Turkey: Validity Of Arbitration Clauses Under Turkish Law: An Insurance Case Study

Last Updated: 9 October 2009
Article by Neşe Taşdemir Önder

A number of disputes arise between insureds and their local insurers (and in turn their reinsurers) in relation to validity and/ or meaning of foreign insurance and related clauses reflected in a local fronting policy. The below case study discusses arguments arisen in relation to the conditions for validity and meaning of an arbitration clause in an all risks construction fronting policy under the Turkish Arbitration Act and points to certain areas for caution.

An all risks construction fronting policy was provided by a local insurer covering the construction of a major tunnel construction project in Turkey undertaken by a foreign construction company, the insured. A dispute arose between the insurer (their foreign reinsurers) and the insured in relation to extent of cover of the policy resulting in the rejection of payment by the insurer.

The Policy conditions contained an Arbitration Clause which provided,

"If any dispute arises as to the Insurer's liability under this Policy of insurance either the insured or the insurer may give notice to the other that it wishes the dispute to be referred to conciliation in accordance with and subject to the International Chamber of Commerce (ICC) Rules of Conciliation or any modification thereof that is in force at the time."

If the matter cannot be resolved by conciliation, either the insured or the insurer may, within 28 days of either party deciding that the conciliation has failed, require that the matter finally be settled under ICC rules of Arbitration by a panel of 3 (three) arbitrators in accordance with these rules."

The Turkish Act on Arbitration, under article 4 defines an Arbitration Agreement as "an agreement, be it based on a contract or not, whereby the parties conclude the submission of part or entire of a dispute, arisen or to arise between them from a legal relationship to arbitration ".

The insurers had invited the insured to Conciliation. No response was received. Meanwhile the insured brought court proceedings in the Turkish Courts against the insurer and argued invalidity of the arbitration clause upon jurisdictional objection of the insurer based on the arbitration clause.

The invalidity claims of the plaintiff were on the basis that the clause does not entail one of the criteria for validity of arbitration, namely, the "reflection of a definite, conclusive, explicit will of the parties in relation to referring the dispute to arbitration".

According to article 4 of the Turkish Arbitration Act, the validity of an arbitration agreement is determined in line with the chosen law by the parties to apply to the arbitration agreement or where there is no such choice Turkish law.

The plaintiff argued that there should accordingly be no hesitation in relation to referral of the dispute to arbitration.

  1. The policy contained another clause namely;

    "Choice of Law and Jurisdiction: Turkey". The presence of this clause according to the plaintiff led to inconsistency in relation to the will of the parties in terms of their choice of arbitration or the courts.
  2. The plaintiff further argued that the wording of the relevant Arbitration clause contains the word "may" which means that the parties may or may not chose to go to arbitration and this does not reflect a conclusive will in relation to referring matters to arbitration.

The plaintiff further argued "lack of the authority of its representative concluding the arbitration agreement" which would also render the arbitration clause invalid.

The reference to "Jurisdiction: Turkey" is to indicate the venue where a dispute is to be settled whether by the courts or arbitration and this is Turkey, i.e., the clause does not state that Turkish courts have jurisdiction on the matter. This should mean that Arbitration shall take place in Turkey.

The defendant further argued that the clause should also be understood as to make reference to disputes which have not been subjected by the Parties to ICC Conciliation and Arbitration. The arbitration clause refers only certain types of disagreements to conciliation and arbitration.

The defendant in relation to the first argument stated that the court of appeal precedents cited by the plaintiff where the arbitration clauses were held invalid due to being indefinite and inconclusive in relation to the will of the parties in referral to arbitration, were completely different than the case at hand. Thus

In one of the precedents it was stated by the court that ".. Although the relevant section of the contract provides that the parties shall go to arbitration, the same section under art. 17 provides that the courts of Istanbul shall have jurisdiction in case of any dispute"

In the other precedent cited by the defendant the court of appeal held that, "...the agreement after stating that any dispute in relation to contract provisions shall be referred to an arbitral tribunal, ...art. 15 of the agreement provides that where the parties do not comply with the arbitral judgment within 30 days of submission, any of the parties who has an executable right shall have the right to refer the dispute to the Istanbul Courts. The same arbitration clause under section 17 provides that in case of any dispute the Istanbul courts shall have jurisdiction."

In the above cited instances, the reason of the invalidity was the apparent inconsistency and ambiguity on whether the parties should go arbitration or the court since both were instructed. The second instance also includes a provision, inconsistent with the concept of arbitration, which takes away any enforceability of an arbitral judgment. According to court of appeal precedents and the doctrine in that regard, under "Invalidity due to indefinite and inconclusive expression of will in relation to referral arbitration" one should understand cases of conflicts as in the above precedents or uncertainties in relation to which dispute the parties should refer to arbitration.

In the current case on the other hand, there was a clear reference to arbitration in case of dispute arising from liability of the insurers and there is no conflicting provision under the policy which enables the parties to go to the court as was the case in the above referred court of appeal cases.

In relation to the argument of the plaintiff in terms of the wording of the arbitration clause containing the wording "may request", the defendant argued that the word "may" in English as well as referring to an "option and possibility" also refers to cases where the party is "allowed" to do something and is used in that sense1. As a matter of the English language the key word is "require" and not "may". In other words if either party chooses ("may") the other party must (is required to) submit to arbitration. The clause should be understood as to allow either party to "require" (i.e. compel) Arbitration. It is therefore a binding and effective Arbitration clause. Although the standard ICC wording uses the word "shall", for the reasons set out above the word require should have the same affect.

This was the more so considering the identity of the parties both being companies active on international business of big scale and the evaluation of the court of appeal decisions mentioned above regarding the certainty and conclusiveness of the arbitration clause. An interpretation otherwise would encourage bad faith objections.

The plaintiff further argued that "the lack of the authority of its representative concluding an arbitration agreement in relation to an arbitration agreement" would render the arbitration clause invalid. The Turkish Code of Obligation provides under article 388/3 that unless the Proxy was authorized specifically, he/she cannot file a law suit, make a settlement, resolve a dispute by arbitration, donate and transfer an immovable. The plaintiff in that regard submitted the power of attorney of the person who was at the time of the agreement the authorized person of the Turkish liaison office of the insured who had no authority to consent to arbitration.

The defendant objected to the argument on the basis of the facts that the plaintiff failed to show that the relevant person was involved in the conclusion of the policy. Thus the provisions of the policy were negotiated by the insured company's headquarters and the foreign reinsurers and were then reflected in a local policy. It would also inconsistent with the natural flow of commercial business application that the liaison office representative would be authorized to negotiate and consent to the policy terms of such a huge project. The power of attorney of the representative explicitly provided the representative the authority to act solely upon instructions of the insured company. This would indicate that the submission to arbitration was concluded by the headquarters of the insured company. Additionally according to Article 30 of the Code on International Private and Civil Procedure any issue of authority of representation between a person and a company shall be concluded under the laws of the state where the company headquarters are established.

The Turkish Courts must deal first with jurisdictional objections and therefore the court with an interim decision rejected the arbitration defense. Turkish courts do not provide sufficient reasoning in their interim decisions and the reasoning for rejection was limited to due to the fact that the company representative did not have authority to submit to arbitration, arbitration defense to be rejected..."

The court did not yet conclude the case and it is therefore to be seen to what extent the rejection of the arbitration defense is going to be discussed in further detail. The court in its interim decision totally ignored the objections of the defendant and failed to investigate them especially in relation to the authorized person and assumed that the liaison office representative was authorized to conclude the local policy.

The court also ignored the request of the defendant for the appointment of an expert panel to discuss the meaning and interpretation of the arbitration clause in the policy, especially linguistically. The defendant had asked the court to appoint an expert panel consisting of an academician experienced in the field of international arbitration and an English language expert where the court did not find the explanations of the parties sufficient to conclude.

According to article 11/5 of the Turkish Insurance Act, policies issued by local insurers must be in Turkish. Therefore standard wording of reinsurers must be translated to Turkish when a local policy is issued. It should be easy to imagine in that context the difficulty to translate into the Turkish language and explain to the Turkish court the linguistic discussion above in relation to the English language in terms of the meaning of the arbitration clause.

One of the main reasons parties submit to arbitration is to provide an impartial venue to resolve disputes and prevent delays in local courts. The rendering of an interim judgment on the validity of the arbitration clause took the Turkish court eight months to conclude upon filing of the proceedings. (Subject to appeal with the final decision on the merits – and therefore may take around 3 – 4 years to be finally concluded – unless the parties settle). This stresses the importance of providing local wording with caution. Standard global insurance and related wording may lead to serious delay and unexpected results locally.


1. Collins Cobuild English Language Dictionary – "May : ...5. you use may, 5.1. to say that someone is allowed to do something. E.g. the roman law according to which a girl may marry at twelve, was adopted by the church.

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.

Neşe Taşdemir Önder
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”

Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.