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13 September 2024
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Recognition And Enforcement Of Foreign Arbitration Awards In Turkey: Key Challenges And Solutions

AL
ASY Legal

Contributor

ASY LEGAL is a boutique law office established by Ali Yurtsever and Emir Aksoy operating in the business center of Istanbul. Our attorneys provide an extensive range of counselling to cover our client's legal issue comprehensively. We ensure that our clients receive tailored solutions for their specific legal issues.
The recognition and enforcement of foreign arbitration awards in Turkey are governed by both domestic legislation and international treaties. As international commercial transactions continue to grow.
Turkey Litigation, Mediation & Arbitration

The recognition and enforcement of foreign arbitration awards in Turkey are governed by both domestic legislation and international treaties. As international commercial transactions continue to grow, arbitration has become a preferred method of dispute resolution due to its efficiency, flexibility, and global enforceability. However, for a foreign arbitration award to have legal effect in Turkey, it must go through a recognition and enforcement process, which is not always straightforward.

One of the most significant challenges in the enforcement process is the concept of "public policy". This principle allows Turkish courts to deny the enforcement of foreign arbitration awards that are deemed contrary to the fundamental values of Turkish law. However, its broad and sometimes inconsistent application by lower courts can lead to substantial delays and uncertainty in the enforcement process, a point that will be critically analyzed in the following sections.

I. Difference Between Recognition and Enforcement

Although these terms are often used interchangeably, they represent distinct legal processes with different implications and requirements under both Turkish law and international conventions like the New York Convention.

Recognition refers to the formal acceptance by Turkish courts that a foreign arbitration award has the same legal effect as a domestic court decision. Once recognized, the award can be used as conclusive evidence and has res judicata effect in subsequent legal proceedings in Turkey. This means that the facts and legal findings established in the arbitration award cannot be re-litigated. Recognition does not involve any coercive measures or actions from Turkish authorities; it simply acknowledges the validity and finality of the foreign arbitration decision within Turkish jurisdiction.

In contrast, enforcement goes a step further by allowing the successful party to compel the losing party to comply with the award. Enforcement grants the foreign award the same enforceability as a domestic court judgment, including the possibility of seizing assets, garnishing wages, or taking other legal actions to satisfy the award. While recognition establishes the legal standing of the award, enforcement involves practical measures to ensure compliance.

II. Legal Framework Governing Recognition and Enforcement of Foreign Arbitration Awards in Turkey

The recognition and enforcement of foreign arbitration awards in Turkey are primarily governed by two sets of legal rules: domestic legislation, particularly the International Private and Procedural Law (Law No. 5718, commonly referred to as MOHUK), and international treaties to which Turkey is a party, most notably the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards of 1958 (New York Convention).

a. Turkish Law (MOHUK)

Under MOHUK, the recognition and enforcement of foreign court and arbitration awards are regulated by Articles 50 et seq. This law provides a framework for determining whether a foreign judgment or award can be recognized and enforced in Turkey. MOHUK also establishes that in cases where Turkey is a party to an international agreement containing provisions different from those in MOHUK, the provisions of the international agreement will prevail (Article 1/2 of MOHUK).

For example, where bilateral treaties between Turkey and another country impose stricter conditions than MOHUK for recognition and enforcement, Turkish courts should apply the more stringent rules in the bilateral treaties. However, in practice, Turkish courts sometimes prefer applying MOHUK over bilateral treaties, leading to inconsistencies in enforcement decisions

b. International Treaties

The primary international instrument governing the recognition and enforcement of foreign arbitration awards in Turkey is the New York Convention. Turkey ratified the New York Convention, which sets a unified standard for recognizing and enforcing arbitration awards among the contracting states. As per the Convention, an arbitral award issued in a country that is a party to the Convention must be recognized and enforced in other contracting states, subject to specific limited exceptions.

The New York Convention is applied by Turkish courts when dealing with arbitration awards issued in other contracting states. On the other hand, MOHUK provisions apply to arbitration awards from countries that are not parties to the Convention. Despite the differences in the source of law, both the New York Convention and MOHUK have largely similar provisions for the recognition and enforcement of foreign arbitration awards. The New York Convention, in Article III, also refers to the procedural rules of the country where enforcement is sought, meaning that Turkish procedural rules will govern the enforcement proceedings.

Although the New York Convention takes precedence over MOHUK in cases where it is applicable, Turkish courts have been known to approach the interpretation of public policy, arbitrability, and procedural fairness in unique ways. This interplay can result in varied outcomes, which makes understanding both frameworks crucial for anyone involved in the enforcement of foreign arbitration awards in Turkey.

III. Conditions for Recognition and Enforcement in Turkey

For a foreign arbitration award to be recognized and enforced in Turkey, specific conditions must be met, as outlined in both MOHUK and the New York Convention. These conditions are designed to ensure that the enforcement of foreign awards aligns with Turkish legal principles and procedural fairness. Understanding these requirements is crucial for foreign parties and practitioners who seek to navigate the complexities of Turkish law.

a. Requirements for Recognition and Enforcement of Foreign Arbitration Awards

Beyond the procedural requirements, there are substantive conditions under MOHUK and the New York Convention that must be fulfilled for an arbitration award to be recognized and enforced in Turkey. These include:

  1. Valid Arbitration Agreement: There must be a valid arbitration agreement between the parties. If the arbitration clause or agreement is found to be invalid under the law to which the parties have subjected it, or, failing any indication thereof, under the law of the country where the award was made, recognition and enforcement can be refused.
  2. Arbitrability of the Dispute: The subject matter of the dispute must be capable of settlement by arbitration under Turkish law. For example, disputes involving public order, criminal matters, or family law issues are generally not arbitrable in Turkey. If the dispute falls outside the scope of arbitrable matters, enforcement will be denied.
  3. Public Policy Considerations: Perhaps the most critical and often contentious condition is that the foreign award must not be contrary to Turkish public policy. As mentioned earlier, the interpretation of public policy can vary widely, and incorrect or overly broad interpretations by first-instance courts can lead to significant delays and even refusal of enforcement.
  4. Fair Trial and Due Process: The recognition and enforcement process also require that the arbitration proceedings respect the principles of a fair trial and due process. Enforcement can be refused if a party was not given proper notice of the arbitration proceedings or was otherwise unable to present their case. Similarly, if the composition of the arbitral tribunal or the arbitration procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place, enforcement may be denied.
  5. Final and Binding Nature of the Award: The arbitration award must be final and binding on the parties and not have been set aside or suspended by a competent authority in the country where the award was made. If an award is still subject to appeal or has been annulled, Turkish courts will refuse its enforcement.

b. Required Documents to Obtain a Recognition and Enforcement Decision

Recognition and enforcement of a foreign arbitration award in Turkey involves submitting the necessary documentation to the Turkish courts. Under both MOHUK and the New York Convention, certain documents must be provided to initiate the recognition and enforcement process:

  1. The Original Award or a Certified Copy: The party seeking enforcement must submit the original arbitration award or a duly certified copy.
  2. The Arbitration Agreement or a Certified Copy: A copy of the arbitration agreement that underpins the arbitration process must also be submitted.
  3. Certified Translations: If the arbitration award and the agreement are not in Turkish, they must be translated into Turkish.

IV. The Role of Courts, Public Policy Challenges, and Common Issues in Enforcement of Foreign Arbitration Awards in Turkey

The recognition and enforcement of foreign arbitration awards in Turkey are shaped by the judicial system's interpretation of both domestic law and international conventions such as the New York Convention. While the legal framework provides a structured approach, the actual enforcement process can be complicated by the Turkish courts' approach to issues like public policy and jurisdictional challenges.

a. Selecting the Competent Court

According to MOHUK, the authority to enforce such awards typically lies with the Civil Courts of First Instance. However, determining which court has jurisdiction can sometimes be contentious, especially when awards involve commercial or family law matters, where specialized courts of first instance may also claim competence.

Conflicting decisions from the court of appeals have contributed to some uncertainty regarding jurisdictional matters. For instance, while some rulings have assigned enforcement cases to commercial courts for arbitration awards involving commercial matters, others have directed these cases to general civil courts, reflecting an ongoing debate within the Turkish judiciary. This inconsistency underscores the need for careful preparation when selecting the appropriate forum for enforcement proceedings.

Therefore, selecting the appropriate court is crucial because jurisdictional challenges and conflicting interpretations of competence can lead to delays and complications in enforcement proceedings.

b. Challenges Arising from Noncompliance to Public Policy

One of the most frequently cited grounds for refusing the enforcement of foreign arbitration awards in Turkey is that the award is contrary to public policy. Under both the New York Convention and MOHUK, enforcement can be denied if it is deemed to violate the fundamental principles of the Turkish legal system. However, the lack of a clear definition of "public policy" allows for a broad interpretation, which can vary significantly between different courts and judges.

Turkish courts have occasionally adopted a conservative stance, interpreting public policy in a way that encompasses various concerns, from procedural fairness to substantive legal rules. Awards involving punitive damages, excessively high interest rates, or elements perceived to conflict with Turkish societal values are particularly vulnerable to refusal on public policy grounds. This is especially reflected in some decisions of the lower courts. While most of these refusals are later rectified and corrected by the high appeals courts, it can lead to delays, increased litigation costs, and inconsistent enforcement outcomes, making it challenging for foreign parties to predict the results of enforcement proceedings.

Some of the common grounds cited by lower courts for refusal based on public policy are noted below. While most of these were later corrected and rectified by the Court of Appeals, it nevertheless caused significant delays and additional expenses for the parties involved:

  1. Lack of Reasoning in the Award: Turkish courts have sometimes ruled that the absence of detailed reasoning in foreign judgments does not automatically constitute a breach of public policy. The Court of Appeals later clarified that while an award lacking reasoning may raise concerns, it does not in itself prevent enforcement under Article 54(c) of MOHUK, as long as the judgment does not violate fundamental Turkish legal principles. However, this stance remains contentious, with many arguing that the absence of reasoning should indeed be a valid ground for refusal, as it undermines transparency and accountability in judicial decisions.
  2. Arbitrator Impartiality Concerns: Concerns about the impartiality and independence of arbitrators have also been grounds for refusal based on public policy. In a notable case, a lower court refused enforcement of an arbitration award under the International Chamber of Commerce Arbitration Rules, where the sole arbitrator shared the same nationality as one of the parties, finding it contrary to principles of equality and fairness.
  3. Exclusive Right to Appoint Arbitrators: Arbitration agreements that grant only one party the exclusive right to appoint arbitrators have been cited by lower courts as grounds for refusing enforcement. These courts have argued that such arrangements compromise the fairness of the proceedings, thereby breaching the principle of a fair trial and violating public policy.
  4. Excessive Penalties in Awards: Another common ground for refusal involves claims that an arbitration award includes excessive penalties or damages that contradict Turkish legal principles.

c. Strategies for Navigating Court Challenges and Delays

Given the challenges posed by public policy considerations and jurisdictional ambiguities, parties seeking enforcement of foreign arbitration awards in Turkey should adopt several strategic measures:

  1. Early Assessment of Potential Public Policy Issues: Identifying potential grounds for public policy objections early in the arbitration process can help in tailoring the arbitration agreement and the conduct of proceedings to minimize the risk of refusal.
  2. Preparing Comprehensive Submissions: Submitting detailed legal arguments and evidence to demonstrate that the award aligns with both Turkish public policy and international norms can help mitigate the risk of refusal. This is particularly important given the varying interpretations of public policy by different courts.
  3. Selecting the Appropriate Court and Jurisdiction: Careful consideration should be given to the choice of court when initiating enforcement proceedings. Understanding the nuances of Turkish judicial practice and selecting a court with a more favorable track record for recognizing foreign awards can increase the likelihood of success.
  4. Appealing Adverse Decisions: When enforcement is denied based on public policy or other grounds, appealing to higher courts is often necessary. The Court of Appeals has shown a willingness to provide more balanced interpretations of public policy, and its involvement can lead to more consistent and predictable outcomes.

V. Conclusion: Strategic Insights for Effective Enforcement

The recognition and enforcement of foreign arbitration awards in Turkey require a nuanced understanding of both the legal landscape and the practical challenges posed by the Turkish courts. While the foundational legal framework is established by MOHUK and the New York Convention, the pathway to successful enforcement is often shaped by strategic decision-making at every stage of the process.

A critical insight for practitioners and parties is the importance of anticipating potential hurdles, particularly those related to public policy objections. The concept of public policy in Turkey remains a significant area of uncertainty, with lower courts sometimes adopting a conservative approach that can lead to inconsistent outcomes. Navigating this effectively involves not only a deep knowledge of Turkish legal standards but also the ability to present a compelling case that aligns with both domestic and international norms.

Choosing the right court and understanding the jurisdictional nuances can also greatly influence the enforcement process. The distinction between general civil courts and commercial courts, and the experience each has in handling foreign awards, can impact the speed and predictability of enforcement. Careful selection of the competent court and robust preparation of legal submissions are crucial steps in managing these risks.

For foreign parties, the enforcement process in Turkey is not merely a legal procedure but a strategic endeavor. It demands an approach that combines legal rigor with practical foresight, ensuring that each potential challenge is addressed proactively. From crafting arbitration agreements that minimize exposure to public policy objections to preparing for possible appeals, success in enforcing foreign arbitration awards in Turkey is ultimately about preparation, precision, and persistence.

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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