ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN TURKEY
International commercial arbitration has become relatively the most preferred dispute resolution mechanism for the cross-boarder transactions. This mechanism is also strengthened by national judicial policies. Arbitration friendly countries tend to pursue a consistent policy of recognition and enforcement of foreign arbitral awards. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as “New York Convention” (hereinafter referred as “NYC” or “Convention”), which is applied in 149 countries as of 2013, has a considerable contribution in the development of international commercial arbitration by simplifying the recognition and enforcement procedures in the Contracting States.
Under the Turkish Law, recognition and enforcement of foreign arbitral awards is mainly regulated by Private International and Procedural Law Act no: 5718, dated December 12, 2007 (hereinafter referred as “PILA”), between articles 60 and 62. The NYC is also another source of international arbitration law of Turkey. According to article 90 of the Turkish Constitution, international conventions and treaties duly signed and ratified by Turkish Republic have the same effect of statutory provisions in the hierarchy of norms. Turkey has been a signatory of the Convention that was ratified by the Turkish Parliament in 1992. In this context, NYC is another legal basis regarding the recognition and enforcement of foreign arbitral awards provided that the foreign arbitral award is covered by the Convention’s field of application.
The purpose of arbitration, unlike mediation and most of the other methods of alternative dispute resolution, is to reach a binding decision on the dispute for the parties involved. Thus, the simplification of recognition and enforcement procedures has a great importance in the promotion and sustainability of the usage of international commercial arbitration as an effective means of dispute resolution. As you may appreciate, if the parties to an international dispute cannot enforce the arbitration awards, they would not prefer international arbitration as a dispute resolution mechanism.
Recognition and enforcement of foreign arbitral awards under the NYC
In the application of NYC, there are two major subjects which need to be treated seriously: the field of application and the refusal grounds of recognition and enforcement claims. If the foreign arbitral award is not within the Convention’s field of application,, recognition and enforcement claim has to be resolved subject to the the relevant articles of PILA.
NYC’s Field of Application
Convention’s field of application is determined based upon the answer of the question as to whether an award is deemed as a “foreign arbitral award”. Article I/paragraph 1 of the Convention determines the Convention’s field of application. According to this article, Convention “shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, … It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.
Article I/paragraph 1 contains two definitions for a foreign arbitral award.: the first definition is “an award made in the territory of a State other than the State where recognition and enforcement are sought”. However, a State, when becoming Party to the Convention, can limit this field of application by using the first reservation of Article I(3). The State making that reservation will apply the Convention to the recognition and enforcement of awards made in the territory of another Contracting State only (the so-called “reciprocity reservation”; for the general reciprocity reservation, see Article XIV). Turkey is one of the States who have made this reciprocity reservation.
The second definition of a foreign arbitral award is “an award which is not considered as “domestic award” in the State where the recognition and enforcement is sought”. This means that if arbitral proceedings were not conducted according Turkish Procedural law (Turkish Civil Procedure Act or Turkish International Arbitration Act), the award rendered is deemed as “non-domestic” under Turkish Law. Thus, arbitral awards rendered at the end of international arbitral proceedings conducted outside Turkey, irrespective of whether the arbitral proceedings were conducted in accordance with Turkish laws or not, fall within the scope of the Convention, because these awards are deemed as foreign arbitral awards. However, it is important to emphasize that the arbitral awards rendered as a result of arbitral proceedings conducted in Turkey are not governed by the Convention, because these awards are not considered as “foreign arbitral awards” even where the arbitration is subject to foreign ad hoc arbitration rules, i.e. ICC Arbitration Rules, or foreign arbitral laws.
On the other hand, according to article I/paragraph 3, Contracting States may also declare that they will apply the Convention only to disputes arising out of legal relationships, whether contractual or not, which are considered as “commercial” under the national law of the State making such declaration (the so-called “commercial reservation”). Turkey is one of the States who have made this commercial reservation. However, Turkish courts tend to interpret the concept of “commercial business” broadly, in accordance with the broad definition of “commercial business” given in the article 19 of Turkish Commercial Code (hereinafter referred as “TCC).
Refusal grounds of recognition and enforcement claims under the NYC
ArticleV of NYC provides the refusal grounds of recognition and enforcement. According to this provision, a foreign arbitral award is to be recognized and enforced in a Contracting State unless the defendant proves the existence of the specific grounds set forth in Article V. The recognition and enforcement of an arbitral award may be refused, at the request of the party against whom it is invoked, only if that party proves that:
i. the parties to the arbitration agreement under the law applicable to them were under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any choice of law applicable to the validity of arbitration agreement, under the law of the country where the arbitral award was made (incapacity of the parties or invalidity of the arbitration agreement); or,
ii. the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; (breach of the right to fair trial of the party against whom the recognition and enforcement of arbitral award is sought); or,
iii. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced (arbitral award exceeding the scope of the arbitration agreement); or,
iv. the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place (improper composition of arbitral panel or improper arbitral proceedings); or,
v. the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made (arbitral award without binding effect) .
In addition to these five refusal grounds, the national courts of Contracting States where the recognition and enforcement is sought will make an inquiry as to whether the subject matter of the dispute is capable of settlement by arbitration under the law of that country (the non-arbitrability of the subject matter); or whether the recognition or enforcement of the award would be contrary to the public policy of that country (non-compliance with the public policy) .
It is worthy to underline that the NYC does not allow any review on the merits of an award to which the Convention applies. This principle which is referred to as “the prohibition of the revision au fond” will not allow the national courts of Contracting States to review the arbitral case. The court of a Contracting State may only consider the objections of the party against whom the recognition and enforcement is sought relating to the above-mentioned five refusal grounds. The court should also make an ex officio examination on whether the subject matter of the dispute is arbitrable or not and whether the recognition or enforcement of the arbitral award would be contrary to the enforcing court’s public policy requirements.
Article V of NYC states that the recognition and enforcement claims “may” be refused by the court of a Contracting State due to the reasons set forth therein. In other words, the enforcing court is not obliged to refuse enforcement, despite the fact that the grounds for refusal of the recognition and enforcement of an award are proved to exist. The NYC is a convention adopted for supporting and simplifying the recognition and enforcement of foreign arbitral awards in Contracting States. Thus, the refusal grounds of recognition and enforcement of arbitral awards should be applied restrictively.
Finally, according to article IV of NYC, the party who submits its recognition and enforcement claim to a Contracting State’s court, shall, at the time of the application, supply the duly authenticated original award or a duly certified copy thereof and the original of the arbitration agreement referred or a duly certified copy thereof. If the arbitral award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.
Recognition and enforcement of foreign arbitral awards under PILA
If a foreign arbitral award does not fall within the Convention’s field of application, in other words, if the arbitral award does not relate to commercial business under Turkish Law (in accordance with the “commercial reservation”) or if the arbitral proceedings were not conducted in a Contracting State (in accordance with the “reciprocity reservation”), the recognition and enforcement proceeding will be governed by PILA. Articles 60 to 62 of PILA sets forth a recognition and enforcement system which is very similar to NYC. It must be well noted that there are no material differences between recognition and enforcement provisions provided in PILA and those of the NYC’s. According to article 62 of PILA, Turkish courts should refuse the recognition and enforcement, if;
i. there is not any arbitration agreement or clause,
ii. the arbitral award is in breach of Turkish public policy or public morality,
iii. the subject matter of the dispute is not arbitrable,
iv. one of the parties is not duly represented during arbitral proceedings,
v. the party against whom the recognition and enforcement is sought was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case,
vi. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any choice of law applicable to the validity of arbitration agreement, under the law of the country where the arbitral award was made,
vii. the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place
viii. the arbitral award does not relate to a subject matter of the arbitration agreement or clause or exceed the scope of arbitration agreement or clause,
ix. the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
Our practice shows that most of the recognition and enforcement claims are examined within the NYC. The PILA provisions are not frequently used in view of the broader scope of application of the NYC.
It appears that Turkish Courts’ practice relating to the recognition and enforcement of foreign arbitral awards is increasingly defined as “arbitration friendly”. Turkish Courts tend to apply the “prohibition of revision au fond” principle in respect of arbitral awards within the context of both PILA and the NYC provisions. As an exception to the general principle of the prohibition of “revision au fond”, if the foreign arbitral award itself is in breach of Turkish public policy rules, Turkish courts may make a limited review of the case and may not enforce foreign arbitral awards.
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