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Enforcement of foreign arbitration awards in Turkey

Recognition and Enforcement of Foreign Arbitration Awards in Turkey: Key Challenges and Solutions

 

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

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

I. Difference Between Recognition and Enforcement

Although these terms are often used interchangeably, they represent distinct legal processes with different implications and requirements under both Turkish law and international conventions like the New York Convention. Recognition refers to the formal acceptance by Turkish courts that a foreign arbitration award has the same legal effect as a domestic court decision. Once recognized, the award can be used as conclusive evidence and has res judicata effect in subsequent legal proceedings in Turkey. This means that the facts and legal findings established in the arbitration award cannot be re-litigated.

Recognition does not involve any coercive measures or actions from Turkish authorities; it simply acknowledges the validity and finality of the foreign arbitration decision within Turkish jurisdiction. In contrast, enforcement goes a step further by allowing the successful party to compel the losing party to comply with the award. Enforcement grants the foreign award the same enforceability as a domestic court judgment, including the possibility of seizing assets, garnishing wages, or taking other legal actions to satisfy the award. While recognition establishes the legal standing of the award, enforcement involves practical measures to ensure compliance.

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

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

a. Turkish Law (MOHUK)

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

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

 

b. International Treaties

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

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

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

III. Conditions for Recognition and Enforcement in Turkey

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

 

a. Requirements for Recognition and Enforcement of Foreign Arbitration Awards

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

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

b. Required Documents to Obtain a Recognition and Enforcement Decision

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

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

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

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

 

a. Selecting the Competent Court

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

For instance, while some rulings have assigned enforcement cases to commercial courts for arbitration awards involving commercial matters, others have directed these cases to general civil courts, reflecting an ongoing debate within the Turkish judiciary. This inconsistency underscores the need for careful preparation when selecting the appropriate forum for enforcement proceedings. Therefore, selecting the appropriate court is crucial because jurisdictional challenges and conflicting interpretations of competence can lead to delays and complications in enforcement proceedings.

 

b. Challenges Arising from Noncompliance to Public Policy

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

Turkish courts have occasionally adopted a conservative stance, interpreting public policy in a way that encompasses various concerns, from procedural fairness to substantive legal rules. Awards involving punitive damages, excessively high interest rates, or elements perceived to conflict with Turkish societal values are particularly vulnerable to refusal on public policy grounds. This is especially reflected in some decisions of the lower courts.

While most of these refusals are later rectified and corrected by the high appeals courts, it can lead to delays, increased litigation costs, and inconsistent enforcement outcomes, making it challenging for foreign parties to predict the results of enforcement proceedings. Some of the common grounds cited by lower courts for refusal based on public policy are noted below. While most of these were later corrected and rectified by the Court of Appeals, it nevertheless caused significant delays and additional expenses for the parties involved:

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

c. Strategies for Navigating Court Challenges and Delays

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

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

V. Conclusion: Strategic Insights for Effective Enforcement

The recognition and enforcement of foreign arbitration awards in Turkey require a nuanced understanding of both the legal landscape and the practical challenges posed by the Turkish courts. While the foundational legal framework is established by MOHUK and the New York Convention, the pathway to successful enforcement is often shaped by strategic decision-making at every stage of the process. A critical insight for practitioners and parties is the importance of anticipating potential hurdles, particularly those related to public policy objections. The concept of public policy in Turkey remains a significant area of uncertainty, with lower courts sometimes adopting a conservative approach that can lead to inconsistent outcomes.

Navigating this effectively involves not only a deep knowledge of Turkish legal standards but also the ability to present a compelling case that aligns with both domestic and international norms. Choosing the right court and understanding the jurisdictional nuances can also greatly influence the enforcement process. The distinction between general civil courts and commercial courts, and the experience each has in handling foreign awards, can impact the speed and predictability of enforcement. Careful selection of the competent court and robust preparation of legal submissions are crucial steps in managing these risks.

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

Recognition and Enforcement of Foreign Arbitration Awards in Turkey: Key Challenges and Solutions

Av. Ali Yurtsever

Contact for consulation

Author Bio
Constitutional-Court-decision-on-share-transfers-in-joint-stock-companies

Key Insights from the Constitutional Court: Share Transfer Legitimacy in Joint Stock Companies

image representing the constitutional court ruling and its impact on share transfers in joint stock companies in Turkey

In a time of heightened scrutiny over its authority, the Turkish Constitutional Court rendered a landmark decision on 14.09.2023, significantly impacting commercial and corporate law, and especially the share transfers in joint stock companies in Turkey. Central to this ruling are the measures applicable to legal entities and critical interventions in property rights, with a particular focus on the transfer of shares in joint-stock companies. The heart of the debate revolves around whether endorsement and delivery alone suffice for transferring shares. This decision, notably impacting share transfers and property rights, is poised to have extensive repercussions in the realms of commercial and corporate law.

This article aims to dissect the Constitutional Court’s pivotal ruling concerning YK Law Partnership and its partners. We delve into the decision’s ramifications on property rights, the nuances of share transfer in joint-stock companies, and its alignment with the Turkish Commercial Code. A thorough understanding of the involved parties’ claims, judicial approaches, and the Court’s assessments is crucial in grasping the depth and breadth of this decision’s influence on Turkish legal jurisprudence. We will explore the decision’s structure and key themes to provide a comprehensive analysis.

I. The Constitutional Court’s Decision: Context and Legal Background

This landmark case before the Turkish Constitutional Court arose from the tumultuous aftermath of the July 15th coup attempt. Central to the dispute are allegations of property rights violations during the transfer of shares in a joint-stock company, specifically, Karbon Yıldırım Consulting Services Joint Stock Company, linked to YK Law Partnership partners C.Y. and M.K. The focal point is a prime real estate in Istanbul’s Astoria building, owned by this company.

The controversy began with the purchase of this real estate by the Applicant, executed through acquiring shares in the aforementioned company. According to a decision dated 07.04.2016 by the company’s board, these shares were endorsed and delivered to the Applicant and his sister, ostensibly transferring ownership of the company.

Following a request by the Istanbul Chief Public Prosecutor’s Office on 22.07.2016, the Istanbul 9th Criminal Peace Judgeship issued arrest warrants for M.K. and C.Y. on charges of affiliating with a terrorist organization. This led to a significant turn of events, including a change in the company’s name to Karabulut Yıldırım Consulting Services Inc. and a reshuffle in its Board of Directors, with the Applicant and his sister stepping in with the extraordinary general assembly decision dated 28.09.2016, which was published in the official gazette dated 10.10.2016.

The coup attempt’s aftermath saw a range of measures imposed on the company, including asset confiscation and the appointment of trustees. These developments underpinned the Applicant’s appeal to the Constitutional Court, claiming a breach of property rights. This case has thus garnered significant attention within the Turkish legal community, raising critical questions about the protection of property rights and the legal framework governing share transfers in joint-stock companies.

II. Overview of the Applicant’s Claims

In the pivotal case before the Constitutional Court, the Applicant argued the legality of share transfer within Karbon Yıldırım Consulting Services Joint Stock Company. He maintained that the transfer of shares to himself and his sister in 2016 was conducted in strict compliance with the provisions of the Turkish Commercial Code. This transfer not only shifted all of the company’s shares to them but also led to a consequential change in the composition of the company’s Board of Directors.

The Applicant further contended that the subsequent measures enacted upon the company, including asset seizure and administrative control, were in direct violation of constitutional safeguards protecting property rights. He asserted that since the share transfer and board restructuring were executed lawfully, the imposition of these measures was not only unwarranted but also unjust, particularly towards the new shareholders – himself and his sister.

III. Perspective of the Ministry

The Ministry, in its submission to the Constitutional Court, presented a contrasting viewpoint to the Applicant’s assertions. Central to the Ministry’s argument was the legitimacy and necessity of the actions taken against the assets of Karbon Yıldırım Consulting Services Joint Stock Company. These actions, including the assignment of the Savings Deposit Insurance Fund (TMSF) as the company’s trustee, were framed as crucial measures within the broader scope of investigating the activities of FETÖ/PDY.

Furthermore, the Ministry underscored that the pivotal changes in the company’s name and its board of directors occurred post-July 15th coup attempt. This timing raised questions about the authenticity of the share transfer to the Applicant and his sister, as there was no prior official record validating this transfer. This absence, according to the Ministry, rendered the transfer illegitimate, undermining the Applicant’s claim to victim status in this context. By highlighting these factors, the Ministry sought to challenge both the legal basis of the Applicant’s relationship with the company and the validity of the share transfer under Turkish law.

IV. The Constitutional Court’s Analysis: Assessing the Validity of Share Transfers in Joint Stock Companies

The Constitutional Court undertook a comprehensive review of the share transfer transactions and their implications on alleged property rights violations. Central to the Court’s analysis was the timing of the Extraordinary General Assembly’s decision on September 28, 2016. The Court noted that this decision, as well as the legal documentation of the share transfer, materialized after the July 15th coup attempt, indicating no prior legal record of the transaction..

In its deliberation, the Court affirmed that until the official announcement in the Turkish Trade Registry Gazette on October 10, 2016, M.K. and C.Y. were recognized as the sole shareholders in all public records. The critical question, therefore, revolved around the legitimacy and the effective date of the transfer of share certificates to the Applicant and his sister.

The Court clarified its limited jurisdiction in this matter, asserting that its role does not extend to adjudicating the precise methods of transferring shares in joint-stock companies or the validity of specific share transfers. Instead, its focus was on assessing the arbitrariness of public authorities’ interpretation of these transactions.

In its arbitrariness review, the Constitutional Court, referring to the fact that the legal documents showing the change of partnership were dated after the coup attempt and that there was no official share transfer agreement prior to this date, concluded that the public authorities’ belief that M.K. and C.Y. were the sole shareholders of the company was not arbitrary or baseless.

The Constitutional Court highlighted contradictions in the Applicant’s assertions. The Court observed that although the company’s share certificates were endorsed and logged into the share ledger as early as 07.04.2016, there was a significant delay—nearly six months—before convening the general assembly. Furthermore, the Court found it incongruous that the individuals, known to be under arrest, maintained their roles in the company’s management for an extended period. These inconsistencies raised questions about the authenticity of the share transfer process and the validity of the Applicant’s claims.

Given these observations, the Court entertained the possibility that the share acquisition by the Applicant and his sister might have been a facade, which did not constitute an arbitrary application of measures by public authorities. The Court underscored the contrast between the formal requirements for real estate transactions and the less stringent norms for share transfers, indicating the impossibility of retroactively validating real estate transactions and noted the following:

“it is necessary to consider that while the real estate promise of sale agreement must be conducted at the notary and the real estate sale agreement at the land registry office, on the other hand, the transfer of shares can be conducted outside official authorities through endorsement, thus the aforementioned first transactions (sales and sales promise) cannot be retroactively arranged”

In conclusion, the Constitutional Court conducted an in-depth evaluation of the validity of the share acquisition by the Applicant and his sister and its implications on property rights. The Court ultimately determined that the Applicant’s property rights were not unjustly violated, upholding the legality of the public authorities’ actions..

V. Implications of the Constitutional Court’s Decision on Share Transfer Validity and Evidentiary Burdens

The Constitutional Court’s ruling provides crucial insights into the legal validity of share transfer transactions within joint-stock companies and underscores the judicial scrutiny required, particularly concerning the burden of proof. This judgment serves as a pivotal guideline in addressing potential fictitious transactions in the context of share transfers.

As we have examined in detail in our previous articles, the Turkish Commercial Code (TCC) defines the legal framework for the transfer of shares in joint stock companies. The TCC enshrines the principle of transferability as a cornerstone for share transactions, allowing shareholders to freely transfer their shares to third parties without prior approvals, subject to legal limitations delineated in the TCC (refer to our detailed analysis on these restrictions)

Under TCC regulations, the transfer of share certificates is effectuated through endorsement by the seller and physical delivery to the buyer. This transfer must be recorded in the company’s share ledger for the acquirer to officially assume shareholder status (for an in-depth review of share ledger registration processes, see our dedicated article).

Given these TCC provisions, the Constitutional Court’s decision is poised to significantly influence the legitimacy and scrutiny of share transfer transactions, particularly in terms of evidentiary obligations. The Court’s verdict implies that, while share transfers in joint-stock companies are generally executed via endorsement and delivery, these transactions may be subject to invalidation by judicial and public authorities if deemed to be fictitious.

This ruling underscores the criticality of conducting share transfers in the presence of a notary public as a safeguard against allegations of fictitious transactions and legal disputes. Although not mandated by law, executing a share transfer agreement in a notarial setting and registering this document in the trade registry is paramount for establishing the transfer’s authenticity and date.

V. Conclusion: A New Paradigm in Share Transfer Legitimacy

The Constitutional Court’s verdict offers a seminal interpretation in the domain of share transfer transactions within joint-stock companies. It provides a much-needed clarification on the legal validity, evidentiary challenges, and the necessary safeguards against possible fictitious transactions in share transfers.

The Court’s decision articulates that while the standard procedure for share transfers in joint-stock companies typically involves endorsement and delivery, the judiciary is justified in casting doubt on such transactions if there are reasonable suspicions of them being fictitious. This implies a heightened evidentiary responsibility for parties asserting the legitimacy of transfers executed solely through endorsement and delivery.

This landmark ruling emphasizes the critical importance of formalizing share transfer agreements in the presence of a notary public, thereby reinforcing legal security and transparency. This decision is poised to be a pivotal reference point in Turkish legal jurisprudence, shaping the future discourse and praxis concerning the legal validation and evidential requisites in share transfer transactions.

Key Insights from the Constitutional Court: Share Transfer Legitimacy in Joint Stock Companies

Av. Ali Yurtsever

Contact for consulation

Author Bio
Arbitration-2-2

Comprehensive Guide to Arbitration in Turkey

Arbitration Agreements: A Key to Swift and Efficient Dispute Resolution

I. Overview

Arbitration, often referred to as “tahkim” in Turkish legal terminology, is a crucial alternative dispute resolution method in Turkey. It offers significant advantages over traditional litigation, primarily due to its ability to provide faster resolution of disputes. Unlike state courts, which may take up to 3-4 years to resolve a case, arbitration offers a more expeditious path to justice.

However, it’s essential to understand that the validity of arbitration agreements and the proper delineation of arbitrators’ powers are of utmost importance. Inadequate agreements or improperly defined arbitrator authority can render the arbitration process invalid, leading to disputes that persist in the state court system.

II. Elements of an Arbitration Agreement for Arbitration in Turkey

1. Arbitration Intent

One of the primary elements of a valid arbitration agreement is the clear intent of the parties to submit their disputes to arbitration. Parties must mutually and unequivocally express their consent to arbitration. An exemplary arbitration agreement, as provided on the Istanbul Arbitration Centre (ISTAÇ) website, can serve as a standard for adequate arbitration clauses.

However, it’s important to note that vague or ambiguous language can lead to disputes over the validity of arbitration agreements. For instance, in the context of maritime law, where abbreviations are commonly used, using a short form like “GA/Arb in London law to apply” was contested in court. The court ruled against this provision, emphasizing the need for precise and unambiguous language in arbitration agreements.

Furthermore, it’s crucial to ensure that a single contract does not simultaneously specify arbitration and litigation as dispute resolution mechanisms. Combining both options in a contract can lead to ambiguity and, ultimately, invalidate the arbitration clause. Turkish courts often interpret such clauses as lacking a clear intent for arbitration, rendering them invalid.

2. Form of the Arbitration Agreement

Arbitration agreements are not subject to the same formal requirements as ordinary contracts. They follow a distinct regime, allowing for flexibility in their formation. According to Article 4 of the International Arbitration Law (MTK), arbitration agreements can be in writing or, in certain circumstances, may even be formed through electronic communication means, such as email, provided that the will of both parties is clearly expressed. If there is no explicit arbitration agreement, but one party initiates arbitration proceedings and the other party does not object, the arbitration process may be deemed valid.

3. Incorporation by Reference

Parties may incorporate arbitration agreements into contracts by reference. This is particularly common among professional associations, especially in commodity trading. If a party, who is a member of such an association, references the association’s standard contract in their agreement with a third party, the arbitration clause within the standard contract may apply between the parties. Turkish law acknowledges this principle, stating that when there is a reference to a document containing an arbitration clause, the arbitration clause is also considered valid.

4. Language of the Arbitration Agreement

The issue of language can be complex in Turkish arbitration agreements, especially concerning whether the agreement is between Turkish entities or involves foreign parties. The law mandates the use of Turkish in economic enterprises in Turkey, which affects local arbitration agreements.

5. Capacity of the Parties

To ensure the validity of an arbitration agreement, it’s essential to request and verify the authorization documents or signature circulars of the individuals who sign or communicate the agreement on behalf of a legal entity.

6. Arbitrability

Not all disputes are eligible for arbitration. In Turkey, the general rule is that parties can only choose arbitration for issues over which they have the freedom to contract. However, there are exceptions. Disputes related to real property rights located in Turkey are generally considered non-arbitrable. Additionally, recent court decisions suggest that once insolvency proceedings begin, arbitration is no longer an option for disputes involving claims under those proceedings

7. Asymmetric Arbitration Agreements

Asymmetric arbitration agreements, where one party has broad arbitration initiation rights while the other’s rights are limited, can present unique challenges. In some cases, the right to initiate arbitration may be granted solely to one party. For example, in a contract prepared by the General Directorate of Coastal Safety for maritime rescue operations, the right to initiate arbitration was exclusively given to the General Directorate. However, the rescued party, without arbitration initiation rights, had to resort to state courts. In such cases, Turkish courts may find such agreements invalid as they might infringe upon the principle of equal access to justice.

III. Choice of Arbitration Venue, Governing Law and Scope of Arbitration Agreements

1. Choice of Arbitration Venue

Selecting the correct arbitration venue and institution is paramount. It’s essential to confirm that the chosen institution indeed operates as a valid arbitration venue with a functioning arbitral tribunal. Failure to do so may lead to the invalidation of the arbitration clause.

An illustrative example involves the selection of the “International Commercial Arbitration Court of the Chamber of Commerce and Industry of the European Community” as the arbitration center. While at first glance this clause looks sufficient to select arbitration, there is one problem: such an institution does not exist. Consequently, when a Czech company initiated legal proceedings in Turkey, the Turkish courts, including the Court of Cassation and the Constitutional Court, ruled that the arbitration clause could not be enforced. Despite the hurdles in state court proceedings, the inability to proceed to arbitration due to the absence of a valid arbitration institution left the party without effective legal recourse.

2. Choice of Law Governing the Arbitration Agreement

Parties to an arbitration agreement may choose the law governing their agreement separately from the law governing the main contract, adding a layer of flexibility.

3. Scope of the Arbitration Agreement Concerning Individuals

The scope of the arbitration agreement can significantly impact debt collection efforts. For instance, if you are unable to collect a debt from a company, and the parent company is your target, you may argue that the arbitration clause in the parent company’s contract extends to cover your dispute. However, this argument may not always hold up in court. Moreover, it’s important to note that arbitration clauses generally do not extend to third-party beneficiaries or guarantors unless they explicitly consent to arbitration.

IV. The Procedural Roadmap

1. The Procedural Schedule

The procedural schedule is a document that defines the scope and limits of the arbitrators’ duties and powers, making it especially crucial for future challenges such as annulment proceedings. After receiving the arbitration request and response, the arbitral tribunal prepares this document, which outlines procedural issues and rules. The document is then shared with the parties (essentially a draft mission statement).

Parties are invited to review the mission statement and provide their comments. At this stage, both parties’ legal representatives often engage in a negotiation process to reach consensus. This phase may also involve conciliation discussions.

It is important to note here that the procedural schedule includes the arbitration agreement. If there are objections to the validity of the arbitration agreement at this point, those objections should be noted in the procedural schedule. If there are no objections recorded in the procedural schedule, it can be used as evidence to challenge the arbitration agreement’s invalidity in subsequent annulment or recognition/enforcement proceedings.

2. Arbitration Timeline & Venue

Under MTK, arbitration should be concluded within one year. However, for large-scale cases, this timeframe might prove insufficient. To mitigate this, proper clauses need to be included in the arbitration agreements during the initial drafting stage.

Specifying the arbitration venue in the mission statement is crucial. If parties later wish to change the arbitration venue, having it recorded in the mission statement facilitates the process. A change in the venue can be effected if both parties agree.

3. Procedural Timeline and Case Management Meeting

Procedural Timeline: The procedural timeline is a critical document that sets out all the steps in the arbitration process. It details activities such as obtaining expert reports, hearing witness testimonies, submitting pleadings, and more. Careful planning and the identification of experts and timeframes are essential at this stage.

Case Management Meeting: Before proceeding with the case, a face-to-face or teleconference meeting is held between the party representatives and the arbitrators. During this meeting, the final version of the procedural schedule and procedural timeline is agreed upon. Hence, maximum preparation is required for this meeting, with a deep understanding of the case facts.

For instance, discussions may focus on procedures related to requesting documents, such as the “document production” process.The arbitral tribunal may also request the attendance of the parties themselves, in addition to their legal representatives.

Settlement Scenario: In the event of an amicable settlement during these discussions, the parties may request that the agreement reached during the procedural schedule meetings be recorded as an arbitral award.

Emergency Arbitrator: In some cases, particularly when it comes to the consideration of interim measures, the application of emergency arbitrator provisions may be necessary. Notably, not all arbitration institutions provide for emergency arbitrator procedures.

V. Conclusion

In conclusion, arbitration in Turkey, or “tahkim,” stands as a vital pillar of alternative dispute resolution within the Turkish legal landscape. Its inherent advantages, particularly its expeditious nature compared to traditional litigation, make it a favored choice for resolving disputes swiftly and efficiently.

However, this guide underscores the paramount importance of meticulously crafted arbitration agreements that demonstrate a clear and unequivocal intent to submit disputes to arbitration. The choice of the proper venue, governing law, and the precise delineation of the arbitration agreement’s scope are equally critical elements in ensuring the validity and enforceability of arbitration clauses.

Furthermore, a well-structured procedural roadmap, outlined through a comprehensive procedural schedule, is the key to effective dispute resolution. By paying careful attention to these facets of arbitration, parties in Turkey can navigate the intricate world of dispute resolution with confidence and competence, ultimately achieving fair and equitable outcomes.

For further details please contact us here.

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Av. Ali Yurtsever

Contact for consultation

Author Bio
rtuk-is-now-entitled-to-supervise-online-media-service-providers

RTUK Supervision to Online Media Services

RTUK is Now Entitled To Supervise Online Media Service Providers

Emir Aksoy LL.M, LL.M. IP

RTUK Supervision

A draft to the Regulation on the presentation of online radio, television and on-demand broadcasts (“Regulation“) was published on the website of Turkish Radio and Television Supreme Council (“RTUK“) on 27th of September 2018 and the final Regulation has been published on the Official Gazette of 1st of August 2019 with minor differences to the Draft.

Scope of the Regulation

Regulation will be applied to online radio, television, on-demand broadcasters, private media service providers and platform operators transmitting such broadcast services. According to Article 4 of the Regulation individual Broadcasters will not fall under the scope of this Regulation.

Licensing and Authorization

Such media service providers will have to apply for a license or authorization within a month starting from the effective date of this Regulation(01.08.2018). Depending on the type of the media service(INTERNET RADIO, INTERNET TV, ON-DEMAND STREAMING BROADCAST) a license or authorization shall be granted to the applicants fulfilling the requirements of this Regulation.

The given license or authorization is only for the application-related media service only, separate applications for licenses or authorizations shall be made by the applicant for different type of services.

Online broadcasting licenses or authorizations will be granted for 10 years. At least two months prior to the end of the license or authorization period an application to RTUK for the renewal of the license or authorization may be made.

Fees

According to Article 12 of the Regulation license fees are as for online radios 10.000 TL, for online televisions and on-demand broadcasters: 100.000 TL. For online tele-shopping themed broadcasters 5 times of the abovementioned license fees will be applied.

In case the service providers are providing their services through a paid subscription model and a limited access provided only to their subscribers shall pay in addition to the above mentioned license fees 0,5% of their annual net sales to RTUK until the end of April of the following year.

The license fees may be paid in cash or in installments.

Sanctions

In case a media service provider continues to provide their services online as of 1st of September, 2019 without a broadcasting license or authorization given by RTUK and RTUK detects such situation, RTUK will announce such situation on its webpage according to the Article 10 of the Regulation.  Such announcement will be considered as a notification to the broadcaster. The broadcaster will be given three months time to apply for the related license or authorization; this period may be extended for another three months if the relevant license fees are paid in advance. In case such service providers fail to act in the given time, a removal of content and/or access ban request will be issued to the criminal peace judgeship and a related criminal complaint will be filed.

Conclusion

RTUK will be able to supervise the online media service providers that fall under this Regulation and intervene in the published content. Such media service providers have to evaluate if they fall under the scope of this Regulation and start their application procedures for a license or authorization to RTUK to avoid potential punitive and administrative sanctions.

notice-and-takedown-procedure-for-digital-copyright-infringements-in-turkey

Notice and Takedown Procedure for Digital Copyright Infringements in Turkey

Emir Aksoy LL.M, LL.M. IP

Copyright protection in Turkey is regulated under the Intellectual and Artistic Works Law No 5846. Turkey has unfortunately become one of the hubs for digital copyright infringement especially for movies and TV shows. Due to the high income generated through ads, the business models of many new web sites in Turkey are based on publishing copyright infringing content.

In 2004 a fast two-stage solution was introduced under the supplemental Article 4 of Law No 5846 to combat these digital copyright infringements.

First stage is the notice and takedown for copyright infringements , which requires the content provider to takedown the infringing content from the website within three days following the notice to be made by the right holders.

Second stage starts if the content provider does not take down the infringing content in the given time. In this case, a request shall be made to the public prosecutor requiring the service provider to cease the services being provided to the content provider persisting in the violation, within three days. In case the violation is ceased, the service being provided to the content provider shall be restored.

Lastly, if the service provider does not comply with the order of the public prosecutor, criminal lawsuits may be initiated against non-complying service providers.

debt-collection-in-turkey

DEBT COLLECTION IN TURKEY

Av. Ali Yurtsever L.L.M

I. OVERVIEW

Debt collection procedures in Turkey can be quite complex and can take a lot longer on average than most EU countries. The complexities arise from the lack of transparency and visibility within the domestic market along with the complex nature of legal proceedings for debt collection and the associated costs for such legal action.

Due to the closed nature of the market, it is extremely difficult to obtain the financial information of debtor companies. This uncertainty, coupled with the complexity of the legal proceedings and the associated costs, presents a significant issue for most foreign companies and nationals, as most of the creditors would like to obtain some sort of financial information of the debtor before starting the complex legal procedures and paying the relevant legal fees.

If, for example, the debtor company is found to be insolvent after filing the execution proceedings, there would be very little chance of recovering the debt and any legal fees paid for such claim will also be lost (since it will not be possible to recover them from the debtor). There are, of course, alternative methods, such as preliminary market and financial checks regarding the debtor and amicable settlements, that the creditors can opt for, before proceeding with a execution claim filing.

II. DEBT COLLECTION PROCEDURES

Debt collection claims can be separated into two general categories, those that are based on an independent legal promissory note and those that are not. In both cases, the execution office submits an order of payment to the debtor once the claim is made. If the claim is not based on a legal note [such as a banking check, promissory note, an independent and assignable confirmed acceptance of debt by debtor etc.]

There could be an objection by the debtor against the filing within 7 days from the date of receipt of the order of payment. If there is no objection to the claim or payment of the debt, the claim is considered to be certified (finalized) and the execution procedure proceeds with attachment of assets and properties of the debtor for the purposes of collection.

In case of an objection to the debt (full or partial objection), the claiming party (creditor) may apply for a legal procedure (a motion) to the execution Court for removing such objection, which may turn into a full length commercial litigation in cases where the debt is not clear and/or based on contractual default.

If the debtor raises such objections to the execution filing and if later those objections are found to be groundless, then the debtor is penalized in creditor’s favor raising the debt amount starting by 20%. Either following such removal of objection or after the certification of debt, the procedure finalizes with the legal sale of assets and properties of debtor for the actual collection in favor of the creditor.

It should be noted that this execution procedure is for a direct execution claim, foreign judgments or arbitral awards may also be executed in Turkey after a procedure titled recognition. In such procedure, the creditor with a finalized judgment or arbitral award applies to the Turkish Courts for recognition of such decision and the Turkish Court resolves for such recognition (without reviewing merits but with only a procedural check) and the foreign decision becomes nationalized. Then this recognition judgment is executed as noted above like a local Court judgment.

III. SECURITY DEPOSITS FOR FOREIGN CREDITORS AND OTHER COSTS

In many cases where the creditors are foreign companies or nationals, execution office require a security deposit between 25% to 100% of the total claim to be paid by the creditor in order to proceed with the execution claim. This security deposit is only required from foreign and non-resident parties (either a foreign person or a company) filing for any litigation or execution claim and for attachment (lien) over the assets of the debtor is sought in the preliminary stages of an execution. This security deposit requirement is based on Article 48 of the Turkish Act on Private International and Procedural Law (Act No. 5718).

The amount of the security deposit varies depending on the execution office, the amount and the nature of the debt subject to execution. For smaller amounts, the execution offices tend to request a full security deposit (100% of the claimed amount) to be deposited before proceeding with the execution claim (even in cases where there is a court order submitted as the basis of the execution claim). However, these deposits are requested merely as guarantees and are refunded to the claimant once the execution proceedings are finalized.

However, there are ways to circumvent this security deposit requirement. Subparagraph 2 of Article 48 of the Law sets forth that “the court exempts the plaintiff, intervener, or applicant for execution from providing a security, on a reciprocity basis”, where reciprocity basis means any international agreements signed by and between Turkey and other countries where it is stated that such security deposit payments shall not be sought for countries party to those agreements.

IV. CONCLUSION

As noted above, the procedures for debt collection proceedings in Turkey can be very complex, even more so for foreign creditors. In order to ensure a swift collection proceeding and to avoid paying any unnecessary legal fees, we highly recommend foreign creditors to seek legal assistance from legal professionals who are experienced in the field. For further information and assistance regarding the matter, please do not hesitate to contact us here.