Turkish Law Blog

Turkish Courts’ Approach to Public Policy as a Ground for Refusal of Enforcement of Foreign Arbitral Awards

Ahmet Bahadır Erkan Ahmet Bahadır Erkan/ Sezgin & Erkan Attorneys at Law
24 June, 2019
368

I. Introduction

In Turkey, foreign arbitral awards may be enforced pursuant to the provisions of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated June 10, 1958 (“New York Convention”) of which Turkey is a contracting state since July 2, 1992, or under the Act on Private International and Procedural Law No. 5718 (“Law No. 5718”). The requirements and procedure sought by the New York Convention and Law No. 5718 for enforcement of foreign arbitral awards are very similar to each other, as are the grounds for refusal of enforcement of arbitral awards. In this article, the Turkish courts’ approach to public policy as a ground for refusal of enforcement of foreign arbitral awards will be examined.

II. Public Policy as a Ground for Refusal of Enforcement under the New York Convention and Law No. 5718

Public policy is provided as a ground for refusal of foreign arbitral awards both by the New York Convention and Law No. 5718. Pursuant to Article V(2)(b) of the New York Convention, “Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that …The recognition or enforcement of the award would be contrary to the public policy of that country.” Similarly, Article 62(1)(b) of Law No. 5718 provides that “The enforcement of a foreign arbitral award shall be refused by the court: … If the arbitral award is against general ethics or public policy.” Although Article V(2)(b) of the New York Convention confers a discretionary power upon the courts while rendering a decision regarding the enforcement of a foreign arbitral award that is considered as contrary to public policy, Article 62(1)(b) of Law No. 5718 obliges the courts to refuse the request for enforcement in such a case without making any reference to discretionary power. However, under both rules, the courts are competent to refuse enforcement of a foreign arbitral award due to being contrary to public policy even if the party against which the enforcement is sought does not advance any claim on this front, i.e. ex officio.

It is argued that in most countries the “pro-enforcement bias” of the New York Convention has been observed and the courts rarely rely on public policy as a ground for refusal of enforcement of foreign arbitral awards. [1] It is possible to conclude that Turkey is not an exception in terms of this observation as the Turkish High Court of Appeals (Yargıtay) seldom refuses enforcement of foreign arbitral awards by relying on the ground that the award is contrary to public policy, even though in many cases the parties against which enforcement is sought argue that the awards should not be enforced as they are contrary to public policy.

III. Defining Public Policy

The difficulty regarding the application of public policy as a ground for refusal of foreign arbitral awards is also related to the lack of a clear definition of this notion. Under Turkish law, as it is the case in many other jurisdictions, what constitutes public policy is not provided in the statutory law; in other words, the definition and scope of public policy have been developed by the decisions of Turkish courts that usually make reference to scholars.

It is stated that the term public policy refers to “the fundamental rules and institutions of the legal, social, political and moral system” that may change even in a particular country over time. [2] The Constitutional Court of Turkey has stated in a decision that public policy implies everything that aims to ensure the peace and tranquility of the society and the preservation of the state and its organization; in other words, public policy encompasses all the rules that form the basis of the policy of the society in every field. [3] Similarly, the General Civil Assembly of Turkish High Court of Appeals (Yargıtay Hukuk Genel Kurulu) concluded that the relation of a legal rule with public policy should be determined according to the social, economic, cultural, and historical realities of the country and that if these realities reveal the social benefit and the indispensability of the rule, the rule must be considered as having relation with the public policy. [4]

The Turkish High Court of Appeals (Yargıtay) states that rules that relate to public policy may be found generally in family law, inheritance law, and property law legislation as well as in tax law and customs law legislation. [5] In the same decision, it is strongly emphasized that enforcement of foreign arbitral awards cannot be refused solely because the law applicable to the merits of the dispute is different from Turkish law or contrary to the mandatory provisions of Turkish law. The court expressly stated that the criterion to be taken into consideration with regards to enforcement of foreign arbitral awards and public policy is not whether the foreign arbitral award is contrary to Turkish laws or not, instead it is whether it is in line with the fundamental values of Turkish law, the notion of general ethics and adaptation of Turkish society, the basic understanding of justice and legal policy on which Turkish laws are based, the rights and freedoms contained in the Constitution, internationally accepted principles of law, bilateral agreements, notions of morality and justice adopted by the developed societies, civilization level, political and economic regime.

IV. Examples from Decisions of the Turkish High Court of Appeals (Yargıtay)

The General Civil Assembly of the Turkish High Court of Appeals (Yargıtay Hukuk Genel Kurulu) reversed a local court’s decision enforcing an ICC award granting the claimant a certain amount of compensation for the tax cuts imposed by the respondent on the claimant’s payables. [6] The main ground on which the reversal decision relied is the fact that the local court did not conduct the required examination regarding whether the enforcement of the arbitral award would be contrary to public policy as the dispute relates to taxes. It is possible to conclude that the notion of public policy is a little bit stretched in this decision as the dispute is not about whether certain taxes should be paid, or about the amount of taxes that must be paid; rather it is related to which party should have the burden to pay taxes. Moreover, in that specific case, all the required taxes were paid and there was no tax loss. Therefore, enforcement of the foreign arbitral award would not likely conflict with public policy in this specific case. There is a dissenting opinion attached to the decision in this direction.

In another decision, the Turkish High Court of Appeals (Yargıtay) reversed a local court’s decision refusing enforcement of a foreign arbitral award since the penalty for the breach of a settlement agreement was excessive and this renders the arbitral award contrary to public policy. [7] The court emphasized that even in cases where the amount of penalty determined by the parties is considered excessive, this does not constitute a violation of public policy.

The Turkish High Court of Appeals (Yargıtay) confirmed a local court’s decision enforcing an ICC award and denying the defendant’s request for refusal of enforcement, as the arbitral award was contrary to public policy as it obliged the defendant, a public body, to pay a certain amount of compensation. [8]

In another decision, the Turkish High Court of Appeals (Yargıtay) confirmed a local court’s decision refusing the defendant’s argument that the foreign arbitral award should not be enforced as it was rendered without considering the matter of product safety which leads to the violation of public policy. [9] The court justified its decision by stating that it is contrary to the principle of good faith in terms of the defendant to advance such an argument after selling the products in question for years.

V. Conclusion

It is fair to conclude that public policy is interpreted narrowly as a ground for refusal of enforcement of foreign arbitral awards by Turkish courts as the Turkish High Court of Appeals (Yargıtay) rarely refuses enforcement of foreign arbitral awards by relying on the ground that the award is contrary to public policy, even though in many cases the parties against which enforcement is sought argue that the awards should not be enforced as they are contrary to public policy.


[1]        Nigel Blackaby and others, Redfern and Hunter on International Arbitration (Sixth Edition, Oxford University Press 2015), p. 642, para. 11.107.

[2]        Cemal Şanlı and Emre Esen in Arbitration in Turkey (Ali Yeşilırmak and İsmail Esin, eds.) (Wolters Kluwer 2014), p. 237.

[3]        Decision of Constitutional Court of Turkey dated January 28, 1964 and numbered 63/128 E., 64/8 K.

[4]        Decision of General Civil Assembly of Turkish High Court of Appeals dated December 12, 1990 and numbered 1990 / 3- 527 E., 1990/627 K.

[5]        Decision of 15th Civil Chamber of Turkish High Court of Appeals dated November 23, 2012 and numbered 2010/483 E., 2012/549 K.

[6]        Decision of General Civil Assembly of Turkish High Court of Appeals dated February 8, 2012 and numbered 2011/13-568 E., 2012/47 K.

[7]        Decision of 15th Civil Chamber of Turkish High Court of Appeals dated November 23, 2012 and numbered 2010/483 E., 2012/549 K.

[8]        Decision of 15th Civil Chamber of Turkish High Court of Appeals dated March 31, 2016 and numbered 2016/895 E., 2016/2050 K.

[9]        Decision of 11th Civil Chamber of Turkish High Court of Appeals dated October 6, 2016 and numbered 2016/725 E., 2016/7777 K.

 

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