Turkey has recently introduced legislation relating specifically to international arbitration. A statute on international arbitration, entitled Milletlerarasi Tahkim Kanunu (hereafter 'International Arbitration Statute'), was enacted on 5 July 2001 to provide Turkey with appropriate rules for handling the growing number of international arbitrations consequent upon increasing international trade and privatization. This statute applies to arbitrations located in Turkey in which there is a foreign component unless, in such cases, other rules have been chosen by the parties or the arbitral tribunal. The notion of 'foreignness' is understood broadly and includes not only cases in which at least one of the parties is not of Turkish nationality, but also the following:

(i) cases in which the parties' places of residence or employment are in different countries;

(ii) cases in which a shareholder of one of the companies party to the agreement in dispute has purchased foreign capital or made a foreign investment in accordance with the Turkish law promoting foreign investment;

(iii) cases in which the main agreement provides for the transfer of capital or goods from one country to another.2

The following article describes the principal features of Turkish law relating to international arbitration following the enactment of the new statute.

Generalities

The International Arbitration Statute, which closely follows the UNCITRAL texts on arbitration, takes its place alongside three existing pieces of legislation in Turkey relating to arbitration.

Articles 516-536 of the Code of Civil Procedure, Hukuk Usulu Muhakemeleri Kanunu, which dates from 1927, deal with arbitration procedure in general and now apply chiefly to domestic cases.

Articles 43-45 of the International Private and Procedural Law, Milletlerarasi Özel Hukuk Usulü Kanunu, which was enacted in 1982, govern the enforcement of foreign arbitral awards. To be enforceable in Turkey, an arbitral award must have become res judicata under the law to which the parties have subjected it or the law of the country where it was made. In their arbitration agreement the parties may specify the court to which application for enforcement must be made. If they have not done so, it will be the court at the place of residence in Turkey of the party against which the award is rendered or, failing this, the court at the place where the property upon [Page32:] which the award is to be enforced is located. Article 44 of the International Private and Procedural Law refers to Articles 38(a), 39, 40 and 41 relating to the enforcement of foreign judgements, which are therefore also applicable to foreign arbitral awards. According to these provisions, the court may accept or reject the application, fully or in part. If accepted, the award is enforced as a Turkish arbitral award. If an appeal is lodged against the court's decision, enforcement will be suspended. Enforcement may be refused on grounds similar to those listed in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ('New York Convention').

Law No. 4501 of 21 January 2000 concerns arbitration of disputes arising from international concession contracts relating to public services. It allows parties to submit such disputes to arbitration, which were previously subject to the exclusive jurisdiction of the Danistay (Council of State). The parties may decide to apply the International Arbitration Statute in such cases.

In addition to the above, arbitration is also subject to relevant international treaties to which Turkey is a party. Under Article 90 of the Turkish Constitution, such treaties have force of law. They are applied as special laws in their particular field of application and therefore take precedence over general provisions, as recalled in Article 1 of the International Private and Procedural Law. Hence, the New York Convention, or any other treaty to which Turkey is a party, will override any domestic procedures, save where Turkey has made a reservation.

Arbitration agreement

Application of the new International Arbitration Statute presupposes that the parties have agreed to settle their dispute by arbitration. Their agreement must be in writing. According to Article 4 of the International Arbitration Statute, this requirement is satisfied by letters, telexes, telegrams, faxes and e-mails. An arbitration agreement included in a contract and even a reference in writing to general conditions containing an arbitration clause are also acceptable. If one of the parties claims in its written pleadings or correspondence that an arbitration agreement exists and the other party does not object, this too will be considered an adequate basis for arbitration under Article 4.

An arbitration agreement is valid if it complies with the rules chosen to apply to the arbitration procedure. 3 If no rules have been chosen, it must satisfy the requirements of Turkish law. In keeping with the doctrine of separability, Article 4 of the International Arbitration Statute provides that an arbitration clause included in a contract remains unaffected by the invalidity of the main contract.

Any natural person or legal entity with the capacity to sue, including state agencies, may resort to arbitration. Special authorization is needed for certain persons to conclude arbitration agreements. Lawyers, for instance, must have special authorization, in addition to a power of attorney, from the parties they represent.

Parties may refer to arbitration only those matters in which they are free to act of their own will.

Parties who have entered into an arbitration agreement are required to settle their disputes by arbitration unless they expressly or implicitly agree to resort to the courts. [Page33:] In accordance with the New York Convention, if a dispute subject to an arbitration agreement is brought before a court, it will be referred to arbitration at a party's request. However, the request must be made during the initial stages of the proceedings. If not, it will be declared inadmissible.

If arbitration proceedings are begun within ten days following the court's referral of the dispute to arbitration, the arbitral proceedings are assumed to be the continuation of the court proceedings for the purpose of limitation periods.

Arbitrators

Arbitrators do not have an official status, but owe their powers to the will of the parties. Only natural persons in full possession of their civil rights, including foreign citizens, may serve as arbitrators. Legal entities are excluded from doing so, as are judges, public prosecutors and Turkish or foreign official authorities. Arbitrators must necessarily be third parties: it is not possible for parties to be arbitrators in their own cases or for lawyers to be arbitrators in their clients' cases.

Although there is no restriction on the number of arbitrators decided by the parties in domestic cases, the International Arbitration Statute requires that an odd number of arbitrators be appointed in international cases. If the parties have not specified the number of arbitrators constituting the arbitral tribunal, three will be appointed. In that case, each party appoints one arbitrator, and the two arbitrators thus appointed jointly appoint the third one. The third arbitrator acts as chair of the tribunal. If more than three arbitrators are to be appointed, equal numbers of arbitrators are appointed by the parties and the remaining arbitrator is appointed as described above.

Arbitrators are appointed by the court of first instance at the request of one of the parties in the following circumstances:

(i) if one of the parties does not comply with the arbitration agreement;

(ii) if, when an appointment is required to be made jointly, the parties or arbitrators fail to make the necessary appointment;

(iii) if a separate authority responsible for appointing the arbitrators fails to do so.

Arbitrators may be challenged if their impartiality or independence is in doubt. The grounds upon which challenges may be made are the same as those that apply to judges, as listed in Article 29 of the Code of Civil Procedure. They include the following:

(i) the arbitrator has advised or guided one of the parties in connection with any issue relating to the case;

(ii) the arbitrator has expressed his or her views about the case to one of the parties or to a third party, such as a witness, without being required to do so by law. This includes notes to the file expressing his or her personal views about the parties' claims and pleas, or publishing an article or a book expressing his or her views about the case;

(iii) the arbitrator has been an expert witness or a witness on the same case;

(iv) the arbitrator and one of the parties are fourth-degree relatives; [Page34:]

(v) there is a pending lawsuit between the arbitrator and one of the parties.

(vi) an allegation has been made throwing suspicion on the arbitrator's impartiality.

Under Article 7(d) of the International Arbitration Statute, it is possible for parties in international cases to agree between themselves upon further grounds for challenging arbitrators.

Challenges must be made within 30 days of discovering the ground for challenge. The challenging party notifies the other party in writing and informs the arbitral tribunal. If the challenge is rejected by the arbitral tribunal, an appeal may be brought in court within thirty days of the rejection. The court's decision is final.

Proceedings

Parties are free to choose the procedural rules they wish to follow. They may thus opt for the rules of an institution. In this case, the chosen institutional rules will prevail over those of the International Arbitration Statute. If the parties have not determined the procedure, the arbitrators may follow the relevant provisions of the Code of Civil Procedure or the new International Arbitration Statute, or any other procedure they may choose (e.g. the UNCITRAL Arbitration Rules or the rules of an arbitration institution such as the ICC International Court of Arbitration). 4 Failure to abide by the chosen rules will lay the ensuing award open to annulment. Any such application for annulment must be filed with the appropriate court within 30 days of the rendering of the award.

The place of arbitration may be fixed by the parties in their arbitration agreement or separately, failing which it will be decided by the arbitrators. If the arbitrators wish to have meetings elsewhere than at the place of arbitration, they must notify the parties. If they fail to do so, no consequences may be drawn from a party's lack of attendance.

An award may be rendered on the basis of written evidence only. If a hearing is organized, all arbitrators must be present. A party's failure to attend a hearing will not prevent the proceedings from continuing. In this case, the arbitrators will decide on the basis of the facts before them.

The rules of evidence applicable to arbitration are those laid down in the Code of Civil Procedure. As oaths may only be taken before courts, it is necessary for arbitrators to refer to the courts whenever evidence is to be given under oath. The new International Arbitration Statute allows experts to be cross-examined. By analogy, it is assumed that the cross-examination of witnesses is also possible.

Arbitrators may appoint experts to give opinions on specialized matters, with or without the consent of the parties. The arbitrators may order the parties to give the expert any necessary information. Experts should be impartial and may be challenged following the same procedure as is applicable to arbitrators. They may be required to attend hearings after first submitting a written report. The parties are entitled to a copy of the expert's report and to ask the expert questions at any hearing the expert attends. [Page35:]

When it comes to protective measures, there is now a distinct difference between domestic and international arbitration since the enactment of the International Arbitration Statute. Whereas precautionary attachments can only be ordered by a court in domestic cases, the new International Arbitration Statute allows arbitrators in international cases to issue such orders at the request of a party and to order parties to provide guarantees. 5 Arbitrators may not make decisions regarding conservatory measures binding third parties or issue orders to executive bodies or official authorities.

Parties may be represented in arbitration proceedings by a lawyer to whom they have given a power of attorney. In cases governed by the Code of Civil Procedure (i.e. domestic cases), lawyers must be members of a Turkish Bar. This necessarily means they must be Turkish, as Turkish citizenship is one of the conditions for admission to Turkish Bars. In international cases, on the other hand, parties may be represented by a foreign lawyer or other foreign person. 6

Arbitral award

In addition to final awards, arbitrators may render interim awards on the following matters:

- applicable law, if not determined by the parties;

- recourse to courts for hearing witnesses who refuse to testify;

- recourse to courts when oaths are required to be taken from parties or witnesses;

- precautionary attachments (in international cases only);

- challenges of arbitrators; and

- expert investigations.

Under the Code of Civil Procedure, 7 arbitrators are obliged to render a final award resolving the dispute with which they have been entrusted. They may also render partial awards, unless the parties decide otherwise. 8

In international cases, the time limit for rendering the final award is one year from the first meeting of the arbitrators (as opposed to six months in domestic cases). 9 This time limit starts to run from the date on which the sole arbitrator is appointed or, when the tribunal consists of more than one arbitrator, the date on which the record of the first meeting between the arbitrators is signed. This time limit may be extended either by the parties themselves if they are in agreement, or by the competent court if the extension is sought by only one of the parties.

The arbitral tribunal renders its award in accordance with the law chosen by the parties. If the parties have not chosen an applicable substantive law, the law most closely connected with the conflict will be applied. The arbitral tribunal will determine this law by a majority decision. 10 Only if the parties authorize it to do so may an arbitral tribunal render its award on the basis of equity.

The International Arbitration Statute allows the parties to settle their dispute at any stage of the proceedings. The arbitral tribunal cannot refuse to accept a mutual settlement between the parties, which takes the form of an award and brings the proceedings to an end. [Page36:]

As far as the correction and interpretation of awards is concerned, different rules apply to domestic and international arbitrations. In domestic cases, arbitrators are allowed to interpret their awards during the six-month period for settling the dispute. After the expiration of this period and until such time as the award is performed, courts may interpret the award, after receiving the comments of the arbitral tribunal that made it. In international cases, parties may ask for the award to be interpreted or typographical or computational mistakes to be corrected during the 30 days following receipt of the award, and arbitrators may interpret and correct their award of their own accord during a period of 30 days following the rendering of the award.

Additional awards are prohibited in domestic cases. If an issue has been omitted, and the parties are unable to agree on the filing of a new request for arbitration covering the outstanding claim, the only recourse is to apply to the court of appeals for the award to be set aside. 11 In international cases, on the other hand, parties may request an additional award during the 30 days following receipt of the award. The arbitrators must respond to this request within 60 days. 12

The procedure for issuing awards has been simplified for international cases. The award is delivered to the parties by the arbitrator or by the chairman of the arbitral tribunal in a reasonable period of time and becomes effective for the parties on the date they receive it. By contrast, in domestic cases arbitrators are required to file the award with the competent court, 13 together with the relevant arbitration agreement. It is the court which then issues the award to the parties. The award becomes effective when the parties receive it. This date is also the beginning of the period during which an appeal against the award may be brought. Although no time limit is laid down for the filing of awards, it is widely believed in the legal profession that this should be done within a reasonable period. A fixed filing fee is payable, the amount of which is set at the beginning of each year by the Ministry of Finance. At the end of the period allowed for appeals, the competent court ratifies the award if it has been rendered in the proper form, on the basis of correct proceedings and in compliance with public policy. Once ratified, the award may be performed. In the event ratification is refused, an appeal may be brought in the court of appeals.

To enforce an award, a party is required to submit it to the enforcement authority of the general courts, which decides ex parte whether or not the award is final. If deemed final, the award is enforced as if it were a court judgement.

Fees and costs

Arbitrators' fees are agreed upon between the parties and the arbitrators having regard to the nature of the case, the amount in dispute and the length of time the case lasts. The parties may refer to the fee schedule of a national or international arbitration institution. If the parties and arbitrators are unable to agree on a fee, it is based on the fee schedule issued each year by the Ministry of Justice. 14 Arbitrators may not fix their own fees. The fees decided upon are required to be stated in the award. Arbitrators may request the parties to pay a deposit. The proceedings will end if any deposit so requested is not paid. [Page37:]

Costs are paid by the losing party, unless otherwise agreed by the parties. If each party is partly successful in its claims, the costs are divided between them in proportion to their success.

Recourse against awards

The International Arbitration Statute has introduced the possibility of an action for the annulment of an award made in an international case. Within 30 days of receiving the award, a party may apply to the competent court for it to be set aside on any of the following grounds:

a) the arbitration agreement was not valid under the law chosen by the parties or, if no law has been chosen, Turkish law;

b) the arbitrators were not appointed in accordance with the selected procedure or law;

c) the award was not rendered during time allowed (one year from the appointment of the arbitrator(s)); 15

d) the award deals with a question outside the scope of the arbitration agreement;

e) the proceedings were not conducted in accordance with the selected law and rules and this has affected the award;

f) the parties were not treated equally by the arbitrators;

g) the dispute is not capable of settlement by arbitration under Turkish law;

h) the award is contrary to public policy.

The parties may decide to waive this recourse. Their waiver must be in writing and may be made in their arbitration agreement or at any time during the arbitration proceedings.

Conclusion

The new law is an important step forward as far as international business relations in Turkey are concerned. Businesses and state agencies were previously reluctant to include arbitration clauses in their contracts, as Turkish arbitration law was ill-suited to international disputes, and they were generally reluctant to opt for foreign or other rules. This was an important obstacle to the development of international arbitration in Turkey, which the new law has helped to remove.

1
The author wishes to thank Professor Dr Turgut Kalpsüz and Professor Dr Tugrul Ansay for reviewing the present article. Any misstatements it may contain are those of the author alone.

2
Article 2 of the international arbitration statute.

3
Although Article 4 of the international arbitration statute refers simply to law, this should be understood as procedural law, since the validity of the arbitration agreement is a matter of procedure, and as including rules other than national arbitration laws, since the statute explicitly states that institutional rules may be used in international arbitrations.

4
Article 8 of the International Arbitration Statute.

5
Article 6 of the International Arbitration Statute.

6
Article 8 of the International Arbitration Statute.

7
Article 530

8
Article 14 of the International Arbitration Statute.

9
Article 10 of the International Arbitration Statute.

10
Article 12 of the International Arbitration Statute.

11
See Article 533 of the Code of Civil Procedure.

12
Article 14 of the International Arbitration Statute.

13
This is the court which would have jurisdiction to hear the case if it were not submitted to arbitration.

14
Article 16 of the International Arbitration Statute.

15
Article 10 of the International Arbitration Statute.