Turkey: Esin Arbitration Quarterly

It is time to take a look back at the first months of 2023 and digest the recent updates and developments happening in the world of international arbitration. Recent court decisions present the new trends and shed light to the future of international arbitration. We have compiled decisions of Turkish courts as well as foreign courts, which may have global significance in terms of international arbitration. Furthermore, we have welcomed new and updated arbitration rules, as well as recent data that illustrate the past year and the developments and setbacks international arbitration has experienced.

In this seventh issue of Esin Arbitration Quarterly, we delve into the realm of international arbitration to provide insight on some of the most significant local and international court decisions and developments regarding international arbitration around the world in early 2023.

1. Significant court decisions in the last trimester concerning arbitration

1.1 Decision of the 14th Civil Chamber of Istanbul Regional Court on recognition of an interim arbitral award¹

The dispute between the parties arose from a preliminary agreement ("Letter Agreement") whereby two Turkish companies agreed to enter into a share purchase agreement for the future sale of another Turkish company's shares subject to the fulfillment of certain conditions. As an attachment to the Letter Agreement, the parties also drafted a share purchase agreement ("Draft Agreement"). There are separate arbitration clauses in each agreement.

The defendant in the enforcement lawsuit initiated arbitration proceedings for the transfer of the shares or alternatively, payment of the share price based on the arbitration clause in the Letter Agreement. The arbitral tribunal decided that the defendant should be paid the share price but in terms of the calculation of the purchase price the award was based not on the Letter Agreement but the Draft Agreement. Therefore, upon receiving the first arbitral award, this time the plaintiff initiated arbitration, claiming that the arbitral tribunal in the previous arbitration exceeded its authority by awarding damages based on the Draft Agreement rather than the Letter Agreement. The plaintiff further claimed that it was not possible to rely on the arbitration clause in the Draft Agreement as it was not yet executed and thus, become enforceable. The defendant objected to the arbitral tribunal's decision in the subsequent arbitration but the arbitral tribunal rejected this objection in an interim award. The plaintiff then sought to have the interim award on jurisdiction (rendered in the second arbitration) recognized in Türkiye. In response, the defendant argued that the arbitral award that was sought to be recognized was an interim award, which could not be recognized as it did not address the merits of the dispute.

The court of first instance ruled in favor of the defendant, stating that the plaintiff's aim was to prevent the enforcement of the final award in the first arbitration whereby compensation was awarded against it by having the interim award in the second arbitration enforced in Türkiye. The enforcement application, however, was dismissed for lack of legal interest pursuant to Article 114 of the Code of Civil Procedure (CCP), since no application had been filed for the recognition or enforcement of the aforementioned arbitral award rendered in the first arbitration against the plaintiff, in Türkiye.

The 14th Civil Chamber of Istanbul Regional Court ("Regional Court") upheld the decision of the court of first instance and dismissed the plaintiff's argument to recognize the interim arbitral award. The Regional court ruled that only foreign arbitral awards that are conclusive, executable or binding upon the parties are permitted to be enforced under International Private and Procedure Law No. 5718 (IPPL). Hence, the obstacles concerning the enforceability of interim awards was once again confirmed in this dispute as well

1.2 Decision of the 6th Civil Chamber of the Court of Cassation on contradicting decisions regarding Turkish courts' authority to hear the objection to an interim measure²

The dispute arose from the inconsistency between the final judgments of the 15th Civil Chamber of Istanbul Regional Court ("15th Civil Chamber") and the 45th Civil Chamber of Istanbul Regional Court ("45th Civil Chamber").

The dispute before the 45th Civil Chamber arose from an architectural design contract in which the parties decided that the International Chamber of Commerce (ICC) is authorized to resolve any dispute and the seat of arbitration was determined to be Geneva, Switzerland. Before the initiation of the arbitration proceedings, an interim measure was obtained from Turkish courts. Following the initiation of the proceedings, the counterparty objected to the interim measure before the Turkish court from which the interim measure was granted. However, following the objection, the court of first instance ruled that since the arbitration proceedings had already started, the arbitral tribunal hearing the dispute is authorized to hear the objection to the interim measure. Upon the dismissal of the case, the defendant appealed the decision. The 45th Civil Chamber, hearing the appeal case, held that the power granted to the arbitral tribunal by Article 414 of the CCP to modify or revoke an interim measure was not applicable due to the foreign element in the dispute. In addition, it held that the revocation by a foreign arbitral tribunal of an interim measure granted by a Turkish court would constitute an interference in the jurisdiction of Turkish courts. The 45th Civil Chamber thereby ruled that Turkish courts have jurisdiction to hear an objection to an interim measure even if a subsequent arbitration has been initiated in cases where there is a foreign element in the dispute.

In the dispute before the 15th Civil Chamber, the place of arbitration was agreed to be outside of Türkiye in the construction contract between the parties. A Turkish court granted an interim measure regarding the plaintiff's request. However, with the defendant's objection to this interim measure, the 15th Civil Chamber held that since the arbitration proceedings had already commenced, only the arbitral tribunal is authorized to hear the objections to interim measures and Turkish courts were not authorized.

Following the issuance of two conflicting decisions, a request was made to the Court of Cassation to address the inconsistency between them. Thereupon, the Court of Cassation ruled that Turkish courts are authorized to decide on the objections to an interim measures issued by Turkish courts in connection with a dispute involving a foreign element and subject to arbitration even if the arbitration has been initiated.

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Footnotes

1. The 14th Civil Chamber of Istanbul Regional Court File No.: 2017/284, Decision No.: 2017/309.

2. The 6th Civil Chamber of the Court of Cassation File No.: 2022/3259, Decision No.: 2022/4699

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