Turkey: ICC Arbitration And Enforcement Of Arbitral Awards In Turkey

I. Introduction

With the ever-growing international commerce all around the globe, international arbitration has become very popular among the merchants as a reliable, independent and convenient dispute resolution method. Most recent surveys indicate that the arbitration is preferred over litigation in cross-border disputes.

Founded in 1919, the International Chamber of Commerce ("ICC") is the largest business organization and most preferred arbitral institution in the world.ICC offers swift, flexible and neutral arbitration services which lead to binding and final arbitral decisions that are enforceable worldwide. Parties to international transactions often prefer ICC arbitration as the dispute resolution method in their contracts.

ICC arbitration can be used by anyone without any limitations and there are no restrictions as to who can become the arbitrators. Arbitration can be held in any country and in any language. According to the information provided on the ICC's website, ICC's arbitration body, the International Court of Arbitration has administered more than 20,000 cases involving parties and arbitrators from some 180 countries.

II. Advantages and Disadvantages of Arbitration

Arbitration is preferred over conventional litigation due to its many advantages such as neutrality, flexibility, efficiency and enforceability.

Thanks to the arbitration, parties get the opportunity to resolve their disputes in jurisdictions which are not linked to the business place of any party. Therefore, none of the parties have the advantage over the other in local courts which speak the language and apply procedures that are familiar to only one party, but not the other. Moreover, parties get to choose neutral and independent arbitrators, who often are of other nationalities.

In other words, arbitration lets the parties freely and independently decide beforehand where the arbitration will take place, who will be the arbitrators, which substantial and procedural law will be applied and which language will be used during the hearings; thus creating a very flexible, fair and neutral legal environment for all parties to the dispute.

Parties also prefer arbitration to escape from complications of long and strenuous litigation process. By applying flexible procedural methods and choosing arbitrators who are often real experts on the disputed matter, arbitration procedures usually resolve much quicker than conventional litigation. Also, arbitral awards are not subject to appeal unlike court decisions, thus a final, binding and enforceable decision is achieved in a significantly shorter time.

On the other hand, cost is a major factor that is taken into consideration by the parties when pursuing ICC arbitration and can sometimes be a discouraging factor. Especially, when parties decide to appoint three arbitrators, expenses significantly increase. That said, it is common in arbitration for the successful party to recover the expenses from the losing party.

Moreover, sometimes enforcing an arbitral award can be a problem, especially in jurisdictions that are more hostile towards arbitration. Therefore, it is often advised that parties seek expert opinion on whether an arbitral decision is enforceable in the jurisdiction of the counter-party before proceeding with the arbitration.

III. ICC Arbitration vs. Ad Hoc Arbitration

Ad hoc arbitration is arbitration without the involvement of any institution. It is also possible to use ad hoc arbitration as a dispute resolution method; however involvement of an official institution may be of enormous advantage as the institution monitors the entire arbitration process. The institution ensures that the arbitrators are performing their duties properly and independently and the procedure is being applied fairly and appropriately without unreasonable delays and tactics.

IV. Applying to ICC Arbitration

In order to apply to ICC arbitration, parties must first agree in writing that the disputes arising from their business relationship will be settled by the ICC arbitration.

Most commonly used method of agreement is an inclusion of an arbitration clause in the contract governing the business relationship between the parties, which indicates that the parties are willing to resolve their disputes using ICC arbitration. As guidance, ICC provides standard arbitration clauses which are valid and sufficient to indicate the will and consensus of the parties in this respect. Although not a requirement, the parties often indicate the specific procedural details in arbitration clauses such as the seat of arbitration, specific number of arbitrators, etc.

Alternatively, the parties may enter into a separate arbitration agreement at any time after the dispute has risen. These agreements are usually more detailed and specific compared to arbitration clauses.

V. Rules

ICC Rules of Arbitration ("Rules") govern the conduct of ICC arbitration proceedings regulating issues such as the filing of claims, constitution of arbitral tribunals, conduct of proceedings, rendering of decisions as well as determination of the expenses. The current Rules are in force since 01.01.2012. These rules can be reviewed on the ICC's website.

V. General Procedure

The ICC arbitration process starts with a Request for Arbitration ("Request") submitted to ICC Secretariat by the claimant at any of the offices specified under Article 4 of the Rules, such as Paris or New York. Although, the Request is not required to be in any form, it must contain certain information stated under Article 4.  The Requestis immediately registered on the day it is delivered to the office of the Secretariat of the International Court of Arbitration.

After the "Request for Arbitration" is complete and the required fees are paid, the Request is delivered to the counter-party. The counter-party must reply to the Request together with the counterclaims, within 30 days.

If the counter-party does not submit an answer or challenges the validity of the arbitration, the arbitrator or the arbitration tribunal immediately decides on such issues or refers the case to the International Court of Arbitration.

Upon filing of the "Request", the claimant is often required to make an advance payment to cover the costs of arbitration until the "Terms of Reference" is prepared, such payment to be credited towards the claimant's share of the advance on costs.

Following the receipt of the Answer or expiration of the time-limit required for its submission, the arbitrator(s) nominated by the parties is/are confirmed by the Secretary General or the International Court of Arbitration. If it is agreed to have three arbitrators, the third arbitrator is appointed by the ICC (or the two arbitrators depending on the agreement of the parties) and the arbitral tribunal is formed.

Commonly, the advance on costs to cover the fees and the expenses of the arbitrators and the ICC administrative expenses is fixed and must be paid before the case is delivered to the arbitrator or the Arbitral Tribunal.

After the files are transmitted, the arbitrator or the Arbitral Tribunal prepares a document named "Terms of Reference" based on the information provided by the parties. Terms of Reference contain information such as contact details of the parties and arbitrators, the place of arbitration, procedural rules, a summary of the parties' claims and reliefs sought and also other issues to be determined.

After this stage, the arbitral proceedings take place according to the agreement of the parties on issues such as language of the proceedings, laws to apply to the merits, rules of procedure, etc. In the absence of parties' agreement on such issues, the arbitrator or the arbitral tribunal decides on which procedural rules will apply.

VI. Costs and Fees

Each request for arbitration must be accompanied by a non-refundable filing fee starting from USD 3,000.

As mentioned above, upon filing of the "Request", the claimant is often required to make a provisional advance payment to cover the costs of arbitration until the "Terms of Reference" is prepared. Also, the advance on costs that is fixed before the case is transferred to the arbitrator or the tribunal must be paid in equal shares by the parties. Payments already made by the claimant (i.e. the non-refundable filing fee and the provisional advance) are credited towards claimants' share of the advance on costs

At the end of the case, the actual costs including ICC administrative expenses and the arbitrators' fees are determined and paid from the advance on costs. Remaining amounts are reimbursed to the parties.

VII. Enforcement of Arbitral Awards in Turkey

In order for a foreign arbitral award to gain effectiveness in Turkey, such an award must be recognized or ratified by a Turkish Court.

The primary legal source for the enforcement of foreign arbitral awards in the Turkey is the 1958 – New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which was ratified by Turkey on July 2nd, 1992 and entered into force on September 30th, 1992 ("New York Convention"). New York Convention, as an international treaty, is regarded as a domestic law (within the hierarchy of norms), as per Article 90 of the Constitution of Turkey and therefore is binding and enforceable in Turkey as a domestic law.

New York Convention can be applied in Turkey for recognition and enforcement of awards, made only in the territory of another contracting State of the New York Convention. Therefore, if the arbitral award in question is obtained in any of the contracting States, New York Convention will principally be applied (without prejudice to other multilateral or bilateral agreements). In addition, the scope of enforcement that can be sought in Turkey according to the New York Convention is limited to arbitral awards that have been rendered with commercial nature only.

International Private and Procedure Law ("IPPL") is another domestic legal source regarding the enforcement of foreign arbitral awards in Turkey. The provisions of the IPPL are mainly parallel to the New York Convention. However, IPPL may only be applied if the party to thearbitrationagreement is not a contracting state of the New York Convention, or is not a party to any of the multilateral or bilateral international agreements ratified by Turkey.

Regarding the procedure for enforcing a foreign arbitral award in Turkey (either under IPPL or the New York Convention); a petition must be filed before a competent court in Turkey, by those who are parties to thearbitrationagreement, together with the following documents:(i)Thearbitration agreement,(ii)a duly certified copy of arbitral award, and(iii)the certified translations of these documents. However, depending on the case, the court may request additional documents.

The court can only determine whether the arbitral award meets the conditions for enforcement as stipulated under the IPPL or the New York Convention.Therefore, the court cannot examine the merits of the dispute settled with the award, unless the foreign arbitral award violates the public order of Turkey or the rules regarding conflict of laws in Turkey.

The decision of the court concerning the enforcement of the foreign arbitral award may be appealed before the Supreme Court in accordance with the general provisions of Turkish Law. If appealed, the enforcement of the award is suspended until the finalization of the appeal process.

Once the decision on the recognition for enforcement is finalized,the foreign arbitral award is treated as a final court decision under Turkish Law. Therefore, the requesting party may pursue the execution of the award in accordance with Turkish laws and procedures.

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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