Overview of Trends in Arbitration and Mediation in the Republic of Turkiye

Polen Bayrak, Bayrak Law Office, Partner Attorney at Law

In Turkey, the use of arbitration and mediation has become increasingly favoured by companies, particularly in the context of commercial dispute resolution. Sectors such as construction, energy, trade and finance, which often involve high-value and complex agreements, frequently incorporate arbitration clauses into contracts.

This trend is largely driven by the procedural advantages these alternative dispute resolution (ADR) methods offer over traditional court litigation. ADR methods such as arbitration and mediation provide greater flexibility, confidentiality, and more expeditious resolution timelines, making them particularly attractive for businesses seeking efficient and private dispute resolution mechanisms. These advantages are also evident in cinternational contracts, where arbitration’s perceived neutrality and enforceability are key factors.

The willingness of legislation to promote ADR mechanisms, particularly through mediation and arbitration is also evident. This has been evidenced by legislative amendments such as integrating mandatory mediation into certain commercial disputes and enhancing its accessibility. Furthermore, the development of specialised rules, such as ISTAC’s Arbitration Rules and Med-Arb rules, demonstrates Turkey’s adaptability and commitment to meeting the evolving needs of the business community.

The confluence of a modern legal framework, historical precedent, and the government and judiciary’s supportive stance has positioned Turkey as an increasingly attractive jurisdiction for arbitration and mediation, both for domestic and international commercial disputes.

This article’s purpose is to provide an overview of both methods, legal framework, their application, preferences by companies, and common barriers.

1.     Arbitration in Turkiye

Arbitration is well-established in Turkish legal tradition, with formal regulation dating back to the Ottoman Civil Code, Mecelle, enacted in 1870.[1] Article 1790 of Mecelle specifically addressed arbitration, marking it as an officially recognised mechanism for dispute resolution even in the late 19th century. This early codification underscores Turkey’s longstanding engagement with arbitration, integrating it into the fabric of its legal practices well before modern ADR frameworks were established.

Turkey has similar provisions on both domestic and international arbitration although regulated in different legal frameworks as outlined below.

1.1.  International Arbitration

In contemporary Turkish law, international arbitration is governed by the International Arbitration Act No. 4686 (hereinafter referred to as the IAA).[2] It is primarily based on UNCITRAL Model Law on International Commercial Arbitration 1985, with amendments adopted in 2006. For instance, it has been explicitly established that the extent of court intervention is limited to except where so provided in that specific law.[3]

The principle of separability of arbitration agreements is established under Article 4 of the Turkish International Arbitration Act No. 4686. This principle ensures that the validity of an arbitration agreement is independent of the underlying contract. Consequently, even if the main contract is deemed invalid or unenforceable, the arbitration agreement itself can still be upheld, allowing the arbitral tribunal to retain jurisdiction over the dispute. In Turkey, the existence of an arbitration agreement must be asserted as a preliminary objection at the outset of court proceedings. If this objection is not raised promptly, the court will proceed with the case as if no arbitration agreement exists, and the opportunity to invoke arbitration will be forfeited.

Turkey adopts the seat theory.[4] The seat theory in international arbitration posits that the legal framework of the jurisdiction where the arbitration is held governs the arbitration process. Beyond determining the applicable procedural law, this theory also grants the courts of the seat the authority to oversee the arbitration proceedings, thereby influencing the conduct and enforcement of the arbitration.

It is also noteworthy that the writing requirement for an arbitration agreement is considered fulfilled when it is expressed through any form of electronic communication or by incorporation by reference according to a clear provision in IAA. In the same vein, the Court of Appeal stated that the ‘writing condition is satisfied if it is made in any means which can provide a record of the arbitration agreement, the reference to other document Gencon 1994 in order to make this document a part of the prime contract is also an effective and valid arbitration agreement’.[5]

In recent years, Turkish legislative reforms have introduced several incentives to encourage arbitration as a preferred method of dispute resolution. These inducements have been designed to enhance the attractiveness of arbitration for both domestic and international commercial disputes. An arbitration-friendly framework already exists, such as the International Arbitration Act No. 4686. Additionally key reforms have been made to to simplify the implementation of arbitration. The legislative amendment regarding the imposition of fixed court fees instead of proportional fees for the enforcement of foreign arbitral awards has become more firmly established through court practices.

Other key reforms have included the creation of specialised arbitration institutions like the Istanbul Arbitration Centre (ISTAC) in 2015 and the first specialised arbitration court focusing solely on energy disputes that is Energy Disputes Arbitration Center (EDAC) in 2020.

The ISTAC Arbitration Rules, designed to align with international standards, establish a contemporary and efficient framework for dispute resolution. These rules are tailored to meet the evolving needs of arbitration users in Turkey. Notably, the introduction of the ISTAC Fast-Track Arbitration Rules marks a significant development, as it offers an expedited and simplified process for resolving small-scale disputes within a streamlined timeframe of just three months. This initiative represents the first instance in Turkey of such an expedited procedure, designed to enhance efficiency and reduce the time and cost associated with smaller disputes.

According to the statistics provided by ISTAC, in 2023, 138 arbitration applications were filed, with disputes resolved within varying timelines. Normal arbitration saw 80% of cases concluded within the first year, while 20% extended beyond that. For expedited arbitration, 87% of disputes were resolved within 1 to 3 months, and 13% took longer. Disputes arose across several sectors, with the largest proportions in construction law (22%), sales agreements (19%), and service agreements (11%). Other notable areas included energy law (9%), software agreements (8%), and intellectual property (7%).[6]

Regarding the geographical scope, 83% of disputes were domestic, while 17% were international. The parties involved in these arbitrations came from diverse countries, including Italy, Kuwait, Russia, India, and Turkey, reflecting the global nature of the disputes handled under Turkey’s arbitration system. These data indicate a broad spectrum of issues being addressed, with both national and international parties actively engaging in arbitration processes.

Regarding the recognition and enforcement of foreign arbitral awards, Turkey is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. In global litigation practice, the interpretation of public policy often varies across jurisdictions, and this divergence plays a critical role in the recognition and enforcement of foreign arbitral awards. A notable characteristic of Turkish courts is their relatively narrow interpretation of public policy requiring that the violation of public policy be of a serious and fundamental nature. The 2012 Court of Cassation Jurisprudence Unification Decision ruled that foreign arbitral awards should be enforced unless they egregiously violate the country’s most fundamental legal principles, such as those relating to justice, fairness, and basic human rights.[7]

This article will mention a decision in which the Court of Appeal has denied the enforcement of a foreign arbitral award based on directly applicable rules on bio-health to highlight the court’s interpretation of public policy under the Turkish legal framework. In this decision, the parties entered into a contract for the sale of corn, with an arbitration clause stipulating that disputes would be resolved in England. Upon inspection of the corn imported into Turkey, it was found that the corn was genetically modified (GMO). Consequently, the buyer refused to accept the goods at the customs. The seller then initiated arbitration and sought the enforcement of the arbitral award issued in England in Turkish courts.[8]

Turkish law contains strict regulations on genetically modified organisms (GMO), particularly under Biotechnology Law No. 5977, the Regulation on the Working Procedures of the Biosafety Committee, and other related legislation. These regulations fall under public order and public health, as they aim to protect human, animal, plant health, and biodiversity. The Biosafety Law emphasizes the risks posed by GMOs, as these genetically altered organisms could harm environmental and biological diversity. Turkey, as a party to the Convention on Biological Diversity and the Cartagena Protocol on Biosafety, has committed to regulating GMOs in accordance with these international agreements, highlighting the importance of public policy considerations in such cases.[9]

1.2.  Domestic Arbitration

Domestic Arbitration is regulated in detail in the Code of Civil Procedure No. 6100, between Articles 407 and 444. According to these regulations, internal arbitration is a method of litigation and dispute resolution applied to arbitrable disputes that do not contain a foreign element as defined by the International Arbitration Law No. 4686,where the seat of arbitration is determined as Turkey. The provisions and principles are similar to those under IAA.

2.     Mediation in Turkey

Mediation has a long history in the Turkish legal system known under the name Ahilik, a traditional Turkish guild system, that has roots dating back to the Seljuk and Ottoman periods, combining elements of commerce, social organization, and ethics. One important function of Ahilik was the resolution of disputes, which was often handled through mediation. In contemporary Turkey, the principles of Ahilik are often invoked in discussions about mediation, with its emphasis on dialogue, fairness, and community-driven solutions being regarded as an integral part of the country’s ADR culture.

Turkey’s primary legislation governing mediation is Law No. 6325 on the Establishment of Mediation in Legal Disputes (Mediation Law), enacted in 2013. Mediation in Turkey is generally voluntary, meaning that the parties involved in a dispute must agree to mediate. However, in some cases, the law mandates mediation as a prerequisite before proceeding with litigation. One of the key features of this law is the introduction of compulsory mediation in certain civil and commercial disputes since 1 January 2019, before court proceedings can be initiated. Starting from 1 September 2023, disputes involving the transfer of immovable property or the establishment of limited rights in rem on immovables will become eligible for voluntary mediation. This amendment aims to expand the scope of mediation to include significant real estate transactions.

According to Article 5/1 of the Turkish Commercial Code No. 6102, in commercial disputes mentioned in Article 4 of this Law and other relevant laws, including those related to claims for money, compensation, the annulment of objections, negative declarations, and restitution, it is a prerequisite for filing a lawsuit that the parties have first attempted mediation before bringing the case to court

The further amendments to the Turkish Commercial Code, particularly those related to mediation, were introduced under the 7th Judicial Package (Law No. 7445), published in April 2023.[10] These amendments aim to further integrate mediation into the legal system and ease the judicial process by promoting out-of-court settlements. The amendment extends the scope of mediation in commercial disputes by mandating compulsory mediation not only for monetary claims and compensation, as was previously the case, but also for cases involving the annulment of objections, negative declarations, and restitution.

The 7th Judicial Package has also made certain amendments to the Turkish Mediation Act (No. 6325 on Mediation, particularly in commercial and real estate disputes. Under Article 18/4, settlement agreements reached in commercial disputes, when signed by both the mediator and the attorneys, will be treated as court judgments without the need for a certificate of enforceability. This simplifies the process and enhances the legal standing of mediation agreements.

The amendment to Article 17 requires that mediators inform absent parties about the minutes issued during mediation proceedings and their legal consequences. This communication must be conducted using all available means of communication to ensure transparency and access to information. In line with the Singapore Convention on Mediation, which entered into force on 11 April 2022, a settlement agreement reached through mediation can now be enforced in Turkey. However, a certificate of enforceability from the commercial court of first instance is required for the agreement to be recognised, with the court examining the issue based on the Convention’s provisions.

Another amendment is the direct communication principle, therefore, even if a party is represented by an attorney, the mediator must directly inform the party about the mediation process. This ensures that all parties are fully aware of the proceedings and outcomes, enhancing the transparency and fairness of the process.

Under Article 18/A/16, in the event of enforcement proceedings against a party following mediation, the applicant (plaintiff) will have the right to file a negative declaratory action within two weeks of receiving the final report. This provision provides a safeguard against unfair enforcement practices.

It has been established since the implementation of the Mediation Law that mediators are required to remain neutral and impartial throughout the mediation process. Another key principle under the law is confidentiality. The mediator and the parties must keep all information discussed during mediation confidential. This provision ensures that parties feel safe to negotiate freely without concern that the discussions will be used against them in subsequent legal proceedings.

The violation of the confidentiality principle in the context of mediation is regulated under Article 33 of Turkish Law No. 6325 of the Mediation Law. This article refers to Article 4, which outlines the confidentiality rules. If the confidentiality principle is violated by the parties or any individuals involved in the mediation discussions, penalties, including imprisonment for up to 6 months, may be imposed. This serves as a deterrent to ensure that all parties involved maintain the privacy of the mediation process.

According to statistics announced by the Ministry of Justice, in all legal disputes where mediation can be applied, a total of 4,026,854 cases have been entered into the system. Of the 3,715,80 cases that were concluded through negotiations, 2,581,397 reached a settlement. This results in a success rate of 69% for cases that ended with an agreement.[11]  The promotion and effective implementation of ADR mechanisms are integral to alleviating the burden on the judiciary, enhancing the efficiency of legal processes, and facilitating the swift resolution of disputes.

ISTAC recently introduced the world’s first Mediation-Arbitration Rules (Med-Arb Rules), an alternative dispute-resolution procedure with the characteristics of both mediation and arbitration. This mechanism aims to enable the use of both mediation and arbitration in the same proceeding. According to the Med-Arb Rules, parties will first try to resolve their disputes with mediation, and if they cannot settle, arbitration will be initiated to resolve the dispute.

3.     Conclusion

This article highlighted Turkey’s evolving arbitration and mediation landscape, showcasing its blend of historical tradition and modern advancements. Turkiye has progressively aligned its practices with international standards, incorporating model frameworks and adhering to global instruments such as the New York Convention and the Singapore Convention. Mediation has also emerged as a key dispute resolution mechanism, with over 4 million cases recorded by 2023, reflecting its growing significance. Turkey’s status as a signatory to the Singapore Convention on Mediation further strengthens its position as a hub for alternative dispute resolution, ensuring cross-border enforceability of mediated settlements and fostering confidence among international traders and investors. Supported by robust institutions,ongoing legal support, and an integrated framework for arbitration and mediation, Turkey continues to enhance its appeal as a reliable forum for resolving domestic and international disputes effectively.

Bibliography

• Article 3(2) International Arbitration Act 4686; Article 5, UNCITRAL Model Law International Commercial Arbitration 1985 With amendments as adopted in 2006.
• For a historical perspective, see Mecelle (1870), Article 1790 – Arbitration consists of the parties to a dispute accepting another person as a judge with their consent in order to resolve their hostilities and lawsuits. That person is called an arbitrator (hakem) or an appointed judge (muhakkem) (Unofficial Translation); S Eskiyoruk, ‘The Development of Arbitration Law in Turkey and the Comparison of the New Act with UNCITRAL Model Law’ (2005) 12 YB Islamic & Middle E L Online 129-139,https://doi.org/10.1163/22112987-91000128.
• Law No. 7445 on the Amendment of the Enforcement and Bankruptcy Law and Certain Laws Constituting the 7th Judicial Package was Published in the Official Gazette on 5 April 2023.
• English translation of the IAA in Council of Europe, International Arbitration Act numbered 4686https://rm.coe.int/turkish-international-arbitration-law-ial-/1680a72d93 last accessed 15 November 2024.
• Nuray Eksi, ‘Public Policy in the Enforcement of Foreign Arbitral Awards in the Light of the Judgments of the Court of Cassation’ (2020) 40(1) Public and Private International Law Bulletin143, DOI: 10.26650/ppil.2020.40.1.0023.
• ISTAC, Case Statistics for 2021, (English)https://istac.org.tr/wp-content/uploads/2022/06/ISTAC-Case-Statistics-Graf.-for-2021-final.pdf; See Case Statistics for 2023 (Official Language, Turkish) https://istac.org.tr/tr/uyusmazlik-cozumu/dava-istatistikleri/ last accessed 15 November 2024.
• Turkish Court of Appeal Jurisprudence Unification Grand General Assembly E. 2010/1, K. 2012/1, Dated 10 February 2012; Court of Appeals Decision, 12th Civil Chamber, 2015 (Case No. 2014/9825, Decision No. 2015/4455); Court of Appeals Decision, 2019 (Case No. 2018/8710, Decision No. 2019/1525); Court of Appeals Decision, 2012 (Case No. 2011/4520, Decision No. 2012/1386).
• The decision of the Court of Appeal Jurisprudence Unification Grand Assembly published in the Official Gazette No. 28417 on September 20, 2012, dated February 10, 2012, with file No. 2010/1 E. and decision No. 2012/1.
• The Geneva Protocol, 1923, was the first international legal instrument that expressly incorporated seat theory and made arbitral procedures subject to the will of the parties and the law of the country where the arbitration takes place. Subsequently, both the New York Convention, 1958, and UNCITRAL Model Law, 1985 have endorsed the same approach; Maksuda Sarker, ‘Seat Theory in International Commercial Arbitration: Evolution from Lex Loci Arbitri to Lex Arbitri’ (2022) 33(1) Dhaka University Law Journal 121-142,https://doi.org/10.3329/dulj.v33i1.61512; There is a clear provision in the IAA stipulating that it shall be applicable where a dispute has a foreign element and the place of arbitration is determined to be in Turkiye or where the Law is chosen as the governing law [of arbitration] by arbitrating parties or their sole arbitrator or arbitral tribunal.
• Turkish Ministry of Justice, Official Website, ‘The number of mediation cases has exceeded 4 million’ 14.03.2023 (Turkish)https://www.adalet.gov.tr/arabuluculuk-dosya-sayisi-4-milyonu-astilast accessed 15 November 2024.

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[1] For a historical perspective, See Mecelle (1870), Article 1790 – Arbitration consists of the parties to a dispute accepting another person as a judge with their consent in order to resolve their hostilities and lawsuits. That person is called an arbitrator (hakem) or an appointed judge (muhakkem) (Unofficial Translation); S Eskiyoruk, ‘The Development of Arbitration Law in Turkey and the Comparison of the New Act with UNCITRAL Model Law’ (2005) 12 YB Islamic & Middle E L Online 129-139, https://doi.org/10.1163/22112987-91000128.

[2] See English translation of the IAA in Council of Euope, International Arbitration Act numbered 4686 <https://rm.coe.int/turkish-international-arbitration-law-ial-/1680a72d93> last accessed 15 November 2024.

[3] Article 3(2) International Arbitration Act 4686; Article 5, UNCITRAL Model Law International Commercial Arbitration 1985 With amendments as adopted in 2006.

[4] The Geneva Protocol, 1923, was the first international legal instrument that expressly incorporated seat theory and made arbitral procedures subject to the will of the parties and the law of the country where the arbitration takes place. Subsequently, both the New York Convention, 1958, and UNCITRAL Model Law, 1985 have endorsed the same approach; Maksuda Sarker, ‘Seat Theory in International Commercial Arbitration: Evolution from Lex Loci Arbitri to Lex Arbitri’ (2022) 33(1) Dhaka University Law Journal 121-142, https://doi.org/10.3329/dulj.v33i1.61512; There is a clear provision in the IAA stipulating that it shall be applicable where a dispute has a foreign element and the place of arbitration is determined to be in Turkiye or where the Law is chosen as the governing law [of arbitration] by arbitrating parties or their sole arbitrator or arbitral tribunal.

[5] Court of Appeal, 11. Civil Chamber., E. 2012/6961 K. 2013/7612 T. 18.4.2013.

[6] See ISTAC, Case Statistics for 2021, (English) https://istac.org.tr/wp-content/uploads/2022/06/ISTAC-Case-Statistics-Graf.-for-2021-final.pdf See Case Statistics for 2023 (Official Language, Turkish)  <https://istac.org.tr/tr/uyusmazlik-cozumu/dava-istatistikleri/> last accessed 15 November 2024.

[7] See Turkish Court of Appeal Jurisprudence Unification Grand General Assembly E. 2010/1, K. 2012/1, Dated 10 February 2012; Court of Appeals Decision, 12th Civil Chamber, 2015 (Case No. 2014/9825, Decision No. 2015/4455; Court of Appeals Decision, 2019 (Case No. 2018/8710, Decision No. 2019/1525); Court of Appeals Decision, 2012 (Case No. 2011/4520, Decision No. 2012/1386).

[8] Court of Appeal, 19th Civil Chamber, E. 2017/4228, K. 2018/1042, T. 28.2.2018.

[9] Nuray Eksi, ‘Public Policy in the Enforcement of Foreign Arbitral Awards in the Light of the Judgments of the Court of Cassation’ (2020) 40(1) Public and Private International Law Bulletin 143, 176 DOI: 10.26650/ppil.2020.40.1.0023.

[10] Law No. 7445 on the Amendment of the Enforcement and Bankruptcy Law and Certain Laws Constituting the 7th Judicial Package was Published in the Official Gazette on 5 April 2023

[11] Turkish Ministry of Justice, Official Website, ‘The number of mediation cases has exceeded 4 million’ 14.03.2023 (Turkish) <https://www.adalet.gov.tr/arabuluculuk-dosya-sayisi-4-milyonu-asti> last accessed 15 November 2024.