Türkiye

In summary

This article introduces the legal framework governing arbitration in Türkiye, with a particular emphasis on recent case law and the institutional developments. Türkiye has a modern legal framework as well as growing arbitral institutions with modern arbitration rules. The Turkish Court of Cassation’s recent decisions also indicate a more arbitration-friendly approach, although there is still room for improvement in certain areas. Additionally, Türkiye and Turkish investors are very active in investor–state arbitration, supported by a wide network of investment treaties with nearly all of Türkiye’s economic partners.

Discussion points

• Legal framework governing arbitration in Türkiye
• Key arbitration institutions in Türkiye
• Validity of arbitration agreements
• Arbitrability of disputes
• Setting aside of arbitral awards
• Enforcement of arbitral awards
• Investor–state arbitrations involving Türkiye and Turkish investors

Referenced in this article

• International Arbitration Law No. 4686 dated 21 June 2001
• Code of Civil Procedure No. 6100 dated 12 January 2011
• International Private and Procedural Law No. 5718 dated 27 November 2007
• UNCITRAL Model Law on International Commercial Arbitration
• New York Convention
• Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention)
• Law on the Compulsory Use of Turkish in Economic Enterprises No. 805 dated 10 April 1926
• Fees Law No. 492 dated 2 July 1964

Introduction

Arbitration has emerged as an increasingly popular method for dispute resolution in Türkiye. The legal framework for arbitration in Türkiye is well developed, with the main arbitration acts largely based on the UNCITRAL Model Law on International Commercial Arbitration (the UNCITRAL Model Law). The recent establishment of modern arbitration institutions, particularly the Istanbul Arbitration Centre (ISTAC), has further enhanced Türkiye’s arbitration landscape, positioning it as a regional hub for arbitration.

The Turkish judiciary has also increasingly adopted an arbitration-friendly position. However, there remains a need for greater consistency and predictability in specific areas, such as determining court fees in exequatur proceedings.

Türkiye’s active role in investor–state arbitration is also noteworthy. With an extensive network of bilateral investment treaties (BITs) and participation in key multilateral agreements such as the ICSID Convention and the Energy Charter Treaty, Türkiye has demonstrated a strong commitment to promoting and protecting foreign investment. Both the Turkish state and Turkish investors are frequent participants in investment arbitration.

This article explores these developments, offering insights into the current state of arbitration in Türkiye.

Laws governing arbitration

Türkiye has followed the dualist approach of European jurisdictions such as France and Switzerland by adopting separate legal regimes for domestic and international arbitrations. The International Arbitration Law of 2001 regulates international arbitrations while domestic arbitrations are governed by a section of the Code of Civil Procedure of 2011.^[1] Both laws apply if the place of arbitration is in Türkiye^[2] and both are largely based on the UNCITRAL Model Law. The determining factor for the application of the International Arbitration Law is the element of foreignness. Foreignness is broadly defined; it exists when at least one of the disputing parties is not from Türkiye, or a shareholder of a party contributed foreign capital, or when the underlying contract concerns a cross-border transfer of capital or goods.^[3]

Arbitral awards arising from arbitrations seated in jurisdictions other than Türkiye are not directly enforceable in Türkiye. The party requesting enforcement must apply to Turkish courts for an exequatur.^[4] Türkiye is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention). As Türkiye made a reciprocity reservation, the New York Convention applies to arbitral awards issued at a seat of arbitration in a state that is also a party to the Convention. If the seat of arbitration of the award is not in a state party to the New York Convention, the International Private and Procedural Law of 2007 governs exequatur applications.^[5] However, whether the New York Convention is applicable does not have practical importance. The procedure is the same in both cases and the criteria for refusal of enforcement under the International Private and Procedural Law of 2007 are similar to the conditions under article V of the New York Convention.^[6]

Arbitration institutions

ISTAC

While International Chamber of Commerce (ICC) arbitration remains the most popular arbitral choice for Türkiye-related large-scale and international disputes,^[7] the leading arbitration institution within Türkiye is ISTAC in terms of its connections with the international network of arbitration practitioners and the number of cases administered each year. Established in 2015, ISTAC has quickly proved to be the primary location of arbitrations within Türkiye. A national board supervises domestic arbitrations while an international board is responsible for the administration of international arbitrations. Other than the main arbitration rules, ISTAC has fast-track arbitration rules, emergency arbitrator rules, mediation rules and hybrid mediation-arbitration rules. The centre also offers hearing room facilities.

The number of cases that ISTAC administers has grown every year. In 2023, 138 cases were filed before ISTAC with domestic arbitrations constituting 83 per cent of the cases while the remaining 17 per cent were international arbitrations.^[8] Cases with a disputed amount below 5 million Turkish lira are subject to fast-track arbitration rules that provide for sole arbitrator appointments and a maximum period of three months for a final award, a time limit that is actually met in 87 per cent of all cases in 2023. In the same year, ISTAC-administered cases involved mostly construction disputes (22 per cent), followed by disputes involving sale of goods (19 per cent), services (11 per cent), energy (9 per cent), mergers and acquisitions (9 per cent), software (8 per cent), intellectual property (7 per cent) and attorney–client disputes (4 per cent).

Other arbitration centres

The Istanbul Chamber of Commerce Arbitration and Mediation Center (ITOTAM) was also established in 2015. Similar to ISTAC, it administers cases under certain special rules such as emergency arbitrator rules, arbitration rules for basic claims and mediation-arbitration rules.

Two arbitration centres based in the capital city of Ankara are the Arbitration Centre of the Union of Chambers and Commodity Exchanges of Türkiye and the Arbitration Centre of the Union of Turkish Bar Associations, the latter of which appears to administer mostly attorney–client disputes.

The most recent addition to the pool of arbitration centres in Türkiye is the Organisation of Islamic Cooperation Arbitration Centre (OIC-AC). Headquartered in Istanbul, OIC-AC was established after a host country agreement between Türkiye and the Islamic Chamber of Commerce, Industry, and Agriculture in 2019. OIC-AC Rules of 2023 provide that the scope of the centre covers both commercial and investment disputes. However, OIC-AC does not appear to be the designated organ for settlement of disputes under the 1981 Agreement on Promotion, Protection, and Guarantee of Investments among the member states of the Organisation of Islamic Cooperation (the OIC Investment Agreement) as neither the host state agreement nor the statute of the centre refers to the Agreement.

Validity of arbitration agreements

Consent to arbitration

Under Turkish law, a clear and unequivocal consent to arbitration is required for an arbitration agreement to be valid. The Turkish Court of Cassation consistently holds that arbitration clauses are invalid if they provide for resort to courts in the case of failure to resolve the dispute through arbitration.^[9]

Required form of the arbitration agreement

Article 4(2) of the International Arbitration Law provides that arbitration agreements must be in writing. Similar to article II(1) of the New York Convention, this provision also recognises that this requirement can be satisfied through an exchange of written correspondence.

Additionally, article 4(2) of the International Arbitration Law states that this requirement is deemed to be fulfilled if the plaintiff invokes the existence of a written arbitration agreement in their statement of claim and the defendant does not dispute this in their statement of defence.

Principle of separability

Turkish law embraces the principle of separability of arbitration agreements. Codified under article 4(4) of the International Arbitration Law, this principle provides that the validity of an arbitration agreement may not be challenged on the ground that the main contract is not valid.

The Turkish Court of Cassation has upheld this principle in its jurisprudence. For instance, in 2012, the General Assembly of the Court of Cassation affirmed that the invalidity of the main contract does not affect the validity of the arbitration agreement.^[10] More recent decisions of the Court of Cassation also endorsed the principle of separability of arbitration agreements.^[11]

However, there are cases where the Court of Cassation has applied the separability principle to conclude invalidity of arbitration agreements. In 2023, the General Assembly of the Court of Cassation ruled that there was no valid arbitration agreement when parties continued their contractual relationship after the original term of the main contract expired, without a written agreement.^[12] Although the General Assembly endorsed the principle of separability in general, it concluded that there was not an unambiguous consent to arbitration under these circumstances, where the parties continued their contractual relationship without a written agreement. Notably, the General Assembly supported its decision by relying on the principle of separability, holding that there was no evidence of the parties’ extension of the arbitration agreement (which is separate from the main contract), even if one considers that the parties agreed to extend the term of the main contract.

The language of the arbitration agreement

An interesting discussion point regarding the validity of an arbitration agreement under Turkish law has been the language of the arbitration agreement, particularly in light of historical legislation.

In 1926, during the early years of the Turkish Republic, the Turkish Parliament adopted Law No. 805 on the Compulsory Use of Turkish in Economic Enterprises (Law No. 805).^[13] Article 1 of Law No. 805 mandates that Turkish companies and enterprises must use the Turkish language in their transactions and contracts within Türkiye. Article 2 extends this requirement to foreign companies and enterprises in their dealings with Turkish entities and nationals. Further, article 4 stipulates that documents not complying with articles 1 and 2 ‘shall not be taken into consideration in favour of companies and enterprises’.

In recent decades, this old law has sparked interesting debates concerning the validity of arbitration agreements drafted in foreign languages. In some instances, the Turkish Court of Cassation deemed arbitration agreements written in English as unenforceable or invalid due to the provisions of Law No. 805.^[14] However, in a notable 2020 decision, the Court of Cassation ruled that arbitration agreements with an element of foreignness (as broadly defined in article 2 of the International Arbitration Law) are not subject to Law No. 805.^[15] This means that even if both parties to the contract are Turkish companies or nationals, they may conclude a valid and enforceable arbitration agreement in a foreign language, provided that there is a foreignness element, such as when a shareholder of one of the parties contributed foreign capital.

Arbitrability of disputes

Article 1(4) of the International Arbitration Law provides that ‘[t]his Act shall not apply to disputes concerning rights in rem over immovable property located in Türkiye and to disputes which are not subject to the consent of the two parties’. This provision identifies two categories of disputes as non-arbitrable under Turkish law.

The first category includes disputes concerning rights in rem over immovable property located in Türkiye. While disputes concerning rights in personam over immovable property are not classified as non-arbitrable under article 1(4), the Turkish Court of Cassation has ruled that certain disputes over lease agreements are non-arbitrable. This is based on the reasoning that such disputes are not subject to the consent of both parties, particularly when they involve aspects of public order.^[16]

The second category is broader and encompasses the general principle that disputes not subject to the consent of the parties are non-arbitrable. This is a reference to the parties’ ability to freely dispose of the matter by way of settlement. The matters that the parties cannot freely dispose of by way of settlement typically involve matters of public order, which cannot be resolved through arbitration. For example, consumer disputes are considered non-arbitrable, as the protection of consumers’ health and economic interests is regarded as a matter of public order.^[17]

The arbitrability of corporate law disputes has been a significant area of debate under Turkish law. The Turkish Court of Cassation has traditionally adopted a conservative view on certain corporate disputes, particularly those involving the dissolution of joint stock companies or the annulment of General Assembly resolutions. In two landmark decisions in 2012 and 2019, the Court of Cassation ruled that the annulment of General Assembly resolutions is not arbitrable.^[18] Similarly, in a 2014 decision, the Court held that requests for the dissolution of a company for just cause or due to the lack of mandatory organs are also non-arbitrable.^[19] The non-arbitrability of such disputes has been explained by the parties’ alleged inability to dispose of such matters by way of settlement, the potential effects of such proceedings over third parties and the statutory jurisdiction of the commercial court of first instance at the headquarters of the company over such disputes. However, recent positive developments in comparative law, coupled with a more favourable approach emerging in Turkish legal literature, suggest that a more arbitration-friendly position may be adopted in the near future.^[20]

In 2023, the Turkish Court of Cassation rendered an important decision regarding the arbitrability of disputes relating to execution proceedings and the arbitrators’ power to order statutory damages for denial of execution. Under Turkish law, a creditor can initiate execution proceedings to claim their receivables, leading to the issuance of a payment order by the execution office. If the debtor objects to this payment order, the creditor must initiate a legal action to have the objection vacated. Should the court vacate the objection, it may award statutory damages for denial of execution. The Turkish Court of Cassation has confirmed that an action to vacate the objection can be brought before arbitrators who are also empowered to award statutory damages for denial of execution.^[21]

Setting aside of arbitral awards

Arbitral awards rendered in Türkiye, whether domestic or international, cannot be appealed but can be challenged through a set aside application. The grounds for setting aside an award under both the Code of Civil Procedure and the International Arbitration Law are identical and closely mirror those found in the UNCITRAL Model Law.

Set aside grounds

When reviewing arbitral awards, courts are restricted to assessing whether any of the specific grounds for setting aside are applicable. This means that the courts’ examination in set aside proceedings must be confined to the criteria listed in the relevant provisions of the Code of Civil Procedure for domestic awards or the International Arbitration Law for international awards. The well-established principle of the prohibition of révision au fond precludes courts from reviewing the merits of an arbitral award, whether domestic or international.

However, in practice, courts may sometimes extend their review to the merits of the award, particularly under the guise of examining potential contradictions with public order, which is one of the recognised grounds for setting aside both domestic and international awards. The term ‘public order’ is not explicitly defined in the legislation and various interpretations have emerged in legal literature and case law. In some older cases, the Turkish Court of Cassation interpreted the term quite broadly, leading to a review of the merits of arbitral awards.^[22]

However, in recent years, there has been a noticeable trend towards applying the concept of public order more narrowly, aligning with the principle of the prohibition of révision au fond, which restricts courts from reassessing the substantive merits of arbitral decisions. For example, in a 2022 decision, the Court of Cassation ruled that while an error in determining the applicable law may relate to public order, an error in the application of the applicable law per se would not, thereby refusing to re-examine the arbitral tribunal’s substantive findings under the applicable law.^[23]

Procedure of set aside proceedings

As a notable pro-arbitration development, the Code of Civil Procedure and the International Arbitration Law were amended in 2018 to allow set aside applications to be submitted directly to the regional court of appeal, bypassing the courts of first instance.^[24] This change has reduced the number of judicial reviews in the set aside proceedings from three levels to two. Any decision made by the regional court of appeal can only be further contested at the Court of Cassation.

Arbitral awards can be challenged within one month for domestic awards^[25] or within 30 days for international awards,^[26] starting from the date the award (or its correction, interpretation or supplementation by the arbitral tribunal) is notified to the parties. This time frame is significantly shorter than the three-month period provided under the UNCITRAL Model Law.

Neither the Code of Civil Procedure nor the International Arbitration Law specifies the type of court fees that must be paid when initiating set aside proceedings. This raises the question of whether the plaintiff is required to pay a fixed nominal fee, which is relatively insignificant, or a proportional fee calculated based on the amount in dispute, which could be a substantial burden particularly for high-value awards. In practice, Turkish courts generally request payment of nominal fees in set aside proceedings.

The set aside proceedings are conducted in an expedited manner and, in principle, without the need for a hearing.^[27]

The courts have the authority to partially set aside arbitral awards under certain circumstances. According to article 439(3) of the Code of Civil Procedure and article 15(A)(3) of the International Arbitration Law, if a set aside application is made on the ground that the arbitral award includes decisions on issues beyond the scope of the arbitration agreement, the courts may set aside only those specific parts of the award that fall outside the arbitration agreement’s scope provided that it is possible to separate them from the matters covered by the arbitration agreement. In a 2021 decision, the Court of Cassation overturned a regional court of appeal’s decision to set aside the entirety of an award, ruling that only the part of the award addressing matters outside the arbitration agreement should have been set aside.^[28]

Enforcement of arbitral awards

Domestic arbitral awards

A domestic arbitration award is simpler to enforce than an international arbitration award with a Turkish seat or a foreign arbitral award. The Code of Civil Procedure treats domestic arbitral awards the same as a domestic court judgment with respect to enforcement. Neither a set aside application nor an appeal to the court’s decision rejecting the set aside application suspends enforcement of domestic arbitral awards.^[29]

International arbitral awards with a Turkish seat

Enforcement is more complicated for international arbitration awards seated in Türkiye. A set aside application before the regional court of appeal automatically stays any enforcement proceeding.^[30] Even when the regional court of appeal rejects the set aside application, enforcement remains suspended during the review of such rejection by the Turkish Court of Cassation.^[31] In the event that no party applies for a set aside, or if the set aside application is rejected in a final decision, the successful party must apply to a Turkish court for an enforceability certificate. The review of the Court in granting an enforceability certificate is limited to issues of arbitrability and public order.^[32] Therefore, the scrutiny is not as demanding as an exequatur proceeding or a set aside proceeding. Nevertheless, the procedure for an enforcement certificate grants the unsuccessful party one last opportunity of court review after failing to apply for a set aside within the applicable time limits, or when the set aside application is rejected.

Foreign arbitral awards

For the enforcement of a foreign arbitral award, a party must apply to Turkish courts for an exequatur (tenfiz). The proceeding for receiving an exequatur of a foreign arbitral award takes longer than enforcement of an award of domestic or international arbitration seated in Türkiye. A successful party must first apply to a court of first instance.^[33] An appeal of the court’s decision granting exequatur automatically suspends any enforcement proceeding.^[34] The decision of the regional court of appeal is subject to review before the Court of Cassation when the amount of dispute is above a certain threshold.^[35] In consequence, the creditor of a foreign arbitral award may be required to complete three separate levels of court proceedings in order to enforce the award.

Grounds for refusal of applications for enforcement of foreign arbitral awards

The New York Convention and the International Private and Procedural Law of 2007 both recognise that enforcement of a foreign arbitral award may be refused if the dispute is not arbitrable, the arbitration agreement is invalid, the opposing party has not been properly notified, the arbitrators exceeded their authority, the award has not yet become binding or the enforcement would be contrary to the public order.^[36] The last of these grounds, public order, has been a ubiquitous objection before Turkish courts by parties against whom an award is invoked. Fortunately, recent decisions of the Turkish Court of Cassation did not interpret public order in a broad manner and refrained from examining the merits of the case. Some of these recent decisions are summarised below.

Compound interest is not allowed under Turkish law other than under certain narrow exceptions.^[37] However, in a decision from 2022, the Court of Cassation allowed enforcement of an arbitral award ruling on compound interest, rejecting the objection that the enforcement of the award would be contrary to the public order in Türkiye.^[38]

The Court of Cassation was also unforgiving of a party seeking to rely on an expansive interpretation of the grounds for refusal of enforcement. It ruled in 2023 that it was not against public order that the arbitration agreement was in German language contrary to Law No. 805 of 1926 discussed above, which mandates the use of Turkish language in contracts of Turkish parties.^[39] Nor was it against public order that the arbitrators imposed a cut-off date for submission of additional evidence or that the expert did not conduct a site visit before submitting his report. The Court also found no excess of powers by the arbitrators in hearing the case after the parties failed to comply with the pre-arbitration requirement of settlement negotiations for one month.

A recent decision of the General Assembly of Civil Chambers of the Court of Cassation is important not only for its rejection of a public order objection but also for its pronouncements on the meaning of public order.^[40] In that dispute, a party to a shareholders’ agreement attempted to enforce an ICC arbitration award that found that the other party’s actions constituted an event of default, the same actions for which the latter party was acquitted of criminal charges after a final decision of Turkish courts. After reasoning that the correct test is whether the consequences of enforcement of the award — and not the content of the award — contravenes public order, the General Assembly held that the inconsistency between the findings of the Turkish criminal court and the arbitral award did not violate Turkish public order as the latter concerned civil liability.

Nominal or proportional fees for applications for enforcement of foreign arbitral awards

For a long time, the Turkish Court of Cassation had a split opinion on the type of court fees that a party seeking to receive an exequatur must pay. 11th Civil Chamber has been in favour of a nominal fee while 15th and 19thCivil Chambers were ruling that a proportional fee must be paid.^[41] A proportional fee would have a deterrent effect on a potential applicant as it can be as high as about 7 per cent of the total value of the award.^[42] In 2016, a legislative amendment to the Fees Law of 1964 clarified that the proportional fee will not apply to arbitration proceedings.^[43] After this amendment, the General Assembly of the Court of Cassation ruled in 2019 that exequatur proceedings are subject to a nominal fee and not a proportional fee.^[44] Nevertheless, certain regional courts of appeal have occasionally ruled in favour of a proportional fee in recent years, a view with which the authors respectfully disagree.^[45]

Security for costs

In addition to court fees, foreign individuals and entities pursuing legal proceedings in Türkiye, including enforcement of arbitral awards, may be required to deposit a security for costs under article 48 of the International Private and Procedural Law. This security is intended to cover the costs of the proceedings and potential losses of the other party. The amount, typically calculated at a rate between 10 per cent and 15 per cent of the award’s value, is set by the judge. If the security is not deposited within the specified time frame, the case will be dismissed on procedural grounds. However, exemptions may apply based on reciprocity, which may manifest itself through international treaties, statutory provisions or factual practice.^[46] For example, Türkiye is a party to the 1954 Hague Convention on Civil Procedure and agreed to not impose any security for costs for nationals of other contracting parties.^[47]

Investor–state arbitrations involving Türkiye and Turkish investors

Türkiye signed its first BIT with Germany in 1962 and has since signed more than 130 BITs, 87 of which are currently in force. All these BITs include an arbitration clause, with the exception of the first BIT with Germany. Additionally, Türkiye is a party to several free trade agreements with investment chapters, as well as multilateral investment agreements such as the Energy Charter Treaty and the OIC Investment Agreement.

Türkiye signed the ICSID Convention in 1987 and became a party to it in 1989.

Both Turkish investors and the Turkish state have been active participants in investment arbitration. There are over 50 publicly known investment arbitration cases initiated by Turkish investors, with Turkmenistan and Libya being the most frequent respondent states, involved in 12 and nine cases, respectively. The outcomes of the concluded arbitrations have been balanced, with roughly half of the cases resolved in favour of the Turkish investors and the other half in favour of the respondent states.

To date, 19 publicly known investment arbitration cases have been filed against Türkiye.^[48] Of these, 11 have been resolved in Türkiye’s favour, three in favour of the investors, two have been settled and three remain ongoing. Notably, even in the cases where Türkiye was found liable, the compensation awarded was substantially lower than the amounts sought by the investors. This track record indicates Türkiye’s strong performance as a respondent in investment arbitration.

Endnotes