THE AUTHORS:
Bilge Kağan Çevik, senior associate at Baysal & Demir
Emel Özaltun, associate at Çetinel Law Firm
Elif Kapısız, associate at Göksu Attorneys at Law
Although Türkiye has made great strides in the field of commercial arbitration with the adaptation of its national law and practice in recent years, it is also undeniably one of the first countries that come to mind when it comes to investment arbitration. However, this tradition has changed a little this year as 2022 has been a quiet year with respect to investment arbitration; Türkiye has signed only one Bilateral Investment Treaty (“BIT”) and faced no investor claims, while only one Turkish investor brought an arbitration claim before the International Centre for Settlement of Investment Disputes (ICSID). As for the national courts, we happily see various decisions given that demonstrate that arbitration is getting more commonly used day by day and will continue its progress in that regard. Indeed, we are delighted to cover the most important developments of 2022 regarding arbitration in this review.
Investment Arbitration in Türkiye
A New Bilateral Investment Treaty
The number of Turkish embassies in Latin American countries has nearly tripled in the last 20 years. In parallel with this significant growth, for the reciprocal promotion and protection of investments, Türkiye and Uruguay signed a BIT on 23 April 2022. It is worth noting that even before the signing of the BIT, the Türkiye-Uruguay bilateral trade volume increased by 30% despite the pandemic, and now these countries expect higher numbers with the signing of this treaty.
Disputes
Although no new investment arbitration claim was filed against Türkiye in 2022, an Italian energy company, Enel, S.p.A. had brought a treaty-based arbitration claim against Türkiye in very late 2021, i.e., on 10 December 2021. The claimant argues that Türkiye expropriated its investment in violation of the Türkiye-Italy BIT when certain previously granted permits for a geothermal power project were revoked. The tribunal constituted on 17 October 2022 with the parties’ appointment of August Reinisch as chair. The claimant appointed J. Williams Rowley, while Türkiye had appointed Brigitte Stern. The dispute is pending.
The only case which has been brought before ICSID by a Turkish investor is against the Islamic Republic of Pakistan concerning water, sanitation and flood protection. Although the case was registered in the month of June 2022, and the case is still pending.
Awards
On 8 December 2022, and ICSID tribunal issued its award in Ipek Investment Limited v. Türkiye case, dismissing the USD 6 billion claim on jurisdictional grounds. The dispute arose out of Türkiye’s decision to seize companies that were previously part of the Koza Group. Türkiye claims that the reason for this seizure was due to the owner of the Koza Group (allegedly) supporting those responsible for the 2016 failed political coup in the state. The claimant argued that it had become the ultimate parent of the Koza Group through a June 2015 Share Purchase Agreement (SPA), but Türkiye contested the authenticity of this SPA. This coup attempt has featured in three other ICSID cases. Whilst Türkiye prevailed on jurisdictional grounds in , the other two cases (Akfel v. Türkiye and Aljarallah v. Türkiye) are still pending.
Commercial Arbitration – Decisions by the Court of Cassation
The Long-Standing Discussion on the Arbitrability of Insolvency Disputes – Is it possible?
There is little to no consensus in the Turkish doctrine as to the arbitrability of the bankruptcy disputes, especially with regards to its extent, when determining which stage is non-arbitrable. The Turkish Court of Cassation (“TCC”) seems to have put an end to this debate with its decision in December 2021. In this case, while a party applied to national courts to obtain its receivable via bankruptcy proceedings, another party filed an objection to jurisdiction relying on their arbitration agreement and succeeded as the local court dismissed the case. During the appeal proceedings, after pointing out the fact that arbitration is an exception to the national courts’ judicial authority and relying on the right to legal remedies along with the principle of procedural economy, the TCC concluded that the national courts have the authority to decide on the receivables in the bankruptcy proceedings even when there is an arbitration clause. However, two members dissented from the decision on the grounds that the acceptance of the possibility of eliminating the arbitration agreement by initiating a bankruptcy proceeding despite the existence of the arbitration clause would be contrary to the principle of good faith and pacta sunt servanda. Because the dissenting votes indicate that the question is far from being answered definitively, we may expect further discussions in this regard.
Extension of Arbitration Agreements in Case of Subrogation
In 2022, the TCC once again confirmed that the arbitration agreements can be extended to the insurers by way of subrogation. The TCC confirmed that by paying insurance indemnity to a party, which concluded the arbitration agreement, the insurance company got into that party’s shoes and thus became bound by the arbitration agreement. Hence, the TCC clarified that the question is not whether the respondent agrees to arbitrate with a particular person with respect to a transaction. Rather, the correct question is whether the respondent has consented to arbitration of claims arising from a certain transaction, irrespective of who brings it.
Multi-Tier Dispute Resolution Clauses
Another key issue addressed by the TCC in 2022 was the classification of the pre-arbitral steps as jurisdiction and admissibility. In this case, the parties’ dispute resolution clause required the parties to mediation first and then conciliation. If these two pre-arbitral steps are unsuccessful, either party has the right to commence arbitration. The TCC clarified that any failure to comply with these pre-arbitral steps will be treated as an issue of admissibility; in other words, whether the claim is ready to be heard, rather than jurisdiction which relates to the competency of the tribunal to hear a claim. The TCC also clarified that failure to comply with the mediation and conciliation can be cured if the parties resort to these remedies after the commencement of the arbitration. Moreover, the TCC also confirmed that the fact that the parties sent each other a warning letter through notary publics confirms that they tried to settle the dispute but failed to do so. Therefore, an alleged failure to comply with pre-arbitral steps does not qualify as a ground for set-aside as a matter of Turkish law.
Arbitrability of the matters belonging to the exclusive jurisdiction of the Turkish Courts
The decision rendered in mid-2022 by the TCC came in stark contrast to the Turkish court’s pro-arbitration approach. The TCC concluded that matters belonging to the exclusive jurisdiction of the Turkish courts are not arbitrable as a matter of Turkish law. The TCC argued that the Turkish Commercial Code provides that a party can commence litigation before Turkish courts against a foreign company’s Turkish agency as the representative of that foreign company provided that the relevant relationship was established through that agency. Furthermore, the Turkish Commercial Code suggests that any agreement circumventing this rule is void. By referring to these provisions, the TCC argued that the parties do not have the right to lift the exclusive jurisdiction of the Turkish courts by way of a form selection clause. As an extension, the TCC further noted that arbitration agreements cannot be concluded for these matters. Otherwise, these matters would not be resolved by the Turkish courts, despite the fact that Turkish courts have exclusive jurisdiction. As a result, the TCC refused the enforcement of the award and stated that this matter should have been heard by Turkish courts.
ABOUT THE AUTHORS:
Bilge Kağan Çevik is a senior associate at Baysal & Demir with experience of high-value cross-border disputes, many of which involve multiple parties and jurisdictions. He advises and represents clients in international commercial arbitrations across various sectors, including construction, insurance and financial services. He has experience of acting under major arbitration institutions under different applicable laws, including Swiss, German and Turkish law. He has experience of representing clients in the recognition and enforcement of foreign arbitral awards in Türkiye.
Emel Özaltun graduated from Bilkent University Faculty of Law and is currently working as an associate at Çetinel Law Firm in Istanbul. Her expertise covers complex international construction and investment arbitration cases along with the management of pre- and post-arbitral stages. She also advises both contractors and subcontractors in non-contentious construction law matters regarding international construction contracts. She has also experience with regards to FIDIC contracts.
Elif Kapısız graduated from Galatasaray University Faculty of Law and is currently working as an associate at Göksu Attorneys at Law in İstanbul. Her practice is mainly focused on international commercial arbitration, investment arbitration and commercial litigation. She serves major local and international companies regarding construction, infrastructure, shipping, manufacturing and banking industries, providing assistance on a wide range of matters.
