Turkey: Istanbul Moving Forward To Become International Arbitration Center

The Istanbul Arbitration Center Code Nr. 6570 (the "Code") acknowledged as of November 20, 2014 by the Turkish Parliament has been published on November 29, 2014 in the Turkish Official Gazette Nr. 29190. Publication has been on the agenda for almost three years as part of Istanbul becoming an international finance center strategy along with the initiatives taken by the Turkish Union of Chambers and Commodity Exchanges ("TOBB") in this respect. It is expected that the Code enters into force as of January 1, 2015.

It is envisaged that the Code presents a settlement opportunity within a shorter term particularly with respect to commercial disputes bearing foreign elements and the Code is preferred as a legal remedy with less costs within a longer term. For this purpose, the Code stipulates the constitution of the Istanbul Arbitration Center (the "Center") to enable the settlement of disputes including those bearing foreign elements by virtue of arbitration or alternative dispute resolution methods along with the terms and conditions of the Center's organization and activities.

Main duties of the Center being a private legal entity

The Center to be established in Istanbul according to the Code shall perform the duties assigned thereto by the Code as being a legal entity subject to private laws. The main duties of the Center are: (a) to determine the rules with respect to arbitration and alternative dispute resolution methods and to maintain the conduct of the services to be provided by the Center and (b) to promote and issue publications with respect to arbitration and alternative dispute resolution methods, to incentivize, support, realize scientific works on this subject, to cooperate with individuals and institutions locally or abroad.

Important representatives in the Center's general assembly of twenty-five members

The Code stipulates that the bodies of the Center constitute of the general assembly, board of directors, auditor(s), advisory boards, local and international arbitration tribunal, and the general secretary. When the Code was initialized the general assembly was envisaged to constitute of 15 members whereas it is obviously envisaged by the Code to constitute of 25 members. Each of the members has to be experienced in its profession for at least ten years. Accordingly, the Center general assembly shall constitute of the following members: (a) six members to be elected by the Turkish Union of Chambers and Commodity Exchanges, among which two will be from commercial and industrial chambers; one from commercial chambers, one from chambers of shipping, one from industrial chambers and one from commodity exchange organizations; (b) four members to be elected by the Bar association presidents from lawyers registered with the Bar; (c) three members to be elected by the Council of Higher Education from the academic members experienced in arbitration; (d) two members to be elected by the Turkish Exporters Assembly; (e) one member to be elected by the Ministry of Justice from first degree judges being employed within the administration; (f) one member to be elected by the Turkish Union of Banks; (g) one member to be elected by Turkish Union of Participation Banks; (h) one member to be elected by the Turkish Capital Market Board; (i) one member to be elected by Borsa Istanbul (Istanbul Stock Exchange); (j) one member to be elected by the Confederation of Turkish Merchants and Craftsmen; (k) one member to be elected by the Turkish Banking Regulatory and Supervisory Authority; (l) one member to be elected by the Turkish Union of Capital Markets; and (m) one member to represent the confederation of workers and employers syndications with the most members. These representatives will be elected by the managerial bodies of the above listed institutions which shall notify TOBB of the representatives who will serve in the general assembly of the Center within two months after the Code entered into force. After this notification, the Center shall convene its first general assembly.

The first meeting date of the Center's general assembly shall be deemed the commencement date of the general assembly members' term of office. The Code foresees that the Center's general assembly members shall be elected for four years who can be re-elected in the event their term of office expires. In the event their membership is terminated for any reason, an election shall be made to fill the same vacancy and to complete the remaining term of office of the member whose position became vacant.

Special election procedure for members to be nominated by the Bar association presidents

The Code stipulated a special election procedure to determine representatives to be elected by the Bar association presidents and specified how the Turkish Union of Bar Association shall elect such representatives. Accordingly, within ten days following notification of the nominees by the Bar association presidents, the same will need to make the election at the time and place determined by such Union. In such election, each of the Bar association shall have only one voting right. Four nominees whom have been mostly voted for shall be deemed to have been successfully elected.

Majority of the Center's board members are from nominees being school of law graduates

Against a general assembly of twenty five members, the board of directors constituting one of the Center's managerial bodies shall have five full members and four substitute members who will be elected for four years. It is stipulated that at least three full members and two substitute members shall be graduates of the school of law. Moreover, the chairman of the Center's board must also be a graduate of the school of lawwho will be elected from among those members. The Code requires a majority for the meeting and decision quorum of the Center's general assembly whereas the board of directors' meeting quorum shall require the presence of at least three members and the decisions to be taken by the board shall require the majority of its all members. In other words, the board of directors constituting of five members shall convene with a majority of its members but however shall at least resolve with affirmative votes of its three members, i.e. this will require unanimous consent of the board members to adopt a resolution who convened with three members. Those board members whose term of office has expired can be re-elected. If their term of office is terminated for any reason, the first substitute member in the queue will fill in the vacancy until the term of office of the vacant member expires.

Arbitration rules shall be determined by the Center's board of directors

In addition to its main duties such as preparation of the balance sheet, activity report and budget, it is understood the Center's board of directors shall be assigned to an important duty such as "Preparation of drafts including rules to be implemented on the arbitration and alternative dispute resolution methods, along with the terms and conditions in relation to the Center's operation for which the opinion of the advisory board shall be obtained and following that they shall be submitted to the Center's general assembly approval." According to Temporary Article 1 of the Code, regulations including the rules to be implemented on the arbitration and alternative dispute resolution methods along with the terms and conditions in relation to the operation of the Center shall be prepared and put into effect by the Center within six months following the establishment of the Center's board of directors. Additionally, the fees payable to arbitrators and the service fee tariff of the Center shall also be prepared by the Center's board of directors and submitted to the Center's general assembly.

Even if the final approval shall be given by the Center's general assembly, it is obvious that the decision maker in structuring these rules shall be the Center's board of directors, to which we, as lawyers, shall be making frequent reference in commercial contracts stipulating the settlement of disputes to be conducted according to "Istanbul Arbitration Center Rules."

Timing for arbitration rules

It is obvious that the determination of the Istanbul Arbitration Center Rules and Fee Tariff shall take considerable time because within two months after the Code entered into force effective date January 1, 2015 the members who will constitute the general assembly shall be named to the TOBB, and within two months following such notification the Center shall convene its general assembly. In all likelihood, the first board members shall be elected in this general assembly, and who will ensure the required rules and fee tariff enter into force within six months starting from their election. However, since such legislation shall be subject to the Center's general assembly approval, a further general assembly should be convened to have the mentioned rules accepted. Consequently, if the given time periods would be exhausted fully, it would not be possible to see what the Istanbul Arbitration Center Rules and fee tariff will look like, before the end of 2015.

Until the board of directors to be elected in accordance with the above given timeline has been founded, all the required support services shall be provided by the Turkish Union of Chambers and Commodity Exchanges.

The Center shall be audited by its members

Auditor(s) constituting one of the Center's bodies shall be at least one, or at most three members who shall be elected either from the members of its general assembly or from outside the Center. The term of office of such auditor(s) has also been determined as four years. The main function of the auditor(s) shall be to audit the board of directors' activities and to submit a report to the general assembly in relation thereto.

Advisory board

The Code envisioned that the Center maintains an advisory board. The advisory board shall consist of fifteen members with at least five years' experience each on arbitration or alternative settlement of dispute methods from whose knowledge and advice the Center shall benefit in line with the purposes of the Center.

Members of the advisory board shall be elected by the general assembly upon proposal of the board of directors for four years. If the board of directors deems necessary, it shall be entitled to obtain the opinion of the advisory board. The advisory board shall be entitled to convene at least once a year and to submit its report to the board of directors on the matters for which it has been asked for.

The General Secretary shall assist the board of directors in determining the arbitration rules

It is foreseen that the Center includes within its organization a general secretary, assistant general secretary and sufficient personnel. The General Secretary and assistant general secretary shall be elected by the board of directors amongst jurists who have at least ten years' experience in their profession. The general secretary and assistant general secretary shall perform those duties included within the regulations determining the arbitration and alternative settlement of dispute methods along with the terms and conditions in relation to the operation of the Center, and shall be responsible for the administrative work of the Center.

National and International Arbitration Tribunal

The Code plans for the Center to have within its organization separately a National Arbitration Tribunal and an International Arbitration Tribunal. In the arbitration tribunals, the chairman of the board and general secretary shall be permanent members in addition to which in each tribunal three members shall serve who shall be elected by the board of directors from among jurists with at least ten years' experience in their profession. The term of office of the arbitration tribunal members to be elected by the board of directors shall be five years. It shall be possible to object to the decrees of the arbitration tribunals within one week after the decision has been served on the parties. The rulings given upon objection shall be final. It is understood that the arbitration rules of the Center shall determine the duties of the arbitration tribunals.

The members of the Center are banned from performing arbitration or mediation activities as long as they serve for the Center if not decided on the contrary.

Members and employees of the Center's bodies except for the members of the advisory board shall not perform arbitration or mediation activities for the term they serve in the Center. However, upon mutual agreement of the parties, the contrary may be decided.

Additional confidentiality undertaking

Members and employees of the Center's bodies are banned to disclose and to use in their or third parties' favour such secrets and any kind of informationthey have been privy to in their duties in relation to the parties or third parties even when their term of office has expired. Additionally, they are not permitted without the written consent of the parties to make any statement and publication based on the information and documentation which they have acquired through their duty.

Income and expenses of the Center - Support by the Prime Ministry for two years

It is understood that the budget for the Center required for the initial two years shall be covered by the Prime Ministry. Additionally, the income and expenses of the Center shall be constituted of the following: (a) Income to be received in consideration of the services to be provided by the Center against a fee; (b) The budget to be prepared by the board of directors and approved by the general assembly of which part could not be covered by the income of the Center and (b) contributions according to the percentage to be determined based on the number of members, however, for the members to be elected from among lawyers registered with Bar associations shall be determined by the Turkish Union of Bar Association and for other members by those institutions which have elected such member. However, such contributions shall not be collected from the members to be elected by the Ministry of Justice and the Council of Higher Education. As we explained above, the board of directors shall determine which services shall be provided by the Center against remuneration provided that approval of the general assembly has been obtained.

The Center is obliged to make disbursements required for the performance of its duties. Consequently, it is understood that the expenses of the Center shall be determined within the budget to be prepared by the board of directors and approved by the general assembly.

Association status for the Center

If there are no provisions in the Code, provisions of the Turkish Civil Code Nr. 4721 dated November 22, 2001 and Code of Associations Nr. 5253 shall apply. Consequently, it is evident that the Code sees the structural organization of the Center as an association being a legal entity subject to private laws.

Looking at its member profile, it is understood that the structure of the Center can be commercial as well as political. Nevertheless, we hope that it will be an organization to support the substantial duty of Turkish courts and shall make a considerable contribution to Istanbul becoming a worldwide commercial center.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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