In the past couple of years, arbitration has become a widely favored and utilized method of dispute resolution alternative to state courts, especially with regards to international agreements. In addition to providing a more economical and faster resolution alternative to disputes, myriad other factors can very well be considered behind the fact that arbitration has become a more preferable method over the years. Arbitration is usually preferred in international commercial disputes that involve foreign elements; such as when either a party to the agreement is from a different jurisdiction or when a foreign jurisdiction is preferred as the governing law of the agreement in question.
Parties to international agreements usually tend to prefer their commercial disputes to be resolved via arbitration in one the major global arbitration centers such as London or Paris in Europe or New York in the United States. Undoubtedly, the reliance on the arbitration centers and procedure in London is due mostly in part to the stability and trust in the British legal system. The arbitration centers in the United Kingdom offer the opportunity to bring many different categories of disputes before these centers, including contractual issues, non-contractual issues, cases involving intellectual property rights and issues relating to competition law.
In order to submit a dispute to any of the arbitral centers, parties essentially need to reach a consensus to approve, adapt and perform the award determined by the arbitrators as per the arbitration clause included in their contract or a separate arbitration agreement attached the main agreement which outlines the legal relationship in between the parties. The arbitration agreement is required to be in writing to be applicable (Section 5(1) Arbitration Act). Yet, whether or not it is signed by the parties is not of paramount importance as it would still be sufficient if the agreement is made by exchange of email communications or letters in writing.
The parties choose arbitration not only due to its cost-effective and time saving nature, but also due to its ability to offer a much higher degree of confidentiality compared to court decisions. Well-established case law practice among the Courts does not apply in arbitration. Meaning, an arbitral award determined after arbitral procedures shall be binding solely for the parties to that arbitral procedure in question. Although it may seem like a disadvantage that previous arbitral awards will not be binding for future-dated disputes, it actually provides considerable assurances in terms of confidentiality for the parties.
Even though arbitral procedures in different arbitration centers located in different countries are being conducted in a similar ways, we are of the opinion that comparing the systems in place in Turkey and the UK, as one of the major global arbitration centres, may be helpful for any potential users.
Arbitration Procedure in Turkish Law
The UNCITRAL (United Nations Commission on International Trade Law arbitration rules) have been transposed into Turkish law in 2001, under Law No: 4686, as the International Arbitration Act. It should be noted that these rules are not binding in an absolute way and parties are free to choose the applicable rules, procedure, and scope of arbitration that they would like to apply to them through an agreement. Of course, with the flexibility that is offered, certain risk do arise. According to the UNCITRAL Model Law, parties are free to change the applicable rules that would apply to their disputes any time. The flexibility these rules offer also indicates that the rules will be applicable to both contractual and non-contractual disputes.1.
ISTAC (Istanbul Arbitration Centre) is one of the most prominent arbitration centers in Turkey. It is possible to file a request for an arbitral proceeding easily by filling a form that is available on the ISTAC website. The claimant that would like to initiate the arbitration procedure needs to submit their request for arbitration to the Secretariat, along with the arbitration clause that is agreed to by the parties following pretty much the same initial procedure as arbitration centers overseas. Pursuant to the application, the Secretariat notifies the claimant about the date of submission and their approval of the claim. The claimant shall then deposit the registration fee along with their request. If the parties chose to arbitrate overseas, usually when one of the parties is a foreign entity or person, they would need to file a separate lawsuit for recognition and enforcement of the award, as the recognition and enforcement of foreign arbitral awards under Turkish Law is regulated separately under Law No. 5718 International Private and Procedural Law ("IPPL"). 3
Further detailed information can be derived from the Istanbul Arbitration Centre Arbitration Rules2.
CHOOSING LONDON, UNITED KINGDOM AS THE SEAT OF ARBITRATION
According to the International Arbitration Survey conducted by the University of London Queen Mary College in 2010, London is the number one most preferred seat of arbitration in the world. The main factor that lies behind London's charm-not only for European parties but also for those from all around the world- undoubtedly would be the fact that London is one of the leading financial centers in the world. Furthermore, it is clear that being the most preferred arbitral seat benefits from the stability the United Kingdom's legal system has to offer to the parties involved, as reliance that is placed in the arbitration centers operating under and pursuant to English Law provides the assurances of a well-established and independent legal system.4 In addition to all the reasons stated above, the unequaled approach of the courts in England towards arbitral awards and the ease of implementation should not be forgotten.
The 'ICC International Court of Arbitration', which is established under the worlds' leading commercial institution, the International Chamber of Commerce (ICC) that operates both in Turkey and in England, is among the most prestigious arbitral courts in operation today. The Court mainly concentrates on the settlement of disputes originating from agreements of international commerce and business transactions. It shouldn't come as a surprise that the majority of the arbitrators serving the court are from the UK. With offices and teams working across the globe, the ultimate aim of the institution has been to make arbitration a more preferred method in the global world of today.5 Arbitration that is carried out by the ICC is conducted pursuant to the provisions that are updated periodically outlined in the "International Chamber of Commerce Rules of Arbitration".
While ICC International Court of Arbitration usually settles disputes by making final awards within 6 months from the date of admittance of the claim, it also offers the parties faster alternatives and the procedures can be carried out by 1 or 3 arbitrators, which the parties are free to choose.
Other prominent arbitration institutes which are preferable in the UK that receive a good number of cases other than ICC International Court of Arbitration are as below:
London Court of International Arbitration (www.lcia.org).
The Chartered Institute of Arbitrators (www.ciarb.org).
London Maritime Arbitrators' Association (www.lmaa.org.uk)6
KEY FACTORS FOR THE PARTIES TO TAKE INTO CONSIDERATION DURING AN ARBITRATION AGREEMENT
Choosing the Seat of Arbitration
Even though the parties are not obliged to determine the arbitral seat when submitting their arbitration application, a determination that was made during the main agreement would provide a great deal of convenience, since the parties would already be dealing with a dispute at the time of the arbitration application and thus less likely to agree on matters.
The tension between the parties at the time of arbitration would generally make it harder to arrive at a mutual decision of where the arbitral seat should be located –despite the parties are free to determine it at this stage as well.
If not agreed to by the parties, the Court determines the place of the arbitral seat. The designated law of where recognition and enforcement will take place, has a significant importance during recognition and enforcement process of the final awards.
Importance of Specifying the Arbitration Institution:
If the validity of the arbitration agreement is being challenged by any of the parties, and if the arbitration institution is not clearly stated on the arbitration agreement, the Courts check the validity of the agreement by ascertaining whether the arbitration institution is clearly stated or not.
Whether the Dispute is Arbitrable or Not:
It is of great importance whether the dispute subject to arbitration is of the arbitrable nature or not. Parties are only free to submit their disputes to arbitration as long as these are among the matters the fate of which are under their disposal. Thus, matters related to criminal law, family law and public order are non-arbitrable.
Applicable Law:
Determination of the applicable law to any dispute resolution arising out of the agreement by the parties during the agreement stage would be ideal. However, a determination solely based upon the domicile of the parties or the domicile of a corporation might not always be legally convenient. Making the choice after a diligent research and upon assessments conducted by attorneys would be more advantageous for the parties.
Absent parties' choice, the applicable law to the dispute will probably be that of the arbitral seat.
The law that is to be applied to the dispute may determine a lot of other important matters. For example, if the applicable law to the dispute is the law of United Kingdom, for the claims related to the breach of a contract, the statute of limitations period would be six years, starting from the date of the breach.
Language of the Proceedings:
Arbitration rules grant the parties the freedom to choose the language to be used during arbitration proceedings. If not agreed to by the parties, the Arbitral Tribunal determines the language(s) of the arbitration on behalf of the parties. Undoubtedly, the language of the proceedings is of great importance since it will be determinative in the appointment of the arbitrators, and thus should be settled during the main agreement period.
Generally, documents to be filed regarding the dispute and have evidential value are of substantial nature regarding the decision on language selection
Finally, parties are usually free to use a translator at all times, for when they are not fully satisfied with the language selection and when it is not their native language. Yet, in the event of such an incident, a separate dispute may arise about which side should cover the expenses of the translator. Therefore, it is essential to take a good number of these outlined matters into consideration while choosing the language in which the arbitral hearings will be carried out.
The Possibility of Conducting Negotiations Outside of the Seat Designated for Arbitration:
Arbitration procedure can also be carried out through meetings held outside of the place set out as the place of arbitration –or will be set out- in the arbitration agreement. This matter , once again amplifies the flexible and practical nature of the system.
Arbitrators are competent to hear the witnesses, the "experts" designated as specialists in the sector subject to the dispute and the parties or to solely review the documents submitted to them and to convene for negotiations at any place that they see fit and appropriate.
Charges and Expenses:
Even though arbitration comes forth as an advantageous option in comparison to the long processing times and counseling fees associated with the courts, it should be noted that "fixed advance payment fee" expenses and arbitrators charges will need to be covered in the foreign currency unit, especially in the hearings overseas. Thus, notwithstanding the fact that arbitration has come to be known for being an economic dispute settlement method, arbitration may sometimes end up having a higher cost than the claim itself where the parties are from a foreign jurisdiction where court fees are much lower compared to those in the United Kingdom and the United States for example.
To give our readers an idea for example, the standard fee is 5.000 US Dollars for the International Court of Arbitration within ICC as of 2021. It should be underlined that this fee does not include the arbitrators' fees which will increase the overall sum depending on the number of arbitrators.
Footnotes:
1 'International Arbitration', Prof. Dr. Kemal Dayinlarli. Dayinlarli Hukuk Yayinlari; Ankara, 2010.
2 ISTAC-ISTANBULTAHKIMMERKEZI.https://istac.org.tr/wp content/uploads/2016/01/%C4%B0STANBUL-TAHK%C4%B0M-MERKEZ%C4%B0-TAHK%C4%B0M-KURALLARI.pdf)
3 https://www.mondaq.com/turkey/arbitration-dispute-resolution/1029964/yabanc305-hakem-kararlar305n305n-trkiye39de-tan305nmas305-ve-tenfizi
4 Arbitration procedures and practice in the UK (England and Wales): overview. Marie Berard and Anna Kirkpatrick Clifford Chance LLP. global.practicallaw.com/4-502-1378
5 ICC Dispute Resolution Services. https://iccwbo.org/dispute-resolution-services/arbitration/
6 Arbitration procedures and practice in the UK (England and Wales): overview. Marie Berard and Anna Kirkpatrick Clifford Chance LLP. global.practicallaw.com/4-502-1378
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.
