Arbitration Procedures and Practice 2023 in Turkey - 2

Applicable Rules and Powers

19. What procedural rules are arbitrators bound by? Can the parties determine the procedural rules that apply? Does the law provide any default rules governing procedure?

Applicable Procedural Rules

Both the International Arbitration Code and Civil Procedural Code contain default procedural rules. However, the majority of these rules are not mandatory, and the parties are free to determine procedural rules in their arbitration agreement or after the arbitration begins. In practice, the parties often agree to apply institutional arbitration rules with their sets of default procedural rules.

Additionally, in both ad hoc and institutional arbitrations, the arbitral tribunal also determines the procedural rules applicable to the arbitration.

Default Rules

The mandatory provisions of the code continue to apply even if the parties agree on the application of other procedural rules (Article 8, International Arbitration Code and Article 424, Civil Procedure Code).

Evidence and Disclosure

20. If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?

The arbitral tribunal can order document production, compelling the fact and expert witnesses to appear at the hearing and conduct site examinations. In practice, the parties agree that the IBA Rules on the Taking of Evidence apply as guidelines.

The arbitral tribunal lacks coercive powers for these interim orders. However, where the parties are uncooperative, arbitral tribunals can request assistance from local courts. In this case, the courts apply the provisions set out under the Civil Procedure Code. According to Article 195 of the Civil Procedure Code, courts must notify the relevant official authorities or third parties, to produce documents that are not in the parties' possession. Also, the court can compel third parties or authorities to hand in a document, if it is deemed required to prove the parties' claims (Article 221, Civil Procedure Code). Certain exemptions to production of documents may apply.

Those who abstain from testifying without an applicable exemption are subject to a disciplinary fine for the expenses caused due to not complying with the court's request. Also, if a person abstains from responding to the court's questions or resists the request to take an oath, they can be subject to up to two weeks' imprisonment. Therefore, the same principle may apply to those who abstain from filing a document in line with the court's request. Those who hide an original private document will be sentenced to between one to three years' imprisonment (Article 208, Turkish Criminal Code).

Alternatively, the arbitral tribunals are empowered to draw adverse inferences from a party's refusal to give access to evidence, whether in relation to document production or the appearance of the fact witness.

Evidence

21. What documents must the parties disclose to the other parties and/or the arbitrator? How, in practice, does the scope of disclosure in arbitrations compare with disclosure in domestic court litigation? Can the parties set the rules on disclosure by agreement?

Scope of Disclosure

There is no general duty to disclose documents in cases before the Turkish courts. The leading principle is that no-one is obliged to present a document that is detrimental to them. Although the Turkish courts can order specific documents from the parties, the court is entitled to accept and rely on the other party's statements in such a scenario. The Turkish courts do not ask for the production of documents from a party apart from in exceptional circumstances.

Despite the lack of any specific regulation, arbitral tribunals have the inherent power to order a party to produce documents, either requested by the other party or requested by the tribunal. In practice, the parties generally agree to apply the IBA Rules on the Taking of Evidence in International Arbitration on document production as guidelines. These rules offer the tools for a limited search of evidence (for example, a specific document or specific categories of documents) that is relevant and material to the outcome of the arbitration. There is no obligation to produce a document if production would be burdensome or related to confidential and privileged documents.

Validity of Parties' Agreement as to Rules of Disclosure

The parties can set the rules on disclosure in their agreement.

Confidentiality

22. Is arbitration confidential? If so, what is the scope of that confidentiality and who is subject to the obligation (parties, arbitrators, institutions and so on)?

Arbitration is not automatically confidential. If the parties wish to make the arbitration proceedings confidential, it is advisable to execute a confidentiality agreement. If the parties fail to reach an agreement on confidentiality, a party can make an application to the tribunal to make the proceedings confidential. The scope of the confidentiality obligation depends on the content of the parties' agreement or arbitral tribunals' decision.

In some cases, arbitration institutions' rules may impose a confidentiality obligation. For example, Article 21 of the ISTAC Arbitration Rules suggests that the arbitral proceedings are confidential unless otherwise agreed by the parties.

Courts and Arbitration

23. Will the local courts intervene to assist arbitration proceedings seated in their jurisdiction?

Under Article 3 of the International Arbitration Code and Article 411 of the Civil Procedure Code, the court can only intervene in arbitration proceedings under the circumstances specified by the law.

Local courts assist arbitration proceedings by appointing arbitrators, if the parties cannot agree on the arbitrator to be appointed, or for any other reasons under Article 7 of the International Arbitration Code and the relevant provisions of the Civil Procedure Code. The same provision also allows parties to resort to state courts to order the disqualification of arbitrators.

If the parties fail to agree on the extension of the arbitration period of one year given under Article 10 of the International Arbitration Code and Article 427 of the Civil Procedure Code, one of the parties can request the local court to grant an extension before the time limit for arbitration proceedings expires.

Parties can request interim injunctions enforceable on the counterparty and third parties from local courts during or before the arbitration proceedings. Parties can also seek the assistance of state courts if the counterparty does not comply with interim relief ordered by the tribunal (International Arbitration Code).

The arbitral tribunal and parties to the dispute can seek the assistance of local courts to collect evidence and witness statements. Local courts can compel third parties to collect evidence and witness statements (see Question 20 and Question 21).

If the International Arbitration Code applies, depending on the subject matter of the dispute, the civil or commercial court of first instance where the defendant resides or has a place of business, has jurisdiction over arbitration-related applications. If the defendant has no residence, domicile or workplace in Turkey, Istanbul civil or commercial courts have jurisdiction.

If the Civil Procedure Code applies, the civil or commercial court of first instance of the place of arbitration has jurisdiction. If the place of arbitration is not determined, the civil or commercial court of first instance where the defendant resides or has a place of business has jurisdiction.

24. What is the risk of a local court intervening to frustrate an arbitration seated in its jurisdiction? Can a party delay proceedings by frequent court applications

Risk of Court Intervention

The local courts do not intervene in arbitration proceedings. The local courts can only intervene in the arbitral process based on very limited grounds, to assist the arbitration.

Delaying Proceedings

There is no specific provision that enables parties to delay arbitral proceedings by making court applications. In principle, the Turkish courts cannot intervene with the arbitration proceedings, and the arbitration proceedings cannot intervene with the Turkish courts. The interventions permitted by the Civil Procedure Code or the International Arbitration Code are intended to facilitate the course of the arbitration proceedings and do not in practice cause a risk of frustration.

Insolvency

25. What is the effect on the arbitration of pending insolvency of one or more of the parties to the arbitration?

Following insolvency, an insolvent company's power of disposition over its assets and rights is transferred to a bankruptcy trustee (composed of the insolvent company's rightful creditors), who pursues any pending arbitrations or claims in the state courts.

If one of the parties loses its capacity to pursue the proceeding, the arbitral tribunal must notify the interested parties, to ascertain whether they intend to continue with the arbitration (Article 11, International Arbitration Code). In the case of insolvency, if the trustee does not continue the arbitration proceedings within six months of notification, then the arbitration tribunal finalises the proceeding without rendering a decision on the merits of the dispute.

Remedies

26. What interim remedies are available from the tribunal?

Interim Remedies

In arbitration proceedings, the arbitral tribunal can order preliminary injunctions or preliminary attachment, and require testimony at the request of a party, unless otherwise agreed. However, arbitral tribunals cannot grant interim remedies that bind third parties or that need to be executed by official authorities or execution offices.

An applicant can also request interim remedies from state courts. Parties can request all forms of interim relief to secure their rights before or during the arbitration proceedings, including remedies binding third parties, and orders to be executed by official authorities or execution offices. However, if a request for interim relief is made before arbitration proceedings and the court grants the interim relief, then the party requesting that relief must request the commencement of arbitration within 30 days (two weeks under the Civil Procedure Code) as of the decision on the interim relief. Otherwise, the interim relief automatically becomes ineffective.

Ex parte/Without Notice Applications

There is no explicit provision empowering arbitral tribunals to order ex parte interim reliefs.

Interim reliefs are often sought for dismissing a present danger or risk, so these reliefs can be granted in the absence of the counterparty, for full efficacy. However, where the law allows ex parte interim reliefs, it generally provides an explicit rule enabling that power. Considering this and the fact that the International Arbitration Code is silent about ex parte interim reliefs, a better approach would be to hear the other party before granting interim relief.

Security

An arbitral tribunal can also order, by its own motion or on a party's request, that the party applying for interim relief must provide security as a precondition of granting the interim relief (Article 6, International Arbitration Code and Article 414, Civil Procedure Code).

27. What final remedies are available from the tribunal?

The remedies available to arbitrator(s) are limited to those compatible with Turkish public policy. Punitive damages are not permissible under Turkish law, and the remedies available to the arbitrator(s) are:

• Damages.
• Performance.
• Establishment, modification or termination of a legal relationship.
• Declaratory judgment.
• Costs.Interest.
• Publication of the award in newspapers.

Appeals

28. Can arbitration proceedings and awards be appealed or challenged in the local courts? What are the grounds and procedure? Can the parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitral clause itself)?

Rights of Appeal/Challenge

Arbitral awards cannot be appealed.

A set-aside action against an arbitral award can be filed before the competent regional appellate court within 30 days (one month under the Civil Procedure Code) from the notification of the award or any revision of, interpretation on, or addition to the award by the arbitral tribunal.

Grounds and Procedure

Article 15 of the International Arbitration Code and Article 439 of the Civil Procedure Code provide identical grounds for cancellation of an award:

• Lack of legal standing of a party.
• Invalidity of the arbitration clause.
• Procedural errors in the appointment of arbitrators.
• Failure to grant the arbitral award within the legal period.
• Incompetence by the arbitrator or arbitral tribunal, or an incompetent decision contrary to law.
• Failure to grant the arbitral award for part or the entire claim.
• Procedural errors in the conduct of the arbitration proceedings.
• Unfair treatment of the parties.
• The subject matter of the dispute not being appropriate for arbitration under Turkish law.
• The award is contrary to public order.

Both the International Arbitration Code and Civil Procedure Code identically provide that such actions are considered urgent matters to be resolved by an expedited procedure in comparison with regular state court actions. Under this expedited procedure, the parties can submit all their arguments and evidence with their petitions and cannot submit rebuttal/rejoinder petitions. The court will then render its award without holding a hearing, if possible. If not, the court cannot schedule more than two hearings, except for sessions arranged for witness statements and expert examinations.

The decision of the Regional Appellate Court can be appealed, although only on the grounds listed above.

Waiving Rights of Appeal

A party can waive its right to file an action to set aside the arbitral award in the arbitration agreement or during the procedure (Article 15, International Arbitration Code). This principle is not adopted for domestic arbitrations under the Civil Procedure Code. Under Turkish law, parties cannot waive their rights that have not yet originated. In light of this principle, a party cannot waive its right to file an action to set-aside the arbitral award in the arbitration agreement or during the procedure under the Civil Procedure Code. It can, however, waive its right to appeal the decision rendered in the action to set-aside the arbitral award, once a decision is rendered.

29. What is the limitation period applicable to actions to vacate or challenge an international arbitration award rendered inside your jurisdiction?

A set-aside action against an international arbitral award can be filed within 30 days of the award being notified to the parties. That action automatically suspends the enforcement of the award (Article 15, International Arbitration Code).

Costs

30. What legal fee structures can be used? Are fees fixed by law?

The parties and the arbitral tribunal or the sole arbitrator can agree on the arbitrators' fees, considering the amount of and/or nature of the dispute and duration of the arbitration (Article 16, International Arbitration Code and Article 440, Civil Procedure Code).

Unless agreed otherwise by the parties, the chairman's fee is 10% more than the arbitrator fee paid to each arbitrator.

Arbitrators' fees can also be determined according to international precedents or institutional arbitration rules. For example, a cost calculator can be used (see ISTAC: Calculator). If the parties cannot agree on the fees, they are determined in accordance with the yearly tariff prepared by the Ministry of Justice.

Parties can agree on attorneys' fees, but they cannot exceed 25% of the value in dispute (Turkish Advocacy Code). If this condition is fulfilled, the parties can adopt any legal fee structure, including a contingency fee structure (that is, a conditional fee arrangement providing for a bonus in the case of successful litigation), capped fees, or hourly rates. The Union of the Turkish Bar Associations publishes the Minimum Attorneyship Fee Tariff annually, which shows the minimum fees that can be set by the parties (which are reimbursed by the losing party in favour of the successful party's attorney, if any, as the legal fees).

Third party funding is also permitted and available. Interest in and awareness of the availability of third party funding, particularly in arbitration, is increasing.

31. Does the unsuccessful party have to pay the successful party's costs? How does the tribunal usually calculate any costs award and what factors does it consider?

Cost Allocation

Generally, the unsuccessful party pays the costs, including the costs incurred by the successful party. Turkish law endorses the costs-follow-the-event approach (Article 442 al.4, Civil Procedure Code and Article 16D, International Arbitration Code).

However, the costs-follow-the-event approach is not mandatory, and the parties can agree on a different structure. Some arbitral institutions empower the tribunals to take into account the parties' conduct during the arbitration proceedings when determining the allocation of the costs. In these cases, the arbitral tribunal can use its wide discretion to allocate the costs between the parties.

Cost Calculation

The parties can agree on the calculation of costs, but they do not usually do so. In this case, the arbitral institutions' rules on the calculation of costs apply. Costs include:

• The arbitrators' fee (and secretariat fee to be determined by the arbitrators under the Civil Procedure Code),
• Arbitrators' travel fees and other expenses.
• On-site examination expenses and fees paid to experts appointed by arbitrators or those whose assistance has been referred to.
• Travel fees and other expenses of witnesses to the extent approved by the arbitrators.
• Attorney fees determined under the Minimum Attorneyship Fee Tariff in favour of the attorney, if any, of the winning party.
• Litigation costs collected in applications filed before courts.
• Notification expenses concerning the arbitration proceedings.

(Article 441 of the Civil Procedure Code and Article 16 of the International Arbitration Code.)

In practice, the arbitral tribunal asks the parties to make a "cost submission", in which both parties submit the costs incurred in relation to the arbitration.

Factors Considered

In calculating costs, the arbitral tribunal takes into account whether the costs were actually incurred and whether they were reasonable and appropriate to pursue the parties' claims and defences.

Enforcement of an Award

Domestic Awards

32. To what extent is an arbitration award made in your jurisdiction enforceable in the local courts?

An arbitral award rendered by a tribunal seated in Turkey is directly enforceable without any further need for an enforcement proceeding before the state courts.

Foreign Awards

33. Is your jurisdiction party to international treaties relating to recognition and enforcement of foreign arbitration awards, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)?

Turkey is a party to the New York Convention. Other notable treaties to which Turkey is party include the:

• European Convention on International Commercial Arbitration 1961 (Geneva Convention).
• International Centre for Settlement of Investment Disputes Convention.
• Energy Charter Treaty.

All international treaties to which Turkey is a party are considered as domestic law and lex specialis overriding other laws which only govern general matters (lex generalis).

Turkey has two reservations to the New York Convention, which provide that the New York Convention applies only to:

• Recognition and enforcement of awards made in the territory of another contracting state.
• Disputes arising out of legal relationships that are considered commercial under Turkish law.

The New York Convention is not applied to the recognition and enforcement of foreign arbitral awards that do not satisfy these criteria.

The International Civil and Procedural Law contains provisions for enforcement of foreign arbitral awards. Recognition and arbitral awards that do not fall within the scope of the New York Convention are subject to the relevant provisions of the International Civil and Procedural Law. These are very similar to the relevant provisions of the New York Convention.

34. To what extent is a foreign arbitration award enforceable?

A foreign arbitral award is enforceable if it satisfies the conditions stipulated under Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) or the very similar conditions under Article 62 of the International Civil and Procedural Law.

Among all the conditions of enforceability, Turkish courts give particular importance to public policy. The term "public policy" is not explicitly defined by Turkish law and, therefore, the standards for refusing recognition or enforcement on public policy grounds mostly depend on legal practice. However, the concept of public policy is changing over time, embracing a trend towards an enforcement-friendly approach. Indeed, contrary to the past practices of Turkish courts, public policy is now interpreted narrowly and only the awards that contradict indispensable and fundamental Turkish legal principles are considered to violate public policy.

Common law awards are usually enforceable in Turkey. However, punitive damages may be considered against public policy.

A request for enforcement of a foreign arbitral award is filed by petition. The civil or commercial court where the defendant temporarily or permanently resides has jurisdiction over enforcement proceedings. In the absence of such a place, the claimant can file enforcement proceeding before the courts of Istanbul, Izmir or Ankara. On notification of the petition, the defendant has two weeks to file its responses, with an opportunity to request an extension for a further two weeks (Civil Procedure Code). Whether the application fee that the applicant must deposit when filing the action is a fixed or proportionate fee is controversial in practice. However, most courts apply the fixed application fee (see Question 1).

35. What is the limitation period applicable to actions to enforce international arbitration awards rendered outside your jurisdiction?

The limitation period applicable for filing an action to enforce an international arbitration award is not determined by the procedural rules of Turkish law. However, the Execution and Bankruptcy Act foresees a ten-year limitation period for the enforcement of judgments. Although the relevant provision of the Execution and Bankruptcy Act does not refer to international arbitration awards directly, it is advisable to file actions to enforce international arbitration awards within ten years of the finalisation of the arbitration award.

Length of Enforcement Proceedings

36. How long do enforcement proceedings in the local court take, from the date of filing the application to the date when the first instance court makes its final order? Is there an expedited procedure?

Enforcement proceedings are subject to an expedited procedure. Accordingly, the parties are not allowed to file rejoinder or rebuttal petitions. Since the court does not examine the merits of the case and only conducts a procedural examination, the final order is expected to be given in six to 12 months by the first instance court and in one to two years by the regional appeal court, which is followed by a one to two years final appeal before the Court of Cassation.

Reform

37. Are any changes to the law currently under consideration or being proposed?

Currently, there is no specific court or chamber in place with competence to hear claims related to enforcement of arbitral awards. Therefore, appeal examinations of these disputes fall under the scope of duty of the relevant chamber of the Court of Cassation, depending on the nature of the dispute.

Enforcement and cancellation of arbitral awards are generally examined by the 11th, 15th, 19th and 23rd Civil Chambers of the Court of Cassation, all of which have no particular specialisation in arbitration. More than half of arbitration-related cases, including those relating to insurance and freight, are dealt by the 11th Chamber of the Court of Cassation specialised in commercial law and obligations law.

Considering that a civil chamber receives 20,000 case files (inclusive of the transferred files from previous years) on average per year, civil chambers cannot gain expertise on occasionally encountered enforcement claims. Examination of arbitration-related cases by different chambers not only prevents civil chambers from gaining adequate experience in this field, but also leads to contradictory decisions.

The lack of specialisation clearly poses a significant obstacle before the development of arbitration in Turkey, which is an indispensable mechanism for the business world. Therefore, Turkish legal scholars and practitioners have been recommending that a single civil chamber is assigned to resolve all kinds of disputes related to arbitration, regardless of the nature of the contract or commercial relationship. Indeed, this is the only way to ensure that uniform and foreseeable precedents in line with contemporary practices are in place. Although this recommendation has been the unchanged agenda of scholars and practitioners for years, the same appetite has not been observed in the legislative area. Therefore, establishment of specialised chambers is not expected in the short term.

To read the first part of this article series, please click on Arbitration Procedures and Practice 2023 in Turkey - 1

First published by Practical Law in 01.12.2022