In this article, international arbitration in Turkey will be held.
Before delving any deeper into examining the Turkish perspective in the field of International Arbitration, it is of utmost importance to understand what international arbitration entails.
It is no secret to define arbitration as an alternative dispute-resolution process between institutions, gouvernments or companies on a cross-border scale. In fact, following an arbitration panel’s decision, disputes are settled between the parties under International Law. The dispute is, subsequently, brought before the competent court to enforce the judgment.
It is well-established that awards offered by international arbitration were agreed – following the New York convention – to be enforceable in 169 nations. In other words, International arbitration ensures an efficient and fast-paced dispute-settlement method which avoids the jumble underlying the use of different jurisdictions and norms.
It is specifically in the 20th century that international actors such as the United Nations, World Bank and The International Chamber of Commerce had more than a decisive role in setting the milestones of arbitration law. Nonetheless, a specific path has been taken with regard to the development of arbitration law in Turkey.
I- First Step : The New York Convention for International Arbitration.
The first milestone shaping the emergence of International Arbitration law in Turkey is the New York convention on the Recognition and Enforcement of Foreign Arbitral Awards. Signed by the Advisor of the Union of Chambers and Commodity Exchanges Rabi Koral, the New convention recognised the enforcement of foreign arbitral awards in national courts. This was emphasised following the ratification of the New York convention under the Law no. 3731 published in the Official Gazette no. 20877 dated May 21, 1991 which announces as follows: “Under reciprocity reservation, Turkey declares that it will only apply the Convention for the recognition and enforcement of the awards made in a State which is a party to this Convention; and that it shall limit the application of the Convention to the disputes arising of contractual or non-contractual relations, which are regarded as ‘commercial’ under the national law of Turkey”.
II- 2nd Step : The New European Convention Led by the UN – 1961
The New European Convention comes as extension to the New York Convention for International Arbitration since it covers the entire process from the arbitration preliminary steps to the conferment of its awards. However, only member states adhered to it, despite the thorough preparatory work led by a handful of countries. In other words, it was doomed to not be as successful as the New York Convention. Nonetheless, Turkey ratified the Convention 30 years later with the Law no. 3730 dated May 21, 1991.
III- Third Step : Washington Convention and the World Bank Arbitration – 1965.
It was until 1965 that the Washington Convention was signed bringing into life a convention on the burning issues of “Investment Disputes Between States and Nationals of Other States”. Furthermore, its influence was broadened by the establishment of an International Centre for Settlement of Investment Disputes which started its activities on October 14, 1966, acting within the World Bank structure. The convention’s main objective was to articulate the basis of some regulations solving the disputes arising from international investments. That is why, ICSID is mentioned in almost every international investment agreement, reinforcing therefore, arbitration law implementation in commercial transactions.
The convention was ratified by Turkey under the Law no. 3460, by the GNAT on May 27, 1988; and was published in the Official Gazette dated June 02, 1988. As a result, Turkish companies filing cases at ICSID reached 23, especially on construction and energy projects.
IV- International arbitration in Turkey : its scope of application.
Following Turkey Economy’s liberalization in the 80’s and its encouragement of foreign investments, the establishment of a safe and secure environment for foreign capital was necessary. Indeed, the Bilateral Investment Treaties (BITs) contributed to the development of international arbitration by rendering the arbitration clause a fundamental one within the drafting of international agreements.
Indeed, it is in the “Treaty on Reciprocal Promotion and Protection of Investments” signed with Germany in 1962 that Turkey included its first arbitration clause as the main mechanism to resolve any arising conflict. Furthermore, this clause has been perpetuated in the BITs that Turkey has signed with 98 countries, with the aim of securing any transfer of profits and referring to international arbitration institutions in the event of a dispute.
This new approach to international arbitration was underlined in the Private International and Civil Procedure Law no. 2675 which took effect in 1982. In other words, Articles 43, 44 and 45 place arbitration at the heart of Turkish legislation and bring it closer to international agreements. This was amended later on with an updated version of the Renewed and Updated With the Private International and Civil Procedure Law no. 5718 in 2007 which offered an extended content about arbitration in its 60th, 61st and 62nd Articles.
In this vein, Turkey pursued its pro-arbitration wave of reform by enshrining in the 1999 amendments of the constitution how significant arbitration is : “Legal remedies are available for any and all actions and transactions of the Administration. (Additional provision) Settlement of the disputes through national and international arbitration can be stipulated in the concession conditions and agreements related to the public services. Only the disputes with foreign elements may be referred to the international arbitration.” – 1st paragraph of the 125th Article.
This was even more explicit in The Arbitration Legislation With the Law no. 4501 in 2001 based on the UNICTRAL Model Law ( United Nations Commission on International Trade Law) and Arbitration in the Direct Foreign Investments Law June 05, 2003 which sets out how arbitration seats are to be determined and how arbitration principles are to be included in the contracts.
It is important to note that Turkey is a member of the Energy Charter treaty which includes provisions on the settlement of disputes throughout international arbitration, making Turkey an attractive destination for the Energy sector in recent years. This was underlined by the establishment of the Istanbul Arbitration Centre in 2015, which has positioned Istanbul as a leading arbitration centre in the region.
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Summer Intern Nada ZARKAL
Att. Muhittin KURNAZ
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