Turkey: The Effect Of The Principle Of Separability On Determination Of The Law Applicable To Arbitration Agreements - II

Last Updated: 24 November 2017
Article by Fatih Işık

Introduction

The effect of the principle of separability on determination of the law applicable to arbitration agreements was examined, and the doctrine and court opinions were summarized in the July, 2017, issue of the Newsletter1. As mentioned in the said article, the arbitration agreement may be governed by the law applicable to the underlying contract, or by a different law. In such case, the arbitration agreement can often be governed by the law of the seat of arbitration or some national laws and international principles. In this article, certain court decisions and arbitral awards supporting the aforesaid opinions have been compiled.

Application of Law Applicable to the Underlying Contract and also to the Arbitration Agreement

By default of a choice of law by the parties regarding the law applicable to the arbitration agreement, some court decisions and arbitral awards consider the law applicable to the underlying contract as the law applicable to the arbitration agreement.

This point of view is confirmed in earlier awards of the ICC. For instance, in 1977, an ICC tribunal stated that the choice of law to be applied to the underlying contract should also apply to the arbitration agreement2: "It is accepted by the majority that unless there is a special provision, the choice of law to be applied to the underlying contract also regulates the arbitration clause."

Such point of view is followed in some recent court decisions. Where no choice of law is made for the arbitration agreement by the parties, the Hamburg Court of Appeal decided in 2003 that the arbitration agreement shall be governed by the law applicable to the underlying contract3. The Court of Appeal in Thüringen, Germany, ruled on 13 January 2011 that the choice of law for the underlying contract was an implicit choice of law for the arbitration clause4: "Since the main contract and the arbitration agreement are separate contracts that must be examined separately, it is first necessary to clarify the question of the law applicable to the arbitration agreement. The contract does not contain an express provision on this point. The main contract contains, however, a choice of law (the law to be applied is the law of the Principality of Liechtenstein). This circumstance is a strong indication that the parties also intended to agree on a choice of law for the arbitration agreement (implied choice of law [konkludente Rechtswahl]), and the Court so assumes. The courts of appeal in Dresden, Celle, Bremen and Berlin also held the same (...)".

Similarly, in a judgment of the High Court of Calcutta (India) dated 20 March 2012, the Indian law was applied to the arbitration agreement, as well as to the underlying contract5.

Earlier, the English courts held this point of view, and ruled that where the choice of law for the underlying contract is made, this choice of law should implicitly apply to the arbitration agreement6. However, the approach of the English courts has changed recently7.

Until recently, the Turkish Supreme Court did not declare its opinion on the subject. A dissenting opinion pronounced in a decision in 2000 of the General Assembly of the Civil Chambers of the Supreme Court stated that the authority to make an arbitration agreement should be determined in accordance with the parties' choice of law for the underlying contract, which was not Turkish law8. In this case, however, the Supreme Court directly applied Turkish law without further discussions as to the applicable law.

Determination of the Law Applicable to the Arbitration Agreement Separately from the Underlying Contract

According to a strongly supported point of view, the law applicable to the arbitration agreement should be determined separately from the underlying contract. The ICC expresses this approach as follows; "The applicable law to determine the scope and the effects of an arbitration clause providing for international arbitration do not necessarily coincide with the law applicable to the merits of a dispute submitted to arbitration. Although this law or these rules of law may in certain cases concern the merits of the dispute as well as the arbitration agreement, it is perfectly possible that in other cases, the latter, because of its autonomy, is governed - not only as to its scope, but also as to its effects - by its own specific sources of law, distinct from those that govern the merits of the dispute"9.

Two approaches stand out in determination of law applicable to the arbitration agreement separately from the underlying contract. The first approach represents that the law of the seat of arbitration should apply to the arbitration agreement, while the second approach accepts the principle of direct applicability of national law or international principles as the law applicable to the arbitration agreement. Despite some differences amongst them, the second approach is adopted by the laws of Switzerland, Turkey and France.

Application of the Law of the Seat of Arbitration in the Arbitration Agreement

By default of a choice of law by the parties regarding the law applicable to the arbitration agreement, the most common method is to apply the law of the seat of arbitration to the arbitration agreement, since the law of the seat of arbitration is accepted as the most proper law of the arbitration agreement. This approach is expressed in a decision dated 28 June 2007 of the Commercial Court of England as follows10: "The question then arises whether, if there is no express law of the arbitration agreement, the law with which that agreement has its closest and most real connection is the law of the underlying contract or the law of the seat of arbitration. It seems to me that if (...) this is a relevant question, the answer is more likely to be the law of the seat of arbitration than the law of the underlying contract."

In England, The High Court of Justice decided in its Sulamérica decision in 2012 that the law of the seat of arbitration is the law applicable to the arbitration agreement11. In this decision, the High Court has set out the three steps that are to be taken in determining the proper law of the arbitration agreement. Pursuant to this decision, if there is no express choice, the law applicable to the arbitration agreement should be determined through the parties' implicit choice of law, and in default of an implicit choice of law by the parties, the agreement shall be governed by the law of the country with which the agreement has the closest connection. In this direction, the court ruled that the law of the seat of arbitration is the most closely related law to the arbitration agreement. The Patent Court of London took the same approach in its decision dated 19 December 2013 against Habaş Sınai ve Tıbbi Gazlar İstihsal Endüstrisi A.Ş.12

The courts of other countries also take this approach. For instance, in a Swedish Supreme Court decision of 27 October 2000, the court decided that even though the parties determined to govern the underlying contract by Austrian law, the arbitration clause should be governed by Swedish law13. On 28 September 1995, the Court of First Instance in Rotterdam decided that New York law was applicable to the arbitration agreement in consequence of the parties' choice of the seat of arbitration as New York14. Likewise, even the Court of First Instance decided that the arbitral clause is invalid as per the Swiss law, which was the law applicable to the underlying contract. The Swiss Supreme Court reversed the decision stating that the law applicable to the arbitration agreement should be determined separately from the law applicable to the underlying contract considering the principle of separability, and the scope of the arbitration agreement should be determined as per the Swedish law, which was the law of the seat of arbitration15.

The Turkish Supreme Court confirmed in 1995 that the law of the seat of arbitration was applicable to the arbitration agreement16: "In the event that a choice of law has been made between the parties, the validity of the arbitration agreement shall be determined in accordance with the law of the seat of arbitration which is Bulgarian law in the case at hand."

In some ICC awards, the validity of the arbitration agreement is determined by the law of the seat of arbitration17. In some awards, it is confirmed that the parties' choice of the seat of arbitration is also the implicit choice of law applicable to the arbitration agreement18. In 2005, the German Maritime Arbitration Association stated that the parties did not make a choice of law, and in default of a choice of law by the parties, the agreement shall be governed by the law of the seat of arbitration pursuant to the New York Convention since the parties' countries of origin are both signatories to the New York Convention; therefore, the law applicable to the arbitration agreement itself would be German law, which is the law of the seat of arbitration19.

Application of the State Laws and International Principles to the Arbitration Agreement

Some state laws determine the national law or internationally accepted principles, such as the principle of good faith, as the law applicable to the arbitration agreement. The clear provisions of the laws of Switzerland, Spain, Iran and Turkey refer to their national laws as the law applicable to the arbitration agreement20; whereas, the law of France accepts that arbitration agreements shall be held subject to supranational principles and jurisprudence of the courts.

For instance, with the Dalico case in 1993, the Paris Court of Appeal adopted that it is not necessary to apply the substantive law of any country to the arbitration agreement, that the common interests of the parties is to make a valid arbitration agreement, and that the validity of the arbitration agreement is based on the will of the parties, but this validity must be in accordance with the French public order21. This point of view has been upheld in many decisions of the French courts22.

This approach taken by the French courts is also confirmed in some arbitral awards in France. As the ICC pointed out this approach in an award dated 2008: "In default of a clear choice of law for the arbitration agreement by the parties (...) the arbitral tribunal shall determine the scope and effects of the arbitration agreement based on the common will of the parties and the customs of international arbitration, without any particular national law being enforced in particular. The arbitral tribunal will, however, observe (...) that the grounds for non-compliance with the judgment are in accordance with the French law and the international public order, in particular the place of arbitration.23"

Conclusion

When the law applicable to the arbitration agreement is not specifically determined by the parties, there are several approaches for the courts and arbitral tribunals to reach a decision. However, the most strongly supported point of view is application of the law of the seat of arbitration to the arbitration agreement. On the other hand, the common approach adopted in French practice is likely to become widespread.

Footnotes

[1] Please see: Işık, Fatih, "The Effect of the Principle of Separability on Determination of the Law Applicable to Arbitration Agreements", Newsletter July, 2017, http://www.erdem-erdem.av.tr/publications/newsletter/the-effect-of-the-principle-of-separability-on-determination-of-the-law-applicable-to-arbitration-agreements/ (Access date: 05.10.2017) For more information regarding the topics in this article, doctrine opinions, arbitral awards and court decisions, please see Işık, Fatih, Milletlerarası Ticari Tahkimde Tahkim Anlaşması Yapma Yetkisi ve Bu Yetkiye Uygulanacak Hukuk (Authority to Conclude Arbitration Agreements and the Applicable Law in International Commercial Arbitration), On İki Levha, May, 2015, p. 83-97.

[2] ICC Award no. 2626, Collection of ICC Arbitral Awards ("Collection"), Volume I, p. 316 et seq. Please see: ICC Award no. 6379, XVII Yearbook of Commercial Arbitration ("YBCA") 1992, p. 212-220; ICC Award no. 6840, Collection III, p. 467 et seq,; NOFOTA award dated 5 September 1977, IV YBCA 1979, p. 218-220; ICC Award no. 7047, 13 ASA Bulletin 1995, p. 301-357.

[3] Please see: XXX YBCA 2005, p. 509-523. For more information regarding the topic please see: the Hamburg Court of First Instance decision dated 16 March 1977 (III YBCA 1978, p. 274-275) and the Hamburg Court of Appeal decision dated 22 September 1978 (V YBCA 1980, p. 262-263) upon appeal against this decision.

[4] Please see: XXXVII YBCA 2012, p. 220-222.

[5] Please see: The High Court of Calcutta's Coal India Limited v. Canadian Commercial Corporation decision dated 20 March 2012, XXXVII YBCA 2012, p. 242-243.

[6] Please see: The Commercial Court of England decision dated 28 June 1999 and numbered UK No. 57, XXVI YBCA 2001, p. 869-885.

[7] For more information regarding the approach of the English courts, please see: Pearson, Sabrina "Sulamérica v. Enesa: The Hidden Pro-validation Approach Adopted by the English Courts with Respect to the Proper Law of the Arbitration Agreement", Arbitration International, Volume: 29, Issue: 1, p. 118.

[8] Please see: Turkish Supreme Court General Assembly Decision dated 11.10.2000 and numbered 2000/19-1122 E. 2000/1256 K. (Kazancı İçtihat ve Bilgi Bankası).

[9] Please see: Dow Chemical France et al. v. Isover Saint Goben award of the ICC dated 23 September 1982 and numbered 4131, IX YBCA 1982, p. 131 et seq. For similar ICC awards please see: ICC Award no. 13921, Collection VI, p. 795 et seq.; ICC Award no. 4504, Collection II, p. 279 et seq.; ICC Award no. 5730, Collection II, p. 410 et seq.

[10] Please see: XXXIII YBCA 2008, p. 752-778.

[11] Please see: The High Court of Justice in England Sulamérica Cia Nacional de Seguros S.A. et al. v. Enesa Engenharia S.A. et al. decision dated 16 May 2012, XXXVII YBCA 2012, p. 464-467. For a similar decision please see: High Court of Justice in England's XL Insurance Limited v. Owens Corning decision dated 28 July 1999, XXVI YBCA 2001, p. 869-885.

[12] Please see: The Patent Court of London Habaş Sınai ve Tıbbi Gazlar İstihsal Endüstrisi AŞ v. VSC Steel Company Ltd decision dated 19 December 2013 and numbered 2012-1055, Kluwer Arbitration ITA Arbitration Report, Volume XII, Issue 1 (www.kluwerarbitration.com).

[13] Please see: Swedish Supreme Court's Bulgarian Foreign Trade Bank Ltd. v. A.I. Trade Finance Inc. decision dated 27 October 2000, XXVI YBCA 2001, p. 291-298.

[14] Please see: The Court of First Instance Rotterdam Petrasol BV v. Stolt Spur Inc., decision dated 28 September 1995 XXII YBCA 1997, p. 762 ed seq.

[15] Please see: Swiss Supreme Court decision dated 21 March 1995, XXII YBCA 1997, p. 800-806.

[16] Please see: The decision of the 19th Chamber of Supreme Court dated 15.11.1995 and numbered 1995/9108 E. 1995/9685 K.

[17] Please see: ICC Award no. 4392, Collection I, p. 473 et seq.

[18] Please see: ICC Award no. 5730, Collection II, p. 415. Please also see the comments of Yves Derains on ICC Award no. 4392, Collection I, p. 475-476.

[19] Please see: The German Maritime Arbitration Association award dated 8 November 2005, XXXI YBCA 2006, p. 66-71.

[20] Please see: Işık, Fatih, "The Effect of the Principle of Separability on Determination of the Law Applicable to Arbitration Agreements", Newsletter July, 2017, http://www.erdem-erdem.av.tr/publications/newsletter/the-effect-of-the-principle-of-separability-on-determination-of-the-law-applicable-to-arbitration-agreements/ (Access date: 05.10.2017)

[21] Please see: The Paris Court of Appeal Comité populaire de la Municipalité d'El Mergeb v. société Dalico contractors decision dated 26 March 1991, Revue de l'arbitrage, Year: 1991, Issue: 3, p. 456-461.

[22] Please see: The French Court of Appeal Renault v. Société V. 2000 (Jaguar France) decision dated 21 May 1997, Revue de l'arbitrage, Year: 1997, Issue: 4, p. 537-543. Please also see: The French Court of Appeal Société Uni-Kod v. Société Ouralkali decision dated 30 March 2004, Revue de l'arbitrage, Year: 2005, Issue: 4, p. 959-960; The Paris Court of Appeal Société Sidermetal SRL v. Société Arcelor International Export decision dated 24 February 2005, Revue de l'arbitrage, Year: 2006, Issue: 1, p. 210-213.

[23] Please see: ICC Award no. 14753, Collection VI, p. 973-983. Please also see: ICC Award no. 8910, Collection IV, p. 569-579; ICC Award no. 4131, IX YBCA 1982, p. 131 et seq.; ICC Award no. 5065, Collection II, p. 330 et seq.; ICC Award no. 8910, Collection IV, p. 569-579; ICC Award no. 5721, Collection II, p. 404.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions