The New York Convention and IPPL

Author: | Published: 24 Jun 2010
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The successful party in an international commercial arbitration expects the award to be performed without delay. The purpose of arbitration, unlike mediation and most other methods of alternative dispute resolution are to arrive at a binding decision on the dispute. The ultimate sanction for non-performance of an award is being forced to execution as a result of enforcement proceedings in a national court.

The enforcement of international arbitration awards occurs within a complex legal framework. This framework includes both international arbitration conventions and national arbitration legislation. The most important of the said conventions, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which is applied in 144 countries in all continents, provides for the enforcement of foreign arbitral awards.

Foreign arbitral awards become enforceable under Turkish law via separate judgment of the Turkish courts called recognition or enforcement decisions. Following such decisions of, the foreign judgment or arbitral award becomes enforceable in Turkey as if a Turkish court decision and any monetary debt may be collected through execution filings submitted to the execution (bailiff) offices of the courts.

The main legislation on the enforcement of arbitral awards in Turkey are International Private and Procedure Law 5718 dated December 12 2007 (IPPL) and the New York Convention which was ratified by Turkey on July 2 1992 and entered into force on September 30 1992.

In respect of enforcement of foreign arbitral awards in Turkey, provisions of the IPPL are applicable only if the award is decided by a non-contracting (signatory) state to the New York Convention.

According to most national arbitration laws, in order to execute a domestic arbitral award, the prevailing party in the arbitration must commence proceedings before the national courts of the seat of arbitration to confirm the award.

On the other hand, the unsuccessful party in the arbitration may commence proceedings, also in the national courts of the seat of arbitration, to set aside, vacate or annul the award. After an award is set aside it cannot be enforced locally. Furthermore, it is unlikely that an award that has been set aside can be enforced outside the seat of arbitration. According to New York Convention Article II, the courts of the place of enforcement may refuse enforcement if "the award ... 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". Can an award, which is set aside by the courts of place of arbitration, be enforced in another country? For many years, the prevailing approach was that the set aside awards could not be enforced under the New York Convention.

However, the approach has changed after a series of cases in Belgium, France and the US. According to all these cases, an award that is set aside in the place of arbitration may nevertheless be enforced in another New York Convention state if that award would not be set aside under the domestic law of that state. In other words, if the reasons for setting aside would have been inadequate under the law of the enforcing court, then a set aside award can be enforced.

Therefore, the execution of arbitral agreements depends very heavily in practice on the seat of arbitration. Parties can, to a large extent, determine in advance the timing and extent of any court challenge to the arbitral award and the rules that will be applied to the execution of that award in their choice of arbitral seat. Certain issues exist, notably those concerning public policy, which will be resolved under different laws.

Under the New York Convention

Most recognition or enforcement claims in countries other than the seat of arbitration take place under the New York Convention. Under the New York Convention, a foreign award is recognised and enforced in any state signatory unless the defendant proves the existence of the specific grounds set forth in Article V of the Convention, so:

  • The parties to the arbitration agreement did not have the capacity to contract, or the agreement to arbitrate is otherwise invalid;
  • The party against whom the award is made did not have proper notice of the arbitration or could not present its case;
  • The award exceeds the scope of the arbitration agreement;
  • The composition of the arbitral panel or procedure was contrary to the agreement of the parties or the law of the forum country;
  • The award was set aside under the law of the forum country;
  • The subject matter is not arbitrable; or
  • The enforcement of the award is contrary to public policy.

Firstly, the New York Convention does not permit any review on the merits of an award to which the Convention applies. This principle which is referred as to prohibition of the revision au fond will not allow the national enforcing judges to retry the whole case.

Secondly, the grounds for refusal of recognition and enforcement set out in the New York Convention are exhaustive. They are the only grounds on which recognition and enforcement may be refused.

Thirdly, the New York Convention sets out five separate grounds on which recognition and enforcement of a Convention award may be refused at the request of the party against whom it is invoked. It is significant that under the Convention the burden of proof is not upon the party seeking recognition and enforcement.

The remaining two grounds on which recognition and enforcement may be refused, which relate to the public policy of the place of enforcement, are grounds that may be invoked by the domestic court on its own motion.

Fourthly, even if grounds for refusal of recognition and enforcement of an award are proved to exist, the enforcing court is not obliged to refuse enforcement. The opening lines of paragraphs (1) and (2) of Article V say that enforcement "may" be refused. They do not say that it must be refused. The language is permissive, not mandatory.

Fifthly, the intention of the New York Convention is that the grounds for refusing recognition and enforcement of arbitral awards should be applied restrictively.

It should be noted that there are no significant differences between the rules of enforcement provided in IPPL and the provisions of the New York Convention.

Considering the foregoing, we may briefly state that, in respect of enforcement of foreign arbitral awards in Turkey, provisions of the IPPL are applicable only if the award is decided by a non-contracting (signatory) state to the New York Convention.

Foreign judgments

The relevant legislation here is:

  • International Private and Procedural Law (IPPL). The IPPL regulates the choice of substantive law issues; international civil procedure; and the recognition and enforcement of foreign judgments.
  • Turkish Code of Civil Procedure, which regulates the domestic jurisdiction of Turkish Courts.
  • Turkey is not a party to The Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters and the Lugano Convention extending the Brussels Convention to EFTA members.
  • Turkey has signed and ratified bilateral agreements concerning the reciprocity on the recognition and enforcement of foreign judgments with the following countries: Italy, Romania, Tunisia, North Cyprus Turkish Republic, Poland, Austria, Iraq, Azerbaijan, China, Georgia, Albania, Kazakhstan, Macedonia, Egypt, Moldova, Croatia, Kuwait, Tajikistan

Turkey is also a party to the following conventions:

  • Convention on Recognition and Enforcement of Decisions concerning the Matrimonial Bond dated 1975
  • Convention on Recognition and Enforcement of Decisions concerning Maintenance Allowance Obligations Towards Children dated 1958
  • Convention on Recognition and Enforcement of Decisions concerning Maintenance Allowance Obligations dated 1973
  • European Convention on Recognition and Enforcement of Decisions concerning Custody of Children and on Restoration of Custody of Children dated 1980

Enforcement of foreign judgments

The competent court and venue for enforcement of foreign judgments in Turkey is the Basic Civil Court of First Instance. After that it is the court where the defendant is domiciled; in the absence of a domicile, where the defendant is habitually resident; in the absence of both of them Ankara, Istanbul or Izmir courts.

Rules of simplified procedure

A foreign judgment, which is final under the law of the country where it is decided, cannot be recognised and enforced by a Turkish judge without holding a hearing. In this hearing the facts of the case are not re-opened, the judge only examines if all the statutory pre-conditions necessary for recognition are present. The judge must invite both parties to the hearing. Therefore, upon the application for enforcement, the mentioned application and the date of the hearing will be notified to the counter party.

The lawsuits concerning the recognition and enforcement will be handled pursuant to the rules of simplified procedure. The defendant can only raise objections that the conditions for enforcement under the relevant provisions of IPPL do not exist or that the foreign court decision has already been partly or fully fulfilled or that an event which hinders its fulfillment has occurred. The Turkish court may decide to enforce the judgment fully or partially, or may refuse enforcement. This decision shall be written beneath the foreign court decision and signed and sealed by the Turkish judge.

Statement of claim and its exhibit should be served to the defendant. The exhibits are:

  • The original or a certified copy of the judgment and its authenticated translation
  • The original or a certified copy of a statement showing that that the judgment is final and its authenticated translation
  • The certification is made either by an Apostille in conformity with the Hague Convention of 1961 or by a Turkish consulate
  • The court will not review of the merits of the original case.

Cautio Judicatum Solvi

Foreign real or legal persons that commence an action in a Turkish Court, participate in a pending lawsuit, or seek execution of a judgment must provide security in an amount to be determined by the court to cover court and execution costs and the damages of the counterparty.

On the basis of reciprocity, the court may release the foreign claimant from the obligation to provide security.

Turkey has ratified bilateral agreements for exemption from providing security with many countries, including the following: Saudi Arabia, Germany, United Kingdom, Switzerland, Italy, Yugoslavia, Denmark, Norway, Romania, Jordan, Bulgaria, Tunisia, Egypt, India, Hungary, Algeria, Austria, Iraq, Azerbaijan, Republic of China, Georgia, Albania, Croatia, and Kuwait.

Turkey is party to the Convention on Civil Procedure dated 1954. This Convention exempts the citizens of member countries from providing a security when initiating a lawsuit in another member country. There are also similar provisions in the European Convention Concerning Domicile dated 1955 and Convention on Recognition and Enforcement of Decisions concerning Maintenance Allowance Obligations dated 1973.

Also foreigners that can benefit from legal aid are not obliged to provide security. Allowing foreigners to benefit from legal aid is also subject to reciprocity.

Conditions of recognition and enforcement

Only foreign judgments in civil law matters (except criminal matters to the extent they contain a money judgment) are subject to recognition and enforcement.

In practice, payment orders and other foreign enforceable titles are not considered judgments.

Reciprocity

IPPL regulates that the competent court renders decision of enforcement under the following condition: "That there is a reciprocity agreement between Turkish Republic and the State where the judgment has been rendered or a statutory provision or actual practice in that country which makes the enforcement of Turkish court decision possible."

As explained above Turkey has signed reciprocity agreements with some countries but reciprocity established by an international agreement is not a prerequisite for enforcement of a foreign judgment. De facto reciprocity is also sufficient. It has been stated in several verdicts of the Court of Appeal that, if the actual practice of a foreign country is to enforce Turkish court decisions, the decisions of that country will also be enforced in Turkey. Such de facto reciprocity has already been established for court decisions rendered in some of the Western European Countries, including Germany, Holland, UK, and Switzerland.

Exclusive jurisdiction

The foreign court decisions concerning a matter where Turkish Courts have exclusive jurisdiction cannot be enforced in Turkey. Under Turkish law, some of the jurisdiction rules are related with ordre public and regulated as the exclusive jurisdiction of Turkish Courts. These are mainly the matters relating to immovable assets, claims within the scope of the Code of Execution and Bankruptcy, claims pertaining to the registration, deregistration or a cancellation of an intellectual or industrial property right in Turkey.

Anther example is labour law, where the main principle is the protection of the worker. Therefore, lawsuits relating to labor conflicts can only be initiated where the worker is domiciled. If the worker is domiciled in Turkey, then Turkish Courts would have exclusive jurisdiction. Therefore, the foreign court decisions which are rendered in a labor law suit initiated against a worker domiciled in Turkey can not be enforced in Turkey. On the other hand, foreign court decisions which are rendered in a law suit initiated by a worker can be enforced in Turkey.

The same view is valid for consumer conflicts. Consumer courts where the consumer is domiciled would have exclusive jurisdiction. However, as the principle is the protection of the rights of the consumer, the foreign court decisions where their consumer law is more protective than that of the Turkish consumer law, would be enforced in Turkey.

Turkish Ordre Public

A foreign judgment that is obviously against the Turkish ordre public will not be enforced. The determination of when the basic values of Turkish Law are damaged is in the discretion of the Turkish judge. Some examples of contradiction to ordre public are violation of the right to be heard, judgment without merits, judgment against the good morals, judgment violating foreign trade regulations, custom regulation or tax regulation.

The foreign court decisions rendered in a class actions that are regulated under American Law, can not be enforced in Turkey. Although these law suits are initiated to resolve a potential conflict with the same parties and arising from the same legal relationship, the parties are represented by attorneys without asking their will to litigate. Therefore, the basic principle in the Turkish Civil Procedure Law that is granting every party the opportunity to defend or express them personally would be violated.

Likewise, in the Turkish civil procedure as a basic principle, Turkish judges can not ex officio investigate and research every aspect of the case before him. Therefore the foreign court decisions rendered by applying the pretrial discovery proceedings, granting the judges a wide competence to investigate and research every aspect of the case before having a proper trial can not be enforced in Turkey.

It should be noted that in principle, every court is free to apply its own procedures and this would not constitute a reason for not enforcing a foreign court judgment depending on violation of ordre public. However, if the court decision is rendered according to a procedure that is essentially in contradiction with the Turkish Civil Procedure Law, then that decision would not be enforced.

Defendant's right of defence

A foreign judgment is not enforced if under the law of the foreign country, the person against whom the enforcement is sought has not been properly summoned, or was not represented in court or, had a default judgment rendered against him that was contrary to the laws of that country. Enforcement in these cases will be rejected if the party against whom the enforcement is sought raises these objections before the Turkish court.

Foreign judgments that are enforced by a Turkish court decision are treated like Turkish local court judgments and can be executed as if they were Turkish court decisions.

The appeal of the enforcement decision shall suspend the execution ipso jure.

Conclusion

As Turkey is a party to the New York Convention, the recognition and enforcement of arbitral awards are mostly subject to the Convention.

The recognition and enforcement of the foreign judgments is regulated in the IPPL. However, Turkey is party to various international conventions and many bilateral agreements concerning this matter. Briefly, the Turkish courts are not allowed to re-review the merits of the case and the grounds for refusal of enforcement are exhaustively listed in the IPPL.

About the author

Ercüment Erdem is the senior partner of the firm. He specialises in commercial law (›nternational and national), energy law, project finance (including BOO and BOT models), capital markets law, contracts, corporate law, privatisation law, international commercial arbitration, corporate finance, law of obligations, private international law, industrial property law, law of trade marks and copyright, competition law, international leasing, mergers and acquisitions, and international construction law.

He is also Professor of commercial law at Galatasaray University Law School (Istanbul) and teaches law of negotiable instruments, corporate law, competition law and international commercial law. He speaks French, English and German.

Memberships include: Istanbul Bar Association; ICC Institute Council; ICC Incoterms Experts Group; ICC Turkish National Committee Arbitration Council; Vice Chair of ICC Commercial Law and Practice Commission; Member of several ICC Task Forces; Association Henri Capitant des amis de la culture juridique française; Banking and Commercial Law Institute; Competition Law Association.

Contact information

Ercüment Erdem
Erdem & Erdem

Valikonagi Caddesi Basaran Apt No. 21/1 Nisantasi 34367 Istanbul

Tel: +90 212 291 73 83
Fax: +90 212 291 73 82
Email:ercument@erdem-erdem.com
Web:www.erdem-erdem.com

About the author

Süleyman Sevinç is one of the partners of the firm responsible for litigation issues. He specialises in commercial law, maritime law, insurance law, law of obligations, contract law, private international law, international construction law, real estate law, foreign investment, mergers and acquisitions, labour law and general litigation.

Sevinç represents foreign and local clients in merger and acquisition projects and acts as counsel for local and international companies in daily corporate issues or litigations.

He is a member of the Istanbul Bar Association and speaks Turkish and English

Contact information

Süleyman Sevinç
Erdem & Erdem

Valikonagi Caddesi Basaran Apt No. 21/1 Nisantasi 34367, Istanbul

Tel: +90 212 291 73 83
Fax: +90 212 291 73 82
Email:suleymansevinc@erdem-erdem.com
Web:www.erdem-erdem.com