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Recognition and Enforcement of Foreign Arbitral Awards in Turkey under the New York Convention
Date:19/08/2016
Att. Levent Cengiz
levent.cengiz@cengiz.av.tr
Recognition and Enforcement of Foreign Arbitral Awards in Turkey under the New York Convention
1) Introduction
Although arbitration is considered as a reasonable form of alternative dispute resolution, foreign arbitral awards are subject to an enforcement procedure. In this sense, The New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) provides a simplified procedure for recognition and enforcement in the contracting states including Turkey. As the conditions set for both recognition and enforcement are same, this article will provide brief information regarding the enforcement procedure in Turkey under the Convention.
2) Scope of Application
First of all, only “foreign” arbitral awards can be enforced in Turkey under the Convention, and Article I/1 of the Convention contains two definitions for this condition. On the one hand, the awards made in another country other than Turkey are considered as foreign awards, regardless of the nationality of the parties or the law applied to the arbitration procedure. On the other hand, in principle, the arbitration procedures with foreign elements conducted in Turkey fall within the scope of Turkish International Arbitration Law No.4686. However, if the parties explicitly agree that the arbitration procedure is not conducted in accordance with the Law No.4686, such arbitral award with a foreign element made in Turkey is considered as foreign and therefore can be enforced under the Convention.[i]
It should be noted that Turkey signed the Convention with two declarations stated in Article I/3 of the Convention. Firstly, Turkey applies the Convention on the basis of reciprocity. In other words, the awards made only in the territory of another contracting state can be enforced in Turkey. Secondly, only the awards based on commercial disputes can be enforced. As the Convention refers to the national law, the Convention can be applied only if the dispute indicated in the arbitral award falls within the scope of commercial affairs in Turkish law. In this sense, commercial affairs are defined in Articles 3 and 19 of Turkish Commercial Code No.6102.
As a result, the arbitral awards with foreign elements based on a commercial dispute (i) made in another contracting state or (ii) made in Turkey but not conducted in accordance with Law No.4686 on the basis of the parties’ explicit consent can be enforced in Turkey under the Convention.
3) Enforcement Procedure
As Article III of the Convention refers to the national law, the enforcement procedure must be conducted in accordance with Turkish law. As to the venue, Article 60/2 of Turkish Private International Law and Procedural Law Act No.5718 (“PILA”) states that if there is a choice of venue, the plaintiff must file the lawsuit at the court mutually chosen by the parties in writing. In the absence of such agreement, the venue is gradually designated by considering the place of the defendant’s (i) domicile, (ii) habitual residence and (iii) assets that may be subject to execution, in order. Furthermore, pursuant to Article 5 of the Law No.5235, the commercial courts are competent on recognition and enforcement of foreign arbitral awards in Turkey.
The necessary documents are indicated in Article IV of the Convention. Briefly, duly certified copies of (i) the arbitral award and (ii) the arbitration agreement must be attached to the case petition. In case the mentioned documents are not in the Turkish language, the plaintiff must provide certified translations of these documents. In this respect, the requirements specified in the Code of Civil Procedure (“CCP”), Law on Notaries and Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents must be observed.[ii]
Moreover, according to Article 48 of the PILA, foreign real and legal persons who file a lawsuit before a Turkish court are required to provide a security to be determined by the court to cover the expenses of the legal procedures and proceedings as well as losses or damages of the defendant. However, the court may exempt the plaintiff from providing a security based on the reciprocity principle, if there is a multilateral or bilateral agreement which grants an exemption from providing a security.
Although the Supreme Court’s decisions regarding the court fees in the enforcement procedure of the arbitral awards have not been consistent in the past, it was indicated in its latest decisions that the proportional court fees must be applied to the enforcement procedure of the arbitral awards related to a collection of a receivable.[iii] In addition, pursuant to Articles 61/2 and 55/1 of the PILA, the legal proceeding is conducted in accordance with the simplified procedure regulated in Articles 316-322 of the CCP. According to Articles 61/2 and 57/2 of the PILA, the court decisions regarding dismissal or acceptance of the enforcement request may be appealed pursuant to the general provisions of the CCP. The appeal suspends the execution of the decision.
Finally, it should be noted that upon the plaintiff’s request, the court may order an interim injunction or a conservatory attachment, if the criteria indicated in the CCP and the Execution and Bankruptcy Law are fulfilled.[iv]
4) Legal Grounds
The seven grounds listed in Article V are the exhaustive grounds for refusal. It should be noted that the defendant has the burden of proof and can only resist the enforcement of the award on the basis of the grounds set forth in Article V/1. The court can refuse the enforcement on its own motion on the grounds identified in Article V/2.
4.1) Article V/1/a: There should be a valid arbitration agreement between the parties. In this regard, the defendant may argue the (i) incapacity of the parties or (ii) invalidity of the arbitration agreement. Mental incompetence and lack of authority to act in the name of a corporate entity are among the incapacity defenses. In this case, the court will examine the incapacity argument after determining the applicable law in accordance with Article 9 of the PILA.[v] As for invalidity, the defendants frequently argue that the arbitration agreement is not valid because it is not in writing as required in Article II. Illegality, duress or fraud are the other common examples of this ground. The court will examine this argument in accordance with the law chosen by the parties in the agreement. If there is no such choice, the applicable law is the law of the country where the award was made. In some cases, the inaccuracy of some clauses because of poor drafting makes the arbitration agreement unenforceable (Pathological Arbitration Clauses). However, in some other cases, courts may rescue a pathological clause by using the principle of effective interpretation.
4.2) Article V/1/b: The defendant’s right to fair hearing should not be violated in the arbitration procedure. In this respect, the defendant should be given proper notice of the appointment of the arbitrator or of the arbitration proceedings. In institutional arbitration, the notification procedure must be carried out in compliance with the relevant institution’s regulations. In ad hoc arbitration, it must be gradually performed considering (i) the arbitration agreement and (ii) the rules designated by the arbitration court, in order.[vi] Furthermore, the defendant should be able to present his case during the arbitration procedure. For instance, the defendants frequently argue that they were not granted sufficient time to submit their defense petition and evidence.
4.3) Article V/1/c: The arbitral award should be issued within the scope of the arbitration agreement and the parties’ submissions. In this regard, the arbitral tribunal’s jurisdiction is limited to deciding the issues that the parties have agreed to submit to it for determination. However, in case the award is only partly beyond the arbitral tribunal’s jurisdiction, on condition that it can be separated from the remaining part, such award may be enforced.
4.4) Article V/1/d: The enforcement of the award may be refused if the composition of the arbitral tribunal and the arbitration procedure was not in compliance with the arbitration agreement, or in the absence of an agreement on these matters, was not in accordance with the law of the country where the arbitration took place.
4.5) Article V/1/e: The enforcement of the award may be refused, if the arbitral award (i) has not become binding on the parties, or (ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. It should be noted that “bindingness” indicated in the Convention is different than the “finalization” of the foreign judgments or arbitral awards. In this sense, finalization of the foreign arbitral awards is not mandatory for the enforcement procedure, as it is also indicated in a Supreme Court decision.[vii]
4.6) Article V/2/a: The court can refuse enforcement of an award on its own motion if the subject matter of the difference is not capable of settlement by arbitration under Turkish law. For instance, Article 408 of the CCP provides that disputes arising from in rem rights on immovable property and disputes that are not governed by the parties’ mutual agreement are not arbitrable. It is also specified in Article 1 of Turkish International Arbitration Law No.4686.
4.7) Article V/2/b: The court also examines whether the arbitral award is contrary to the public policy of Turkey. Transactions against Turkish tax, customs or foreign exchange regime, obligations arising from contracts based on drug trafficking or gambling are among examples contrary to Turkish public policy.
5) Conclusion
Although the Convention provides a simplified procedure for recognition and enforcement in Turkey, only the arbitral awards with foreign elements based on a commercial dispute (i) made in another contracting state or (ii) made in Turkey but not conducted in accordance with Law No.4686 on the basis of the parties’ explicit consent can be enforced in Turkey under the Convention. As Article III of the Convention refers to the national law, the enforcement procedure must be conducted in accordance with Turkish law. In this sense, Turkish legislation regarding the court procedure, security amount and court fees must be observed. Furthermore, the seven grounds listed in Article V are the exhaustive grounds for refusal. It should be noted that the defendant has the burden of proof and can only resist the enforcement of the award on the basis of the grounds set forth in Article V/1. Finally, the court can refuse the enforcement on its own motion on the grounds identified in Article V/2.
[i] Cemal Şanlı, Preparation of International Commercial Contracts and Resolution of Disputes, Beta Publications, 6th Edition, 2016 - Istanbul, p.394
[ii] Şanlı, Ibid, p.395
[iii] 19th Civil Chamber of the Court of Cassation (Supreme Court), decision dated 02/06/2015 and numbered 2015/8132; 15th Civil Chamber, decision dated 12/02/2015 and numbered 2015/691. See also Ziya Akıncı, International Arbitration, Vedat Publications, 4th Edition, 2016 – Istanbul, p.358
[iv] Şanlı, Ibid, p.405
[v] Şanlı, Ibid, p.415
[vi] Şanlı, Ibid, p.440
[vii] Assembly of Civil Chambers of the Supreme Court, decision dated 09/06/1999 and numbered 1999/489 – [Akıncı, Ibid, p.395, 396]. See also 19th Civil Chamber of the Supreme Court, decision dated 07/03/2002 and numbered 2002/1513 – [Şanlı, Ibid, p.462]
Att. Levent Cengiz
levent.cengiz@cengiz.av.tr
Recognition and Enforcement of Foreign Arbitral Awards in Turkey under the New York Convention
1) Introduction
Although arbitration is considered as a reasonable form of alternative dispute resolution, foreign arbitral awards are subject to an enforcement procedure. In this sense, The New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) provides a simplified procedure for recognition and enforcement in the contracting states including Turkey. As the conditions set for both recognition and enforcement are same, this article will provide brief information regarding the enforcement procedure in Turkey under the Convention.
2) Scope of Application
First of all, only “foreign” arbitral awards can be enforced in Turkey under the Convention, and Article I/1 of the Convention contains two definitions for this condition. On the one hand, the awards made in another country other than Turkey are considered as foreign awards, regardless of the nationality of the parties or the law applied to the arbitration procedure. On the other hand, in principle, the arbitration procedures with foreign elements conducted in Turkey fall within the scope of Turkish International Arbitration Law No.4686. However, if the parties explicitly agree that the arbitration procedure is not conducted in accordance with the Law No.4686, such arbitral award with a foreign element made in Turkey is considered as foreign and therefore can be enforced under the Convention.[i]
It should be noted that Turkey signed the Convention with two declarations stated in Article I/3 of the Convention. Firstly, Turkey applies the Convention on the basis of reciprocity. In other words, the awards made only in the territory of another contracting state can be enforced in Turkey. Secondly, only the awards based on commercial disputes can be enforced. As the Convention refers to the national law, the Convention can be applied only if the dispute indicated in the arbitral award falls within the scope of commercial affairs in Turkish law. In this sense, commercial affairs are defined in Articles 3 and 19 of Turkish Commercial Code No.6102.
As a result, the arbitral awards with foreign elements based on a commercial dispute (i) made in another contracting state or (ii) made in Turkey but not conducted in accordance with Law No.4686 on the basis of the parties’ explicit consent can be enforced in Turkey under the Convention.
3) Enforcement Procedure
As Article III of the Convention refers to the national law, the enforcement procedure must be conducted in accordance with Turkish law. As to the venue, Article 60/2 of Turkish Private International Law and Procedural Law Act No.5718 (“PILA”) states that if there is a choice of venue, the plaintiff must file the lawsuit at the court mutually chosen by the parties in writing. In the absence of such agreement, the venue is gradually designated by considering the place of the defendant’s (i) domicile, (ii) habitual residence and (iii) assets that may be subject to execution, in order. Furthermore, pursuant to Article 5 of the Law No.5235, the commercial courts are competent on recognition and enforcement of foreign arbitral awards in Turkey.
The necessary documents are indicated in Article IV of the Convention. Briefly, duly certified copies of (i) the arbitral award and (ii) the arbitration agreement must be attached to the case petition. In case the mentioned documents are not in the Turkish language, the plaintiff must provide certified translations of these documents. In this respect, the requirements specified in the Code of Civil Procedure (“CCP”), Law on Notaries and Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents must be observed.[ii]
Moreover, according to Article 48 of the PILA, foreign real and legal persons who file a lawsuit before a Turkish court are required to provide a security to be determined by the court to cover the expenses of the legal procedures and proceedings as well as losses or damages of the defendant. However, the court may exempt the plaintiff from providing a security based on the reciprocity principle, if there is a multilateral or bilateral agreement which grants an exemption from providing a security.
Although the Supreme Court’s decisions regarding the court fees in the enforcement procedure of the arbitral awards have not been consistent in the past, it was indicated in its latest decisions that the proportional court fees must be applied to the enforcement procedure of the arbitral awards related to a collection of a receivable.[iii] In addition, pursuant to Articles 61/2 and 55/1 of the PILA, the legal proceeding is conducted in accordance with the simplified procedure regulated in Articles 316-322 of the CCP. According to Articles 61/2 and 57/2 of the PILA, the court decisions regarding dismissal or acceptance of the enforcement request may be appealed pursuant to the general provisions of the CCP. The appeal suspends the execution of the decision.
Finally, it should be noted that upon the plaintiff’s request, the court may order an interim injunction or a conservatory attachment, if the criteria indicated in the CCP and the Execution and Bankruptcy Law are fulfilled.[iv]
4) Legal Grounds
The seven grounds listed in Article V are the exhaustive grounds for refusal. It should be noted that the defendant has the burden of proof and can only resist the enforcement of the award on the basis of the grounds set forth in Article V/1. The court can refuse the enforcement on its own motion on the grounds identified in Article V/2.
4.1) Article V/1/a: There should be a valid arbitration agreement between the parties. In this regard, the defendant may argue the (i) incapacity of the parties or (ii) invalidity of the arbitration agreement. Mental incompetence and lack of authority to act in the name of a corporate entity are among the incapacity defenses. In this case, the court will examine the incapacity argument after determining the applicable law in accordance with Article 9 of the PILA.[v] As for invalidity, the defendants frequently argue that the arbitration agreement is not valid because it is not in writing as required in Article II. Illegality, duress or fraud are the other common examples of this ground. The court will examine this argument in accordance with the law chosen by the parties in the agreement. If there is no such choice, the applicable law is the law of the country where the award was made. In some cases, the inaccuracy of some clauses because of poor drafting makes the arbitration agreement unenforceable (Pathological Arbitration Clauses). However, in some other cases, courts may rescue a pathological clause by using the principle of effective interpretation.
4.2) Article V/1/b: The defendant’s right to fair hearing should not be violated in the arbitration procedure. In this respect, the defendant should be given proper notice of the appointment of the arbitrator or of the arbitration proceedings. In institutional arbitration, the notification procedure must be carried out in compliance with the relevant institution’s regulations. In ad hoc arbitration, it must be gradually performed considering (i) the arbitration agreement and (ii) the rules designated by the arbitration court, in order.[vi] Furthermore, the defendant should be able to present his case during the arbitration procedure. For instance, the defendants frequently argue that they were not granted sufficient time to submit their defense petition and evidence.
4.3) Article V/1/c: The arbitral award should be issued within the scope of the arbitration agreement and the parties’ submissions. In this regard, the arbitral tribunal’s jurisdiction is limited to deciding the issues that the parties have agreed to submit to it for determination. However, in case the award is only partly beyond the arbitral tribunal’s jurisdiction, on condition that it can be separated from the remaining part, such award may be enforced.
4.4) Article V/1/d: The enforcement of the award may be refused if the composition of the arbitral tribunal and the arbitration procedure was not in compliance with the arbitration agreement, or in the absence of an agreement on these matters, was not in accordance with the law of the country where the arbitration took place.
4.5) Article V/1/e: The enforcement of the award may be refused, if the arbitral award (i) has not become binding on the parties, or (ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. It should be noted that “bindingness” indicated in the Convention is different than the “finalization” of the foreign judgments or arbitral awards. In this sense, finalization of the foreign arbitral awards is not mandatory for the enforcement procedure, as it is also indicated in a Supreme Court decision.[vii]
4.6) Article V/2/a: The court can refuse enforcement of an award on its own motion if the subject matter of the difference is not capable of settlement by arbitration under Turkish law. For instance, Article 408 of the CCP provides that disputes arising from in rem rights on immovable property and disputes that are not governed by the parties’ mutual agreement are not arbitrable. It is also specified in Article 1 of Turkish International Arbitration Law No.4686.
4.7) Article V/2/b: The court also examines whether the arbitral award is contrary to the public policy of Turkey. Transactions against Turkish tax, customs or foreign exchange regime, obligations arising from contracts based on drug trafficking or gambling are among examples contrary to Turkish public policy.
5) Conclusion
Although the Convention provides a simplified procedure for recognition and enforcement in Turkey, only the arbitral awards with foreign elements based on a commercial dispute (i) made in another contracting state or (ii) made in Turkey but not conducted in accordance with Law No.4686 on the basis of the parties’ explicit consent can be enforced in Turkey under the Convention. As Article III of the Convention refers to the national law, the enforcement procedure must be conducted in accordance with Turkish law. In this sense, Turkish legislation regarding the court procedure, security amount and court fees must be observed. Furthermore, the seven grounds listed in Article V are the exhaustive grounds for refusal. It should be noted that the defendant has the burden of proof and can only resist the enforcement of the award on the basis of the grounds set forth in Article V/1. Finally, the court can refuse the enforcement on its own motion on the grounds identified in Article V/2.
[i] Cemal Şanlı, Preparation of International Commercial Contracts and Resolution of Disputes, Beta Publications, 6th Edition, 2016 - Istanbul, p.394
[ii] Şanlı, Ibid, p.395
[iii] 19th Civil Chamber of the Court of Cassation (Supreme Court), decision dated 02/06/2015 and numbered 2015/8132; 15th Civil Chamber, decision dated 12/02/2015 and numbered 2015/691. See also Ziya Akıncı, International Arbitration, Vedat Publications, 4th Edition, 2016 – Istanbul, p.358
[iv] Şanlı, Ibid, p.405
[v] Şanlı, Ibid, p.415
[vi] Şanlı, Ibid, p.440
[vii] Assembly of Civil Chambers of the Supreme Court, decision dated 09/06/1999 and numbered 1999/489 – [Akıncı, Ibid, p.395, 396]. See also 19th Civil Chamber of the Supreme Court, decision dated 07/03/2002 and numbered 2002/1513 – [Şanlı, Ibid, p.462]