chosen by the Parties as a legal system.

b) When it is not chosen by the Parties as a legal system, can arbitrators in TURKEY apply the "lex mercatoria"?

The regulations of the Code of International Arbitration (no4686) bring a difference between the rules about the validity of the arbitration agreement and the law applicable to the merit of the dispute. However, in both cases, arbitrators cannot apply the"lex mercatoria" when parties do not choose those rules.

Article 4/3 of the Code of International Arbitration states "The arbitration agreement is valid if it is in accordance with the applicable law chosen by the parties to the arbitration agreement, or if there is no such choice of law, in case if it is in accordance with Turkish law"⁴. The direct applicability of Turkish law to the arbitration agreement is acknowledged in the legal wording of Article 4/3, which makes no reference to the principles of conflicts of law under Turkish law but orders to apply Turkish law⁵.

Similarly, Article 12/C/2 of the Code of International Arbitration regulates the occasion when no law chosen by the parties to apply to the merit of a dispute, and in this case, the rule explicitly excludes the applicability of lex mercatoria, by saying "If the parties did not decide on the rules of law to be applied to the merits of the dispute, the arbitrator or the arbitral tribunal decides according to the substantive law rules of the state which it has concluded to be in the closest connection with the dispute". With this regulation, if the choice of law was not agreed upon by the parties, arbitrators possessed the opportunity to determine the substantive law to be applied to the merits of the dispute, but this opportunity was constrained as the substantive law rules of any state. In other words, an arbitrator or arbitration tribunal can only determine substantive rules of a national law as the applicable law. Therefore, when arbitrators must determine the rules of law to be applied to the merits of a dispute, they will only be able to apply national laws within the order of the aforementioned regulation, and they will not be able to rely on any non-national rules commonly used in international trade or international commercial customs and practices, such as lex mercatoria. Nonetheless, this article is criticized by Turkish scholars in the aspects that arbitrators confront numerous challenges when they must apply the conflict of laws first and the laws of a foreign legal system which has the closest connection with the dispute, for, these Turkish scholars assert that the majority of national law rules focus to local relations and are not functional in cases involving foreign elements⁶.

Article 25 of ISTAC⁷ regulations adopts a more suitable language to allow lex mercatoria to be applied in the absence of an agreement of the parties on the rules of law applicable. However, ISTAC Rules can not be applied contrary to the Code of International Arbitration (no4686), therefore, this legal wording of Article 25 can not be considered more than being an expression of a preference and the will to keep the ISTAC Rules available for desired amendments in the Code of International Arbitration (no4686).

On the other hand, another intriguing opportunity for the arbitrator or arbitration tribunal to apply the lex mercatoria can be found in Article 12/C/3, which states that "The arbitrator or arbitration tribunal can decide according to the ex aequo et bono (hakkaniyet ve nısfet) or as an amiable compositeur (dostane aracı), only if explicitly authorized by the parties". In other words, if the parties did not express their will in the application of lex mercatoria but at the same time they may have agreed upon to give an explicit authority to the arbitrator or the arbitration tribunal to decide according to the ex aequo et bono. In my opinion, a prestigious Turkish scholar's⁸ argument which points out the ex aequo et bono character of lex mercatoria can be helpful in this case.

c. What is lex mercatoria?⁹

Lex mercatoria is defined as a set of non-national norms constituting an autonomous legal order independent of national laws. It originated in the Middle Ages as a common law to resolve disputes between merchants trading across Europe. Supporters of this non-national and independent set of rules of law propose the lex mercatoria as a solution to the merchants' society's demand for a legal order that is more responsive to the needs of modern international commerce. Opponents of this theory, on the other hand, argue that it lacks the essential characteristics required for it to be considered a genuine legal order¹⁰.

The five features of the modern lex mercatoria can be summarized as its legal character of transnationality; providing standard contracts (take-it-or-leave-it contract); having its source from the customs of international commerce and trade; being more convenient for arbitration; having permanent and developing international codification¹¹.

2. To what extent may arbitrators in TURKEY declare a contract,which the parties subjected to Swiss law and is valid under Swiss contract law,null and void because of EU Competition Law?

Treaties are an essential component of a nation's legal system and have the same normative effect in its legal order as codes and acts in many countries¹². Switzerland and the EU signed such a treaty on competition law issues by which they are bound with the obligation and responsibility to avoid or lessen the possibility of conflicts between the Parties¹³. Therefore, arbitrators in Turkey would have to apply this treaty as a part of Swiss law. According to Eco Swiss Case¹⁴, the Court of Justice of the European Union has decided that the arbitrators are obliged to apply the EU competition rules ex officio. In this case, arbitrators must contribute to more effective enforcement of Articles 101, 102, and 105 of the Treaty on the Functioning of the European Union, Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (hereinafter referred to as "Regulation (EC) No 139/2004"), Articles 53 and 54 of the Agreement on the European Economic Area (hereinafter referred to as the "EEA Agreement") when used in conjunction with Articles 101 and 102 of the Treaty on the Functioning of the European Union, and their implementing regulations as well as any amendments¹⁵.

Even though, competition laws can be deemed as having the legal nature of ordre public/public order/kamu düzeni, some Turkish scholars believe that the Turkish courts tend to grant more freedom to the parties in arbitration and not strictly apply the provision for public order restrictions¹⁶. According to Turkish courts, parties cannot bring to court a claim based on a violation of competition laws and a violation of public order in the case of enforcement of an award¹⁷. In a well-known decision about this question, The Turkish court rejected the claims and objections, stating that it did not identify a violation of the right to be heard or a procedural error against public order¹⁸.

Footnotes

1. GÜVEN, Koray, "Lex Mercatoria ve Milletlerarası Tahkim", Public and Private International Law Bulletin, Volume: 34, Issue: 2, 2016, (1-57), p. 28.

2. BİNGÖL, F. Itır, "Lex Mercatoria ve Türk Tahkim Hukuku'ndaki Yeri", D.E.Ü. Hukuk Fakültesi Dergisi, Prof. Dr. Şeref ERTAŞ'a Armağan, C. 19, Özel Sayı-2017, (1953-1969), p. 1967.

3. Code on ratification of the Convention available at (20.03.2023): https://www5.tbmm.gov.tr/tutanaklar/TUTANAK/TBMM/d18/c060/tbmm18060114ss0499.pdf

4. Another argument for the regulation of the Code of International Arbitration (no4696) may rise on the ground of the differences in legal wording of Article 4 and Article 12. While Article 4 says that the parties can choose "law" to apply the arbitration agreement, Article 12 states that the parties can determine the "rules of law" applicable to the merit of a dispute. In this case, one argument can claim that Turkish legislator delibaretly prefers that the parties can choose lex mercatoria to apply to the merit of a dispute but they are not allowed to determine lex mercatoria as the rules to apply to the arbitration agreement, indeed, lex mercatoria is of character as rules of law but those rules are not a "law" in the language of legal thinking in Turkish.

5. AKINCI, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, 2020, s. 162.

6. ÖZDEMİR, Didem, "Milletlerarası Ticari Tahkimde Esasa Uygulanacak Hukuk Olarak Lex Mercatoria" Ankara Hacı Bayram Veli Üniversitesi Hukuk Fakültesi Dergisi, Yıl 2003, Cilt 7, Sayı 2, 0 - 0, 01.06.2003

7. "The Sole Arbitrator or Arbitral Tribunal shall make their decision in accordance with the rules of law chosen by the parties as applicable to the merits of the dispute. In the absence of such agreement by the Parties, the Sole Arbitrator or Arbitral Tribunal shall apply the rules of law that is deemed to be appropriate."

8. Prof. Dr. Arzu OĞUZ's talk in "Uluslararası Uyuşmazlık Çözümünde Usul, Uygulamalar Ve Güncel Sorunlar Sempozyumu/ Symposium on Procedures, Practices and Current Issues in International Dispute Resolution", 09-10 Ocak 2009, Türkiye Barolar Birliği, Ankara, p. 57. Available at (20.03.2023): http://tbbyayinlari.barobirlik.org.tr/TBBBooks/uluslararasi_uyusmazlik_semp.pdf

9. Under this chapter, the definitions of lex mercatoria in Turkish academia are preffered to give in order to introduce the understanding of the concept among Turkish scholars.

10. GÜVEN, Koray, "Lex Mercatoria ve Milletlerarası Tahkim", p. 1-3.

11. MILENKOVIĆ-KERKOVIĆ, Tamara, translated to Turkish by Dr. Cansu YENER KESKİN, "Yeni Lex Mercatoria'nın Kaynağı, Gelişimi ve Temel Özellikleri/Origin, Development and Main Features of the New Lex Mercatoria", Kocaeli Üniversitesi Hukuk Fakültesi Dergisi, Ocak / Temmuz 2020, Sayı: 21 / 22, (137-143), p. 141-142.

12. According to Article 90 of Turkish Constitution, duly ratified international agreements have the same legal force as codes and acts; in case of conflicts between the international agreements on fundamental rights and freedoms and the codes of national law, the provisions of the international agreements will prevail.

13. Article 5 Of The Agreement Between The European Union And The Swiss Confederation Concerning Cooperation On The Application Of Their Competition Laws. Available at (20.03.2023). https://ec.europa.eu/competition/international/bilateral/agreement_eu_ch_en.pdf

14. Judgment of the Court of 1 June 1999, Eco Swiss China Time Ltd v Benetton International NV, Reference for a preliminary ruling: Hoge Raad – Netherlands, Competition - Application by an arbitration tribunal, of its own motion, of Article 81 EC (ex Article 85) - Power of national courts to annul arbitration awards. Case C-126/97.

15. Article 1 of the Treaty between the EU and Swiss Confederation.

16. BOLATOĞLU, Hilmi, Rekabet Uyuşmazlıklarının Tahkime Elverişliliğine İlişkin Hukuki Çerçeve, Hacettepe Hukuk Fakültesi Dergisi, 7(2) 2017, (305–332), p. 327.

17. AKINCI, Ziya, Milletlerarası Tahkim, p. 100.

18. Turkish Court of Cassation (Yargıtay), 11. Civil Law Chamber, File No 2016/725, Decision No 2016/7777, 06.10.2016. According to Article 20.1. of the parties' contract, the Court of Cassation ruled that the arbitral tribunal rendered its decision in accordance with Italian law. Since it was agreed that Italian law would govern the contract, there was no evidence that the right to be heard by the arbitral tribunal was violated or that a procedural error was made in a manner contrary to public order, in accordance with the New York Convention and the Code of Private International Law. The decision to enforce the arbitral award was upheld by the local court. AKINCI, Milletlerarası Tahkim, p. 101, footnote 52.

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