Turkey markets itself as an arbitration friendly country and, as parliamentary reports indicate, this is premised on its goal to foster foreign trade. However, its courts do not always practise what the state preaches and it may become quite burdensome and costly to try to enforce foreign arbitral awards.
Turkey is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has also adopted domestic rules through the Private International Law. The Private International Law is almost a mirror image of the New York Convention and since the latter is an international agreement, it takes precedence over the former in the courts’ assessment for enforcement.
Difficulties in enforcement
There are two major difficulties in enforcing foreign arbitral awards in Turkey.
The 1926 law regarding the language of the arbitration clause
The first one is perhaps quite shocking for the international audience. In 1926, at a time when Turkey was recently founded and was in the process of making reforms, a law was passed that requires all foreign entities to communicate and to enter into transactions with their Turkish counterparts in Turkish. While the law does not specifically require the foreign parties to execute their contracts in Turkish as well, some courts, in time, adopted a broad interpretation of the law and concluded that contracts are also within the scope of the said law.
The question then became whether arbitration clauses in contracts drafted in a foreign language, which have been executed between a foreign entity and a Turkish counterpart, are legally valid.
In 2012, 2014 and 2016, the Turkish Court of Appeal gave three different decisions on the issue. The court upheld the validity of an arbitration clause drafted in English in its 2012 decision, while it refused to recognise the validity of similar arbitration clauses in its 2014 and 2016 decisions, despite the fact that the contracts were governed by Swiss law, which meant that the 1926 law was not applicable in the first place. One, therefore, has to presume that the Court of Appeal believes that the 1926 law provides an overarching principle and, therefore, takes precedence over the governing law of the contract.
A point of consideration is that in all of these three cases, the court had to deal with a plaintiff bringing legal action before the Turkish courts in violation of the arbitration clause. The Court of Appeal does not have a precedent that deals with the application of the 1926 law at the enforcement stage of a foreign arbitral award. However, given the view adopted by the court, there is a significant risk regarding the enforcement of foreign awards that have been issued based on an arbitration clause drafted in a foreign language. This is precisely why practitioners have started adopting different approaches when drafting contracts (such as drafting arbitration clauses in dual columns). While it remains anyone’s guess how the Court of Appeal will eventually approach the arbitration clauses already drafted in a foreign language, we submit, based on the defences available to the party seeking to enforce the award, that the court should grant the enforcement request. However, there is no question that the issue will be greatly contested during the enforcement effort.
Turkish law does recognise the prohibition of the revision au fond principle. While this should provide a certain level of comfort to an applicant requesting the enforcement of a foreign arbitral award, there is still the usual hurdle to overcome: the public policy test.
While the Court of Appeal has made immense progress in its own approach to this test (in the past, the court even ruled that any decision which may result in the Turkish treasury losing money would be against the public policy), the lower courts seem to continue to fail to apply the prohibition of revision au fond principle, based on public policy considerations. It is, therefore, common to see a lower court appoint independent experts to determine whether the foreign arbitral award violates Turkish public policy, which does not have a strict definition itself. This will then inescapably result in the court-appointed experts delving into the merits of the dispute in order to make the required assessment. In fact, the courts are barred from appointing independent experts to opine on legal matters, but it has become quite orthodox for the courts do so. The violations by the lower courts of these two chief principles will essentially mean that the fate of the foreign award will be decided by court-appointed experts, providing little reassurance to a party considering to seek enforcement.
Cost of enforcement
There are two types of court fees in Turkey, one being a fixed amount (which is less than $100) and the other being 6.831% of the claimed amount. The plaintiff pays a quarter of this amount when filing the action. The fee is returned to the plaintiff if the claim is dismissed and, if the claim is accepted, the remaining three quarters of the fee is collected from the defendant and the plaintiff may claim from the defendant the fee they have already paid.
The law is not clear which type of court fee is payable in enforcement actions. However, in its recent decisions, the Court of Appeal ruled that the proportional court fee should apply. This was heavily criticised since the Turkish courts (being the enforcement court) do not decide on the merits of the dispute in an enforcement action. Furthermore, given the high amount of expenses already incurred by the parties at the arbitration, the enforcement effort becomes too burdensome. However, the flip side of the coin is that this may constitute leverage for the plaintiff (who will be reimbursed with the fee they have paid if their enforcement request is denied), since the defendant may then be less inclined to fight against an enforcement claim.