Turkey: Recent Commercial Arbitration Trends In Turkey

Last Updated: 31 May 2016
Article by Orçun Çetinkaya, LL.M.

Most Read Contributor in Turkey, November 2016

What factors often influence parties in their choice of arbitration over litigation? Could you outline some of the key benefits of the arbitration process for those involved?

Çetinkaya: In Turkey and for Turkish companies choice of arbitration over litigation mainly depends on the sector and the parties to a contract. Construction, for instance, is the sector where arbitration is not an alternative but rather the principal dispute resolution method. Turkish contractors use arbitration as a method to solve their disputes in Turkey and abroad, chiefly because construction is a complex and multi-layered sector within which a large number of goods and service providers have competing interests. It is difficult to avoid conflict, if not disputes, between those layers of the supply chain which might potentially affect the entire process and timelines, regardless of how tiny the problem is. This is perhaps why, unlike other sectors in Turkey, is the necessity for efficient dispute resolution in the construction sector leads players to arbitration. Courts in Turkey therefore receive few construction related disputes other than employment cases.

One might ask whether the situation would be different if there was a specialised construction court in Turkey, and this likely true. I think the reason why the construction industry stopped using courts in Turkey is because commercial courts judges and experts are not sufficiently experienced and knowledgeable. On the other hand, when foreign parties contract with Turkish parties or state enterprises, they tend to opt for institutional arbitration due to concerns about the efficiency and impartiality of Turkish courts.

While not much can be said to defend the efficiency of Turkish courts, their impartiality should not be a concern. Equally, foreigners do not want to take the stand before Turkish courts due to the fact that Turkish is the official language of the courts, with no alternative available. If the proceedings before Turkish courts could also be tried in at least English, as in the case in German courts, a considerable portion of disputes would have been taken to Turkish courts rather than arbitral institutions.

How would you describe arbitration facilities and processes in your region? How do they compare internationally?

Çetinkaya: UNCTIRAL rules are generally accepted and followed by many Turkish Chambers of Commerce. The recently launched Istanbul Arbitration Centre is by and large influenced by the ICC rules. The size and number of arbitration facilities reflects the use of arbitration in Turkey, particularly by local parties. If there is ever a need for arbitration facilities, they can be easily accessed. At the moment, however, arbitration facilities are from the desired level. That said, the Istanbul Arbitration Association will make a difference. Those who engage in arbitration in Turkey typically use meeting rooms at prestigious hotels or prestigious law firms.

Have you seen any recent changes in arbitration rules in your region? If so, when will these be brought into force and how do you expect they will affect the arbitration process?

Çetinkaya: There have been no recent changes in arbitration rules in Turkey.

How supportive are courts in your region in upholding and enforcing arbitral awards? Is the judiciary arbitration friendly?

Çetinkaya: The extent to which Turkish courts are arbitration friendly is almost rhetorical question. Commercial courts in big cities are friendly; however the fact that there is no specialised Chamber at the Court of Appeals blurs things somewhat. The lack of a specialised chamber does hinder the development of law in this respect.

As precedents do not help, Turkish courts are not confident as to how they should interpret public order. For instance, there is no settled approach about how portfolio compensation will be construed. While it is one of the mandatory rules of the Turkish Commercial Code, it is not among the rules directly applicable to Turkish Law. Even though there is no clear consensus on that front, uncertainty in this area is manipulated by parties who wish to slow arbitral proceedings or set aside arbitral awards on a public order basis.

What practical issues need to be dealt with when undertaking complex international, multijurisdictional arbitrations in your region?

Çetinkaya: Before any arbitration, parties should be warned about the rules that any likely arbitration will be subject to. This way, parties are aware from the outset of the standards for evidence discovery and disclosure. An equally important fact is to prepare witnesses for cross-examination in arbitration, which is not a concept parties are familiar with in this region.

The selection of arbitrators is quite significant in that it should be made from experienced arbitrators who are not only familiar with the procedural and substantive rules of arbitration, but are also knowledgeable about the specific industry, as well as the parties' jurisdictional background.

Do you believe more companies should include arbitration provisions in their contract clauses at the outset of the commercial venture? What are some of the key considerations?

Çetinkaya: Whether or not to include arbitration clauses depends on the parties, the risks at stake, the industry and where the award will be enforced. Therefore, I do not think that opting for arbitration would suit the needs of the majority of parties. Having said that, our preference is to use institutional arbitration to avoid the uncertainties of ad hoc arbitration. If the parties agree on the arbitral institution to be used, we recommend them using arbitration clauses suggested by the arbitral institution which will take that view should a dispute arise. The way in which arbitral institutions reflect their fees is also another point regarding which parties should be enlightened.

Certain jurisdictions have made concerted efforts to improve their profile as a seat of arbitration in recent years. Do you expect the choice of viable arbitration venues to increase going forward?

Çetinkaya: I expect that certain cities will increase their profile as a seat of arbitration. The availability of experienced arbitrators and experts will make cities such as London, Paris and Geneva stand out. Facilities also play an undeniable role in choosing the venue but arbitration culture, trusted arbitral institutions with strong historical backgrounds, as well as arbitration groups and associations massively help cities become hubs for arbitration.

Regionally speaking, Istanbul has huge potential. Parties, experts and witnesses with visa problems already choose Istanbul as a venue. The number of projects in and around Turkey also increases the chances that Istanbul will be chosen as the venue. But the geographical advantages of Istanbul will be limited unless it houses experienced arbitrators, experts, facilities and institutions.

Interview first published in Financier Worldwide Magazine's Annual Review of Commercial Arbitration, April 2016.

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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