A promising development, i.e. the establishment of the Istanbul Arbitration Center (‘‘ISTAC’’) was recently put in place. At first sight, services such as Fast Track Arbitration and Emergency Arbitrator as well as Procedural Timetable stand out as the distinctiveness brought to Turkish international arbitration practice.
By Abdülkadir Güzeloğlu
This Article was first published in Young Arbitration Review, Edition 22, July 2016.
1. Introduction
Arbitration is a specially designed legal
process that produces a final and binding judgment on conflicts by prioritizing
party autonomy. International arbitration has become a widely embraced method
for resolving commercial disputes over the last thirty years. Behind this
popularity, it is not a secret that globalization of business has played a big
part by integrating national fora on economic, social and cultural grounds. Such
developments paved the way for a rapid growth of the global economy which
necessitated the utilization of an independent, neutral and tailored mechanism
to deal with multifarious cross-border disputes. For this reason, arbitration,
due to its important advantages i.e. confidentiality, flexibility, finality,
avoiding national courts, enforceability of awards and speed, has strengthened
its position. Importantly, well-established international and domestic
instruments have built an intercontinental legal framework in which many
countries are participatory. Moreover, parties who prefer arbitration and
especially operate in developing countries, expect to secure their interests
within an established and stable legal infrastructure to avoid any volatility.
Turkey; the 17th economy[1]
of the world with a projected GDP growth rate of 4% for the next two years[2]
and enviable geography that accesses to Europe, Middle East, and Asia, is a
key, strategic and developing jurisdiction that attracts foreign investment.[3]
With its expanding business sectors, undoubtedly, this progress has been also
accommodating an increasing number of Turkish and foreign parties engaging in
international transactions of myriad nature to refer to arbitration. It is in
this perspective that providing an updated look to Turkish arbitration climate
with a special emphasis on the most recent developments becomes critically
vital. In detail, while aiming to carve out the most enlightening stance, the
article will introductorily inform the legal framework regulating arbitration
in Turkey and focus on the current status of the institutional arbitration and
recently established the Istanbul Arbitration Center (‘‘ISTAC’’ or ‘the
Center’’).
2. Legal Framework of Turkish Arbitration
For arbitration, a concept that
dominated the dispute resolution in the globalization era, it would be
erroneous to project a lifespan of a few decades. Quite contrary, enjoying a rich
and long historical background[4],
arbitration has also been implemented by the Ottoman Empire in Civil Code of
1876 with 11 articles.[5]
Thus, it has not been an uncommon legal model, especially when subsequent
legislative actions i.e. abrogated Code of Civil Procedure of 1927 and others
are taken into account.[6]
2.1.Code of Civil Procedure
Through its Articles 407 and 444, Code
of Civil Procedure[7]
(‘‘the Code’’) regulates domestic arbitration in Turkey. The Code qualifies an arbitration procedure domestic
if the seat of arbitration is designated in Turkey and it does not contain any
foreign element. It is beneficial to mention that the relevant articles of the
Code are in conformity with the UNCITRAL Model Law on International Commercial
Arbitration. (‘‘Model Law’’)
2.2.International Arbitration Law
In 2001, Turkish legislator;
acknowledging the widespread usage of arbitration in the world, realizing the
importance and advantages of possessing a modern arbitration regime in order to
promote and secure sustainable inflow of foreign investment along with the
objective of enacting a dedicated law to international arbitration, enacted
International Arbitration Law[8]
(‘‘IAL’’). Being in parallel with the
1985 version of the Model Law, Chapter 12 of the Swiss Private International
Law has been also determinative for amendments that were made throughout
fifteen years.[9]
In order to draw its difference from the Code, it is imperative to mention
IAL’s scope of application. Indeed, Article 1 manifests that IAL is applicable
to international disputes that designate Turkey as the seat of arbitration or
to disputes in which the application of the IAL is chosen by the Parties.
Significantly, the international or foreign characteristics of a dispute is
listed by IAL in the succeeding article as following:
·
If
parties of the arbitration agreement have their domicile or habitual residence
or places of business in different States, or,
·
If
domicile or habitual residence or places of business of the parties are in a
different place than the seat of arbitration consented in the arbitration
agreement or seat of arbitration determined pursuant to the arbitration
agreement or in a place other than where the substantial part of the
obligations arising from the substantive agreement is to be performed, or the
place with which the subject matter of the dispute is closely connected, or,
·
If
the substantive agreement or the legal relationship constituting the base of
the arbitration agreement provides for the transfer of capital or goods from
one jurisdiction to another, or,
·
If
at least one of the shareholders of a company which is a party to substantive
agreement on which the arbitration agreement is based, brought foreign capital
from abroad under the terms of the regulations governing foreign investment
incentive or a loan and/or a security agreement had to be entered into for
foreign capital from abroad, so that the substantive agreement could take
effect.
3. A Half Century of Turkish Institutional Arbitration: Letdowns and
Remorse
Unfortunately, the relatively hopeful
developments to enhance and diffuse arbitration culture into legal practice
that were witnessed during the 1800s had not turn out to be sustainable.
Certainly, a young nation, strengthened its independence in the beginning of
the 19th century, could take initiative and host several, if not,
one reputable arbitral institution.
Although a thorough analysis on the
emergence and development of Turkish institutional arbitration is only a
handful, it is seen that some researches have been conducted in between 1960
and 1970.[10]
For instance, an Ankara based foundation, The Research Institute of Banking and
Commercial Law, organized sessions in order to institutionalize arbitration and
a consequent Draft Law on Chambers of Arbitrators had been published.[11]
Yet, it is sad to see that none of these efforts have been able to come to an
established fruition until 1979.
Indeed, it is possible to say that the
establishment of Istanbul Chamber of Commerce Arbitration Institute
(‘‘ITOTAM’’) by Istanbul Chamber of Commerce in the aforementioned year, have
constituted a major step. Aiming to resolve commercial disputes by conciliation
or arbitration; at first, ITOTAM had accommodated three subdivisions as being
Conciliation, Arbitration and Expert Arbitration.[12]
Over the years, it is possible to infer that ITOTAM has been and is trying to
achieve a modern setup and remodeled strategy, as amendments to its arbitration
rules and applicable instruments are identified. Despite all, popularity of
ITOTAM could not reach a level whereby its name is associated with
institutional arbitration in Turkey. It is highly possible that one of the
reasons for latter can be found within the Article 1.2 of the ITOTAM Rules of
Arbitration.[13]
Indeed, it states that the Rules are applicable only if one of the parties is a
member to Istanbul Chamber of Commerce. Surprisingly, by a provision such like
that; an arbitral institution, that is said to carry the mission to resume a
well-established and embraced tradition, shoots itself in the foot.
Moving south to Aegean coast, it is seen
that Izmir Chamber of Commerce (‘‘IZTO’’) also provides arbitration services
within Rules of Commercial Reconciliation and Commercial Arbitration. However,
resembling ITOTAM, its services are dedicated only to its members.[14] Apart from these, IZTO appears to
apply a more aggressive strategy as it engages in cooperation agreements with
other academic institutions and legal entities providing arbitral services.[15]
Nevertheless, if one puts on its realistic googles, even with statistics of
2010 stating that workload of IZTO arbitration does not exceed three cases per
year[16],
identity of IZTO is far from an arbitral institution. Other than Istanbul and
Izmir, Turkish Union of Chambers and Commodity Exchanges Center of Arbitration
(‘‘TOBB Arbitration’’) delivers arbitral services to Turkish and foreign
companies in Ankara.
Lastly, while the aforementioned institutions
have been aiming to strengthen their presence in the arbitration community by
taking various steps for a long time, another promising development i.e.
establishment of the Istanbul Arbitration Center (‘‘ISTAC’’) was recently put
in place.
4. The Path Leading to the ISTAC
Pursuant to the 9th
Development Plan which aims to transform Istanbul into an International
Financial Center, State Planning Organization of the Prime Ministry office has
published Strategy and Action Plan for Istanbul International Financial Center
(‘‘the Plan’’)[17]
in 2009. Indeed, for the first time, establishing a modern, independent and
autonomous arbitration center was set as an objective along with training
judges and creating a uniform arbitration legislation.[18]
For this purpose, the Plan tasked working groups within Ministry of Justice,
Banks Association of Turkey, Capital Markets Board of Turkey and other
non-governmental organizations operating in the relevant field. These working groups examined plenty arbitral
institutions including German Institution of Arbitration, American Arbitration Association, Arbitration
Institute of the Stockholm Chamber of Commerce, Arbitration Court attached to the Czech
Chamber of Commerce and the Agricultural Chamber of the Czech Republic, Dubai
International Arbitration Centre, London International Court of Arbitration,
International Court of Arbitration of International Chamber of Commerce (‘‘ICC
Arbitration Court’’) and Singapore International Arbitration Centre. Five years
later, Law No:6570 was concluded in success as a result of numerous strenuous
sessions held by these working groups.[19]
In other words, aforesaid Law which came into force on 01.01.2015, has
established the ISTAC.
5. Structure and Composition of the ISTAC
In order to proceed with the novelties
that the ISTAC has brought to the Turkish international arbitration practice,
understanding its constituents holds a great deal of importance. In this vein, Article 1 states that the ISTAC
will facilitate resolution of disputes including of those including foreign
element. Then, Articles 2 and 4 collectively make an important statement, the
ISTAC is a private legal entity which is responsible for determining and
ensuring implementation of applicable rules for arbitration and other
alternative dispute resolution methods in an environment whereby promotional,
supportive and cooperative activities are conducted to gain a solid position
for arbitration. Then, administrative organs are stipulated in Article 5 as
being General Assembly, Board of Directors, Auditor, Board of Counsellors,
National and International Boards[20]
and General Secretary.
For an ambitious establishment such as
the ISTAC, it could be claimed that including most of the stakeholders in
governance mechanisms emerges as a natural responsibility. In this perspective,
Article 6 states that within its twenty-five members, the General Assembly
receives participation from major actors such as the TOBB, Ministry of Justice,
Banks Association of Turkey, Banking Regulation and Supervision Agency, Capital
Markets Board of Turkey and Participation Banks Association of Turkey. Then
Article 14 clarifies a potential doubt on the management of the ISTAC regarding
arbitration cases. Importantly, it states that members of the administrative
organs excluding Board of Counsellors, cannot act as an arbitrator or mediator
during their term of office unless parties agree otherwise. Then, the second
paragraph proceeds to bar members of the administrative organs and employees
from disclosing or using secrets and other confidential information that they
become aware of due to their duty to any person or institution, even after
expiration of their term of office. Also, it is not possible for aforesaid to
make statements or publications based on the secrets and other confidential
information of same nature. Finally, it can be confidently concluded that the
Law No:6570 delivers the ISTAC a reliable, well-structured and professional
grounds on which it can operate as an independent, neutral and impartial
institution.
6. Novelties and Advantages of the ISTAC
In accordance with the Law No: 6570,
Arbitration Rules of the ISTAC (‘‘the Rules’’)[21]
have been adopted on 26.10.2015. In the eyes of a prudent, it is seen that the
rules of the powerhouses of institutional arbitration, for example the ICC
Arbitration Court, have been a major source of influence. At first sight,
services such as Fast Track Arbitration and Emergency Arbitrator as well as
initiation of Procedural Timetable stand out as the distinctiveness
brought to Turkish international arbitration practice. Also, party-autonomy
seems to be prioritized. Now, it would be constructive to elaborate on the
aforesaid major points.
6.1.Fast-Track Arbitration
Implementing fast-track arbitration
rules is a verifying sign that the ISTAC does not confine itself to develop
into an ordinary arbitration center. Throughout nine articles, it is seen that
to disputes in which the total amount of the claims and any counterclaims do
not exceed TRY 300.000, these rules become applicable automatically.
Alternatively, parties may agree applicability of the Fast Track Arbitration
Rules[22]
to their dispute in which the total amount exceeds such limit. Additionally,
disputes subject to these Rules are in principle resolved by a sole arbitrator.
Expectedly, Fast Track Arbitration Rules
makes a huge difference regarding timing concerns. For instance, while time
limit for making submissions and selecting the arbitrator is 15 days, a 7 day
and three-month[23]
limit is designated for establishment of procedural timetable and rendering the
final award, respectively.
As has been continuously expressing by
practitioners, Fast Track Arbitration has unlocked the next level of a swift,
efficient and satisfactory adjudication in modern Turkish legal practice.
6.2.Emergency Arbitrator
In order to secure parties’ interest in
a quick fashion and attain the most updated arbitral rules, the ISTAC has also
implemented Emergency Arbitration Rules.[24]
Latter while allowing parties to opt out its application, it does not condition
for party who applies for an emergency arbitrator to submit a Request for
Arbitration, Statement of Claim, Answer to the Request for Arbitration, or
Statement of Defense.[25]
It is important to mention that under
the Emergency Arbitrator Rules; a party is not deprived from seeking national
courts’ assistance of an interim measure of protection before or after
appointment of Emergency Arbitrator.[26]
Emergency Arbitration Rules underline that this situation does not constitute a
breach of the arbitration agreement, or a waiver of the arbitration agreement
or waiver of the right to make an application to the Emergency Arbitrator.[27]
Imperative is to note that Emergency
Arbitrator makes the decision within, at the latest, 7 days of receipt of the
file.[28]
Although the Emergency Arbitrator’s decision is binding on the parties[29],
the sole arbitrator or the arbitral tribunal is not bound by such decision. In
that respect, judgment of the Emergency Arbitrator, upon request of a party or ex officio, could be modified or even
terminated by the sole arbitrator or the arbitral tribunal.[30]
6.3.Procedural Timetable
In order to address the increasing
concerns in relation to controlling the costs of arbitration, providing
parties a clear-cut view rather than a
nebulae in terms of the length of the process and simplifying the proceedings, Article
27 of the Rules stipulates[31]
that during the preparation of terms of reference, the Sole Arbitrator or
Arbitral Tribunal must produce a Procedural Timetable by having consent of the
parties. Indeed, open to modification, the Procedural Timetable establishes the
dates for written submissions and hearings, as well as other procedural issues.
It is known that the mechanism of the Procedural Timetable is eminent within
other reputed arbitral institutions, however, for the ISTAC to implement this
mechanism also promotes its user-friendly approach.
7. Conclusion: Sustainable Success of the ISTAC
It is known that international
arbitration is a vibrant and diverse dispute resolution platform which modifies
itself to meet demands of its users. In addition to latter community, arbitral
institutions had also created their own ‘market’. Indeed, pursuant to
International Arbitration Survey of 2015[32],
the five most preferred arbitral institutions are the ICC, LCIA, HKIAC, SIAC
and SCC. Behind these choices, it is stated that administrative quality,
internationalist approach and reputation of the institutions played a major
part.[33]
In addition to preference of the arbitral institutions, the trend in selection
of the seat must be mentioned. Indeed, the same report reveals that apart from
the most popular seats such as London, Paris, Geneva, Stockholm; developing
venues such as Hong Kong and Singapore gained popularity over the last five
years and increased their attractiveness.[34]
Looking at the aforementioned, it can be
understood that the course of the ISTAC which is pre-programmed to nothing but
success has many waypoints within numerous topics. In this prospect, it would
be beneficial to address several criticisms and potential challenges, the
current performance of the Center as well as ultimate objectives to be
fulfilled in order to confer a strong institutionalized position for the
Center.
First of all, establishing the ISTAC
with a special law rather than as an association bound by Turkish Civil Code
and ancillary legislation could be criticized for the concerns of independence
and impartiality. Unquestionably, maintaining a sterile environment from State
intervention holds a prime element especially for the foreign users of
arbitration. However, in an atmosphere in which private individuals could not
form a unified international policy towards institutionalizing the arbitration
for decades, initiative taken by the Turkish government in this respect have
timely boosted the Turkish presence in institutional arbitration. Moreover,
criticism based merely on the vehicle that established the ISTAC cannot reach a
reasonable level in terms of its independence. Then, instead of building
arguments solely on theoretical grounds, operation of the Center must be
closely monitored. Another important parenthesis, that is in close connection
with the independence and impartiality of the Center emerges as the source of
revenue of latter. At this point, Law No:6570 states that the Center can gain
revenue in exchange for the services provided. However, taking elements of the
reality in account, leaving a newly established ISTAC without allowing
sufficient time for it to maintain a budgetary balance, would constitute an
incompletion of a substantive part of the Plan. Admitting that, the Law No:6570
lays out that Prime Ministry will cover the first two year budget of the
Center.[35]
Aside from the scarce criticisms voiced
so far by numerous circles, it is a must to highlight current operational
status of the ISTAC. Today, after 17 months of its establishment; its Rules
have been circulated, logistical capabilities are perfected and governing
bodies are formed. Being an indication of its bright future; two international
arbitration cases are being conducted as per to the Rules.[36]
Also, some of the major projects in the region, namely 3rd Airport
Project[37]
and water supply agreement between Turkey and Northern Cyprus, includes an
ISTAC arbitration clause[38]
Therefore, it can be safely stated that the ISTAC has been promoting its popularity
on domestic and international levels.
Furthermore, it is beneficial to recall
that legal infrastructure of Turkish arbitration is modern. Indeed; having domestic
and international arbitration legislations reflecting international standards,
Turkey is also party to major instruments such as Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, Washington Convention on the
Settlement of Investment Disputes between States and Nationals of Other States,
Energy Charter Treaty. In addition to all, there are over 70 Bilateral
Investment Treaty that Turkey has ratified. Above all; looking at this colorful
picture, with the right dosage of patience and optimism accompanied by accurate
strategies, the ISTAC, which started to flourish immediately, will reach ultimate
success and develop into a major arbitral institution in the near future.
[1]Turkey (Overview). Reachable at ‘http://www.worldbank.org/en/country/turkey/overview’
[2]OECD Economic Outlook, Volume 2016 Issue. Reachable at http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-outlook-volume-2016-issue-1/turkey_eco_outlook-v2016-1-46-en#page1.
[4] For a comprehensive historical synopsis of international arbitration; See, ‘Chapter 1: Overview of
International Commercial Arbitration’ in Gary B. Born, International Commercial
Arbitration, Second Edition, Kluwer Law International, 2014, pp. 6 - 79.
[6] Yeşilırmak, Ali, ‘Chapter1: Legal Framework’, in Ismail Esin and Ali
Yesilirmak (eds), Arbitration in Turkey Kluwer Law International; Kluwer Law
International, 2015, pp. 1 – 14, at p.1.
[7] Law No:6100, Code of Civil Procedure, dated 01.10.2011 and published on
the Official Gazette dated 04.02.2011 and numbered 27836.
[8] Law No:4686, International Arbitration Law, dated 21.06.2001 and published
on the Official Gazette dated 05.07.2001 and numbered 24453.
[9] Ansay, Turgul, ‘Current Development: International Arbitration in
Turkey,’ 14 Am. Rev. Int’l Arb., 333, 2003, p. 3.
[10] Pekcanıtez, Hakan, ‘İstanbul Tahkim Merkezi Kanun Taslağı’, Dokuz
Eylül Üniversitesi Hukuk Fakültesi Dergisi Cilt: 12, Özel Sayı, 2010, pp.635-655,
at p.635.
[12] Regulation of Istanbul Chamber of Commerce on Arbitration,
Conciliation, Expert Arbitration. Reachable at: http://www.itotam.com/08.03.2012'DEN%20ÖNCE%20YÜRÜRLÜKTE%20OLAN%20METİN.pdf
[13]ITOTAM Arbitration Rules. Reachable at http://www.itotam.com/Dosyalar/ITOTAM%20TAHKIM%20KURALLARI-%2014.04.2016.pdf
[16] Supra note 11 at p.638.
[17]Strategy and Action Plan for Istanbul International Financial Center.
Reachable at http://www.ifm.gov.tr/Shared%20Documents/Strategy%20and%20Action%20Plan%20for%20IFC%20Istanbul.pdf
[19] Law No: 6570, Law on Istanbul Arbitration Center, dated 20.11.2014 and
published on the Official Gazette dated 29.11.2014 and numbered 29190.
[20] Reflecting the international character of ISTAC, among the members of
the International Boards, distinguished scholars such as Jan Paulsson, Hamid
Gharavi and Bernard Hanotiau are present.
[21]Arbitration Rules of Istanbul Arbitration Center. Reachable at
http://istac.org.tr/wp-content/uploads/2016/02/ISTAC-Arbitration-and-Mediation-Rules-f.pdf
[23] The Sole Arbitrator renders the decision on the merits of the dispute within
3 months from the transmission of the file to the Sole Arbitrator.
[24] Supra note 21 at p.56.
[25] Article 1.1of the Emergency Arbitrator Rules of the ISTAC
[26] Article 1.3 of the Emergency Arbitrator Rules of the ISTAC
[27] Article 1.3 of the Emergency Arbitrator Rules of the ISTAC
[28] Article 7.1 of the Emergency Arbitrator Rules of the ISTAC
[29] Article 7.4 of the Emergency Arbitrator Rules of the ISTAC
[30] Article 7.5 of the Emergency Arbitrator Rules of the ISTAC
[31] Article 4 of the Fast Track Arbitration Rules and Article 6 of the
Emergency Arbitrator Rules
[32] 2015 International Arbitration Survey: Improvements and Innovations in
International Arbitration. Conducted by Queen Mary University and School of
International Arbitration. Reachable at http://www.arbitration.qmul.ac.uk/docs/164761.pdf
[34] Major driving forces for the parties’ choice of the seat are listed as
reputation and recognition of the seat, law governing the substance of the
dispute, particularities of the contract/type of dispute. See Supra note 32 at p.13.
[35] Article 15 of the Law No: 6570
[36] Thomson, Douglas. ‘Welcoming Istanbul’s new rules: an interview with
Ziya Akinci and Jean-Claude Najar’. Global Arbitration Review. 10.06.2016.
Reachable at http://globalarbitrationreview.com/news/article/35396/