Turkey: Amendments Introduced Through Law No. 7101 On Arbitration Proceedings

State courts have very important functions concerning arbitration proceedings. These functions may aim to provide assistance to arbitration proceedings, such as collection of evidence through state courts, which would support the functions of the tribunal, or functions aimed at supervision of arbitration proceedings, such as set-aside actions. The legal provisions regulating these functions play an important role in the determination of whether a particular state has an arbitration-friendly legislation.

Important amendments pertaining to the proceedings to be conducted by Turkish courts related to arbitration proceedings have been introduced through Law numbered 7101 on Amendment of the Enforcement and Bankruptcy Law and Certain Laws1 ("Law"). Accordingly, the provisions regulating domestic and international arbitrations have been harmonized. Additionally, provisions reflecting current international arbitration practices have been adopted. The amendments introduced through the Law shall be analyzed in this article.

In General

Firstly, the Law primarily introduces important amendments to Enforcement and Bankruptcy Law numbered 2004 ("EBL"). These amendments shall not be analyzed in depth in this article; however, it is worth emphasizing the provisions on the abolishment of postponement of bankruptcy, amendments on the provisions regulating the concordat, modifications on the provisions on priority of receivables under Art. 206 of the EBL, and introduction of compulsory electronic notifications concerning the natural and legal persons set forth under Art. 7/a of Notification Law numbered 72012.

The amendments made through the Law which is analyzed in this article pertain to provisions of International Arbitration Act numbered 4686 ("IAA") and the Code of Civil Procedure numbered 6100 ("CCP") regulating arbitrations.

Amendments Pertaining to Competent Courts under the IAA

One of the important amendments introduced through the Law is the modification of the competent courts in set-aside proceedings under the IAA.

Pursuant to the provision under the IAA prior to this amendment, the competent court in set-aside proceedings was the civil court of first instance. In addition to this provision, through the amendment introduced by Law No. 65453 to Art. 5 of the Law on Establishment, Jurisdiction and Competence of Civil Courts of First Instance and Regional Courts of Appeal, it has been regulated that the set-aside actions pertaining to arbitration proceedings under the IAA shall be heard by a panel of judges comprised of one chairman and two members. Pursuant to these provisions, prior to the amendment of the IAA, the competent courts for set-aside actions were the commercial courts of first instance.

With the amendment made to Art. 15/A/1 of the IAA through the Law, the regional court of appeal, which is competent as per the location of the civil court of first instance pursuant to Art. 3 of the IAA4, has been determined as the competent court for set-aside actions.

With this provision, the set-aside actions to be initiated under the IAA shall be heard before the regional courts of appeal, and not the first instance court. It should be emphasized that this provision is in line with current international arbitration practice. More specifically, in international arbitration practice, the legislation in France, Switzerland, and Germany provide provisions stating that set-aside actions shall be heard by courts of appeal. For instance, in France, the set-aside actions to be filed against arbitral awards shall be heard by the court of appeal (Cour d'Appel) located at the place of arbitration5. Similarly, in Switzerland, the Swiss Federal Court has competence to set-aside actions6. Lastly, in Germany, in lawsuits related to arbitration to be filed before state courts, including set-aside actions, the High Regional Court (Oberlandesgericht, OLG) has jurisdiction7. Under German law, the reason why courts of second instance have jurisdiction concerning the lawsuits on arbitration proceedings to be filed before state courts is that the functions that the courts of first instance would normally assume are undertaken by the arbitral tribunal during arbitration proceedings8. Accordingly, the lawsuits to be filed before state courts would be finalized in a faster and more efficient manner.

In light of our explanations, the provision setting forth that the regional courts of appeal would be competent in set-aside actions concerning arbitral awards is a very positive development.

Right of Appeal against the Decisions to be given in Set-aside Actions under the IAA

Through the amendment of Art. 15/A/7 of the IAA made by the Law, the decisions to be given in set-aside actions may be subject to appeal proceedings under the CCP. Pursuant to the provision prior to this amendment, it was possible to file an appeal against these decisions pursuant to Code of Civil Procedure numbered 1086; however, it was not possible to file for revision of decision.

Subsequent to the regional courts of appeal starting to operate, the provisions of Code of Civil Procedure numbered 1086 on appeal proceedings have ceased to be applied. With the amendments made by the Law to the IAA, it has been taken into consideration that the CCP does not regulate the possibility of revision of decision and, accordingly, it has been clarified that filing an appeal against these decisions is possible.

Competent Court as per the Subject of Dispute under the IAA

Through a new provision in the IAA adopted by the Law, it has been clarified that the competences granted to the civil court of first instance under the IAA would be undertaken by civil courts or commercial courts of first instance, depending on the subject of dispute. It should be emphasized that this provision shall be applied with regard to competences aside from the set-aside actions, which are within the jurisdiction of regional courts of appeal. Accordingly, the objections to be made to the arbitration clauses, lawsuits pertaining to appointment, or challenge of arbitrators, request of assistance from state courts concerning collection of evidence, and lawsuits pertaining to the extension of duration of the term of arbitration, shall be within the jurisdiction of either civil courts or commercial courts of first instance.

Amendments introduced to the CCP by the Law

Important amendments have been introduced to the provisions on arbitration of the CCP by the Law. To begin with, with the amendment of Art. 410 of the CCP, the competent court with regard to the lawsuits to be filed before state courts concerning arbitral proceedings has been determined as the civil court of the commercial court of first instance located at the place of arbitration, depending on the subject of the dispute. The provision prior to this amendment set forth that the regional courts of appeal shall have jurisdiction with regard to these lawsuits.

Another amendment introduced by the Law is the provision pertaining to the jurisdiction of regional courts of appeal located at the seat of arbitration, with regard to set-aside actions to be initiated against the arbitral awards within the scope of the CCP, namely, Art. 439/1 of the CCP. The provision prior to this amendment set forth that the courts of first instance located at the place of arbitration shall be competent with regard to set-aside actions.

Through these amendments, the provisions of the CCP have been harmonized with the IAA. Pursuant to the Law, the competent court with regard to lawsuits regarding arbitration proceedings to be initiated before state courts is the civil court or commercial court of first instance, depending on the subject of dispute, similar to the provisions under the IAA. The set-aside actions are the exception to this general rule, which shall be heard by the regional courts of appeal.

Conclusion

Through the Law, the amendments made to the provisions regulating lawsuits pertaining to arbitration proceedings under the IAA and CCP have been harmonized. Under both legislations, the competent court with regard to set-aside actions against arbitral awards is the regional court of appeal. With regard to other lawsuits pertaining to arbitral proceedings, the civil court or commercial court of first instance shall be competent, depending on the subject of dispute. The provision pertaining to the competence of regional courts of appeal, instead of the courts of first instance in set-aside actions, is in line with international practice on this matter. These provisions would, beyond any doubt, contribute to the arbitration-friendliness of the Turkish legislation.

Footnotes

[1] The Law on Amendment of the Enforcement and Bankruptcy Law and Certain Laws, Official Gazette (OG), No. 30361, March 15, 2018.

[2] For the memorandum concerning the important amendments introduced by the Law, please see http://www.erdem-erdem.av.tr/homepage/mail/the-law-numbered-7101-on-the-amendments-in-enforcement-and-bankruptcy-law-and-certain-laws/ (Access date: March 2018).

[3] Law no. 6545 on Amendment of the Turkish Penal Law and Certain Laws, OG, No. 29044, June 28, 2014.

[4] Pursuant to Art. 3 of the IAA, concerning the proceedings which fall within the scope of competence of state courts under the IAA, the civil court of first instance located at the legal seat or habitual residence or place of business of the respondent, or in case the respondent does not have its legal seat or habitual residence or place of business in Turkey, the Civil Court of First Instance in Istanbul shall be competent to hear the dispute.

[5] French Code of Civil Procedure, (Code de Procédure Civile), Art. 1519, https://www.legifrance.gouv.fr/affichCode.do;jsessionid=82970190322B23ADA21851631E3097A5.tplgfr23s_1?idSectionTA=LEGISCTA000023427652&cidTexte=LEGITEXT000006070716&dateTexte=20180404 (Access date: March 2018).

[6] Federal Statute on Private International Law, Art. 191. https://www.swissarbitration.org/files/34/Swiss%20International%20Arbitration%20Law/IPRG_english.pdf (Access date: March 2018).

[7] German Code of Civil Procedure, (Zivilprozessordnung, ZPO), Art. 1062, https://www.gesetze-im-internet.de/englisch_zpo/englisch_zpo.html#p3674 (Access date: March 2018).

[8] Karl-Heinz Bockstiegel, Stefan Kröll, Patricia Nacimiento, Arbtration in Germany: The Model Law in Practice (Second Edition), p. 18, fn. 69, http://www.kluwerarbitration.com (Access date: March 2018).

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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