Arbitration in Turkey and Istanbul as a New International Arbitration Center

The following is a guest post by Ozlem Aydin Sakrak. Ozlem is an attorney with the Office of the Legal Advisor of the Turkish Treasury. She recently completed her internship in the Law Library’s Global Legal Research Center and is about to return to Ankara. We extend our best wishes to her for a continued successful career in her home country. 

Turkey’s Ninth National Development Plan (covering the period 2007-2013) ), which was approved by the Turkish Grand National Assembly on June 28, 2006, included the İstanbul International Finance Center (IFC) Project. Pursuant to the Development Plan, the IFC Project will be implemented in accordance with a Strategy and Action Plan.

The “Strategy and Action Plan for the İstanbul International Finance Center” was adopted on September 29, 2009, by Turkey’s High Planning Board (Yuksek Planlama Kurulu). Turkey aims to become a significant and prominent financial center, based on its young and dynamic population, highly qualified labor force, favorable geopolitical position, developed markets, diversity of financial products, services and practices, and strong regulatory framework in the financial sector. The vision set forth in the Ninth National Development Plan aims first to make Istanbul a regional financial center, and ultimately a global financial center. For this purpose, technical committees, such as the Istanbul Infrastructure Committee, were created in accordance with the Prime Ministry Notice of May 1, 2010.

In light of the Strategy and Action Plan, improvements will be made in Turkey’s judicial system to ensure expeditious and effective resolution of disputes, thereby furthering Istanbul’s ability to serve as an international financial center. Establishment of an independent, autonomous institutional arbitration center in Istanbul, ensuring the fast and efficient settlement of disputes, is viewed as essential for enabling the city to compete at the international level in terms of costs and the speed of the decision-making procedure.

As the largest city in Turkey, Istanbul is not only the natural financial center of Turkey, but also one of the significant and prominent financial centers in the region, because of its geopolitical advantages, rapidly growing and developing economy, and cultural and historical assets. As a bridge between Asia and Europe, with its straits connecting the Black Sea with the Mediterranean and its location at the point where Central Asian, Caucasian, and Middle Eastern natural energy sources intersect, Istanbul is viewed by many as a perfect center for dispute resolution.

Turkey’s Arbitration System

In fact, Turkey has already made a wide range of law reforms to attain a modern arbitration system and become an arbitration-friendly jurisdiction. The reforms have been adopted at both the international level, where the country is a signatory to multinational treaties, and the domestic level, through the adoption of the UNCITRAL Model Law and amendments to the Turkish Constitution.

The amendment to article 125 of the Turkish Constitution, enabling large-scale concession agreements to be resolved through arbitration, is the most significant example of Turkey’s reforms to institute a modern arbitration system. The enactment of the International Private and Procedure Law (IPPL), No. 5718 dated December 12, 2007, and the International Arbitration Law (IAL), as well as Turkey’s ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the European Convention on International Commercial Arbitration, and the Convention on Settlement of Investment Disputes between States and Nationals of Other States (ICSID) has enabled parties to disputes to come to view as reliable the arbitration process in Turkey.

International Arbitration and Domestic Arbitration

The main law on international arbitration that takes place in Turkey is the Turkish International Arbitration Law (IAL). IAL is mainly based on the UNCITRAL Model Law and the Swiss Federal Statute on Private International Law. The IAL respects the principle of parties’ autonomy and applies to disputes involving a foreign element where the seat of arbitration is in Turkey; even if the place of arbitration is not in Turkey, the provisions of IAL can be chosen by the parties or the tribunal. Under the IAL, there is no appeal procedure to apply for international arbitral awards. A party may request the setting aside of an award within 30 days of the date of notification of an award, based on grounds basically similar to article 34 of the Model Law. However, unlike the provisions of the Model Law, IAL also provides that an award that has not been rendered within the time limit of arbitration can be set aside.

While IAL regulates international arbitration, domestic arbitration procedures between local parties in which no foreign parties are involved are regulated by the Turkish Civil Procedure Law (CPL). These procedures are also based on the UNCITRAL Model Law. In fact, the CPL brings the domestic arbitration procedure in Turkey closer to the international arbitration standards.

Draft Law on Istanbul as an Arbitration Center

In consideration of the above-mentioned well-developed legislation and the international agreements to which Turkey is a party, it has been argued that Turkey can meet the necessary requirements to become an international arbitration center. Accordingly, even if it has been long in coming, the Draft Law on the “Istanbul Arbitration Center” (IAC), which governs the rules and principles of the establishment, organization, and operation of the IAC, finally was sent to the Turkish Grand National Assembly on March 25, 2013. It currently is still being examined in the committees of the Assembly.

The general principles (under Turkish Law every law has a statement that explains the general purpose of law and each provision) of the Draft Law state that establishing an arbitration center has a catalyzing role for the development of arbitration and alternative dispute resolution practice in Turkey. To this end, a working group on the establishment of such a center was formed under the Ministry of Justice. It examined national and international arbitration centers and took the German Institution of Arbitration and the Arbitration Court of the Czech Chamber of Commerce and the Agricultural Chamber of the Czech Republic as models.

Under the Draft Law, the IAC would be an independent legal person competent to hear disputes. As a private entity it would be subject to private law (article 2). The IAC would comprise a general assembly, a board of directors, an auditor, a consultative committee, national and international courts of arbitration, and a secretary-general (article 5). The Draft Law requires the establishment of two separate arbitration courts, one court for domestic disputes and one for international disputes (article 12). A Board of Directors of the IAC would determine its rules of arbitration, as well as other alternative dispute resolution mechanisms, within six months of the Draft Law’s enactment, and these rules would be submitted for the approval of the general assembly of the IAC (provisional clause 1). The activities of the IAC in its first year of existence would be maintained through the funds allocated from the budget of the Prime Ministry (provisional clause 1).

The efforts to establish the Istanbul IAC have already received a lot of international attention. Turkey is already late to create an arbitration center and to use for that purpose its natural geopolitical and cultural bridge advantages. By giving the project the requisite technical and logistical support, Turkey has now generated the potential to create an independent investment arbitration center in Istanbul. Having said that, however, in today’s competitive arbitral venue environment, Turkey must ensure that the IAC is fully independent from the government (especially in terms of funding) and offers a neutral hearing space for conducting arbitrations, if the IAC is to be a success. In addition, the IAC will need to adopt well-drafted arbitration and mediation rules in accordance with the principles of neutrality and impartiality and secure the support of an experienced secretariat and staff.