Maritime Disputes: A Comprehensive Examination of LMAA, ISTAC, and Turkish Courts’ Approaches to Maritime Cases - Part 1

As a preliminary observation, it is crucial to highlight that Turkey does not currently possess a dedicated arbitration center established solely for the administration of maritime law.

There are several main arbitration organizations based in Turkey, including the Istanbul Arbitration Centre (ISTAC), Istanbul Chamber of Commerce Arbitration and Mediation Centre (ITOTAM), Turkish Union of Chambers and Commodity Exchanges Court of Arbitration, and Turkish Bar Association Arbitration Center.

Among these institutions, ISTAC is commonly preferred, thus, the following comparisons will be made between ISTAC and the London Maritime Arbitrators Association (LMAA).

Arbitration

Preferences and Drawbacks

In terms of costs, timing, complexity, predictability (sustainability of practice), independence, and attention to foreign parties, there are several aspects to consider for  companies involved in cargo/charter party disputes.

Duration

ISTAC has implemented rules governing expedited arbitration, known as Fast Track Arbitration. According to these rules, the dispute must be finally resolved within three months from the date the case is referred to the arbitrator. For proceedings not subject to expedited arbitration, the time limit for adjudication, as determined under the ISTAC Arbitration Rules, is six months.

Note: Fast Track Arbitration is mandatory if the claim amount is below 3 million Turkish Liras. However, if the claim amount exceeds 3 million Turkish Liras, the parties may also request fast-track arbitration.

Expertise

The expertise of ISTAC arbitrators provides an advantage to the parties involved. In cases where the parties fail to reach an agreement, the ISTAC Panel appoints an arbitrator specialized in the relevant field. This ensures that disputes concerning specific areas of law are resolved by experts, eliminating the need for external expert consultancy and resulting in more accurate decisions. Additionally, some of the world's most renowned arbitrators serve as ISTAC International Court Members, which further enhances its credibility.

However, compared to LMAA, it can be argued that ISTAC has fewer cases and less specialization in the field of maritime trade.

Complexity of the Proceedings

Below are the stages involved in initiating and conducting a legal proceeding according to ISTAC's defined process:

How the Proceedings Run?

1. The Claimant submits its Statement of Claims and evidence to the Secretariat.

2. The Respondent submits its Statement of Defence and its evidence to the Secretariat within 15 days (The Statement of defence and annexes may be sent by email to [email protected]).

3. Holding a hearing or evaluation based solely on the basis of documents

4. Closure of proceedings

5. Submission of the arbitral award to the Secretariat

Cost

According to the arbitration rules of ISTAC, the fees of ISTAC arbitrators and administrative charges are predetermined and based on the disputed amount. ISTAC provides a cost calculator on its website for easy determination of arbitration costs. The fixed nature of both administrative expenses and arbitrator's fees allows for accurate cost estimation even before initiating the arbitration process.

To review the fees charged by ISTAC for arbitration, you can visit the following link:

https://istac.org.tr/tr/uyusmazlik-cozumu/masraflar-ve-ucretler/tarifeler/

In contrast, the costs of arbitration proceedings under LMAA depend on the applicable arbitration terms for the dispute.

One advantage of choosing ISTAC is that its arbitrators' fees and administrative costs are generally lower compared to other well-established institutions, including LMAA. This makes ISTAC a more cost-effective option.

Additionally, for international arbitrations seated in Turkey or when agreed upon by the parties or arbitrators, the International Arbitration Code (No. 4686) applies. Domestic arbitrations seated in Turkey with no international element are subject to the Civil Procedural Code (No. 6100). Both laws are based on the UNCITRAL Model Law.

Predictability (Sustainability of Practice)

ISTAC has been in operation since the third quarter of 2015 and has published its set of arbitration and mediation rules, including emergency arbitrator and Fast Track Arbitration rules. While ISTAC aims to gain recognition beyond Turkey and is mindful of its reputation, it would not be statistically accurate to claim that it has the same level of experience regarding maritime disputes as LMAA, considering the duration of its operations. However, it should be noted that ISTAC is an independent institution in terms of its arbitration procedures and as an official arbitration entity, is conducting its operations securely and reliably.

Attention to Foreign Parties in Case of Turkish Company Involved in Cargo/Charter Party Disputes

The decision-making process is not influenced by the national origin of either the plaintiff or the defendant. ISTAC ensures equal treatment and attention to all parties involved, regardless of their nationalities.

Which arbitration option would be deemed advisable for selection? Is there an established system for the simplified consideration of smaller claims?

Considering the value of the claims, the Fast Track Arbitration procedure offered by ISTAC is advised for smaller disputes. The ISTAC Fast Track Arbitration Rules apply to disputes where the claim value does not exceed TRY 3,000,000. (As of August 2023, this amount roughly equates to 111,000 USD. Given that the stated amount was determined in Turkish Lira, potential fluctuations in the exchange rate would impact the USD equivalent of the sum. Furthermore, the Turkish Lira threshold set by the secretariat, which was initially established in Turkish Lira, retains the possibility of modification.) This simplified and expeditious procedure allows both domestic and foreign parties to resolve their disputes within 3 months through the issuance of a final, binding, and enforceable arbitral award by a Sole Arbitrator.

Fast Track arbitral awards can be enforced in the same manner as court decisions. Awards made under the ISTAC Fast Track Arbitration Rules can be immediately enforced without the need for appeal. (Notably, it should be pointed that the direct enforceability of arbitral awards is linked to their enforcement within Turkey. For the recognition of the award to be obtained from ISTAC in other countries, the procedural requirements outlined within the legal framework of the relevant jurisdiction where such recognition is sought may come into effect.)

This alternative provides a cost-effective way for parties to settle disputes under TRY 3,000,000 within 3 months through a binding arbitral award, avoiding lengthy state court proceedings.

Could foreign law be selected, or would it be more advisable to recommend the choice of Turkish law?

While Turkish arbitration practice allows for the application of foreign law, if Turkish arbitration is ultimately chosen as the preferred arbitral body, opting for Turkish law may be more advantageous in terms of promptness. This decision depends on preference, as Turkish arbitration centers are equipped with practitioners well-versed in international law, making them effective in enforcing the preferred law.

Could disputes not involving a Turkish party or lacking direct relations to Turkey be deemed admissible for consideration in the event of mutual agreement on Turkish arbitration?

ISTAC provides dispute resolution services to all parties, regardless of nationality or direct connection to Turkey. Companies, individuals, government agencies, and foreign entities can avail themselves of ISTAC's services without any membership requirements. Therefore, even if the subject matter or the parties involved have no direct connection to Turkey, ISTAC would accept and examine the dispute.

Are Turkish arbitration awards enforceable in states that are parties to the 1958 New York Convention?

Turkey is a party to the 1958 New York Convention, which came into force on September 25, 1992. Turkey has both reciprocity and commercial relationship reservations. As per Article III of the convention, which embodies a pro-enforcement policy, each Contracting State is obligated to recognize and enforce arbitral awards. Therefore, Turkish arbitration awards would be enforceable.

Turkey, being a party to the New York Convention, has the necessary legislative regulations in place. Its International Arbitration Law is drafted in accordance with the UNCITRAL Model Law. When the seat of arbitration is in Turkey, ISTAC awards are enforced as domestic awards without undergoing the recognition procedure for foreign awards.

A Comparison with Turkish Courts

Compared to LMAA London arbitration,

The main preferences and drawbacks concerning costs, timing, complexity, predictability (sustainability of practice), independence, and attention to foreign parties, particularly if the cargo/charter party involves a Turkish company.

Apart from the comparison with the LMAA, it is generally recognized that arbitration has advantages over court proceedings in many respects, excluding expenses. The main advantages of the arbitration such as procedural flexibility, ability to select the language of the proceedings, faster resolution of the dispute, ability to choose arbitrators who have experience and expertise in the subject matter of the dispute, ability to make the proceedings confidential, easier and wider enforceability also apply to this comparison and will be elaborated below.

Complexity - Expertise

In Turkey specialized courts have been established to handle the cases requiring expertise and special knowledge. If such specialized courts do not exist in a province or sub province, cases falling under the competence of specialized courts are handled by civil courts. In Turkey, several specialized maritime courts have been established, these courts are assigned to deal with commercial cases on maritime issues.

At the disputes arising from maritime claims a court is appointed by the Department of Judges and Prosecutors (a jurisdictional body in duty of organizing local competence of the courts and appointment of the judges etc).

In general, the city’s which has a port have experienced judges to handle maritime claims. Regarding flexibility and timing Turkish Courts are not the most preferable choice and sometimes do not act very timely manner, of course these qualifications can very case to case but the workload of the judges are not easy to underestimate. For example as a major waterway, İstanbul has only one court handling maritime claims which is located at the European Side of the City and any claim from charter disputes to recourse claims of the insurance companies are handled by İstanbul 17th Commercial Court/Maritime Court.

The courts handle claims over 1 Mln TRL with judges committee of three judges, maritime court judges are hardworking and in deep knowledge for common disputes but when it comes to the application of a foreign law, the context of the foreign law is to be presented by the parties to the court or relevant Codes or Practice notes are asked to be delivered by Country’s Ambrassador or Turkish MoJ‘s Legal Opinion Department and generally the expert committees reports are obtained.  All parties are entitled to challenge reports and submit privately drafted legal Opinions which are generally drafted by Professors of Law.

If a party is dissatisfied with the judgment of the trial court, an appeal can be filed with the Appeal Court within a specified time frame. The duration of appeal against the decisions of Turkish Courts of First Instance is 2 weeks. This period begins with the service of the detailed decision of the Court, by the Court. The Appeal Court may uphold, modify, or overturn the trial court's decision based on its evaluation. If the parties remain dissatisfied with the Appeal Court's decision, pursue an appeal to the Court of Cassation can be made. Please kindly note that in terms of specialization the regional courts of appeal (Bölge Adliye Mahkemeleri) in Turkey do not have specialized chambers specifically dedicated to maritime law.

To apply for an appeal to the Court of Cassation, a party must file a cassation petition within a specific period (generally within two weeks) from the notification of the Appeal Court's decision. The Court of Cassation does not conduct a re-examination of the facts; instead, it focuses on examining legal issues and ensuring the correct application of the law.

It should be noted that the Court of Cassation (Yargıtay) has specialized chambers known as "hukuk daireleri" (civil chambers) that handle appeals in specific areas of law, including maritime law. The 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) is indeed specialized in maritime law matters. When a maritime dispute goes through the appeal process, it is typically reviewed and decided upon by the 11th Civil Chamber of the Court of Cassation, ensuring that the court handling the appeal has a specialized understanding of maritime law and its complexities.

Since LMAA does not have an internal appeal process and LMAA arbitration awards are generally considered final and binding, and there is no formal mechanism for appealing an LMAA arbitration award within the LMAA itself it can be regarded as an advantage and disadvantage at the same time. While there is the possibility to argue and appeal to a higher court in the event of an undesirable outcome in court, the absence of this option in LMAA also results in a less complex judicial process. Applying for LMAA arbitration is generally considered straightforward and less complex compared to traditional court proceedings.

Duration

Cases heard in Turkish courts might be unfavorable in terms of duration due to the length of the trial process. Yet, compared to LMAA, even though it is difficult to provide an exact average duration without specific information about the case in question and knowing that the duration of an LMAA arbitration can range from several months to over a year, depending on the complexity and the cooperation of the parties involved, it can be stated that Turkish courts are not in a very favorable position in terms of judicial promptness.

Predictability (Sustainability of Practice)

In terms of the legal framework, Turkey has a well-established legal framework for maritime law, including the Turkish Commercial Code, Maritime Commerce Law, and international conventions to which Turkey is a party. These laws provide a basis for predictability and consistency in maritime law proceedings.

Turkish courts, including the Court of Cassation, rely on precedents when deciding cases. Precedents help establish legal principles and interpretations, which can provide some level of predictability in subsequent maritime law proceedings.

Attention to Foreign Parties in Case If the Cargo/Charter Party is a Turkish Company

In the circumstance where one party is of Turkish nationality and the opposing party is of foreign nationality, and in the absence of an agreement between the two countries, if the plaintiff is of foreign nationality, it is admissible to request a guarantee of foreignness. The amount of the foreignness guarantee, at the discretion of the presiding judge, may be usually 15% of the claimed amount. Moreover, the nationality of either the plaintiff or the defendant does not bear any influence on the determination of the matter.

The basic rule of cost and fee allocation in Turkish Courts

The court costs as a general concept comprise the litigation expenses, and certain proportional court charges and attorney fees fixed and announced officially in a yearly basis. Within the light of abovementioned legislation the basic rule in contentious matters is that in principle, the losing party has to pay all the court costs. When both parties win partially, the court will charge both of them with costs equally or divide the costs between them on the merits of the decision.

The main disadvantage of arbitration compared to litigation is that it is generally more costly where the amount in dispute is high. In comparison to Turkish court litigation, LMAA arbitration can be relatively more expensive due to the specialized nature of maritime arbitration and the associated fees. However, it is important to consider that the time and cost savings offered by arbitration, such as streamlined procedures, flexibility, and quicker resolution, may offset the higher fees.