Turkey: An Alternative To Alternative: Med-Arb

Introduction

People do not prefer to resort to public courts for many reasons such as impartiality, flexibility, confidentiality, expertise and etc. and alternative dispute resolution methods are on the radar of parties to an agreement especially in the last decade.

Arbitration and mediation are the most preferred dispute resolution methods. These are two separate dispute resolution methods that allow parties to settle their dispute without having to resort to judiciary process. Mediation is not a judiciary process but a resolution mechanism allowing parties to put their claims on the table, discover their concerns and meet in the middle, whereas arbitration is a kind of judiciary process outside the public courts.

Mediation-Arbitration

Istanbul Arbitration Centre ("ISTAC"), one of the leading dispute resolution institutions in Turkey, introduced Mediation-Arbitration Rules ("Med-Arb Rules") on November 2019. Mediation-Arbitration is a two-tier alternative dispute resolution method combining both mediation and arbitration methods.

Parties to a commercial agreement generally agree on an arbitration clause which may require parties to try to settle dispute amicably first before initiating an arbitration procedure. This is often known as a "last exist before dispute" mechanism and often intended with the best intentions. However, once the dispute arises, a party attempts to settle the dispute amicably hesitates to be seen as weaker party by initiating a so called amicable settlement meeting process which is undefined or unstructured. The generality and unparticularized nature of the process often makes it viewed as a redundant process, including by lawyers involved who often want to initiate the legal battle as quick as possible. As a consequence, such an abstract "amicable" resolution attempt becomes ineffective.

ISTAC is the first arbitration center in the world codifying the med-arb rules. Even though med-arb method was technically available for the parties to agree on, ISTAC solidified this method by bringing rules to work an amicable resolution process. In other words, ISTAC "institutionalized" med-arb method. Parties to a commercial dispute may refer to Med-Arb Rules in their agreement which may oblige each other to apply mediation process first before initiating the formal and actual arbitration process.

Statistics show that parties are eager to solve their dispute through mediation if the process is somehow initiated and pursued in a rather formal and structured way. Statistics provided by Mediation Department of Ministry of Justice in Turkey show that 57% of commercial disputes have been solved through mediation in 2019[1]. This is because, the law maker made obligatory to come to the table and negotiate before filing a lawsuit in certain commercial disputes.

Highlights of Med-Arb Rules

Med-Arb Rules apply where parties jointly refer to such rules before or after dispute arises until such dispute is finally settled. Not surprisingly, Med-Arb Rules are backed by ISTAC Mediation Rules and ISTAC Arbitration Rules. It means that once a med-arb process is initiated, respective rules of ISTAC apply in the process as well.

The parties are free to refer to the Med-Arb Rules and initiate med-arb process even during an ongoing mediation or arbitration process. In such cases, if mediation process is ongoing, the Med-Arb Rules apply to the existing mediation process. If arbitration process is ongoing, it is suspended and the Med-Arb Rules apply. In case parties fail to settle the dispute pursuant to the Med-Arb Rules, the suspended arbitration process continues.

In case parties fail to come to an agreement during mediation, mediator takes a written statement indicating parties' failure and parties and mediator sign such written statement. If a party attempts to initiate arbitration proceeding without consummating mediation process, other party may raise an objection and ask the tribunal to suspend arbitration proceeding and rule to initiate mediation process. Moreover, arbitral tribunal is also entitled to rule on an appropriate compensation against party who directly initiated arbitration proceeding despite a med-arb clause.

The parties are also allowed to skip mediation process before initiating arbitration process in exceptional cases. Accordingly, the Med-Arb Rules entitle parties in cases where; (i) there are indications that settlement through mediation is not possible, (ii) at least one of the parties has no legitimate expectation to settle the dispute through mediation, (iii) a party wishes to have an award immediately due to a close threat such as bankruptcy of opposing party and (iv) a party fails to respond mediation request of the other or fails to attend mediation meetings two times consecutively without any excuse. Therefore, ISTAC aims that selection of Med-Arb Rules in redundant or urgent cases would not result in a waste of time for the resolution of the dispute. This of course is much more effective if Med-Arb Rules is selected along side with ISTAC arbitration rules.

Med-Arb Rules brings protection to parties on the ground that as a rule, no statement or information/document used during mediation process, can be used as evidence during the arbitration process. Rules are also deterrent given that a party who breaches such obligation may be exposed to bear all arbitration costs. Moreover, Med-Arb Rules entitle arbitrator to appoint external expert to decide whether a disputed material is acceptable or not. By doing so, Med-Arb Rules prevent arbitrator to be under the influence of that material. Such principle encourages parties to place their cards on the table during the mediation process.

Evaluation

We believe that parties' intention to apply Med-Arb Rules should be crystal-clear. Since alternative dispute resolution methods are exceptional, courts in Turkey tend to interpret dispute resolution clauses in a very strict way and if parties' intention is vague, the courts may decide on invalidity of dispute resolution clauses. For this reason, Med-Arb Rules suggest to refer to Med-Arb Rules by inserting a phrase identifying ISTAC as "ISTAC", "ITM" or "Istanbul Arbitration Center" and another phrase indicating parties' intention to resort to mediation first and arbitration afterwards as "Mediation-Arbitration" or "Med-Arb".

One may claim that parties' agreement to apply Med-Arb Rules may be regarded as invalid (null and void) due to "conditional" intention of the parties. Indeed, well-established case law of the Turkish Supreme Court shows that arbitration clauses allowing parties to go arbitration first and states courts afterwards are pathological and invalid. This is acceptable due to the principle of Roman law namely singularia non sunt extendenda that suggests interpreting an exceptional rule in a narrow way. However, such an interpretation is not needed for med-arb clauses. This is because, parties' intention in med-arb rules is very clear. If parties agree on a med-arb clause, it means that they exclude state courts and will solve their dispute through arbitration. Mediation should be deemed as a formal negotiation between parties which is regulated by certain rules to accomplish a better result. Since mediation is not a judiciary process, it would not be possible to claim that the Supreme Court's approach to aforementioned gradual arbitration clauses applies for med-arb rules.

It is beyond any doubt that some commercial disputes require in-depth investigation with respect to technical issues and others may require comprehensive expert evaluations. It may therefore not be preferable to solve these disputes through mediation. Considering that, parties are free to determine the scope of disputes that shall be subject to med-arb. For example, parties may agree that all disputes arising out of or in connection with sales agreement shall be subject to ISTAC Med-Arb Rules except those relating to defective product claims which generally require technical examination.

Med-Arb Rules allow parties to choose mediator who takes an active role during mediation process to become arbitrator in the following stage. We must note that such a choice may cause certain problems during arbitration proceeding.

First, mediation and arbitration are two different concepts as addressed in the Introduction section. As a natural consequence of this, being a mediator and an arbitrator requires different skills to handle the respective process. Considering that one of the main motivations of the parties to apply alternative dispute resolution methods is expertise, it would not be convincing to claim that a person bears all qualifications to become both mediator and arbitrator.

Secondly, even though mediation is not a judiciary process, parties reveal certain information and documents during negotiations. Mediator therefore becomes aware of such information and documents. Even though Med-Arb Rules contain a provision prohibiting disclosure of certain information and documents during arbitration proceedings, arbitrator (former mediator) would inevitably be affected from these information and documents as a human being. Therefore, we believe that appointing same person as mediator and arbitrator for the same dispute would not be the best option for parties.

We should also note that enforcement of settlement agreements or arbitral awards is as easy as those of state courts. As known, one may easily enforce an arbitral award pursuant to New York Convention provided that conditions set forth in the convention are fulfilled. Similarly, newly adopted United Nations Convention on International Settlement Agreements Resulting from Mediation allows parties to enforce settlement agreements in many states without having resort to public court for recognition/enforcement. Apart from that, a settlement agreement signed by attorneys' of the parties and principals themselves has the force of court judgment as per article 35/A of Legal Practitioners' Act no. 1136. Accordingly, parties who settled through mediation may finally end the dispute within several weeks by saving time, money and effort and easily enforce the settlement agreement as if they have a court decision or arbitral award.

Conclusion

Parties to a commercial dispute have another alternative dispute resolution method in national and international disputes, namely mediation-arbitration. Given that statistics show that commercial parties are willing to settle their disputes through mediation, institutionalizing med-arb method is an innovative attempt by ISTAC that satisfies the need in international area.

Mediation-arbitration is not totally new concept but institutionalized form of classical dispute resolution method. Therefore, Med-Arb Rules should not be deemed separate from ISTAC Arbitration Rules and ISTAC Mediation Rules.

Med-Arb Rules brings comprehensive protection for parties applied to mediation-arbitration and aims to maximize effectiveness of mediation-arbitration method.

Enforcement of settlement agreements that may be signed at the end of mediation process is also easy now thanks to United Nations Convention on International Settlement Agreements Resulting from Mediation and getting easier and easier due to increase in the number of contracting parties.

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