- To what extent is an arbitration clause binding upon a party that did not actually conclude the agreement, containing the clause of extension of the arbitration agreement to non-signatories?
A. General Approach
Contracts create effects and consequences between the signatory parties according to Turkish Law in which the "Principle of the Privity of Contracts" is acknowledged. Likewise, the arbitration agreement has its consequences for the parties, just like other agreements. Parties, who are not signatories to the contract, in principle, are neither bound by the arbitration agreement nor can they claim a right based on it.
To define the issue more accurately on the understanding of Turkish Law, we must underline that the concept is called an "extension of the arbitration agreement to third parties". Turkish doctrine does not prefer to use the term "non-signatories". The reason for this preference is to prevent terminological ambiguity when a party's representative, rather than the party himself, signs a contract. Since the contract bears the representative's signature rather than the party's own, Turkish doctrine maintains that in this situation, the represented may be understood as a "non-signatory" and this may lead to misunderstandings of terms1. On the other hand, if the power of representation is apparently granted and used, it is clear that the legal consequences of the arbitration agreement will arise on the represented party and it is not possible for the representative to be bound by the arbitration agreement. Therefore, the extension of the contract is not an issue to be discussed in this respect, according to Turkish Law. So what if the "representative" has not been given the power of representation to sign an arbitration agreement? Turkish Code of Obligations (No.6098) orders, without hesitation, that the representative has to be given special power to sign an arbitration agreement2. If there is no special power to be given to sign an arbitration agreement, there is no representative or representation. While this is true, the rules on the assignment of a claim as an exception can come into question in this case. However, Turkish doctrine addresses and discusses exceptions to this general rule which an arbitration agreement has only effects and consequences on the parties.
Summing up, an arbitration agreement is a match of wills between the parties to a contract any disputes that might come from the contract will be resolved by an arbitrator. The arbitration agreement is of an exceptional nature and binds the parties to the agreement3. Naturally, this exceptional character leads to exceptions to the general rule.
B. Exceptions
B.1 Complete Succession (Külli Halefiyet)
The most important exception to the principle of privity of contract is the case of complete succession. The contract is transferred in its entirety, along with all of its rights and responsibilities, in the event of complete succession. In these situations, the successor is compelled by law to become a party to the arbitration agreement even if there is no will to arbitrate the dispute. For example, in the event of the death of one of the parties concluding the arbitration agreement, the successor becomes a party to the arbitration agreement. Likewise, in accordance with complete succession, in the mergers and acquisitions of commercial companies, the company that acquires the rights and debts of the other company becomes a party to the arbitration agreements to which the company transferring its rights and debts is a party4. Another instance of the complete succession is the insurance company's succession, according to Turkish Commercial Code (Türk Ticaret Kanunu) Article 1472, the insurer legally replaces the insured at the time of the payment of the insurance compensation.
In conclusion, under complete succession, the successor automatically becomes a party to the arbitration agreement without seeking any further consent.
B.2 Partial Succession (Cüzi Halefiyet)
B.2.1 Assignment of Contract (Sözleşmenin Devri)
According to Article 205/1 of the Turkish Code of Obligations (No.6098), the assignment of a contract is an agreement between the assignor and the assignee whereby the assignor transfers his all rights and responsibilities arising from the contract to the assignee. In case of an assignment of the contract, the assignee accepts the contract with its all rights and responsibilities including the arbitration agreement5. Additionally, the Turkish Court of Cassation stands for this opinion6. If the arbitration agreement is concluded as an independent agreement and if the assignee does not know or is not able to have known about the existence of independent arbitration, the assignee cannot be bound by the arbitration agreement without his consent, as Turkish Law doctrine argues7.
B.2.2 Assignment of Claim
As different from the assignment of contract, in the assignment of claim, a right or claim in the legal relationship is transferred to the third party, but not the legal relationship. It can be argued that an arbitration clause included in a contract is an integral part of the claim arising from the same contract. Indeed, many Turkish scholars support this opinion as a result of the influence of French doctrine8. However, the prevailing opinion among Turkish scholars is that in the case of assignment of claim, the assignor transfers the right of a claim arising from a contract to the assignee but this process cannot transfer or change the legal relationship. Moreover, the arbitration clause contains the responsibility to arbitrate. The assignor cannot be bound by this responsibility when he and the debtor have not agreed on an arbitration clause. Similarly, the debtor's will to arbitrate was directed towards the assignor. Therefore, the prevailing opinion holds that the will element of arbitrate must be protected in this occasion9. The Grand General Assembly of the Court of Cassation Unification of Jurisprudence has accepted this opinion which advocates the independence of the arbitration clause in the process of an assignment of claim and the protection of the will element10.
B.2.3 Transfer of Negotiable Bill of Lading
If a bill of lading is issued with reference to the provisions of the Charter Party and if the Charter Party includes an arbitration clause, Article 4/2 of The Code of International Arbitration (Milletlerarası Tahkim Kanunu) clearly results that a reference to the Charter Party is sufficient to establish a valid arbitration agreement. For, as the majority of Turkish scholars and the Turkish Court of Cassation interpret Article 4/2, a valid arbitration agreement shall be considered to have been reached in the case that a document containing an arbitration provision is referred to, in order to become a part of the primary contract11.
B.3 Contract for Third-Party Benefit
In Compatible with Article 129 of the Turkish Code of Obligations12, A contract for the benefit of a third party can only give that third party a right, not a liability. As mentioned above, the arbitration clause is also a responsibility, so the parties cannot impose liability on a third party, as a natural result of "the principle of prohibition of contract to the detriment of third parties"13.
B.4 Lifting of the Corporate Veil
As a reflection of the principle of good faith, even though each company in a group of companies has a separate legal personality, it is necessary to prevent the abuse of legal personality as a means of avoiding liability. In such cases where it is believed that the legal personality has been abused in order to avoid responsibilities, it is ensured that the corporate veil is lifted and the corporate behind the veil is held responsible14. The corporate behind the veil is assumed as the owner of the will to arbitrate in an arbitration agreement. Therefore, this corporate behind the veil is also bound by the arbitration clause.
- To what extent are there specific rules in TURKEY (unfair contract clauses; consumer protection) to protect consumers against the binding force of arbitration clauses?
The protection of consumers is a matter of public order, as is clearly stated by Article 1 of the Law on Consumer Protection (No.6502). Article 1 has been also pointed as the legal ground for Article 66 by which the arbitration committee of consumer issues is established and for Article 73 in which the consumer courts are declared as the authority of the protection of consumers. The Turkish Court of Cassation therefore presumes that arbitration agreements in cases of consumer disputes are void and arbitration clauses in consumer contracts do not bind the consumers15.
Likewise, the contractual clauses that the seller or supplier unilaterally put into the contract without negotiating with the consumer, causing an imbalance in the rights and obligations of the parties arising from the contract, contrary to the rules of goodwill, are unfair terms and are not binding on the consumer16. Turkish Court of Cassation demonstrates a stable jurisprudence in this manner17.
- Can an arbitrator decide on his/her own jurisdiction? Can the state court of the seat decide that an arbitrator has no jurisdiction and stop the proceedings or has it to wait till the award is rendered?
Article 7/3 (H) of The Code of International Arbitration includes a detailed answer to this question. The arbitrator or arbitral panel may determine its own authority, including challenges to the existence or validity of the arbitration agreement. The arbitration clause in a contract is assessed separately from the other provisions of the contract when making this decision. The arbitration agreement does not immediately become invalid if the arbitrator or arbitral panel decides to void the main contract.
The objection regarding the jurisdiction of the arbitrator or the arbitral tribunal has to be made in the first petition of reply, at the latest. The objection of lack of jurisdiction is examined and decided upon by the arbitrator or arbitral panel as a preliminary matter; if it finds that it has jurisdiction, the arbitration proceedings are continued and the case is decided.
The state court of the seat has no full and ex officio authority to declare the arbitrator or an arbitration tribunal of lack of jurisdiction or stop its proceedings. However, the procedure of rejection of an arbitrator or arbitrators can come into question in this issue as a legal instrument for the state court of the seat to intervene in the arbitration in order to stop the proceedings.
According to Article 7/3 (D), the party seeking to have one or more arbitrators removed from the arbitral tribunal may notify the tribunal of the request for rejection along with a justification. The party who learns that the rejection request has not been accepted may apply to the civil court of the seat against the decision within thirty days from this date and may request the annulment of this decision and the rejection of the arbitrator or arbitrators. Arbitration may be terminated if that court decides to dismiss all of the elected arbitrators or the dismissal of the arbitral tribunal or the majority of the arbitrators. The court takes into account the agreement of the parties and also whether the arbitrator or arbitrators are independent and impartial18.
Footnotes
1 Esen, Emre, (Prof. Dr.), Uluslararası Ticari Tahkimde Tahkim Anlaşmasının Üçüncü Kişilere Teşmili, Beta, İstanbul, 2008. (p.98 of PhD Thesis version, access in: http://nek.istanbul.edu.tr:4444/ekos/TEZ/43378.pdf)
2 ARTICLE 504 (III): Unless specifically authorized, the representative cannot file a lawsuit, settle a dispute, apply to an arbitrator, request bankruptcy or postponement of bankruptcy, or request a concordat, sign a bill of exchange, make a donation, be a guarantor, transfer the immovable and cannot limit the immovable by (granting) a right.
3 Yargıtay (Turkish Court of Cassation), 19. Civil Law Chamber, 2003/2654, 2004/2603, 11.03.2004
4 Korkmaz, Melis Sılacı, New York Konvansiyonu Uyarınca Bir Tenfiz Engeli Olarak Tahkim Anlaşmasının Geçerliliği, On İki Levha, İstanbul, 2020, p. 45.
5 Akıncı, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, İstanbul, 2020, p.146.
6 Yargıtay (Turkish Court of Cassation), 19. Civil Law Chamber, 2014/11942, 2014/17697, 09.12.2014
7 Korkmaz, New York Konvansiyonu Uyarınca Bir Tenfiz Engeli Olarak Tahkim Anlaşmasının Geçerliliği, p. 48.
8 Uluocak, Nihal, "Milletlerarası Tahkim Şartının Alacağın Temliki ile İntikali-Fransız İçtihadı", MHB, Yıl: 19-20, 1999-2000, s. 993.
9 Gürzumar, Osman Berat (Prof. Dr.), Alacağın Devri ve Tahkim Anlaşması, Cevdet Yavuz 'a Armağan, 2016, p. 1263.
10 The Grand General Assembly of the Court of Cassation Unification of Jurisprudence, 2016/2, 2018/4, 13.04.2018
11 Aküzüm, Ural & Korkmaz Sılacı, Melis, Notes on "Tahkim Anlaşmasinin Üçüncü Kişilere Teşmili", 25 KASIM 2020 Symposium of Istanbul Arbitration Center. (21.02.2023, Access in: https://ista.org.tr/blog/haberler/av-melis- silaci-korkmaz-av-dr-ural-akuzumun-paylasimlariyla-tahkim-anlasmasinin-ucuncu-kisilere-tesmili-konulu-webinar- gerceklesmistir/)
12 ARTICLE 129- If the person who has made a contract on his behalf has put a performance obligation in favor of the third party in the contract, he may request the performance of the act to the third party.
13 Esen, p. 247.
14 Sılacı Kormaz, p. 54.
15 Turkish Court of Cassation, 13. Civil Law Chamber, 2008/3492 K.2008/11120 T.25.09.2008.
16 Akıncı, Milletlerarası Tahkim, p. 114.
17 Turkish Court of Cassation, 13. Civil Law Chamber, 2006/7789, 2006/12275, 25.09.2006
18 Article 7/3(D) lays out detailed rules on the examination of the court in this manner. For instance, the court also examines whether the parties are of different nationalities and, if a sole arbitrator is to be chosen, whether this sole arbitrator is one of the nationals of the parties. If three arbitrators are to be selected, the court checks whether two of them have the same nationality with one of the parties.
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