Turkey: The Recognition And Enforcement Of Foreign Arbitral Awards In Turkey Series No.2

The Role of Setting-Aside or Annulment Procedures as per Article V (1) e and Article VI of New York Convention

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10th June 1958 (NYC) has a wide scope of application in Turkey. Being a part of the NYC since 30th September 1992, a considerable amount of Turkish case-law has emerged on the implementation of NYC.

As it is widely known, the refusal grounds of a request for the recognition or enforcement of a foreign arbitral award are regulated under article V of NYC. According to article V(1) e, if “the [arbitral] award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”, then the court where the recognition and enforcement is sought may refuse the request. However, the party against whom the arbitral award is invoked shall furnish to the competent court the relevant proof to prevent the recognition or enforcement.

However, it is worth mentioning that if the (sole) arbitrator or arbitral tribunal has rendered its final award, this award will be binding on the parties in accordance with the procedural law applied to the arbitration (lex arbitri) and no other legal procedure is necessary for making the award binding on the parties. Thus, if one of the parties has initiated a set-aside or annulment procedure before the competent authority, this will not be sufficient to deprive the arbitral award of its binding effect. For being able to consider that the award is no longer binding on the parties and refuse the recognition or enforcement, the award has to be set aside or suspended by the competent authority of the country in which, or under the law of which, that award was made.

In parallel with this approach, article VI of NYC clearly stated that the court where the recognition and enforcement is sought may also order the recognition or enforcement, even if a request for setting aside or suspension has been made. According to article VI, “If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.”

During a considerable period, Turkish courts were hesitant to rule on the enforcement of foreign arbitral awards, which are subject to setting aside proceedings before the competent authority (mostly, the court of the country in which the arbitral award is made). However, this approach began to be evolved into a more arbitration-friendly one.

In a case heard by Istanbul Appeal Court (14th Civil District), the defendant alleged that they applied to the International Chamber of Commerce Arbitration Court for the correction and interpretation of the arbitral award, which is subject to the request of enforcement and that the proceedings were still pending, consequently the application before ICC shall be considered by the court as a preliminary issue (BAM. 14. HD, 11.10.2018, E. 2018/130, K. 2018/1042). The Appeal Court argued that according to article VI of NYC the competent court where the enforcement is sought has discretion if a setting aside application has been made before the competent authority of the country in which the arbitral award was made. The Court of Appeal continued by underlining that even an application to set aside does not have any definitive effect on the process of enforcement of the arbitral award; thus, the application regarding the correction and interpretation of the arbitral award before ICC Arbitration Court cannot be considered as a preliminary issue which will cause a delay of the enforcement.

Pursuant to article VI of NYC, if an application for setting aside and enforcement of an arbitral award has concurrently been initiated, the court before which the enforcement is sought has a discretionary power both to order the enforcement with appropriate security or stay the proceedings till the end of the setting aside procedure. The court has also discretion on the amount of the security and period of stay of enforcement proceeding. If the court has ruled on providing appropriate security for the stay of an enforcement proceeding and the party fails to provide this security, this may result in the enforcement of the arbitral award.

However, we have to emphasize that in practice the competent court before which the enforcement is sought mostly refuse to rule on a stay of proceedings in case of a consecutive application for setting aside. Particularly, in cases where the setting aside application was made only for delaying the enforcement of the arbitral award or is based on grounds that are not well accepted in international commercial arbitration practice, the court should not rule on stay of proceedings with or without security.

Moreover, it is worth noting that article V(1) (e) of NYC mentions that the court where the recognition and enforcement is sought may refuse the request where the arbitral award is subject to an application for setting aside. Thus, the competent court may even not refuse the enforcement request in the case where there is an application for setting aside before the competent authority. However, where the arbitral award is subject to a setting aside or annulment application based on substantial and cogent legal grounds, the enforcement would be risky and may harm the interest of the party who applied for the setting aside.

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.