in Turkey
Further Steps Towards a More Arbitration-Friendly Approach
ASLI BAYATACANYAŞ*
I.
Introduction
The demand for settling international trade disputes by way of arbitration is gradually increasing. The main reasons behind the growing demand for arbitration are that it does not depend on the authority of a particular state, it functions more rapidly than state courts and it emphasizes the autonomy of the parties. One of the key points to ensure that international arbitration functions properly is the rapid and simple enforcement of an arbitral award in the country where it is sought to be implemented. Reaching a harmonized and well-functioning enforcement mechanism should be among the main aims of international arbitration. In order to achieve such an aim, foreseeing the territorial impediments to the enforcement of arbitral awards has an international importance. Considering the importance of such a territorial understanding, this study approaches the subject by looking at a particular country, Turkey. In this regard, some selected and crucial impediments to the enforcement of international arbitration awards are assessed, namely whether enforcement is contrary to the principles of a fair trial or the public policy of the enforcement state, excessive use of power by the arbitrators, arbitrability, reciprocity, and the parties’ capacity to arbitrate.
Unfortunately, the result of this assessment reveals that the Turkish Supreme Court does not always act in a coherent and uniform manner when interpreting the conditions for enforcement. In this regard, this study will also focus on the ways in which the conditions for enforcement should ideally be interpreted and the evolution towards this ideal. It is expected that this country-based approach will, in the end, contribute to the general international picture and provide guidance for possible enforcement claims in Turkey.
In Turkish law, one of the main sources of international arbitration is the International Arbitration Code1 which entered into force in 2001. It is
* Ph. D. (Ankara University), LL.M (Erasmus University Rotterdam), LL.B. (Ankara University Faculty of Law). The author is currently working in the Department of Private International Law, in the Faculty of Law at İhsan Doğramacı Bilkent University, bayata@bilkent.edu.tr.
applicable when the dispute has a foreign element and the place of arbitration is in Turkey, or when it is determined by either the parties or the arbitrators that the arbitration will be subject to the Code. With regard to recognition and enforcement, two sources come into prominence,2 namely the New York Convention3 and the CPIPL.4 They will both be analysed in detail below.
II. New York Convention or Code on Private International
and Procedural Law (CPIPL)?
The Turkish Republic has ratified the New York Convention (the Convention) by a code5 published in 1991, and used the right of reservation which is enabled under the Convention (Article 1(3)). In this regard, by applying the principle of reciprocity, it has been accepted that the Convention is only applicable to the recognition or enforcement of arbitral awards that have been rendered in another member country. Moreover, it has been accepted that the Convention might only be applicable to contractual or non-contractual obligations and to disputes that are considered as commercial under Turkish law.
On the other hand, Articles 60 to 64 of the CPIPL have also regulated the recognition and enforcement of foreign arbitral awards. Under Article 63 of the CPIPL, recognition is subject to the same provisions as enforcement. Issues like whether awards are enforceable and the enforcement procedure are regulated by these provisions. Also, the grounds for rejecting a claim for enforcement (for example, the absence of a valid arbitration agreement, the award being contrary to the public policy of the forum, the non-arbitrability of the dispute under Turkish law, the fact that the parties have not been represented during the arbitral proceedings and the fact that the arbitral award is not binding or finalised) are listed under Article 62.
1 Law No. 4686 of 21 June 2001, published in OG No. 24453 of 5 July 2001. Detailed information on the subject can be found in Ceyda Süral, Nearly a Decade on – The Perception of International
Arbitration Law by Turkish Courts, 26(3) Arbitration International, 421 (2010); Ali Yeşilırmak, The Turkish International Arbitration Law of 2001, 19(2) Journal of International Arbitration, 171 (2002);
Tuğrul Ansay, Current Development: International Arbitration in Turkey, 14 American Review of International Arbitration, N.3, 333 (2003).
2 Moreover, with regard to the recognition and enforcement of foreign arbitral awards, Turkey is party to bilateral and multilateral agreements as well as the 1961 European Convention.
3 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in New York on 10 June 1958.
4 Turkish Code on Private International and Procedural Law (CPIPL), Law No. 5718 of 27 Nov. 2007, published in OG No. 26728 of 12 Dec. 2007.
It is of the utmost importance to determine which of these sources should prevail when a court renders the enforcement judgment of an arbitral award. In this respect, the question as to which source is more favourable for enforcement arises.
From the doctrinal point of view, different opinions have emerged. The first opinion6 is that the arbitral awards that are within the scope of the New York Convention should be enforced pursuant to the Convention, and hence, the Convention has the status of a code according to Article 90 of the Turkish Constitution.7 Also, the Convention has the status of lex specialis when compared to the CPIPL for the recognition and enforcement of foreign arbitral awards.8 Moreover, according to Article 1(2) of the CPIPL, international agreements are reserved and have priority,9 and since the Convention has a wide global scope,10 it should be applicable to the enforcement of arbitral awards. Following this argument, the CPIPL should only be applicable to the enforcement of foreign arbitral awards that are outside the scope of the Convention.11 The CPIPL might, for example, be applicable because of Turkey’s reservation to the Convention,12 meaning that if an arbitral award has been rendered in a country which is not party to the Convention, the arbitral award might be subject to the enforcement procedure under the CPIPL.13 In our opinion, the Convention should be applicable to the enforcement of arbitral awards that are within its scope as the Convention has the status of a code, is lex specialis, and also because the Code itself has established its priority for international agreements in Article 1(2).14
6 Ziya Akıncı, Milletlerarası Tahkim (International Arbitration) 249 (2d ed., Seçkin Yayıncılık 2007).
7 Turkish Constitution Art. 90/V, first sentence: International agreements duly put into effect bear the
force of law.
8 Banu Şit, Kurumsal Tahkim ve Hakem Kararlarının Tanınması ve Tenfizi (Institutional Arbitration
and Recognition and Enforcement of Arbitral Awards) 193 (İmaj Yayınevi 2005).
9 Yavuz Kaplan, Yabancı Hakem Kararlarının Tenfizi Açısından Kesinleşme ve Bağlayıcılık
Ölçütlerinin Değerlendirilmesi (Assessment of Finality and Being Binding from the Aspect of Enforcement of Foreign Arbitral Awards), 5 (1-4) Atatürk Üniversitesi Erzincan Hukuk Fakültesi
Dergisi, 421, 425 (2001).
10 Cemal Şanlı, Türkiye’de Yargıtay Kararlarına Göre Yabancı Hakem Kararlarının Tanınması ve
Tenfizi (Recognition and Enforcement of Foreign Arbitral Awards in Turkey According to the Judgments of the Supreme Court), (17-18) Milletlerarası Hukuk ve Milletlerarası Özel Hukuk Bülteni,
395 (1997-1998). 11 Akıncı, supra n. 6, at 249. 12 Şit, supra n. 8, at 194. 13 Ibid.
14 Considering the possibility set out in Art. 7 of the Convention, that domestic provisions might be applied, also leads to the application of the Convention by referring to one of its particular provisions.
Another opinion15 emphasises that it is for the party to choose whether to base his or her claim on the provisions of the CPIPL or the provisions of the Convention for neither of the two sources prevents the application of the other and they both allow this through particular provisions in their respective texts (Article 1(2) of the CPIPL and Article 7(1) of the Convention).16
If the theoretical view is set aside and the actual practice is taken into consideration, it is generally observed that decisions on the enforcement of foreign arbitral awards are rendered by considering the provisions of both the Convention and the CPIPL.17 In recent years especially, the suitability of the provisions of the CPIPL has been assessed together with the suitability of the provisions of the Convention.18 On the other hand, in some decisions, only the Convention has been taken into consideration, relying on the fact that it is the lex specialis;19 the enforcement of an arbitral award under the provisions of the CPIPL only has not been encountered.20 In conclusion, it is not possible to say that a uniform understanding exists in practice in terms of the source to be taken into consideration when rendering an enforcement judgment for a foreign arbitral award. However, this inconsistency might result in arbitrary practices as shown below.
The CPIPL which is in force has brought two crucial amendments that are in harmony with the general structure of international arbitration. These relate to ‘reciprocity’ and whether an award is ‘binding’. The amendment related to whether an award is binding will be assessed below21 in a separate section. We will first analyse reciprocity.
The reciprocity condition, which had been stipulated for the enforcement of arbitral awards under the Code,22 was repealed by the CPIPL
15 Ergin Nomer & Cemal Şanlı, Devletler Hususi Hukuku (Private International Law) 521 (18th ed., Beta 2010).
16 Ibid.
17 For instance, in a decision of the Supreme Court, when evaluating the conditions for enforcement, both the Convention and the CPIPL have been taken into consideration: Sup. Court, 19. Chamber, Case No. E. 2000/7171, K. 2000/7602, T. 9.11.2000: www.kazanci.com (accessed 12 July 2012) or Sup. Court, 19. Chamber, Case No. E. 1996/9619, K. 1997/4669, T. 8.5.1997: www.kazanci.com (accessed 12 July 2012) or Sup. Court, 11. Chamber, Case No. E. 2002/13265, K. 2003/5759, T. 2.6.2003: www.kazanci.com (accessed 12 July 2012).
18 Şit, supra n. 8 at 199.
19 For instance, Sup. Court, Civil General Council, Case No. E. 1999/15-235, K. 1999/273, T. 5.5.1999: www.kazanci.com (accessed 12 July 2012) or Sup. Court, 15. Chamber, Case No. E. 1997/4213, K. 1997/5603, T. 25.12.1997: www.kazanci.com (accessed 12 July 2012).
20 Şit, supra n. 8 at 200. 21 See infra IV, C.
22 Law No. 2675 of 20 May 1982, published in OG No. 17701 of 22 May 1982. This was repealed by the CPIPL which is now in force.
which is now in force. The Turkish legislature, based on the fact that reciprocity is not compatible with the nature of international arbitration, has repealed this condition. The amendment has also been thoroughly supported by legal commentators;23 the old provision which stipulated reciprocity was found to be irrational since arbitral awards are not the judicial acts of the state where the decision was rendered.24 It is possible to say that the CPIPL, by introducing such a flexible approach, is aligned with the understanding of the Convention, one of the main aims of which is to facilitate enforcement.25
Despite such an innovative approach in the CPIPL, it is still not possible to say that the CPIPL includes more convenient provisions than the Convention. Therefore, it might not be necessary to use the possibility given in Article 7 (more favourable right provision26) of the Convention. For instance, within the scope of Article 5 of the Convention, even though one of the grounds for refusing enforcement exists, the judge might decide to enforce the award, meaning that this provision is not mandatory.27 On the other hand, if one of the grounds for refusing to grant enforcement exists under the CPIPL, the judge cannot decide to enforce – that is to say, he or she has not been granted the right to use his or her discretion.28 In this regard, the CPIPL has a more rigid understanding than the Convention, since the Convention regulates that recognition and enforcement ‘may be refused’ (Article 5 of the Convention) if the grounds for rejecting the enforcement exist, whereas the CPIPL stipulates that enforcement must be refused.
Another important difference concerns the grounds for refusal. These grounds should either be taken into consideration by the judge on his or her own motion, or the burden of allegation lies on the parties. Under the Convention, although the burden to allege that the grounds for enforcement are not fulfilled generally lies on the party against whom enforcement is
23 Aysel Çelikel & Bahadır Erdem, Milletlerarası Özel Hukuk (Private International Law) 673 (10th ed., Beta 2010).
24 With regard to the understanding that arbitral awards should not be granted nationality, R. Koral,
Hakem Kararlarının Milliyeti ve Milletlerarası Hakem Kararı Teriminin Çift Anlamı (Nationality of Arbitral Awards and the Double Meaning of the Term International Arbitral Award), Banka ve
Ticaret Hukuku Araştırma Enstitüsü, II. Tahkim Haftası, 22-23, (1983).
25 The Convention does not require reciprocity. On the other hand, the Convention enables the member states to have a right of reservation to require reciprocity. Turkey has used that right and, in Turkey, reciprocity is required for the enforcement of arbitral awards pursuant to the Convention.
26 Albert Jan van den Berg, The New York Convention of 1958: An Overview, http://www.arbitration-icca.org/media/0/12125884227980/new_york_convention_of_1958_overview.pdf (accessed 11 Nov. 2012), 1. 27 Alan Redfern, Martin Hunter, Nigel Blackby & Constantine Partasides, Law and Practice of
International Commercial Arbitration, 445 (4th ed., Thomson Sweet and Maxwell 2004).
sought,29 two grounds, which are arbitrability and being contrary to public policy, are exceptionally taken into consideration by the judge on his or her own motion (Article 5(2) of the Convention).
Similarly, according to the Code, many grounds for refusing enforcement must be alleged by the party against whom enforcement is sought (CPIPL Article 62(2)); however, the absence of a valid arbitration agreement (or arbitration clause), public policy and arbitrability are considered by the judge on his or her own motion.30 Therefore, as distinct from the Convention, the Code stipulates that the existence of a valid arbitration agreement (or arbitration clause) should also be considered by the judge.
Thus, it is possible to conclude that, despite the amendments in the CPIPL, the Convention still includes more favourable provisions for the party who claims enforcement. However, it might not be very meaningful to recommend to a party who seeks enforcement to base his or her claim on the Convention since, under Article 33 of the Turkish Procedural Code,31 the judge applies the Turkish codes on his or her own motion, which means that he or she is not bound by the legal grounds alleged by the parties.32 Therefore, even though the party who seeks enforcement may base his or her claim on the Convention only, one may assume that the court would not consider itself bound by the party’s legal grounds and might take into consideration both sources (the Convention and the CPIPL), given the general approach of the Turkish courts towards the enforcement of arbitral awards mentioned earlier. Finally, as a result of such a discrepancy with regard to judge’s discretionary power on the refusal grounds in the two sources, the legal security might be jeopardized and arbitrary preferences might occur.
III. Existence of a Foreign Arbitral Award
For the enforcement of an arbitral award under either the Convention or the CPIPL, there should first be an arbitral award which qualifies as ‘foreign’. In this regard, it becomes necessary to clarify the method to determine whether an award is ‘domestic’ or ‘non-domestic’ under Turkish law.
29 Emmanual Gaillard & John Savage (eds.), Fouchard, Gaillard and Goldman on International
Commercial Arbitration, 968 (Kluwer Law International 1999).
30 Çelikel & Erdem, supra n. 23 at 669-670.
31 Turkish Civil Procedural Law. Law No. 6100 of 12 Jan. 2011, published in OG No. 27386 of 4 Feb. 2011. 32 Baki Kuru, Ramazan Arslan & Ejder Yılmaz, Medeni Usul Hukuku (Civil Procedural Law) 296-297
The Convention (Article 1(1)), as a principle, applies to arbitral awards that have been rendered in a country other than the country where enforcement is sought. In this way, the main decision lies with the territory in order to determine whether the award is domestic or not. Moreover, the Convention also applies to the arbitral awards which qualify as ‘non-domestic’ in the country where enforcement is sought.
In this regard, it becomes necessary to analyse the awards which qualify as non-domestic in Turkish law. In Turkish legal doctrine, the prevailing opinion is that one must consider ‘the law applicable to procedure’ when determining whether a judgment is domestic or non-domestic.33 Pursuant to this approach, if the Turkish procedural rules have been applied, the award is domestic. The law applicable to the procedure might have been determined either by the parties or by the arbitrators.34 If the law applicable to the procedure is not clear, it has been recommended that the lex arbitri should be considered.35 Therefore, under Turkish law, the law applicable to the legal dispute does not have any influence in determining whether the award is domestic or not.36 Also, the only conformity with the compulsory procedural rules of the foreign law is sufficient: it is not necessary for the foreign law concerned to have been applied in full, with all its provisions.37 If both the mandatory provisions of Turkish procedural law and the rules of an institutional arbitration, such as the ICC Rules, have been applied, the award should again not be assumed to be domestic.38 Otherwise, this would mean disregarding the parties’ autonomy with regard to choosing the rules of an arbitration institution.39
When one considers what happens in practice, it might be concluded that the Supreme Court has used different criteria in different decisions.40 Sometimes only the procedural law and some other times only the territory has been taken into consideration; sometimes, the procedural law principle
33 Ziya Akıncı, Milletlerarası Ticarî Hakem Kararları ve Tenfizi (International Commercial Arbitral Awards and Their Enforcement) 15 (Dokuz Eylül Üniversitesi Hukuk Fakültesi Döner Sermaye İşletmesi Yayınları, 1994); Nomer & Şanlı, supra n. 15 at 518-519; Şanlı, supra n. 10 at 398. 34 Nomer & Şanlı, supra n. 15 at 520; Çelikel & Erdem, supra n. 23 at 649.
35 Akıncı, supra n. 33 at 15. 36 Nomer, supra n. 28 at 198.
37 For detailed information see Şit, supra n. 8 at 184-185. 38 Şit, supra n. 8 at 185.
39 Ibid.
and the territory principle have both been applied together and, recently, the procedural law criterion has been given more weight.41
It is possible to say that the Supreme Court has an incoherent understanding of the law applicable to procedure. The Supreme Court has sometimes interpreted the choice of law clause in the main contract to be the law applicable to the procedure.42 For instance, in one decision,43 it was concluded that the parties’ choice of law with regard to the dispute also included the choice of procedural law; however, in the dissenting opinion, it was stressed that the parties’ choice of Turkish law principally covers only Turkish substantive law. Since there is no explicit choice of law with regard to procedure, Swiss procedural law, as the lex arbitri, should be applied.
The law applicable to procedure might not be a national law and the parties might have chosen, for instance, the rules of an arbitration institution. A decision44 of the Supreme Court is a good example for showing such a possibility. The individual case was between a Turkish company and a public administrative authority. The arbitrators were Turkish nationals, the arbitral proceedings were held in Turkey and the Supreme Court concluded that an award which was rendered pursuant to the ICC Rules should not be qualified as foreign. The Court based its conclusion on the grounds that awards which were not given pursuant to a specific national law might not qualify as ‘foreign’.
Despite this approach of the Supreme Court, it was concluded in a more recent decision45 that the parties’ choice to apply ICC Rules as the procedural law should be considered in determining whether the award is domestic or not. This approach has also been supported by the legal commentators.46 In this particular case, an arbitral award was rendered as a result of a contractual dispute between a German company and two Turkish
41 For instance, since the law applicable to procedure was the Turkish Code on Procedural Law, the award was a domestic arbitral award and it should be implemented according to the domestic rules, therefore enforcement was not possible: Sup. Court, 15. Chamber, Case No. E. 1996/3249, K. 1996/5584, T. 25.10.1996: www.kazanci.com (accessed 12 July 2012).
42 The choice of Turkish law in the contract between the parties included both the substantive law and the procedural law. Therefore, the arbitral tribunal was required to apply the Turkish procedural rules. Since the arbitrators applied Swiss law as the lex arbitri and rendered the award accordingly, the enforcement should be rejected: Sup. Court, 15. Chamber, Case No. E. 1997/4213, K. 1997/5603, T. 5.12.1997: www.kazanci.com (accessed 12 July 2012).
43 Sup. Court, Civil General Council, Case No. E. 1999/15-235, K. 1999/273, T. 5.5.1999: www.kazanci.com (accessed 12 July 2012).
44 Sup. Court, 15. Chamber, Case No. E. 1998/3507, K. 1998/4108, T. 6.11.1998: www.kazanci.com.tr (accessed 12 July 2012).
45 Sup. Court, 11. Chamber, Case No. E. 2000/3992, K. 2000/4704, T. 26.5.2000: www.kazanci.com (accessed 12 July 2012).
companies. The parties had chosen Turkish law as the applicable law, but they had chosen ICC Arbitration Rules as the procedural law. The Supreme Court, in contrast to previous decisions, held that the choice of Turkish law meant only a choice of Turkish substantive law and not a choice of Turkish procedural rules. In this framework, the Court concluded that since the arbitral award was given as the result of the application of a foreign authority’s rules, it was a foreign arbitral award.
Finally, from the aspect of Turkish law, considering both the latest decisions of the Supreme Court and the legal commentators’ view on the subject as mentioned above, it is possible to conclude that the law applicable to procedure might be the key factor in determining whether an award is domestic or not. The understanding that the parties’ choice of law only refers to the substantive law and does not affect the procedural law is also growing. Particularly, when institutional arbitral rules have been chosen by the parties, it is accepted that their choice only refers to procedural rules and, as a result, the award is non-domestic, and therefore needs to be enforced in Turkey.
IV. Grounds for Refusal
After determining whether the award is foreign or not, there is a need to analyse the grounds for refusing enforcement under the Convention and the CPIPL. It can be said that both sources include very similar grounds, so the common and most used grounds have been categorized together.
A.
Being Contrary to the Principles of Fair Trial or in Violation
of Defence Rights
Violation of fair trial principles, such as being contrary to the procedural law applicable to arbitration, is a ground for refusal under both Articles 5(1)b of the Convention and 62(1)c-d of the CPIPL. The judge in the enforcement case has a limited role in the matter: he or she is responsible for evaluating only whether the fair trial principles have been respected or not, after an objection by the party against whom enforcement is sought.47
Examples of circumstances which might fall under the scope of these grounds are: the concerned party not being notified in time,48 not being granted
47 Şit, supra n. 8 at 209.
48 Since the defendant has been properly notified about the arbitral proceedings, the enforcement cannot be rejected on the grounds that the defence rights of the defendant have been violated: Sup. Court, 19. Chamber, Case No. E. 2002/9861, K. 2002/8221, T. 26.12.2002: www.kazanci.com (accessed 12 July 2012).
enough time for his or her defence, being prevented from submitting his or her evidence,49 and not being given the chance to examine the documents in the file.50 However, the party’s own default in submitting his or her claim or missing the trial cannot be accepted as grounds for refusal.51 For instance, if, under the applicable procedural rules, the burden of putting an allegation to the tribunal lies on a party and if that party has missed such a chance by his or her own default, his or her objection that his or her rights to a fair trial have been violated should not be taken into consideration during the enforcement stage.52
If there has been no violation of the applicable procedural law and, as a result, it is not possible for the party to base his or her claim for non-enforcement on these grounds, the public policy grounds might be an alternative way to claim that the award should not be enforced.53 For instance, if the procedural rules applied by the arbitral tribunal are against the right to a fair defence, even though they comply with the applicable procedural rules, such a result might cause a public policy intervention, and enforcement might be rejected.54
During the enforcement process before the Turkish court, it is of the utmost importance to determine whether the subject can be considered within the framework of the fair trial grounds or the public policy grounds, from the aspect of the burden of proof for the concerned party (CPIPL Article 62(2), Convention Article 5). Being contrary to the principles of a fair trial should be proved by the party against whom enforcement is sought.55 However, if that party claims that there has been no notification addressed to him or her at all, the party who demands enforcement is under the obligation to prove the contrary,56 because the party against whom enforcement is sought bases his or her claim on a negative claim. On the other hand, if the fair trial principle means that there has been a violation of public policy, the party against
49 Since the opinions of the defendant’s witness have been reported to the tribunal and assessed by the arbitrators, it is not possible to conclude that that party’s rights to a fair trial have been violated: Sup. Court, 19. Chamber, Case No. E. 2000/7171, K. 2000/7602, T. 9.11.2000: www.kazanci.com (accessed 12 July 2012).
50 Nomer & Şanlı, supra n. 15 at 527. 51 Nomer, supra n. 28 at 204. 52 Şit, supra n. 8 at 211.
53 Rona Aybay & Esra Dardağan, Uluslararası Düzeyde Yasaların Çatışması-Kanunlar İhtilafı (Conflict
of Laws at an International Level) 328 (2d ed., İstanbul Bilgi Üniversitesi Yayınları, 2008); Nomer &
Şanlı, supra n. 15 at 52. 54 Nomer & Şanlı, supra n. 15 at 52. 55 Akıncı, supra n. 33 at 192. 56 Ibid at 124.
whom enforcement is sought does not have to prove anything, because the judge determines the public policy intervention on his or her own motion.57
B.
Excessive Use of Power by the Arbitrators
The one who should determine whether a subject falls within the scope of the arbitration agreement or not, is subject to debate.58 In this regard, two main possibilities might arise: the decision can be made either by the arbitrators on their own motion (Kompetenz-kompetenz) or by the court. From the doctrinal point of view, it is generally asserted that if a matter which calls for the arbitrators’ competence arises, it should be handled by the arbitrators themselves.59 In Turkish law, and in the International Arbitration Act, such an understanding has also been accepted,60 and the arbitrators have been granted the right to decide their own competence; this follows recent trends at the global level. With regard to the excessive power of the arbitrators, both the CPIPL (Article 62) and the New York Convention (Article 5(1)c) contain the same provisions. Under the Convention (Article 5(1)c), partial enforcement has been enabled, meaning that the part of the award which is within the scope of the arbitrators’ power can be enforced, whereas the other part, which is beyond their power, is rejected. Similarly, according to the CPIPL (Article 62(1)g), partial enforcement has been enabled; therefore the part which is within the limits of the arbitrators’ power can be enforced. An excessive use of power by the arbitrators should be claimed by the party against whom enforcement is sought under both the Convention (Article 5) and the CPIPL (Article 62(2)).
Excessive use of power might be related to the substantive dispute or to the functioning of the arbitral proceedings. In Turkish law, the most common way of detecting an excessive use of power arises from claims that the arbitrators have not taken note of the parties’ choice of law.61 A finding by the arbitrators that they are competent with regard to the particular dispute, when this is not the case, is another ground for refusing enforcement
57 Aybay & Dardağan, supra n. 53 at 326.
58 Redfern, Hunter, Blackby & Partasides, supra n. 27 at 252. 59 Çelikel & Erdem, supra n. 23 at 663.
60 Şit, supra n. 8 at 212-213.
61 Şit, supra n. 8 at 213. The defendant claimed that the application of English law by the arbitrators was an excessive use of power since the arbitral tribunal was required to apply Swiss law. However, in the contract between the parties, there was no provision with regard to the choice of Swiss law, and the arbitrators decided to apply English law by considering the experts’ opinions. Therefore, it was not possible to conclude there was excessive use of power by the arbitrators: Sup. Court, 19. Chamber, Case No. E. 2000/7171, K. 2000/7602, T. 9.11.2000: www.kazanci.com (accessed 12 July 2012).
due to the excessive power. For instance, in one particular case,62 the parties had referred the dispute to the London Court of International Arbitration. Despite the parties’ choice, the claimant acted wrongfully and, as a result, the dispute was solved by an arbitral tribunal constituted according to the ICC Rules. In other words, the arbitrators found themselves competent although there was no such agreement by the parties. The Turkish Supreme Court refused the claim for enforcement due to the fact that the parties’ common will with regard to the competent tribunal was not taken into consideration and the arbitrators went beyond their power by finding themselves competent to consider the particular dispute.
C.
The Award Being not Binding, not Finalised or Annulled
Is an award which is binding only between the parties sufficient for enforcement? Or is it necessary that the award be finalised by a court order or by a decision from a competent national authority to render it enforceable? From the aspect of Turkish law, a very crucial amendment has been made in the CPIPL with regard to these questions, and an understanding which accords with the general structure of international arbitration law has been reached. In order to understand this amendment at the highest level, we must assess the previous provisions of the abolished CPIPL.
Under Article 45/i of the abolished CPIPL, the award had to be finalised and implementable before a party could seek enforcement. Moreover, under Article 44/b of the same Code, the original finalised and implementable award and a copy of it were required to be submitted to the court. Therefore, only being binding between the parties was not adequate, and court intervention with regard to finalisation was also stipulated. The provision was subject to criticism since it did not comply with the understanding that enforcement should be as flexible as possible within the general aim of the good functioning of international arbitration.63
The Supreme Court did not have a coherent approach with regard to the matter, and it was not possible to reach a clear result about how ‘finality’
62 Sup. Court, 19. Chamber, Case No. E. 2011/4149, K. 2011/7619, T. 7.6.2011: www.kazanci.com (accessed 12 July 2012). The same content: Sup. Court, 19. Chamber, Case No. E. 2009/5703, K. 2009/8256, T. 15.9.2009: www.kazanci.com (accessed 12 July 2012).
63 Cemal Şanlı, New York Konvansiyonuna Göre Hakem Kararlarının Kesinleşmesi Sorunu
(Finalisation of the Arbitral Awards According to New York Convention), 14(1-2) Milletlerarası
was being interpreted. In some judgments,64 the abolished CPIPL and the New York Convention were assessed together and finality was interpreted as giving rise to ‘double-exequatur’, in that ratification from a competent judicial authority and enforcement by the Turkish court were both required. So, only being binding between the parties was not found to be sufficient, and finalisation was demanded pursuant to the CPIPL. Therefore, the Supreme Court based its decisions on the provisions of the CPIPL, setting aside the more flexible approach of the Convention.65
On the other hand, in some judgments, only being binding between the parties was found to be satisfactory for enforcement, in harmony with the approach of international arbitration based on party autonomy.66 For instance, in one judgment,67 an arbitral award rendered by the Moscow Chamber of Commerce and Industry, which was binding only between the parties, was enforced for the binding character is adequate under the Convention.
The current CPIPL has brought a different understanding, and an award which is finalised, implementable or binding only between the parties can now be enforceable. As declared in the rationale of the Code, only being binding between the parties has been found to be sufficient to demand enforcement, based on the aims of making the enforcement stage easy and giving priority to party autonomy at the highest level .
In this regard, it is enough to only check whether the award has become binding within the framework of the applicable rules for the arbitration process.68 In this way, double-exequatur will be prevented, and party autonomy will be emphasized.69 It might not be wrong to expect that this amendment in the CPIPL will affect the Turkish courts’ approach in time. Hence, with this amendment, the legal grounds for rejecting the enforcement of foreign arbitral awards for the reason that they are not finalised are no longer possible. Also, with this amendment, the difference
64 Sup. Court, 19. Chamber, Case No. E. 2002/9861, K. 2002/8221, T. 26.12.2002: www.kazanci.com (accessed 12 July 2012). Since the award was finalised as required by the CPIPL, it could be enforced: Sup. Court, 19. Chamber, Case No. E. 1998/6099, K. 1998/7735, T. 17.12.1998: www.kazanci.com (accessed 12 July 2012).
65 The Supreme Court has concluded that appeal at a national court against the arbitral award prevents finalisation, so that enforcement is not possible; however, such an impossibility does not prevent a demand for a provisional seizure at the Turkish court: Sup. Court, 19. Chamber, Case No. E. 2004/9775, K. 2004/13391, T. 30.12.2004: www.kazanci.com (accessed 12 July 2012).
66 Şanlı, supra n. 63 at 97.
67 Sup. Court, Civil General Council, Case No. E. 1999/19-467, K. 1999/489, T. 9.6.1999: www.kazanci.com (accessed 12 July 2012).
68 Çelikel & Erdem, supra n. 23 at 665. 69 Şanlı, supra n. 63 at 92.
between the CPIPL and the Convention has also been removed; the Turkish court will agree to enforce an arbitral award which is binding only between the parties. Therefore, it is possible to expect that there will be no more incoherent judgments with regard to finalisation or whether an award is binding. In this framework, if the appeal or objection stages of the award have been completed, or if there are no such stages at all, the award will be assumed to be binding between the parties starting from the moment it is rendered.70
The question of the annulment of the award by the courts or the competent authorities of the country where the award has been rendered should also be dealt with. Under Article 62(1)h of the CPIPL, enforcement of an arbitral award is rejected if the award has been annulled by the competent authority71 in the country where it was rendered. There is no right of discretion for the judge on this matter.72 In contrast to the CPIPL, under Article 5(1) of the Convention the judge has been granted a discretion by the statement that enforcement ‘may be’ refused.73
Therefore, prior to a possible enforcement demand before a Turkish court, the reasons for setting aside arbitral awards under the lex arbitri should be taken into consideration in order to prevent an unexpected result.74 If an annulment suit is filed where the award has been rendered, upon the objection of the party against whom enforcement is demanded, the enforcement case before the Turkish court ceases until a final decision is made with regard to the annulment suit.75 As a matter of doctrine, it has been asserted that, since the CPIPL and the Convention include different provisions on the subject, the Convention should be applied as lex specialis; as a result, it might be possible to enforce an arbitral award which has been annulled by the court of the country where it has been rendered.76 In this regard, the important issue relating to the source (the Convention or the
70 Ibid, 95.
71 İnci Ataman Figanmeşe, Milletlerarası Ticari Hakem Kararlarının İptal ve Tenfiz Davaları Yoluyla Mahkemelerce Mükerrer Kontrole Tâbi Tutulmaları Sorunu ve Bu Sorunun Giderilmesine Yönelik İki Öneri (The Problem of Double Exequatur of International Arbitral Awards by Way of Enforcement
and Annulment Cases and two Recommendations to Solve the Problem), 31(2) Milletlerarası Hukuk
ve Milletlerarası Özel Hukuk Bülteni, 43-45 (2011); Nuray Ekşi, New York Konvansiyonuna Göre İptal Edilmiş Hakem Kararlarının Tenfizi (Enforcement of the Annulled Awards under the New York
Convention)133 (Beta 2009).
72 Nomer & Şanlı, supra n. 15 at 533.
73 For detailed information, see Figanmeşe, supra n. 71 at 58-59. Redfern, Hunter, Blackby & Partasides, supra n. 27 at 445.
74 Akıncı, supra n. 33 at 204-205. 75 Kaplan, supra n. 9 at 426. 76 Şit, supra n. 8 at 216.
CPIPL) which should be taken into consideration for enforcement once again comes up. Therefore, a uniform approach by the Supreme Court will prevent arbitrary decisions and reinforce legal security.
D.
The Award Being Contrary to Public Policy
If the foreign arbitral award is in contradiction with the main principles of Turkish law, its enforcement is refused.77 However, just being different from the compulsory provisions of Turkish law, or even being in contradiction with these provisions, does not necessarily result in the rejection of a claim for enforcement of the award.78 During the enforcement stage, the award cannot be scrutinised on the merits of the case (révision au fond) and this principle has been accepted both in the Convention79 and under Turkish law.80 Being contrary to public policy is an exception to this principle, and in order to reveal that the award is contrary to public policy, some merits of the case may, exceptionally, be scrutinised.81
If the arbitral award is contrary to basic principles, such as the rules of fairness and equity, or if the award causes discrimination among the parties, it is possible to say that it is in conflict with the public policy of the forum.82 Also, if the award is in contradiction with a final judgment of a Turkish court, enforcement of the award should be refused to maintain legal security and uniformity.83 If it is revealed that the arbitrators have not acted in an objective manner, such a situation might also cause the rejection of the enforcement claim on the grounds of public policy.84
The grounds with regard to invalidity of the award should principally be alleged in the country where the award has been rendered.85 The enforcement stage is not the most appropriate one to assert that these grounds exist. Therefore, if the parties have not made their allegations at the right time, they
77 Nomer & Şanlı, supra n. 15 at 524. 78 Şit, supra n. 8 at 223.
79 Mauro Rubino Sammartano, International Arbitration Law and Practice 956 (2d ed., Kluwer Law International,2001).
80 Objections with regard to the dispute arising from the contract among the parties should be made during the arbitral proceedings. It is not possible to scrutinise these subjects at the enforcement stage: Sup. Court, 11. Chamber, Case No. E. 2002/13265, K. 2003/5759, T. 2.6.2003: www.kazanci.com (accessed 12 July 2012).
81 Nomer & Şanlı, supra n. 15 at 522.
82 Nomer & Şanlı, supra n. 15 at 524; Aybay & Dardağan, supra n. 53 at 324. 83 Nomer, supra n. 28 at 207.
84 Ibid, 208.
should not be granted a new right to present their claims at the enforcement stage, as this would bestow the character of an appeal to the enforcement.86
The Supreme Court has concluded that granting the right to choose the arbitrators to only one party consisted of a privilege with regard to that party. Thus, if one party has a superior right to choose the arbitrators, or even forces the other party to sign an arbitration agreement, this arbitration agreement might become invalid and can also be assumed to be contrary to public policy.87 In this regard, by allowing a public policy intervention, the arbitrator selection process has jeopardized the objectivity of the arbitrators.88
If the award has been rendered arbitrarily and without reasonable legal grounds, its enforcement might also be prevented by public policy intervention.89 The parties may, of course, demand that the arbitrators render a judgment under the rules of equity and honesty if it is possible under the applicable rules.90 However, such an authorisation by the parties does not give the arbitrators the right to act arbitrarily, and this may cause a public policy intervention at the enforcement stage.91 In this regard, there should be a clear and indisputable inequality for the court to be able to conclude that the award is arbitrary.92
In Turkish arbitration practice, rejection of the enforcement of the arbitral award on the grounds of public policy has been encountered with regard to a procedural provision of an ICC Arbitration. Submitting the arbitral award to the Court for scrutiny93 under the ICC Rules has been found to be contrary to public policy and the enforcement of the award has been rejected by the Supreme Court.94 In the particular dispute, a French company
86 Ibid.
87 For instance, granting the right to choose the arbitrators to only one party confers a privileged position to that party. An award rendered by arbitrators chosen in this way cannot be enforced. However, in the particular dispute, both parties had been granted the right to choose the arbitrators, so it was not possible to say that the award was contrary to public policy: Sup. Court, Civil General Council, Case No. E. 1999/19-467, K. 1999/489, T. 9.6.1999: www.kazanci.com (accessed 12 July 2012).
88 Günseli Öztekin Gelgel, New York Konvansiyonu’na Göre Hakem Kararının Tenfizinde Yargıtay’ın
Bazı Kararlarının Değerlendirilmesi (Assessment of Some Judgments of the Supreme Court in Enforcement of Arbitral Awards under the New York Convention), 22, Milletlerarası Hukuk ve
Milletlerarası Özel Hukuk Bülteni, 1156, (2002). 89 Nomer & Şanlı, supra n. 15 at 526.
90 Nomer, supra n. 28 at 208. 91 Ibid.
92 Nomer & Şanlı, supra n. 15 at 525-526.
93 ICC 2012 Rules also include a provision (art. 33) for scrutiny of the award by the Court.
94 Sup. Court, 15. Chamber, Case No E. 1617, K. 1052, T. 10.3.1976: Nuray Ekşi, Yargıtay Kararları
Işığında ICC Hakem Kararlarının Türkiye’de Tanınması ve Tenfizi (Recognition and Enforcement of ICC Arbitral Awards in the Light of the Judgments of the Supreme Court), Ankara Barosu Dergisi,
and a Turkish public administrative authority had concluded a dam construction contract (the so-called Keban Dam Project) and chosen the ICC Arbitration Rules. However, the award rendered as a result of the application of the ICC Rules could not be enforced in Turkey on the grounds that it was contrary to Turkish public policy.95 The procedure for scrutiny by the Court is not familiar to the Turkish understanding of arbitration; however such a difference is not an adequate ground for a public policy intervention.96 The important point is that if such a procedure has affected the objectivity of the arbitrators, then this is contrary to public policy.97 Moreover, the arbitrators are not bound by the result reached after the scrutiny of the Court, and they do not have to amend their award as recommended by the Court. In this regard, it is not possible to say that this power of the Court has a direct impact on the arbitrators’ award.98 Therefore, it might only be possible to consider public policy if the Court’s intervention affects the independence of the arbitrators. Making a generalisation that all ICC awards are contrary to public policy is not an acceptable approach.99 Public policy intervention should be considered independently in every particular possibility100.
It can be said that, currently, this approach towards ICC arbitral awards is becoming weaker and ICC awards are being enforced in Turkey.101 Therefore, it is possible to say that a more flexible and arbitration-friendly approach is being adopted by the Turkish courts with regard to ICC arbitral awards; in this regard, the belief of the international community that ICC awards are not enforced in Turkey should be erased from the memory.102
E.
Non-Arbitrability of the Dispute
Arbitrability of a dispute is determined by Turkish law.103 Under Turkish law, in a very general sense, disputes arising from the claims which can freely be disposed of by the parties may be solved by arbitration. Therefore, arbitration is a way of settling disputes that can only be followed 95 Akıncı, supra n. 33 at 197. 96 Akıncı, supra n. 33 at 166. 97 Nomer, supra n. 28 at 208. 98 Akıncı, supra n. 6 at 169. 99 Ibid, 171-172.
100 Akıncı, supra n. 33 at 198-199; Şit, supra n. 8 at 172.
101 For instance, scrutiny of the award by the Court under the ICC Rules does not require public policy intervention: Sup. Court, 15. Chamber, Case No. E. 1996/3249, K. 1996/5584, T. 25.10.1996: www.kazanci.com (12.07.2012).
102 N. Ekşi, supra n. 94 at 62 and 74. 103 Akıncı, supra n. 33 at 190-191.
in debt claims and movable cases.104 The arbitrability of the dispute is considered by the judge on his or her own motion (Article 62/2 of the CPIPL and Article 5 of the Convention).
It is generally accepted that disputes such as those with regard to determination of rent, validity of a marriage, custody and divorce cannot be resolved by arbitration.105 It is also not possible to go to arbitration for disputes concerning enforcement and bankruptcy law, where state intervention is required to protect the rights of creditors.106 Under the prevailing view, with the aim of protecting a weaker party such as an employee or a consumer, it is not possible to go to arbitration for labour law or consumer law disputes.107
F.
Capacity of the Parties to Arbitrate
Under Article 5(1)a of the Convention, if the parties are under some incapacity according to the law applicable to them, enforcement of the award may be refused.108 The Convention does not include a clear provision about the law applicable to the parties. It is generally suggested that the enforcement court may solve the problem according to its own national conflict of law rules when an objection with regard to incapacity occurs.109 Such an understanding is also compatible with the parties’ interests.110 Moreover, such an interpretation also accords to the understanding of the Convention.111
Under the CPIPL, the law applicable to ‘capacity to have rights and capacity to act’ is determined according to the national law of the person concerned (Article 8). Moreover, with regard to subjects related to the law of persons, renvoi has been accepted to the second degree (Article 2(3)). In this regard, first of all, one must search for the conflict of law rules of the national law. The following alternative results may occur, depending on the content of the conflict of law rules of the national law. If the conflict of law rules of the
104 Nomer & Şanlı, supra n. 15 at 526. 105 Ibid.
106 Ibid.
107 Şit, supra n. 8 at 217.
108 In the CPIPL, there is no separate and clear provision with regard to the capacity of the party to conclude an arbitration agreement, or with regard to the effect of incapacity on the enforcement of an arbitral award. However, it does not seem possible to talk about a valid arbitration agreement which has been signed by a person without capacity. Therefore, rejection of enforcement might be possible under Art. 62(1)e of the CPIPL which regulates the invalidity of the arbitration agreement.
109 Sammartano, supra n. 79 at 197; Redfern, Hunter, Blackby & Partasides, supra n. 27 at 145-146. 110 Akıncı, supra n. 33 at 186.
national law also refer to the national law of the person, both legal systems have the same understanding, the substantive rules of the national law apply, and the capacity of the person is determined by virtue of those substantive rules.112 If the conflict of law rules of the national law refers to another legal system,113 renvoi applies and only the substantive rules of the latter legal system apply, with no further reference to its conflict of law rules.114 Finally, capacity is determined under these substantive rules.115
Most often, incapacity to conclude an arbitration agreement might be encountered where one of the parties is a legal entity but not a natural person. In this regard, the arbitration agreement might have been signed by a person who is not entitled to represent the legal entity when concluding an arbitration agreement.116 Therefore, it would be appropriate to recommend, with regard to arbitral awards that might be enforced in Turkey, that the capacity of the representative117 of the legal entity be scrutinised before concluding an arbitration agreement, in order to prevent non-enforcement.118
V.
Conclusion
In Turkish law, two sources come into prominence with regard to the enforcement of foreign arbitral awards: the New York Convention and the CPIPL. There is no coherent and uniform approach, in theory or practice, to decide which of these sources should be taken into consideration with regard to enforcement. This uncertainty might cause arbitrary practices and, consequently, legal security might be imperilled. The Supreme Court in particular, when rendering an enforcement judgment, sometimes evaluates
112 Çelikel & Erdem, supra n. 23 at 119.
113 For example, under the conflict of law rules of state A, the law of habitual residence applies to capacity so that if, in a particular case, the national law of the concerned person is the law of A whereas the habitual residence is in the country of state B, the substantive rules of the law of B apply to capacity.
114 Çelikel & Erdem, supra n. 23 at 119. 115 Ibid.
116 Şit, supra n. 8 at 208.
117 For example, under Art. 373 of the Turkish Commercial Code. Code No. 6102 of 13 Jan. 2011, published in OG No 27846 of 14 Feb. 2011, the persons who are entitled to represent a joint stock company are registered in the Trade Register and these persons can conclude any contract within the scope of the company’s general targets and sphere of activity. Therefore, if a foreign company is planning to conclude an arbitration agreement with a Turkish joint stock company, the Trade Register may be scrutinised to discover whether or not the representative is entitled to conclude an arbitration agreement.
both sources and sometimes only takes into consideration the Convention as the lex specialis. However, the two sources have some differences: specifically, the judge’s discretionary power is completely different with regard to the grounds for refusing to allow enforcement. Under the Convention, the judge may decide not to refuse enforcement even if one of the refusal grounds exists; but under the CPIPL, the judge has to reject enforcement when one of the grounds for refusal is identified. As a result of the mandatory character of the provision in the CPIPL, it is not possible for a judge to exert a discretionary power on the subject.
Despite these uncertainties, the current CPIPL has brought into effect more contemporary provisions which are also parallel with the general understanding of the Convention. For instance, it is possible to enforce an arbitral award which is only binding among the parties; such an amendment will prevent double-exequatur and will emphasize party autonomy, which is one of the main principles of international arbitration. Also, the reciprocity condition has been removed from the CPIPL, reinforcing the understanding that arbitration should not be attributed to a particular national law system.
In conclusion, it is possible to say that a more coherent, Convention-compatible and arbitration-friendly understanding is being internalised in Turkish law with regard to the enforcement of foreign arbitral awards, through the shaping of legal doctrine and the Turkish legislature together.
Aslı BAYATA CANYAŞ, Enforcement of Foreign Arbitral Awards in Turkey. Further Steps Towards a More Arbitration-Friendly Approach
Summary
The aim of this study is to set out the main principles with regard to the enforcement of foreign arbitral awards under Turkish law, and to question the main impediments that prevent enforcement. In this framework, prominent judgments of the Turkish Supreme Court and the approach of the Turkish legal doctrine are analysed in a holistic manner. We first consider whether the New York Convention or the Turkish Code on Private International Law should prevail when rendering an enforcement judgment. After this, we aim to explain how the conditions for enforcement should be interpreted according to the general characteristics and the main structure of international arbitration law. In this regard, the amendments brought in by the recent Turkish Code on Private International Law are scrutinised in order to reveal whether they give rise to a more arbitration-friendly climate. As a result, it will become easier to foresee the points which should be considered in obtaining an arbitral award that might be enforced in Turkey.
