In this post, we explain the important issues by analysing the conditions of arbitrability under Turkish Law within the framework of the Code of Civil Procedure and the International Arbitration Law.
Introduction
Arbitration is the final settlement of disputes between parties through arbitrators instead of state courts. The long duration of cases due to the high workload in the state courts has increased the rate of resort to arbitration, which is faster and more economical.
The exceptional nature of arbitration compared to state courts necessitates the limitation of the disputes that can be resolved through arbitration. In national legal systems, there are rules stipulating that certain types of disputes cannot be resolved through arbitration. In this sense, arbitration is exclusively decided according to domestic law and there is no international standard in this regard.
1. Requirements of Arbitrability under Turkish Law
Arbitration is based on the free will of the parties. The parties shall determine the number, qualifications, place of arbitration, applicable law, legal procedure and form, evidence, etc. of the arbitrators or arbitrators to resolve their dispute. Although the principle of freedom of contract is fundamental in arbitration, this freedom is not absolute. In order for a dispute to be resolved through arbitration, two conditions must be met: the parties must have agreed that their dispute will be resolved through arbitration and the subject matter of the dispute must be arbitrable.
In Turkish law, the arbitrability of disputes is determined in the Code of Civil Procedure No. 6100 (CCP) for domestic arbitration and in the International Arbitration Law No. 4686 (IAA) for disputes with foreign elements.
1.1 Arbitrability under the Code of Civil Procedure
1.1.1 Objective Arbitrability
Objective arbitrability refers to the suitability of the subject matter of a dispute to be resolved by arbitration. Subject matter arbitrability is regulated by law.
Although it varies from country to country, the main reasons for objective arbitrability are the close connection of some issues with the public order of the states, the resolution of a matter that falls within the jurisdiction of the arbitrator by the competent public authority regulated by special laws, the protection of groups considered weak in society (such as consumers, workers, tenants), and the inappropriateness of arbitrating such cases in arbitration proceedings.
Article 408 of the CCP defines the arbitrability of internal arbitration. According to this article:
"(1) Disputes arising out of real rights over immovable property or disputes arising out of affairs that are not subject to the will of both parties are not arbitrable."
In this context, arbitrability can be analysed under two headings; real rights over immovable property and works not subject to the will of both parties.
1.1.1.2 Arbitrability of Disputes Relating to Real Property
Under Turkish law, disputes relating to the real property of immovable property cannot be subject to arbitration. In this context, disputes regarding ownership, usufruct, easement and mortgage cannot be subject to arbitration under Turkish law. For example, while a monetary debt arising from a work contract may be arbitrated, claims regarding the registration or eviction of immovable property arising from the same contract cannot be arbitrated.
According to the Supreme Court, disputes regarding the immovable property can only be heard by the court where the immovable property is located. Since this situation is related to public order, it is not considered arbitrable.
TURKISH SUPREME COURT - 6TH HD., E. 2023/1614 K. 2023/2915 T. 21.9.2023
"According to the International Arbitration Law, real rights on immovable property located in Turkey are not arbitrable. The dispute between the parties did not arise from the real right on immovable property. In this respect, the dispute is arbitrable. The main criterion for the arbitrability of disputes other than immovables is that the dispute is subject to the will of the parties. Considering that the basic criterion is the disputes that the parties will dispose of, it is understood that the dispute subject to the arbitral award, although it is described as a service contract by the parties, when the content of the contract is examined, it is understood that it arises from the work contract for the work of "building shelters (prefabricated offices) for the Syrian refugee population" in the Zaghra camp in Jarablus, subject to the will of the parties and is arbitrable."
The Supreme Court has also ruled that arbitration is not permitted in disputes regarding the determination of the rent. The reason behind the non-arbitrability of lease cases is not the fact that the lease relationship is not related to the immovable property, but the idea that the lessee should be protected because he is in a weak position and this protection can only be provided by the courts.
1.1.1.3. Arbitrability of Disputes Arising from Businesses Not Subject to the Will of the Parties
According to another conclusion derived from the text of Article 408 of the CCP, disputes arising from matters that are not subject to the will of the parties are not arbitrable. In this context, it is necessary to clarify what are the disputes that are not subject to the will of the parties. In the Turkish legal system, in some cases, the will of the parties is limited by mandatory provisions. In this context, it is possible to talk about the situation of "not being subject to the will of the parties" in matters where there are conditions that the parties cannot freely determine with the contracts they have established between them and where there are strict regulations. In this respect, the will of the parties is restricted in many public proceedings such as criminal proceedings, administrative proceedings, etc.
In addition, a dispute that is not arbitrable in terms of procedural law may also be referred to in the event that transactions such as settlement, acceptance and waiver cannot be made on the subject matter of the lawsuit.
There are also precedent decisions of the Court of Cassation regarding disputes that are not subject to the will of the parties:
THE SUPREME COURT 15TH HD. 2019/3450 E. 2020/1932 K.
"In other words, arbitration is not possible in cases where the parties cannot freely dispose of the subject matter of the lawsuit by acceptance or settlement. For example, arbitration agreements cannot be concluded for divorce and separation cases, bankruptcy cases and non-contentious judicial proceedings. (...)"
1.1.2. Subjective Arbitrability
Subjective arbitrability is related to the capacity of the parties to the dispute to conclude the arbitration agreement. As with other contracts, a natural or legal person must have the capacity to act in order to be a party to an arbitration agreement.
Therefore, in the event that one of the parties does not have the capacity to act - the capacity to sue - it is not possible to accept a contract or clause concluded between the parties in question as valid.
1.2. Arbitration According to the International Arbitration Law
1.2.1. Objective Arbitrability
The International Arbitration Law regulates which matters are not arbitrable. According to Article 1 of the Law:
"This Law shall not apply to disputes relating to real rights on immovable property located in Turkey and disputes that are not subject to the will of both parties"
The non-arbitrable issues regulated under Article 1 of the IAL are in line with Article 408 of the CCP.
Within the scope of this article, it can be said that disputes regarding real rights in rem on immovable property located in Turkey are not arbitrable, whereas disputes regarding real rights in rem on immovable property located in foreign countries are arbitrable. However, at this point, it may not be possible to recognise the award rendered by the arbitrator depending on the laws of the foreign country in question.
1.2.2 Subjective Arbitrability
Law No. 4686 on International Arbitration (IAL) is applicable only if the dispute has a foreign element. According to Article 2 of the Law, the existence of any of the conditions listed in this article indicates that the dispute has a foreign element, and in this case, the arbitration acquires international character.
In the event that the dispute does not fulfil the conditions set forth in the article of the Law, it may be accepted that the dispute does not have a foreign element and international character, and thus the condition of eligibility for subjective arbitration is not met.
Article 2 of the IAL:
"The existence of any of the following circumstances shall indicate that the dispute has a foreign element and the arbitration shall then be international.
1. The parties to the arbitration agreement have their domicile or habitual residence or place of business in different states.
2. The domicile or habitual residence or place of business of the parties
a) The place of arbitration, if specified in the arbitration agreement or determined on the basis of such agreement,
b) it is located in a state other than the place where a significant part of the obligations arising from the main contract will be performed or the place where the subject matter of the dispute is most relevant.
3. At least one of the shareholders of the company that is a party to the main contract forming the basis of the arbitration agreement has brought in foreign capital in accordance with the foreign capital incentive legislation, or it is necessary to conclude loan and/or guarantee agreements in order to obtain capital from abroad for the implementation of this agreement.
4. The underlying contract or legal relationship that forms the basis of the arbitration agreement is a transfer of capital or goods from one country to another."
2. Law Applicable to Arbitrability
The general rule of law applicable to a dispute with a foreign element before a state court is to apply the law of the judge hearing the dispute (lex fori). However, in arbitration proceedings, since the arbitrators are independent from the state, the application of the lex fori is out of question. In arbitration proceedings, the law that the arbitrator may apply to the dispute is more diverse than that of the state courts.
At this point, in the doctrine and practice of international commercial arbitration, 8 possible laws that may be applied to arbitrability have been put forward:
1. The national law of one or both parties to the arbitration.
2. The law applicable to the main contract between the parties (lex causae).
3. The law of the seat of arbitration (lex loci arbitri).
4. The national law of the court whose jurisdiction is revoked by the arbitration agreement.
5. The law of the country of possible enforcement.
6. The law on which the validity of the arbitration agreement depends.
7. A combination of the rules of the above-mentioned laws.
8. Supranational rules.
In arbitration proceedings, arbitrability is assessed when the parties bring the issue before the arbitrator. However, in some cases, arbitrators may examine arbitrability ex officio. For example, it has been proposed that arbitrators may examine arbitrability ex officio in cases where a breach of international public order is established. As a result, the question of applicable law does not arise in cases where arbitrators review arbitrability on their own initiative. In these cases, arbitrators will reject arbitrability on the grounds that the dispute before them is not legally protected in any country in the world.
Conclusion
Arbitrability means whether the subject matter of the dispute is recognised as arbitrable in the country where the arbitration is to be held or conducted. If the subject matter is arbitrable, the parties may request arbitration. However, if the subject matter is not arbitrable, it is not possible to submit the dispute to arbitration even if the parties so request.
According to Article 15/2-a of the IAL Law; if it is determined that the dispute falling within the scope of the arbitral award is not subject to arbitration under Turkish law, the arbitral award shall be invalid. According to the International Arbitration Law; "Disputes relating to real rights on immovable property located in Turkiye and disputes that are not subject to the will of the two parties are excluded from the scope of the law as they are not arbitrable."
Although it may seem to be a new area that has recently found a scope as of the date of entry into force of the legislation, arbitration is actually an institution that predates the existence of the state. The arbitration process, which started on the basis of freedom of contract, has been transformed by both normative legal rules and the needs of "public interest", which focuses directly on the understanding of state sovereignty. If the essence of the issue of the adequacy of arbitration is correctly understood and applied in this context, and if restrictive interpretations are avoided without harming the interests of society, the arbitration institution will be able to go beyond being an alternative to the traditional judiciary.
Writer: Sümeyra Şentürk
Editor: Att. Dr. Mustafa Aykanat
REFERENCES
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