In one of relatively recent decisions of the Court of Appeals,
the Court overruled the arbitration objection based on the Law on
the Obligatory Use of Turkish ("Law Numbered
805"), which stipulates that two Turkish companies
should execute their agreements in Turkey in the Turkish
Although the intention of the parties to the said agreement to
arbitrate their disputes was clear in the Agreement, the Court of
Appeals ruled that the First Instance Court should have considered
the effect of Law Numbered 805 when evaluating the arbitration
The merits of the case are related to a claim arising from a
subcontract signed in 2007 between the plaintiff and defendant
The plaintiff and defendant, although they were both companies
incorporated under Turkish law, executed the Agreement in
The Agreement included an arbitration clause stipulating that
any disputes arising between the parties should be finally settled
under the Rules of Arbitration of the International Chamber of
Commerce with London as the seat of arbitration.
Despite the arbitration clause in the Agreement, plaintiff
claimed its receivables arising from the costs of its performance
that have not been paid by the defendant before the Court of First
Instance. Defendant made an arbitration objection and claimed that
the dispute shall be resolved by an arbitral tribunal as per the
The Court of First Instance accepted defendant's arbitration
objection and dismissed the case on procedural grounds.
Plaintiff appealed the decision and the Court of Appeals
reversed the decision of the Court of First Instance.
Decision of the Court of Appeals
The Court of Appeals decided that it was not pertinent for the
Court of First Instance to dismiss the case based on the
arbitration clause in the Agreement without taking the following
issues into account;
Pursuant to Law Numbered 805, two Turkish parties should
execute their agreements in Turkey in Turkish.
Whether or not as a consequence of not being executed in
Turkish, the Agreement should be deemed to be invalid or,
alternatively, should be deemed valid but not considered as
evidence as per Law Numbered 805.
Whether or not the plaintiff's opposition to
defendant's arbitration objection constitutes breach of good
faith regulated under Article 2 of the Turkish Civil
The Law Numbered 805
Law Numbered 805, which dates all the way back to 1926 (shortly
after the foundation of the Turkish Republic), was issued in order
to promote and protect the use of the Turkish language.
Article 1 of the said Law regulates:
"Any kind of companies and institutions having Turkish
nationality shall execute any kinds of transactions, agreements,
correspondence, accounts and books that are in Turkey in
The sanction of not abiding by the above provision is stipulated
under Article 4 of the same Law as follows:
"Following the entry into force of this law; documents
and papers issued contrary to the provisions of Articles 1 and 2
shall not be considered in favor of the companies and
While the wording of Article 4 of Law Numbered 805 is clear,
there is still a debate on whether the sanction regulated under
this article affects the validity of the agreements in question or
whether it only relates to the evidentiary value of the
This is the issue that the Court of Appeals in the case at hand
urges the Court of First Instance to discuss.
The decision of the Court of Appeals is surprising and therefore
Although the Court of Appeals did not definitely rule on the
validity/invalidity of the Agreement as a consequence of not being
executed in Turkish as per Law Numbered 805, it deemed that the
issue should have been considered by the Court of First Instance
despite the arbitration clause in the Agreement.
According to text of the decision, it seems that the parties to
the Agreement clearly indicated their intent to resolve any
disputes arising out of the Agreement, which should also cover the
question of validity, before an arbitral panel rather than before
It is therefore surprising that the Court of Appeals questioned
such clear intention of the parties and ignored the principle of
severability, one of the main principles in international
1. Court of Appeals Decision dated 16.03.2012 numbered E.
2012/3122 - K. 2012/4073.
2. Turkish Civil Code numbered 4721 as published in the
Official Gazette dated 08.12.2001 numbered 24607.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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