What is the Role of Terms of Reference in the Transactions of International Arbitration Law. A Comparative Analysis Between ICC Arbitration Rules and the Code of International Arbitration in Turkey, Law No:4686

1. INTRODUCTION

During the international arbitration jurisdiction, if the sides of the relevant dispute want to detect some procedural issues, the arbitrators and the sides of the jurisdiction can prepare exact terms of reference for detecting the borders during the jurisdiction. It usually prefers the institutional arbitration process, but it is preferred over an ad hoc arbitration process. Many legal regulations regulate the terms of reference with the demand of the parties of the arbitration jurisdiction. For instance, if the Code of International Arbitration in Turkey Law No: 4686 Article 10/E is considered, the relevant provision is not mandatory. The sides of the relevant dispute and arbitrators can expand the extent of the things that should be included in the terms of reference. Not only are those provisions not mandatory, but also the preparation of this document is also linked with agreeing to the side of the relevant dispute; it is not a mandatory document. However, if ICC Arbitration Rules are considered, this procedural document is compulsory per the ICC Arbitration Rules Article 23. In this essay, terms of reference documents are considered with all the tremendous points with historical and legal dimensions.

2. WHAT IS THE HISTORY OF TERMS OF REFERENCE

Initially, the history of the terms of reference should be considered before the debate to determine the function of the relevant transaction. The first regulation was incorporated by ICC in the ICC Arbitration Rules, which were dated 1922, Article 34. Following the relevant rule, the Secretariat must send this document that has the name of the sides of the relevant jurisdiction, the place of arbitration, the topic of the arbitration jurisdiction, and, the alleging of sides, to the sides of the relevant jurisdiction. [1] In 1955, it was changed and this innovation was tremendous for the terms of reference. In this change, this document’s name was mentioned with “terms of reference”. In addition to this, the arbitrator committee must prepare the relevant document. [2] After that, the necessity that must be done by the Arbitration Committee was removed with the 1975 regulation. Thanks to this regulation, it took its newest form. [3]

In 1998, the terms of reference were amended in Article 18. The most important difference in this article from older ones was that if something is not appropriate following the authority and includes the terms of reference, arbitrators have a right that gives them the power to make a decision on the things that must be or must not be in the terms of reference. Also, arbitrators must prepare a business program while they are preparing the terms of reference. [4]

From 1923 to 1998, ICC Arbitration rules were revised 9 times during the relevant period. The “terms of reference” were exactly the most characteristic elements of those changes. Because “terms of reference” are provided to managing arbitration transactions. [5]Following the ICC Arbitration Rules, the expansion of alleging and defending was prohibited after creating a terms of reference document. [6]But relevant prohibition is not absolute, if some requirements are realized and arbitrators approve to expand to the alleging and defending, it can be possible. [7]

In 2012 and 2017, the ICC Arbitration Rules were amended repeatedly. Under the 2012 ICC Arbitration Rules, Case Management Meetings have to be organized by the parties of jurisdiction and arbitrators. [8]The main purpose of the relevant amendments was to bring a union of practice during the arbitration process. The terms of reference provision was moved to Article 23. Also, an article that was regulated to the procedural timetable was moved to “Article 24” in the 2012 ICC Arbitration Rules. [9]

Under the 2017 ICC Arbitration Rules, only one regulation was the time zone for amending the terms of reference, which was reduced from two months to thirty days. The main purpose of this amendment was to increase the rapid jurisdiction and give a more focused opportunity. [10]

3. HOW TERMS OF REFERENCE AMENDMENT UNDER TURKISH LAW

The terms of reference are regulated by the “Code of International Arbitration, Law No: 4686” Article 10/E. In accordance with the relevant article, if the parties of the dispute do not agree to the contrary, the arbitrator or arbitrator committee prepares the terms of reference. After that, in Article 10/E, things that must be in the terms of reference are written. In accordance with the relevant section, the things that must be in the terms of reference are mentioned: “In the terms of reference, the parties' names, titles, and titles, valid addresses for notification during arbitration, a summary of their claims and defenses, requests, explanation of the dispute, names and surnames, titles, and addresses of the arbitrators, place of arbitration, arbitration period, beginning of the period, explanations regarding the procedural provisions applicable to the dispute. And whether arbitrators are given the authority to act as friendly mediators. Also, in accordance with Article 10/3, the terms of reference must be signed by the arbitrator/arbitrators and the parties of jurisdiction. Notably, the “Code of International Arbitration, Law No: 4686” gives freedom for arbitrators to explain the jurisdiction in all stages of the arbitration process if some issues are not within the terms of reference. [11]

4. WHAT ARE THE PIECES OF INFORMATION THAT MUST BE IN THE TERMS OF REFERENCE

A. INFORMATION OF THE SIDES OF THE DISPUTE

In accordance with the Code of International Arbitration, Law No: 4686 Article 10/E, the parties' names, titles, and valid addresses must be in the terms of reference for notification. This information is significant for the jurisdiction. For instance, if a side of the dispute’s quality is a “joint venture”[12], the shareholders of the joint venture must attend to the case due to their legal situation. If one or more shareholders cannot attend to the case, the joinder of parties must debate the relevant problem. [13] The titles of the sides of the dispute are an important thing when preparing the terms of reference. Especially, if the sides of relevant disputes are a corporation or any business, the commercial title is significantly important; if the source of the mistake is the commercial title, it may cause many problems in enforcing the international arbitral awards.

Another mandatory information is the exact addresses of the parties involved in disputes; address info is interpreted widely and it includes email, fax, etc. addresses. Because mandatory documents are tremendously sent to the sides of disputes in those ways, and this sending has to do with the procedure that is detected to the terms of reference by arbitrators. [14]If the address/addresses change, the side of the disputed demand for the notifications is sent to the new address.

The same information is regulated by ICC Arbitration Rules Article 23/1-a. In accordance with the “2021 ICC Arbitration Rules,” the terms of reference have “the names in full, description, address and other contact details of each of the parties and of any person(s) representing a party in the arbitration”. It is the same provision as the “Code of International Arbitration in Türkiye, Law No:4686” Article 10/E.

B. SUMMARY OF ALLEGING AND DEFENDING

The longest point of the terms of reference is exactly alleging and defending the sides of disputes. The arbitrators add the argumentation to the sides while they present their ideas. The main purpose of this information is to present and defend the sides of the dispute that are understood rightly by arbitrators. This section must be summarized as alleging and defending. In accordance with the “Code of International Arbitration of Turkey, Law No: 4686” Article 10/D, the sides of disputes can make new claims for the jurisdiction. But under the 2021 ICC Arbitration Rules Article 23/4, after the terms of reference have been signed and approved, any party cannot make new claims which is not to the extent of the terms of reference. Nonetheless, if some conditions have been realized and arbitrators have approved to make new claims which is not to the extent of the terms of reference, making new claims is possible.

C. DEMANDS

Another piece of information that is written in terms of reference is the demands of the sides. In terms of reference, demands must be written by arbitrators. If it is possible, the amounts of these demands should be written in the terms of reference. Thanks to detecting the demands, open a suit of cancellation for arbitral awards due to the allegation of incapacity of the arbitrators if the demands of the sides are detected in terms of reference rightfully. If the result of detecting the demands in the terms of reference, adding a new claim is not prohibited by the “Code of International Arbitration of Turkey, Law No: 4686” Article 10/D. But Article 10/D might be limited to two situations. Initially, the things that do not extend to the arbitration agreement cannot be added on as claims. The second and last one is if a new claim causes a tough status that is great and unfair, arbitrators consider the status, and they might be rejected from making a new claim. [15]

On the other hand, if the 2021 ICC Arbitration Rules are considered, the relevant situation was regulated in ICC Arbitration Rules Article 23/1-c. In accordance to the relevant article, it is mentioned this sentence: “a summary of the parties’ respective claims and the relief sought by each party, together with the amounts of any quantified claims and, to the extent possible, an estimate of the monetary value of any other claim”. It is approximately same as with the “Code of International Arbitration of Turkey, Law No: 4686” Article 10/E. As we mentioned, the only difference is in making a new claim.

D. DESCRIPTION OF DISPUTE

In this section, the arbitrators must write a dispute that was raised by the side of the jurisdiction. The meaning of this section is to detect the topic that is in conflict and detected by arbitrators in the terms of reference. Nonetheless, according to ICC Arbitration Rules, this section does not include the topics that are in conflict and detected. In accordance with the “Code of International Arbitration of Turkey, Law No: 4686”, arbitrators are free to add to this section. [16]

E. INFORMATION OF ARBITRATORS

According to the “Code of International Arbitration of Turkey, Law No: 4686” Article 10/E, the information of arbitrators must be written in the terms of reference. The introduction of that information, which is related to arbitrators, includes the names of arbitrators, their titles, and their addresses. For the liability of notifying the arbitrators rightfully, email and fax addresses must include the terms of reference. Lastly, while arbitrators' names were written in the terms of reference, which is beneficial for a healthy jurisdiction, who picks up this arbitrator or the third arbitrator that is picked by arbitrators, and what if the jurisdiction resumes with only an arbitrator, it should be mentioned in the terms of reference.

F. THE PLACE OF ARBITRATION

The place of arbitration is a significantly important issue for the resume and completing the jurisdiction rightfully. The result of the place of arbitration has significant consequences that impact the arbitration directly. Either international convention or national regulation related to international arbitration takes care of the place of arbitration law if the problems are sourced from the arbitration agreement for the detection of procedural law that is implemented for relevant disputes. The most tangible example of this status can be observed in the New York Convention Article 5/D and the Code of International Private Law, Law No: Article 45/f and 45/g. Another noteworthy point can be observed in the Code of International Arbitration Law No 4686 Article 1. Especially, the place of arbitration is important for the cancellation of arbitral awards and the recognition and enforcement of international arbitral awards. Due to the fact that arbitrators must write to the place of arbitration in accordance with the terms of reference. In addition, arbitrators can organize a meeting in different places from the terms of reference.

G. START OF THE TIME PERIOD

Another thing that must be written in terms of reference is the start of the period. This is important for arbitral awards. If the arbitral awards cannot be given within the period, this arbitral award can be canceled by state courts under Turkish Law. By the “Code of International Arbitration of Turkey, Law No: 4686” Article 15/A/1/c, this arbitral award that would not have been given in the period would be canceled.

H. PROCEDURAL RULES THAT ARE APPLIED TO THE JURISDICTION

Another topic that arbitrators must be familiar with is the terms of reference and procedural rules that are applied to the jurisdiction. If arbitrators do not apply the procedural rules that are agreed upon, it is a reason for cancellation in the case of cancellation. Not only is that a reason for cancellation, but it also prohibits the recognition and enforcement following the New York Convention Article 5/1/d and Code of International Private Law and Procedure Law of Turkey, Article 45/g. Also, the regulation that is about procedural rules that are applied to the jurisdiction is also amended to the “Code of International Arbitration of Turkey, Law No: 4686” Article 8.

If ICC Arbitration Rules are considered, arbitrators must prepare a provisional timetable. The main purpose of this document is to reach the next stage. The same regulation is amended to the “Code of International Arbitration of Turkey, Law No: 4686”.

I. THE LEGAL RESULTS OF THE AMENDMENT TO THE TERMS OF REFERENCE

If the sides of the disputes and arbitrators amend the terms of reference, arbitrators have to resume and complete the relevant jurisdiction within the extent of the procedural rules that are amended in the terms of reference. Either the “Code of International Arbitration of Turkey, Law No: 4686” or ICC Arbitration Rules are applied to the side of disputes, and arbitrators must amend the terms of reference. Thanks to the terms of reference, arbitrators’ capacity, and the procedural rules that will be applied to the relevant jurisdiction, and if the sides of disputes and arbitrators want to add, the substantive law that is agreed upon by the sides of the disputes in the arbitration agreement or arbitration clause.

Initially, if the sides of disputes and arbitrators prepare the terms of reference, they accept that the terms of reference are a valid arbitration clause, and following them, this arbitration clause is valid. The terms of reference give birth to the legal results, which is why if any contradicting opinion is not prevented by one of the sides, afterward, the terms of reference it is accepted with the sign to the terms of reference.

Secondly, it causes the reduction and cancellation of arbitral awards because the sides of the dispute and arbitrators agreed on the procedural rules, thanks to signing the terms of reference, which provides for reducing the reasons for cancellation of arbitral awards.

Last but not least, thanks to the terms of reference, the cancellation of the enforcement of the arbitral awards. For instance, the sides of the disputes cannot argue for the invalidation of arbitral awards following the New York Convention Article 5/1/a. Moreover, they cannot argue that the arbitrator is not capable of giving a decision about the relevant jurisdiction following the New York Convention Article 5/1/d. Lastly, they cannot argue if arbitrators are given a decision to extend to their capacity that is agreed to the terms of reference in accordance with the New York Convention Article 5/1/c.

5. CONCLUSION

In a nutshell, the arbitrators and the sides of the disputes can prepare the terms of reference for detecting the procedural issues due to a healthier arbitration process. According to the ICC Arbitration Rules Article 23 and the “Code of International Arbitration of Turkey, Law No: 4686” Article 10/D and E are regulated in the terms of reference. According to many experts, preparing this procedural document is beneficial for healthy arbitration processes. It is not mandatory, but if the implementation is considered, it looks mandatory due to the detection of the processes. Thanks to this process, the sides of disputes and arbitrators reduce the risk of the cancellation of arbitral awards and prevent the imposition of prohibitions.

[1] Akıncı, Ziya, Milletlerarası Tahkim, 4.Baskı, Vedat Kitapçlık, İstanbul, 2016, p.194

[2] Schaefer, A., Terms of Reference in the Past and at Present, ICC, Ct. Bull, Vol.3 No.1, 1992, p.8

[3] AKINCI, p.194

[4] ICC Arbitration Rules, Article 23, for access, please use the relevant link: https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/rules-procedure/2021-arbitration-rules/

[5] Lazareff S./ Schaefer, E., The 1992 Guide on Terms of Reference Revisited, p.14; Tosun, Zelal Narçin, Terms of Reference Under the Arbitration Rules of International Chamber of Commerce(ICC), Istanbul Bilgi University Institute of Social Sciences, Istanbul,2008, p.14

[6] NARÇİN TOSUN, a.g.e, p.14

[7] NARÇİN TOSUN, a.g.e, p.14

[8] Arslan, Mahmut Sait, Milletlerarası Ticaret Odası(MTO) Tahkim Mahkemesi Uygulamasında Görev Belgesi(The Terms of Reference under the Implementation of the International Chamber of Commerce’s(ICC) Arbitration Court), Galatasaray University Institute of Social Science, Istanbul, December 2019, p.34

[9] ARSLAN, s.34

[10] The same opinion was argued in this work: ARSLAN, p.34

[11] NARÇİN TOSUN, a.g.e, p.15

[12] For more information about “Joint Venture”: Akıncı, Ziya, Yeni Milletlerarası Tahkim Kanunu ve Görev Belgesi(New Code of International Arbitration and the Terms of Reference), p. 970, Kaplan, T, Müşterek İş Ortaklığı -Joint Venture-, Ankara 1994; Tekinalp, Ö, /Tekinalp, G.: "Joint Venture", Prof. Dr. Yaşar Karayalçın’a Armağan, Ankara 1988, s. 143-176; Tandoğan, H.: Borçlar Hukuku, Özel Borç İlişkileri, C.II, Ankara 1987, s. 96 v.d.

If we want to give a piece of information about “Joint Venture”, we can introduce joint venture with this definition:” A joint venture is a combination of two or more parties that seek the development of a single enterprise or project for profit, sharing the risks associated with its development. The parties to the joint venture must be at least a combination of two natural persons or entities.”(Source: https://www.law.cornell.edu/wex/joint_venture#:~:text=A%20joint%20venture%20is%20a,two%20natural%20persons%20or%20entities.”)

[13] Akıncı, Görev Belgesi, p. 970;Mecburi dava arkadaşlığı ile ilgili olarak bkz. Kuru, B: Hukuk Muhakemeleri Usulü, Cilt III, s. 3286 vd; Pekcanıtez, H, /Atalay, O. /Özekes, M: Medeni Usul Hukuku, Ankara 2001, s. 200-202; Ulukapı, Ö., Medeni Usul Hukukunda Dava Arkadaşlığı, Konya 1991, s. 43 vd.

[14] AKINCI, Görev Belgesi, p.970

[15] AKINCI, Görev Belgesi, p.973

[16] AKINCI, Görev Belgesi, p.974