Turkey: The Results Of Applying Arbitration Without Exhausting Pre-Arbitration Dispute Resolutions

Last Updated: 12 September 2018
Article by Ersin Nazali
Most Read Contributor in Turkey, August 2018

INTRODUCTION

Due to the work load density of the courts, the settlements of disputes are ended in a long time. The parties aim to settle their disputes in more effective, quicker and less expensive way of proceeding. As a solution of this problem, Alternative Dispute Resolution (ADR) is formed. The parties are not obliged to choose only one method, but it is possible to make their contracts which have both arbitration and multi-tier ADR.

MULTI-TIER DISPUTE RESOLUTION CLAUSES OR ESCALATION CLAUSES

In case of a dispute between the parties, it may be agreed on the resolution at first by an ADR method which is determined between them, if this method doesn't succeed, by another determined ADR method, in case of the failure again, by arbitration. In that case, there will be a dispute resolution process which is composed of arbitration and the pre-arbitration phases.

1.1 The Purpose of the Pre-Arbitration Phases 1.2 The Legal Characteristic of Pre-Arbitration Clauses

Alternative Dispute Resolution are not usually compulsory to abide by, but the arbitrators in arbitration can make a call which is binding and executory. Therefore, in case of the parties have the authority to determine the resolution method, on purpose of keeping the business relationships alive, they may decide a way from soft to firm methods. On the other hand, only one method of ADR or all methods may be determined before arbitration successively.

1.2 The Legal Characteristic of Pre-Arbitration Clauses

The determination of the legal characteristic of Pre-Arbitration phases is important in the sense of determination of the provisions to which the validity of the clauses will be subjected. The subject is important that if the clauses are related to procedural law or substantive law. To be accepted as related to procedural law or substantive law of them cause different legal consequences. For example, if the clauses relating to pre-arbitration phases are accepted as related to substantive law in accordance with Swiss Law, breaching of these clauses will not effect the authority of arbitration committee. If they are accepted as related to procedural law, breaching of these clauses will effect the authority of arbitration committee and it can lead to be rejected of arbitration case in case of an objection. In general opinion, it would be more accurate to accept the pre-arbitration clauses are related to procedural law.

1.3 The Law Subjected to Validity of Pre-Arbitration Clauses

In multi-tier dispute resolution clauses, provided that the final phase is arbitration, the opinion that these clauses are subjected to national arbitration law and the international treaties on arbitration is dominant. In the decision of the Swiss Federal Court dated 7/7/2014, it is stated that the consequences of non-compliance with the procedure due to breach of pre-arbitration clauses must be determined according to the law applicable to the arbitration procedure. This is due to the procedural nature of the multi-tier dispute resolution clauses.

1.4 Types of Pre-Arbitration Phases

The dispute resolution clause in the contract concluded between the parties is the essential part in assessing whether complying with the pre-arbitration phase is compulsory or not.. It can be determined from the expressions in the contract that the pre-arbitration phase is compulsory or discretionary. For example, the use of the "shall" statement in the dispute resolution clause in English-language contracts indicates that pre-arbitration phase is compulsory, while the use of the "may" statement indicates that pre-arbitration phase is discretionary.

II- The Issue of Whether or Not Arbitration Can Be Carried Out Without Exhausting the Pre-Arbitration Phase

Within the framework of the legal regulations, the issue of whether or not arbitration can be carried out without exhausting the pre-arbitration phase is not clearly set forth in national arbitration legislation and in international treaties on arbitration. However, there are some regulations on arbitration that regulate the way if a lawsuit is brought before the preliminary stages are exhausted. In the English Arbitration Act, not the issue of having recourse to arbitration directly without exhausting the pre-arbitration phases, but bringing a lawsuit is regulated. For the arbitration, this provision shall be interpreted as "Even though the pre-arbitration phases are decided, if a party have recourse to arbitration without exhausting these phases, the arbitrator committee must terminate the arbitral tribunal upon objection of the opposing party."

Within the framework of boards of arbitration centers, according to the article 13 of UNCITRAL Model Law, it is stated that "If the pre-arbitration phases for which the application is committed are not applied, the direct arbitration or applying to the court shall not be regarded as a waiver of dispute resolution and termination of dispute resolution agreement alone." In this provision, there is no clarity as to whether the court or arbitration committee will consider ex officio regarding the exhaustion of the pre-arbitration phase. The general opinion must be that in case of not applying the procedure, this should be regarded as at least a preliminary issue.

As it is understood from the letter of the law, if direct arbitration has not ended the settlement process of pre-arbitration, this will be taken into consideration when direct arbitration is carried out without exhausting the preliminary phases and at least it will be correct to make it as a preliminary issue.

CONCLUSION

In today's rapidly increasing commercial interaction, arbitration and ADR methods have become dispute resolution methods aimed at judging more effectively in the solution of commercial disputes. The parties may determine both the ADR methods and the arbitration method as a multi-tier dispute resolution. These agreements concluded by the parties have decided that the other ADR methods determined in the contract should be exhausted first without going to the arbitration. If a provision is decided in the contract, it will become more important that the pre-arbitration phase is held compulsory or discretionary if the arbitration is applied without exhausting these steps. The dominant opinion in the doctrine and the practice is that in case of the pre-arbitration phases are held compulsory, the parties cannot go to the arbitration without exhausting the pre-arbitration phases, but if a party goes to the arbitration, it is important to clarify the matter that whether the arbitrator will regard it as ex officio or not. In this matter, although there is no legal regulation, for the principle of competence-competence, since the arbitrator has the power to decide its own authority and the arbitration agreement does not take effect until the pre-arbitration phases are applied, the arbitrator must ensure that the pre-arbitration phase is exhausted.

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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