Istanbul Arbitration Center ("ISTAC") started its activities in October 2015 with the purpose of providing a viable alternative to the already established arbitral institutions around the world, such as the International Chamber of Commerce Court of Arbitration ("ICC"), the London Court of International Arbitration ("LCIA"), Hong Kong International Arbitration Centre ("HKIAC"), Singapore International Arbitration Centre ("SIAC"), and the Arbitration Institute of the Stockholm Chamber of Commerce ("SCC").1
According to a study, the top three reasons for the popularity of those established arbitral institutions are (i) the high level of administration, (ii) neutrality/'internationalism' and (iii) "global presence/ability to administer arbitrations worldwide".2 The legal framework for the establishment of ISTAC also highlights the importance of its neutrality and proper administration and aims at attaining a meaningful presence among international arbitration centers.3
On 29 November 2014, the Istanbul Arbitration Center Law ("Law No. 6570") was enacted authorizing the establishment of the ISTAC as an institution for the resolution of both domestic and international disputes through arbitration. Law No. 6570 entered into force on 1 January 2015. The Preamble of the Law No. 6570 underlines the importance of impartiality and independence of an arbitration center for it to be successful, especially for attracting the foreign investors.
As a newly established institution that is linked to the general purpose of attracting foreign investment, ISTAC needs to demonstrate the capability of handling arbitration cases. Thus, ISTAC offers its services not only for international disputes but also for domestic ones. In Turkey, arbitration and other alternative dispute resolution mechanisms are not frequently used in domestic disputes for various reasons, but mainly due to the lack of sufficient awareness of their benefits. ISTAC is designed to accelerate the process of ensuring that alternative dispute resolution methods are known, understood and effectively used in Turkey. A major step has been taken in this direction with the changes introduced in standard contracts annexed to the Implementation of Public Procurement Regulations4. This change, which has become effective as of 19 January 2018, enables Turkish public authorities to refer both domestic and international contracts to ISTAC arbitration.
Ultimately, the success of ISTAC in handling the international and domestic arbitration cases depends on its structure, organization and arbitration rules. This article provides analysis of those elements with a view to reflecting whether the legal framework of ISTAC provides an appropriate basis for its claim to become a valid competitor to those established arbitral institutions.
Prior to the enactment of Law No. 6570, a working group was formed within the Ministry of Justice consisting of academicians and judges working in the field of arbitration. This working group studied the structures of certain arbitration centers such as German Arbitration Association, Dubai Arbitration Center, LCIA and Zurich Arbitration Center and examined on site German Arbitration Association and Czech Republic Chamber of Commerce and Agriculture Arbitration Court. Accordingly, the Law No. 6570 adopts the modern approaches of those institutions.
Article 2 of the Law No. 6570 provides that ISTAC is incorporated based on private law provisions and that it has its own legal personality. As noted by the Preamble of Law No. 6570, this form of establishment increases ISTAC's autonomy against state influence and facilitates that ISTAC obtains a proper organizational structure. According to Article 5 of the Law No 6570, the structure of ISTAC is comprised of General Assembly, Board of Directors, Auditor, Advisory Board, Boards of Arbitration and Secretariat.
2.1. General Assembly and Board of Directors
The General Assembly of ISTAC has the duty of forming the Board of Directors, approving the ISTAC Arbitration Rules, and the budget. General Assembly consists of 25 members. Some of these members are appointed by various public bodies, such as Council of Higher Education (Yükseköğretim Kurulu), Ministry of Justice (Adalet Bakanlığı), Banking Regulatory and Supervisory Agency (Bankacılık Düzenleme ve Denetleme Kurumu), Capital Markets Board of Turkey (Sermaye Piyasası Kurulu) and Turkish Union of Chambers and Commodity Exchanges (Türkiye Odalar ve Borsalar Birliği).
The General Assembly appoints the Board of Directors, which is in charge of representing the ISTAC, drafting the ISTAC Arbitration Rules and preparing the tariffs for arbitrators' fees and ISTAC's service fees (subject to the approval of the General Assembly). Board of Directors is composed of five original and four substitute board members.
2.2. Boards of Arbitration
Within ISTAC, two boards of arbitration have been formed: National Board and International Board. Each board has five members. The chairman of the Board of Directors and the Secretary General of ISTAC are members of these boards as of right. The other three members are appointed by the Board of Directors among lawyers having minimum ten years of work experience.
Boards of Arbitration are in charge of the management of the application of the ISTAC Arbitration Rules and resolution of disputes in accordance with the ISTAC Arbitration Rules. Each Board of Arbitration fulfills the duties given to it by the ISTAC Arbitration Rules and performs functions similar to ICC International Court of Arbitration.
In particular, the Board of Arbitration has the following duties under the ISTAC Arbitration Rules
- Board of Arbitration decides on the matter when there are doubts about the impartiality and independence of arbitrators and on the challenging of the sole arbitrator or the arbitral tribunal if the arbitrator who is challenged does not quit or if all the parties cannot come to an agreement on this issue. (Articles 12, 16 and 17)
- Board of Arbitration has the authority to extend the time period for the preparation and transmittance of Terms of Reference or the time period in which the final decision on the merits shall be given (which is 6 months from the date Secretariat notifies the Arbitral Tribunal that the Terms of Reference is confirmed) ex officio or if parties so agree, or upon the request of the Arbitral Tribunal. (Article 33)
- Board of Arbitration specifies the advance on costs and the administrative expenses and the arbitrator's fees in accordance with the Appendix 3 of the ISTAC Arbitration Rules.5 (Articles 41 and 42)
The Secretariat is composed of the Secretary General, Assistant Secretary General and sufficient number of personnel. Secretary General is appointed by the Board of Directors among lawyers having minimum ten years of experience.
The Secretariat assists the Boards of Arbitration in administering their duties and is in charge of fulfilling, among others, following duties as envisaged in the ISTAC Arbitration Rules:
- If a party wishes to start arbitration proceedings under ISTAC Arbitration Rules, that party should submit its request for arbitration to the Secretariat. Secretariat notifies the claimant and the respondent about the fact that the request is received and the date of the receipt. In case the claimant's request for arbitration is incomplete or lacking the necessary amount of copies or if the claimant has not paid the registration fee, Secretariat shall give the claimant a maximum of 15 days for the completion of these. If the claimant fails to complete the aforementioned deficiencies, Secretariat shall close the file and inform the claimant. The case shall be deemed presented at the date of receipt of request for arbitration and the registration fee by the Secretariat. When Secretariat receives the request for arbitration and registration fee, it shall immediately serve the request for arbitration and its annexes to the respondent. Respondent shall submit its response to the request for arbitration to the Secretariat. If respondent requests, Secretariat may give additional time for the submission of the Response to the request for arbitration. Following the submission, Secretariat immediately serves a copy of the response to the request for arbitration and its annexes to the Claimant. (Article 7)
- After an arbitrator accepts his/her duty, they sign a declaration of independence and impartiality and present this declaration to the Secretariat. Arbitrator shall inform the Secretariat if there are any grounds for doubting their impartiality and independence. Secretariat will then convey this information to the parties and specify a convenient period of time for them to pass their opinions. (Article 12)
- Parties may apply to the Secretariat for the Arbitral Tribunal's interpretation of the decision or revision of the calculation and spelling mistakes in the decision. Parties may also apply to the Secretariat to request complementary arbitral decisions on matters in their request which are left undecided. In such cases, Secretariat shall notify the Arbitral Tribunal. (Article 37)
The organization, duties and roles of Board of Arbitration and Secretariat in ISTAC closely follows the model of the ICC Court and Secretariat.
3. ISTAC Arbitration Rules
3.1. Rules Applicable to Procedure and Merits of Arbitration
According to Article 22, if a procedural matter is not regulated under the ISTAC Arbitration Rules, then the rules which the parties have agreed on shall apply. If there is no agreement between the parties in this regard, rules determined by the sole arbitrator or the arbitral tribunal shall apply. This is the approach that can be found in Article 19 of the ICC Arbitration Rules (effective as of 1 March 2017).
According to Article 23 of ISTAC Arbitration Rules if the parties have not specified the place of arbitration, the place of arbitration shall be Istanbul. This provision leads to choice of Turkish law as the law of the seat of arbitration where the parties are silent in this regard when opting for ISTAC Arbitration Rules. In such cases, the International Arbitration Code No. 4686 ("TIAC") shall apply. Article 8 (A) of TIAC allows the parties to an arbitration agreement to freely determine the rules applicable to the procedural matters without prejudice to the mandatory provisions of TIAC.
With regard to the rules applicable to the merits, ISTAC Arbitration Rules have adopted the same flexible approach as Article 21 of the ICC Arbitration Rules. According to Article 25 of ISTAC Arbitration Rules, the arbitral tribunal or the sole arbitrator shall decide according to the rules of law that the parties have chosen to be applied to the merits of the dispute. If no such choice is made by the parties, then the sole arbitrator or the arbitral tribunal shall decide according to the rules of law it deems appropriate. The sole arbitrator or the arbitral tribunal can decide as ex aequo et bono only if the parties have expressly authorized the sole arbitrator or the arbitral tribunal to do so.
3.2. Fast-Track Arbitration
The most important feature of fast track arbitration is that it has shorter time limits to expedite the process. Despite some differences explained below, the approach of ISTAC Arbitration Rules in this regard generally follows that of ICC in Article 30 of the ICC Arbitration Rules and the Expedited Procedure Rules set forth in Appendix VI of the ICC Arbitration Rules.
The ISTAC Arbitration Rules include a set of rules for the fast-track process, which is called "ISTAC Fast Track Rules". Similar to the Expedited Procedure Rules of ICC Arbitration Rules (for the arbitration agreements concluded after 1 March 2017), ISTAC Fast Track Rules apply automatically to disputes of amounts less than a certain threshold, unless the parties opt out by agreement. Article 1 of the ISTAC Fast Track Rules provides that if parties do not agree otherwise, ISTAC Fast Track Rules shall apply to cases not exceeding the total amount of TRY 300,000 (approximately USD 79,000). This is significantly lower than the threshold of USD 2 million for the application of Expedited Procedure Rules under the ICC Arbitration Rules.
Under the ISTAC Fast Track Rules, disputes are resolved by a sole arbitrator unless otherwise agreed by the parties. The approach of the Expedited Procedure Rules of ICC Arbitration Rules differs in this regard in that the ICC Court may appoint a sole arbitrator, notwithstanding any contrary provision of the arbitration agreement.
As in the case of the Expedited Procedure Rules of ICC Arbitration Rules, upon the request of one of the parties, the Board of Arbitration may decide not to apply the ISTAC Fast Track Rules according to the circumstances of the case. Parties may also opt for the application of ISTAC Fast Track Rules even if the amount in dispute exceeds the said amount.
ISTAC Fast Track Rules aim at speeding up the whole process by skipping certain steps in the proceedings and providing shorter time limits for each step. Article 2 of the ISTAC Fast Track Rules states that fast track proceedings start with the claimant's statement of claim whereas in the regular process under ISTAC Arbitration Rules, the proceedings start with the request for arbitration. In addition, the time period for respondent's response is 15 days in the fast track process unlike the regular process which is 30 days. The Expedited Procedure Rules of ICC Arbitration Rules do not include such a provision.
Article 4 of the ISTAC Fast Track Rules provides that the procedural time table shall be prepared in 7 days following the appointment of the arbitrator, while ISTAC Arbitration Rules do not specify a period of time for the preparation of procedural time table in the regular proceedings. As to this point, the Expedited Procedure Rules of ICC Arbitration Rules provide that the case management conference shall take place no later than 15 days after the date on which the file was transmitted to the arbitral tribunal.
Article 5 of ISTAC Arbitration Rules stipulates that in the fast track process, in principle, the sole arbitrator shall decide, after consulting with the parties, without scheduling any hearings unless it seems necessary to do so. Similarly, the Expedited Procedure Rules of ICC Arbitration Rules provide that the arbitral tribunal may, after consulting the parties, decide the dispute solely on the basis of the documents submitted by the parties, with no hearing and no examination of witnesses or experts.
Article 7 of the ISTAC Arbitration Rules states that the decision on the merits shall be rendered within 3 months from the date the arbitrator received the file, unlike the ISTAC Arbitration Rules which provide that this time period is 6 month for regular proceedingss. Finally, Article 8 of the ISTAC Fast Track Rules provides that the sole arbitrator shall render the award within, at the latest, 1 month of either, the submission of the last statement or the date of the last hearing, whichever occurs later. On the other hand, the Expedited Procedure Rules of ICC Arbitration Rules do not stipulate a shorter time limit for the final award, but eliminate the requirement of terms of reference. Accordingly, in the expedited procedure of ICC, the time limit is still 6 months but it starts from the date of the case management conference.
3.3. Interim Measures
Seeking interim measure is possible for the parties under Article 31 of the ISTAC Arbitration Rules. There are three options under ISTAC Arbitration Rules for a party who requests an interim measure.
The first option is to apply to the Secretariat for the appointment of an Emergency Arbitrator. This option is applicable when there is an extremely urgent matter as a result of which it cannot be expected from the party in need for an interim measure to wait for the arbitral tribunal or the sole arbitrator to start their duty.
This process is regulated under a different set of rules titled ISTAC Emergency Arbitrator Rules ("ISTAC Emergency Rules") in Appendix 1 of the ISTAC Arbitration Rules. ISTAC Emergency Rules are very similar to the Emergency Arbitrator Rules set forth in Appendix V of the ICC Arbitration Rules. Both sets of rules provide the emergency arbitrator mechanism as applicable unless otherwise agreed by the parties6.
Article 2 of the ISTAC Emergency Rules state that there is no need to present a request for arbitration, statement of claim or a statement of defense for applying to an emergency arbitrator. The application should be made to the Secretariat and, following the application, the president of the Board of Arbitration shall appoint an emergency arbitrator in 2 business days. ICC Arbitration Rules similarly provides that the President of the ICC Court shall appoint an emergency arbitrator within as short a time as possible, normally within 2 days from the ICC Secretariat's receipt of the Application.
As per the ISTAC Emergency Rules, in principle, the emergency arbitrator shall take a decision without arranging any hearings unless he/she finds it necessary. Emergency arbitrator shall decide in maximum 7 days after receiving the file. This deadline can be extended by the Board of Arbitration ex officio or upon the request of the emergency arbitrator. Under the ICC Arbitration Rules, the order of the emergency arbitrator shall be made no later than 15 days from the date on which the file was transmitted to the emergency arbitrator.
The second option for the party seeking an interim measure is making this request directly to the sole arbitrator or the arbitral tribunal. According to ISTAC Arbitration Rules, arbitral tribunal can take interlocutory decisions.
Third option for the party seeking injunction is applying directly to a state court before or after the file is transmitted to the arbitral tribunal, as some interim measure may require their assistance. ISTAC Arbitration Rules state that, such application to a state court for an injunction does not constitute a breach to the arbitration agreement. This provision repeats the rule contained in Article 6 of TIAC. A similar provision can also be found in Article 28 of ICC Arbitration Rules.
3.4. Appeal of ISTAC Awards
Article 36 of the ISTAC Arbitration Rules provides that arbitral awards are binding on the parties. This is also the approach adopted by Article 35 (6) of the ICC Arbitration Rules. Accordingly, ISTAC does not provide an internal appeal mechanism.
However, the ISTAC Arbitration Rules do not provide a scrutiny mechanism for the awards unlike ICC Arbitration Rules whereby the ICC Court may lay down modifications as to the form of the award and, without affecting the arbitral tribunal's liberty of decision, may also draw its attention to points of substance.
Under Article 15/A of TIAC, the parties have the right to bring an action for annulment to set aside an arbitral award, in the first instance commercial court within 30 days of the notification of the award signed by the Secretariat in accordance with Article 36/2 of the ISTAC Rules. The conditions for bringing an action of annulment is limited to where (i) the subject matter is not arbitrable, (ii) the award is contrary to public order, (iii) the arbitration agreement is void or the parties have no capacity (iv) the appointment of the Arbitrators was not procedurally correct, (v) the award was not given within the period of arbitration, (vi) the arbitrator's decision on its authority is unlawful, (vii) the arbitrator's authority is exceeded or the award does not cover the claims of the parties, (viii) the arbitral proceedings were procedurally incorrect or (ix) the parties were not granted equal treatment.
If the arbitration contains international elements and the seat of arbitration is Turkey, according to Article 15/B of TIAC, assuming an action for annulment does not apply or has been refused, upon request, the local court shall issue a certificate of executability. The court will examine whether the dispute is arbitrable and if the award is contrary to public order prior to issuance of the certificate. However, if the arbitration does not contain any foreign element and the seat of the arbitration is Turkey, the Turkish Code of Civil Procedure ("TCCP") applies. According to the TCCP, domestic arbitration awards, which do not contain any international elements, can be enforced at the time the arbitration award is rendered and no executability certificate is required.
ISTAC has shown itself capable of providing arbitration rules that adopt the modern approaches of the major arbitral institutions around the world. ISTAC has the potential to offer a viable alternative for arbitration practitioners. Plus ISTAC should have the favorable effect of popularizing arbitration in Turkey for domestic disputes. The success of ISTAC both domestically and internationally ultimately will depend on how well those rules will be implemented in practice by its Board of Arbitration and Secretariat.
1 According to a study, these are the five most preferred arbitral institutions: 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, conducted by Queen Mary University of London (QMUL), p. 17 avaliable at http://www.arbitration.qmul.ac.uk/docs/164761.pdf; 2018 edition of the International Arbitration Survey will be published in Spring 2018.
2 Ibid. p. 18
3 ISTAC was initiated in the Istanbul International Financial Center Strategy and Action Plan of the Turkish Gevernment, published in the official gazette dated 2 October 2009. According to the Strategy and Action Plan, the second priority under the title of "Strengthening the Legal Infrastructure" was announced as "the creation of an independent and autonomous institutional arbitration center in Istanbul which is capable of competing in the international level."
4 Regulations published in the Official Gazette dated 30 December 2017 and numbered 30286
5 The scales of administrative expenses and arbitrator's fees are set forth in Appendix 3 of the ISTAC Arbitration Rules. The expenses and fees are calculated on the basis of pre-determined percentages which decrease as the amount in dispute increases. When compared with those of ICC, the percentages in the scales of ISTAC Arbitration Rules seem generally competitive. Moreover, the highest administrative expenses of ISTAC applicable in an arbitration case are capped as TRY 130,000 (approximately USD 34,000) for any dispute amount that is higher than TRY 100 million (approximately USD 26.2 million). This is significantly lower than highest amount of the administrative expenses in ICC's scale, which is USD 150,000 and applies for any dispute amount higher than USD 500,000,000.
6 The emergency arbitrator provisions of ICC Arbtiration Rules shall not apply if the arbitration agreement was concluded before 1 January 2012.
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.