In Turkey, the types of the legal actions to challenge an arbitral award vary depending on the nationality of the arbitral award – that is, whether it is a foreign or a domestic award. The grounds for challenging an arbitral award and the content of review by the courts also vary depending on the type of legal action involved.

If the arbitral award is foreign, the legal action to challenge the award would be an enforcement proceeding, with the exception of awards given under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, dated October 14 1966 (the ICSID Convention). Arbitral awards given under the ICSID Convention are not subject to any enforcement proceedings. On the other hand, if the award is domestic, it is subject to an appeal or a setting aside proceeding, depending on the procedural law under which the arbitral award was given.

The distinction between a foreign arbitral award and a domestic arbitral award is important in determining the legal action to be pursued in order to challenge an arbitral award. In Turkey, generally the procedural law criterion is adopted to determine the nationality of the awards, with the exception of territory criteria adopted in the New York Convention. Pursuant to the procedural law criterion, if an arbitral award is given under the authority of a foreign procedural law, the award is considered foreign. If arbitrators render an award by taking the mandatory provisions of a procedural law into consideration, it is considered as given under the authority of that procedural law. For instance, if an arbitral award is given by the arbitrators by taking the mandatory provisions of the Turkish procedural law into consideration, it is considered as given under the authority of Turkish laws. Accordingly it is considered a Turkish arbitral award.

Enforcing foreign awards

The enforcement of foreign arbitral awards is regulated in the International Private and Procedural Law 5718, published on December 12 2007 (IPPL 5718) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated June 10 1958, which was incorporated into Turkish domestic law in 1991. Turkey is also a signatory to the ICSID Convention. Arbitral awards given under the ICSID Convention are directly enforced in Turkey without any enforcement proceeding.

Pursuant to Article 1.2 of the IPPL 5718, the New York Convention shall have precedence over the IPPL 5718 in the enforcement of foreign arbitral awards, as the New York Convention contains specific provisions regarding the enforcement of foreign arbitral awards.

Under Article I.1 of the New York Convention, two kinds of arbitral awards are considered as foreign and fall within the scope of the Convention: (i) awards given in the territory of a state other than the state where the enforcement of the award is sought (the territory criterion); and (ii) awards not considered as domestic awards in the state where enforcement is sought although they are given in the enforcement state.

Under Article I.3, the signatory states are granted a right to make reciprocity declarations to the effect that the New York Convention only applies to awards given in a signatory state. Turkey is one of the states that made such a declaration. Therefore only arbitral awards given in a state signatory to the New York Convention are subject to enforcement under the New York Convention in Turkey.

Given that the procedural law criterion is adopted in Turkey, the awards given under the authority of a foreign procedural law (which are not subject to the mandatory provisions of Turkish procedural law) are considered as domestic awards even if they are given in Turkey, and they would be subject to the enforcement pursuant to the New York Convention.

Therefore, if a foreign arbitral award falls within the scope of the New York Convention as explained above, it would be enforced by the New York Convention. On the other hand, awards that are outside the scope of the New York Convention but still considered as foreign arbitral awards under the procedural law criterion, would be enforced under the IPPL 5718. The IPPL 5718 may only apply to awards given in states that are not signatories of the New York Convention and that are not considered as Turkish arbitral awards within the scope of the applicable procedural law criterion. Considering that more than 140 states are signatories to the New York Convention, the IPPL 5718 has a limited application regarding the enforcement of foreign arbitral awards in Turkey.

Under Article I.3 of the New York Convention, the signatory states are also granted a right to make a declaration to the effect that the New York Convention only applies to awards given with respect to the commercial disputes under the laws of the state making that declaration. Turkey has also made a declaration to this effect. Therefore the New York Convention shall be applicable in Turkey only with respect to arbitral awards rendered in disputes arising from commercial relationships or transactions. Since the commercial operation is defined very broadly under Turkish law, such a declaration would not considerably limit the scope of the application of the New York Convention.

New IPPL

When it entered into force, the IPPL 5718 abolished the International Private and Procedural Law 2675 published on May 22 1982 (IPPL 2675). There was a main difference between the New York Convention and the IPPL 2675 related to the grounds for refusal of enforcement. The finalisation of the award or executory force was required under the IPPL 2675 for an arbitral award to be enforced in Turkey whereas the New York Convention only required the award to be binding.

Under the IPPL 2675, if an arbitral award has not been finalised or acquired an executory force under the law it was subjected to, or under the laws of the state where the award was made, or if the award was cancelled by the courts of the state where it was given, this constituted a ground for refusing the award's enforcement. However, pursuant to the IPPL 5718, finalisation of the award or executory force is not required. It is enough that the award has become binding on the parties. According to the IPPL 5718, the court may refuse the enforcement of an arbitral award if the award has not been finalised, acquired executory force or become binding under the law that it was subjected to or under the laws of the state where the award was made, or under the procedure applied to the award or it was cancelled by a competent authority of the state in which the award was made. As seen, the IPPL 5718 also added the "procedure applied to the award" to determine whether the award was finalised, acquired executory force or became binding. With it, the IPPL has become more compatible with the New York Convention as the New York Convention only requires the award to be binding.

Another amendment made by the IPPL 5718 is abolition of the reciprocity requirement provided in the IPPL 2675. The IPPL 5718 does not require any reciprocity between Turkey and the state where the award was given. However, pursuant to the IPPL 2675 an agreement regarding reciprocity between the state where the award was given and Turkey was required. Alternatively there had to be a law in the state of enforcement enabling enforcement of an arbitral award given in Turkey or a de facto reciprocity. Such a reciprocity requirement was principally provided for enforcing foreign court decisions, but by analogy it also applied to the enforcement of foreign arbitral awards. The IPPL 5718 abolished the reciprocity requirement on the ground that it was not compatible with arbitration.

Enforcement grounds listed in Article 62 of the IPPL 5718 mainly follow Article V of the New York Convention. According to Article 62 of the IPPL 5718, the court would reject an enforcement request if any of the following conditions exists:

• No arbitration agreement was made or no arbitration provision was included in the underlying agreement (see Article II and V.1a of the New York Convention).
• The arbitral award was contrary to the public moral and public policy (see article V.2b of the New York Convention).
• The dispute subject to arbitration was not compatible with the arbitration (see article V.2a of the New York Convention).
• One of the parties was not properly represented before the arbitrators (see article V.1b of the New York Convention).
• The defendant was not informed about the selection of the arbitrators or was deprived from defence rights (see article V.1b of the New York Convention).
• The arbitration agreement or clause is contrary to the law that it is subjected to by the parties, or if no applicable law is determined under the law of the state where the arbitral award was rendered (see article V1a of the New York Convention).
• The selection of the arbitrators or the procedure applied was contrary to the agreement between the parties, in the absence of such an agreement to the law of the state where the arbitral award was rendered (see article V.1d of the New York Convention).
• The award was rendered on a matter outside the scope of the arbitration agreement or clause, or the award exceeded the scope of the agreement or clause (see article V.1c of the New York Convention).
• The award has not been finalised, did not acquire executory force or become binding under the law that it was subjected to, under the laws of the state where the award was made or under the procedure applied to the award or it was cancelled by a competent authority in the country in which the award was made (V.1e of the New York Convention).

With the IPPL 5718, the grounds for refusal of enforcement of a foreign arbitral award have become compatible with the New York Convention. There is no significant difference between the New York Convention and the IPPL 5718 in this respect.

Turkey signed the ICSID Convention on June 24 1987 and the Convention came into force for Turkey on April 2 1989. Turkey is also party to many bilateral investment treaties and the Energy Charter Treaty. Under those investment treaties, Turkey gives its consent to international arbitration mechanisms for settlement of disputes arising from such treaties. Most of them refer to the ICSID as arbitration mechanism. Pursuant to Article 53 of the ICSID Convention, the award shall be binding on the parties and shall not be subject to any appeal or other remedy. Each party shall abide by and comply with the terms of the award. Therefore an award given under the ICSID Convention is not subject to enforcement in Turkey.

Challenging arbitral awards

Legal actions to challenge a domestic award vary depending on the procedural law under which the arbitral award was given. If the award was given under the authority of the Law on International Arbitration Law 4686 published on July 5 2001 (IAL), the only legal action to challenge it would be the setting aside proceeding regulated under the IAL. On the other hand, if the arbitral award was given under the authority of the Turkish Civil Procedural Law 1086 published on July 4 1927, as amended in 1981, 1982 and 1985 (TCPL), the award may be challenged through an appeal proceeding.

The IAL was enacted in order to create a reliable arbitration environment in Turkey. The procedural rules regarding arbitration with a foreign element, which is called "international arbitration", are set forth in the IAL. Before the enactment of the IAL, there was no difference between domestic arbitration and international arbitration. Although the arbitration process pursued according to the IAL is called international arbitration, the award given at the end of the proceeding is a domestic award.

The IAL applies to disputes taking place in Turkey and having a foreign element, or to disputes where the parties, arbitrator or arbitral tribunal select the IAL. The parties may provide that another procedural law apply to the arbitration. However, even if the parties select another procedure such as the procedures of domestic or foreign arbitration centres (for example, the Rules of Arbitration of the International Chamber of Commerce), the mandatory provisions of the IAL, shall continue to apply to arbitrations which take place in Turkey with respect to the disputes containing a foreign element (lex loci arbitri) (Articles of the IAL). However, if it is clear from the parties' wills that the arbitration taking place in Turkey is not subject to the mandatory rules of the IAL or the TCPL, the arbitral award given will be considered as foreign and will be subject to enforcement proceedings in Turkey.

"Foreign element" is defined very broadly in the IAL. Nationality, business place of the parties to the dispute, cross-border flow of capital, money or goods are listed among the tests to determine the existence of a foreign element.

The only legal action to challenge an arbitral award given under the authority of the IAL is a setting aside proceeding. It is not possible to appealing such an award. The setting aside grounds are listed in a numerus clauses basis in the IAL. The grounds are similar to the grounds set forth in the New York Convention for refusal of enforcement of an arbitral award. Incapacity of the parties, invalidity of the arbitration agreement under the law to which the parties subjected it, breach of the procedure of the arbitration, breach of authority by the arbitrators, unequal treatment of the parties by the arbitrators, exceeding the time limit of the arbitration, incompatibility of the subject matter of the dispute with arbitration pursuant to Turkish law, and violation of public policy are all grounds for a setting aside. The IAL also offers the parties a right to waive the setting aside proceedings. The setting aside proceedings suspend the execution of the award. Upon finalisation of the decision denying the setting aside claim, the arbitral award becomes enforceable. It is possible to appeal the court decision given upon the setting aside claim.

Appeals

Arbitrations taking place in Turkey and without a foreign element shall be subject to the provisions of the TCPL. The parties may also select the TCPL even if the arbitration does not take place in Turkey. The parties to the arbitration in Turkey may choose any other procedure, such as the Rules of Arbitration of Istanbul Chamber of Commerce. In this case, the mandatory rules of the TCPL shall continue to be applied to the arbitration proceedings taking place in Turkey with respect to disputes that do not contain a foreign element, regardless of the arbitration rules chosen by the parties.

Arbitral awards given under the authority of the TCPL are subject to appeal according to the provisions of the TCPL. The possible grounds for appeal of an arbitral award are as follows:

• The award was given beyond the arbitration period.
• The arbitrators ruled on matters beyond the claims submitted to them.
• The arbitrators exceeded their competence.
• The arbitrators failed to render a decision on each claim submitted by the parties.

Although the appeal grounds are limited, the courts seem to accept other grounds, especially considering the public policy. For instance, if the arbitrators did not comply with the main provisions of the arbitration procedure the Turkish courts would not enforce it. Also, according to a Court of Appeal precedent dated January 28 1994 if the arbitral award is contrary with the applicable law chosen by the parties it may be reviewed on merits. The content of the review in an appeal process is broader than a review in a setting aside process. The court in an appeal process may intervene to the merits of the case.

To sum up, foreign arbitral awards are subject to enforcement proceedings pursuant to the New York Convention or the IPPL. Domestic arbitral awards are subject either to a setting aside or an appeal proceeding depending on the procedural law applied, that is, the IAL or the TCPL. The grounds for refusal of enforcement are similar under the New York Convention and the IPPL. In an enforcement case, the court cannot review the arbitral award on merits. The most significant grounds for any possible refusal of enforcement are public policy considerations. But as "public policy" is not a term defined under Turkish law the courts determine the violation of public policy on a case-by-case basis. The setting aside proceeding outlined in the IAL was introduced to the law in order to facilitate enforcement of arbitral awards with a foreign element. Accordingly, enforcement of domestic arbitral awards with a foreign element is easier than enforcing those without a foreign element. The grounds for setting aside listed in the IAL are similar to the grounds provided in the New York Convention for refusal of enforcement. Violation of public policy is also the most important ground for setting aside an award. The content of the review in an appeal process is broader than the review in a setting aside process. According to court precedents, The court in an appeal process may intervene to the merits of the case.

Author biography

Deger Boden ÖztekinBoden Deger Boden is a partner in the firm. She specialises in international arbitration, corporate and commercial law, and mergers and acquisitions, project finance and energy law. Boden has been active in numerous international arbitrations. These cases have included contractual and investment treaty claims. She also represents providers and users of capital in cross-border financings, including venture capital and private equity transactions. She has extensive experience working on project finance transactions in a wide variety of areas – power, oil, gas and general infrastructure. She has represented multilateral financial institutions. Boden worked at an Istanbul law firm practising in international law between 2000 and 2007 (senior associate). She also worked as an intern foreign lawyer at Sidley Austin LLP, Washington DC office during the summer of 2005. She was admitted to Istanbul Bar (2001). She is a graduate of Galatasaray University School of Law (LLB 2000) and holds an LLM degree in International Business Law from the University of Minnesota School of Law (2005). Boden also obtained an LLM in the Law of Economics from Istanbul Bilgi University School of Law (2004). She is fluent in English and French.