For this blog, in order to summarize the Turkish approach to recognition/enforcement of a foreign award under the New York Convention, the court decision to be examined is from the Turkish Court of Cassation General Assembly of Civil Law (YARGITAY Hukuk Genel Kurulu), file no. 2011/13-568 E., decision no. 2012/47 K., issued on 08 February 20121. The abovementioned decision is chosen for its detailed discussion on the public policy exceptions, which is one of the most controversial subjects in this field, for the Turkish legal system in order to decide the recognition/enforcement of a foreign award.
1. The Issue At Stake In The Court Judgment And How The NYC Is Applied
1.1. A Brief Summary of The Case
The plaintiff is a joint venture which is constituted by D + A, C companies, while the defendant is a governmental entity. Parties signed the "Consulting Services Contract for the Supervision of the Restructuring of the Settlement Units within the Scope of Izmit, Körfez and Gebze Construction Contract Packages" on 18 August 2000, concerning the "Marmara Earthquake Emergency Reconstruction Project" (MEER Project). The Contract included an arbitration clause under its article 8.2, the parties chose the ICC Court of Arbitration as the institution and the rules of the International Chamber of Commerce were determined as applicable rules in the settlement of disputes that might arise between the parties.
The joint venture collected payments in accordance with the progress payments model as it was agreed on the Contract, in which it also paid the tax withholding, and the governmental entity refunded the tax withholding to the joint venture. After some time, the governmental entity stated that the Contract was interpreted wrong and that this tax refunding procedure had been incompatible with Turkey's tax laws so the joint venture was not eligible for a tax refund. Thus, the governmental entity calculated the tax refund that had already been paid to the joint venture, and not only stopped the refund but also deducted the tax amount that the government had already paid to the joint venture from subsequent progress payments. The joint venture objected, claiming that it was not duly paid according to the Contract.
The joint venture, as the plaintiff, petitioned to the ICC Court of Arbitration to settle the dispute, on the grounds of Article 8.2 of the Contract. The arbitral tribunal decided in favor of the joint venture in the case bearing the file number 13562/FM and the date of 8 February 2007. In accordance with the 1st and 2nd articles of the "Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958", to which the Turkey has been a party by ratifying with the Code No.3731 published in the Official Gazette dated 21 March 1991 and numbered 20877, declaring that the decisions rendered by the permanent arbitration bodies should be enforced in accordance with the provisions of the Convention, the joint venture as the plaintiff requested the enforcement of the decision of the ICC Court of Arbitration dated 8.2.2007 and numbered 13562/FM by the Turkish court so that it can be enforced in Turkey.
At the end of the trial due to the "enforcement" case between the parties; Ankara 2nd Commercial Court of First Instance, with its decision dated 24 December 2008 and numbered 2007/696 E, 2008/672 K, decided to enforce the decision of the ICC Court of Arbitration. Upon the defendant's appeal, the 13th Civil Law Chamber of the Turkish Court of Cassation reversed the decision of the Ankara 2nd Commercial Court of First Instance, with its decision dated 29 December 2009 and numbered 2009/4018 E, 2009/15528 K. After the first instance court resisted to the 13th Civil Law Chamber, upon the defendant's appeal in due time, The Turkish Court of Cassation General Assembly of Civil Law (YARGITAY Hukuk Genel Kurulu) was the authority to deliver the final decision.
Underlining that tax is a question of public policy, in view of the rule that the recognition and enforcement of the arbitral award cannot be contrary to the rules of public order in paragraph 2/b of the New York Convention 1958, the Turkish Court of Cassation General Assembly of Civil Law approved the decision of the 13th Civil Chamber and the decision to resist of the first instance court was found contradictory to the law.
1.2. Application of the New York Convention In The Decision
In its decision, the Turkish Court of Cassation General Assembly of Civil Law conducted a structural analysis. The Court stated that since the case was about the enforcement of the decision of the ICC Court of Arbitration dated 8.2.2007 and numbered 13562/FM, in order to resolve the dispute, first of all, it found necessary to determine the legal nature of the arbitral award and the legislations to apply to the case. The Court next analyzed the conditions for the enforcement of a foreign award in order to comply with the New York Convention, established what should be understood from the concept of public policy, and after examining the facts and evidence, reached its conclusion on the issue in question. It began the examination of the issue by identifying the applicable legal instruments.
The first regulation mentioned by The Court is the Code on Private International and Procedural Law No.2675, which entered into force in 1982, and has been applied to disputes which are not under the scope of treaties ratified by Turkey. The Court also pointed out that the 1958 New York Convention was ratified by Turkey on 8 May 1991 and thence the practical scope of the Code No.2675 has narrowed2. Even so, The Court stated that, as of 8 May 1991, when Turkey became a party to the New York Convention, and as of today, foreign arbitral awards rendered in a country that is not a party to this Convention would be the arbitral awards within the scope of the Code No.2675. On the other hand, The Court further felt the necessity to define the scope of the Code of International Arbitration No.46863 for this decision. It remembered that the Code of International Arbitration entered into force after being published on 5 July 2001. Pursuant to Article 1 of the mentioned code, which regulates the rules to be applied to the arbitration procedure, the Court found that the Code of International Arbitration must be applied in disputes that have foreign elements and where the place of arbitration is determined as Turkey or where the provisions of the aforementioned code are chosen by the parties or the arbitral tribunal. In that case, the Code of International Arbitration would be applied in disputes that felt under the temporal scope of the Code as of 5 July 2001. However, The Court concluded that taking into account the date of the contract of the dispute as 18 August 2000, the dispute could not be evaluated under the scope of the Code of International Arbitration. Finally, considering the certain case, taking into account the effective dates and scope of the legislation on the subject explained above, the arbitral award, whose enforcement was requested, related to the contract between the parties dated 18.8.2000 and was given in France, which is a party to the New York Convention, The Court reached that the provisions of the "New York Convention", to which Turkey is also a party, should be applied to the dispute.
This structure of The Court for examination can be criticized for a number of reasons. Even though a ratione temporis scope of the legislation must be demonstrated prior to a thorough examination of the facts and evidence in the case, the Court did so in very lengthy writing and with an abundance of unnecessary references, making it tedious to identify the rules applicable to the dispute. On the other hand, beginning with the determination of the legal nature of the arbitral award in question could have afforded the opportunity to demonstrate the applicable legal tools in a functional and swift manner, without feeling compelled to mention legislations that regulate the legal order for domestic awards. In conclusion, it was evident that the New York Convention was the applicable law, and one can argue that there was no need for pages of explanations to reach this conclusion.
Referring to Article 1 of the New York Convention, the Court then emphasized the territoriality principle adopted by the Convention in determining the element of foreignness. In accordance with the language in Article 1, the Court acknowledged that arbitral awards rendered outside of Turkey had the legal nature of a "foreign arbitral award," as the Convention explicitly stated the "territoriality principle."
After writing manifestly the Article V/2 of The New York Convention in its decision, accordingly, for the recognition and enforcement of the foreign arbitral awards in Turkey, the Court found that it was obligatory that the subject of the dispute was suitable to be settled through an arbitration process and as well as an arbitral award should not be contrary to the Turkish public policy. According to the understanding of the Court, the fundamental principles that states cannot abandon are the rules governing public order, and in general, violations of the provisions of a mandatory law that seeks to protect the public interest and order, as well as violations of morality and fundamental rights and liberties, necessitate the intervention of public order. As an illustration from the decision, given that customs laws, tax legislations, and public order are interrelated, The Court explained that an arbitral award containing claims against tax legislation might be incompatible with the fundamental principles that Turkish law deems indispensable, and thus can be subjected to intervention by public order.
The Court then proceeded to examine the facts and evidence after asserting that it was obligatory to focus partially on the merits of the case and that otherwise, it would be impossible to evaluate the objection of violation of public order. After examination of the facts and evidence, The Court concluded that due to the fact that the first instance court issued a decision based on incomplete examination and insufficient expert report, the decision of the first instance court was against the law and legal procedure, and so The Turkish Court of Cassation reversed the decision of the first instance court.
The Court adopted an approach that criticized the decision of the first instance court for failing to provide a sufficient official expert report from academicians specializing in tax law, which should be explicative, well-reasoned, and convenient to the Turkish Court of Cassation for a review. The Court also brought to light the fact that the first instance court must have investigated whether the parties engaged in a tax refund process that violated Turkish tax law, despite the existence of such provisions in their business contract. Importantly, the Turkish Court of Cassation did not prefer to declare a violation of public policy by the foreign arbitral award, but instead based its decision on the absence of procedural conditions in the first instance court, which can be seen as an easy-going method to decide in favor of public policy in practice against the enforcement of a foreign award.
2. Please indicate to which extent that solution is or is not in line with NYC decisions from other countries.
Indeed, public policy is "an unruly horse" that can drag a man to the places where he never wants to be, and it needs to have comprehensive legal reasoning on the saddle to be kept under control4. Nor can it be said that the public policy exceptions in the enforcement of a foreign award are perfectly implemented by the courts of different countries. So it is not surprising that the Turkish courts demonstrate flaws in their proceedings in building decisions on the grounds of Article V/2 (b) of the New York Convention on public policy exceptions.
Early decisions by Turkish Courts on public policy exceptions in the enforcement of a foreign award were more problematic. In a decision of the Turkish Court of Cassation, enforcement of a foreign award was rejected only on the basis that the award was from the Moscow Chamber Of Commerce Court of Arbitration, asserting that the arbitrators were not independent without giving any further reasoning5. In another decision dated 1976, in the Case of Dam of Keban, The Turkish Court of Cassation found that the submission and approval of an arbitral award to the ICC Court of Arbitration was contrary to the public policy since it damaged the independence of the arbitrators and judges6.
However, Turkish courts' understanding of international law has improved over time. Recognition and enforcement of a foreign arbitral award became one of the subjects that Turkish judges and academicians devoted time and effort to. Many decisions from the Turkish Court of Cassation on the public policy exceptions in cases on the recognition and enforcement of a foreign award that refer to French jurists or the Federal Court of Switzerland and other international sources can serve as an illustration of the Turkish courts' efforts to create decisions on these subjects that are compatible with those of other courts around the world7.
If we only check the definition of public policy in this certain decision examined above, we could easily argue that the Turkish Court of Cassation's decision provided a solution in line with decisions from other countries on the New York Convention. For, the definitions of public policy in Turkish Courts are very similar by their focus on "basic notions of morality and justice"8. As can be seen without any doubt, German courts9 were also a model for the Turkish legal system by their definitions of the concept of public policy on its aspects of "understanding of justice"10 and "public and economic life"11.
In contrast, the examined decision in this blog arose solely from disputes over tax refunds and payments in stages, according to the contract between parties. As previously argued, the Turkish Court of Cassation's approach to the case was not to declare a concrete solution to the problem. Rather, the Court chose to criticize and reverse the decision of the first instance court for a lack of due examination. In addition, although the Turkish Court of Cassation argued that it was necessary to examine the merits of the case in part, at the conclusion of the procedure, the Court of Cassation's decision was not practically different from that of an arbitral tribunal.
Further, the Turkish Court of Cassation claimed that the tax laws of a country are part of the public policy. Even though this argument can be considered as a general understanding, it cannot automatically cause that every problem with tax laws of a country can open a way for public policy exceptions in the enforcement of a foreign award. In this manner, the Turkish Court of Cassation's decision did not show how the claims of violation of the tax laws and which practice of the parties violate the public policy of Turkey. For, a court in another country could easily hold that the arbitrator's failure to expressly require the payment of taxes on the award did not violate the public policy of a country12. Therefore, it would be difficult to claim that the decision is in line with decisions on the New York Convention in other countries.
3. A Comparison Between The Grounds to Refuse Enforcement of a Domestic Award in Turkey and The Grounds to Refuse Enforcement of An Award Under the New York Convention
The grounds for refusing enforcement of a domestic arbitral award are set out in Article 439 of the Turkish Code of Civil Procedure (No:6100). These grounds can be listed as follows:
- Either one of the parties to the arbitration agreement is incompetent to act, or the agreement itself is invalid.
- In the selection of the arbitrator or arbitral tribunal, the procedure stipulated in the contract or in the related section of the Code of Civil Procedure has not been followed.
- The decision was not issued within the arbitration period.
- The arbitrator or arbitral tribunal is deemed illegally authorized or unauthorized.
- The arbitrator or arbitral tribunal rendered a decision on a subject unrelated to the arbitration agreement, did not render a decision on the entire request, or exceeded its authority.
- The arbitration proceedings were not conducted in accordance with the procedural contract or, in the absence of such a contract, in accordance with the provisions of the related section of the Code of Civil Procedure, and this circumstance has a bearing on the merits of the decision.
- The principle of party equality and the right to be heard are disregarded.
- The dispute subject to the arbitral tribunal's decision or the arbitral tribunal's decision is not arbitrable under Turkish law.
- The decision is against public policy.
On the other hand, the grounds for refusing enforcement of a foreign arbitral award under the New York Convention are set out in Article V of the Convention. According to the Convention. Article V/1(a) which is regulated the situation that "the parties to the arbitration agreement under some incapacity, or the agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made" can be considered as almost identical in its aim with Article 439/1(a) of the Turkish Code of Civil Procedure. Similarly, Article V/1(b) of the New York Convention which is about the "the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case" can be matched with the Article 439/1(g) which is about right to be heard and principle of equality. Again, Article 439/1(b) and (d) are similar in their aim and concept but different in their legal wording from Article V/1(d) which is about the composition of the arbitration tribunal. Article V/1(c) of the New York Convention which is about awards dealing with subjects beyond the contemplation in the arbitration agreement can be also seen as bearing the same purpose as Article 439/1(e) and (f) of Code No6100. While Article V/2 (a) and (b) are almost identical with the last two conditions for the refusing enforcement on the grounds of the Turkish Code of Civil Procedure under its article 439/1(h) and (i), Article V/1(e) does not seem to have its similar regulation under the Article 439 of the Turkish Code of Civil Procedure.
As shown above, the grounds for refusing enforcement of a domestic arbitral award in Turkey and those for refusing enforcement of a foreign arbitral award under the New York Convention are not identical in their legal language, but they are comparable. The circumstances for refusing to enforce a domestic arbitral award under Article 439 of Code No4100 differ from those for refusing to enforce a foreign arbitral award under the New York Convention.
Importantly, Article 439 of the Turkish Code No. 4100 and Article V of the New York Convention are identical in that both give the judge discretionary authority to decide the enforcement of a judgment even if at least one of the conditions listed in those provisions is met. Similar to Article V, which states that an award "may be refused," Article 439 of the Turkish Code No4100 similarly states that an award "may be refused."
Footnotes
1. Available at: https://karararama.yargitay.gov.tr/ (13.04.2023)
2. The Code no.2675 was repealed by Article 64 of The Code On Private International and Procedural Law No. 5718, on 12 December 2007, Available At: https://www.mevzuat.gov.tr/mevzuatmetin/1.5.5718.pdf (13.04.2023). The legislator aimed to create a legislation closer to the system of the New York Convention. It is argued that there was no significant difference between the conditions on enforcement of The Code. 5718 and the New York Convention. See. Prof. Dr. DEYNEKLİ, Adnan, "Yabancı Hakem Kararlarının Türkiye'de Tanınması Ve Tenfizinde Karşılaşılan Sorunlar", Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi, C. 16, Özel Sayı 2014, (105-122), Prof. Dr. Hakan PEKCANITEZ'e Armağan, p. 106.
3. Nevertheless, The Code of International Arbitration does not contain any provision on the recognition or enforcement of a foreign award in Turkey. Even though it includes the execution of the arbitral awards having the element of foreignness in its legal nature, execution is a different process than the enforcement. However, it can be said that these two concepts cause confusion for a Turkish judge who is not an expert on International Law.
4. MISTELIS, Loukas, "Keeping the Unruly Horse in Control or Public Policy as a Bar to Enforcement of (Foreign) Arbitral Awards", International Law FORUM du droit international, 2000, p. 248, https://brill.com/view/journals/inla/2/4/article-p248_11.xml?rskey=2yG14v&result=1&ebody=citedby-63170. 13.04.2023.
5. Yargıtay Chamber of Examination/Yargıtay Tetkik Dairesi, 2735, 17 February 1938. (Transmitted by the AKINCI, Ziya, Milletlerarası Tahkim, Vedat Kitapçılık, 2020, p. 547, footnote 150.
6. Turkish Court of Cassation 15th Civil Law Chamber, E. 1617, K. 1052, Date 10 March 1976: (1977), (Transmitted by Prof. EKŞİ, Nuray, "Yargıtay Kararları Işığında Yabancı Hakem Kararlarının Tenfizinde Kamu Düzeni", Public and Private International Law Bulletin, 40(1), (143–201), Prof. Dr. Cemal Şanlı'ya Armağan, p. 167, footnote 139.
7. Turkish Court of Cassation 15th Civil Law Chamber, 2183/3226 https://karararama.yargitay.gov.tr/ (13.04.2023)
8. "violate the forum state's most basic notions of morality and justice", Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), by Court of Appeals, United States of America, https://casetext.com/case/parsons-wh-ov-v-societe-g-de-l-du-p (14.04.2023)
9. Oberlandesgericht [OLG] München, Germany, 34 Sch 019/05, 28 November 2005, (Transmitted by UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), p. 242, footnote 1060.)
10. Turkish Court of Cassation Great Assembly on Unifiying the Case Law, 2010/1, 2012/1, 10 February 2012, https://www.resmigazete.gov.tr/eskiler/2012/09/20120920-8.htm
11. In the decision examined in this blog, Turkish Court of Cassation, General Assembly of Civil Law, 2011/13-568 E., 2012/47 K.
12. Subway International B.V. v. Panayota Bletas and John Bletas, 13 March 2012, U.S. District Court, District of Connecticut. https://newyorkconvention1958.org/index.php?lvl=notice_display&id=1245 (14.04.2023)
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