This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHOR:
Ceren Ak Güngör, Partner at YAZICI Attorney Partnership
Within this article, ISTAC offers a preliminary glimpse into unpublished 2022 statistics, offering tentative insights into their data on construction cases.
Construction plays a driving role in the Turkish economy and with around 40 Turkish construction companies ranking in the top 250 of Engineering News Record’s (“ENR”) list, Turkish contractors are among the key players in the global construction market. Given the importance of the construction sector in Turkey and the inherently complex nature of construction projects, it is no wonder that construction disputes are prevalent in arbitration in Turkey. In this article, we take a brief look at construction disputes and trends in Turkey with a view to lay out what to expect in construction disputes.
It is common for domestic construction contracts to refer parties directly to court-proceedings, especially if there is no foreign funding or international element. This is mostly the case for real estate contracts which represent the majority of construction projects by number. Although arbitration has long been popular in Turkey in international contracts or large-scale projects, domestic construction contracts rarely referred parties to arbitration and when they did, it usually involved ad-hoc arbitration. This may have been due to the lack of arbitration centres in Turkey, which changed in the past few years with the introduction of the Istanbul Arbitration Centre (“ISTAC”).
Arbitration has increased its popularity likely from 1999 onwards, which not only marks the year in which the Turkish Constitution has introduced a provision so as to allow the State to be party to arbitration agreements including in concession contracts and the like, but also the year of introduction of the famous 1999 edition of the FIDIC Suite of Contracts. Although Turkish contractors and employers have long shown great interest in the FIDIC Suite of Contracts, perhaps because they provide more clarity, which in turn play an important role in managing employer and contractor expectations, Turkish parties show less interest in dispute resolution boards. It is not uncommon for Turkish parties to remove the Dispute Adjudication Board (“DAB”) (or the Dispute Avoidance/Adjudication Boards (“DAAB”) as introduced by the 2017 Suite) provisions from their contracts. A 2017 study conducted with contractors and consultants with around 25 years of experience in transport-infrastructure projects showed dispute boards are far less common than amicable settlement and legal remedies including arbitration. Participants cited ambiguity as to how well known the procedure was, as well as obscurity surrounding the legal effect of the dispute resolution boards among disadvantages. Indeed, it may be challenging for parties to internalise any procedure that is simply not the final and binding stop in dispute resolution.
Still, alternative dispute resolution has been on the rise recently, and this extends to all disputes. Turkey recently introduced statutory mediation in all commercial disputes including construction disputes, unless they include an arbitration agreement. With a view to encouraging parties to settle their disputes out of court and to ease the courts’ workload, statutory mediation was introduced a few years ago and it requires parties to at least try and settle instead of going down the long and winding road of litigation. ISTAC introduced the novel Med-Arb mechanism which is a mixture of mediation and arbitration (hence the name). The procedure contains characteristic features of both procedures, such as confidentiality and prohibition of the use of information and documents obtained during the mediation process later in the arbitration proceedings, which is almost exclusively a mediation-related feature. The Med-Arb mechanism is a self-proclaimed multi-tiered dispute resolution procedure that aims at facilitating dispute resolution by way of enabling parties to a find a common ground first, and refer the matter to arbitration should they fail to reach an agreement. The introduction of the Med-Arb Rules is an important step towards generalizing multi-tiered dispute resolution clauses in Turkey. Time will tell if caution against dispute boards will fade with these changes, as well as with the popularization of the FIDIC 2017 Suite of Contracts – perhaps with the help of multilateral development banks- as this suite importantly imposes standing DAABs.
As far as arbitration is concerned, ISTAC is now the leading Turkish arbitration centre. Its popularity seems to be on the rise, which is reflected in their caseload: they announced in 2021 that they have doubled their 2020 caseload. The increase in ISTAC’s construction cases is particularly noteworthy: while in 2021 only 12% of ISTAC’s cases were in construction cases, this rate almost tripled to a whopping 32% in 2022 (according to ISTAC’s unpublished tentative 2022 statistics). These rates include domestic and international arbitration, so it may be too early to label this change a definitive shift to ISTAC in construction disputes, but it certainly shows a trend. Recent changes in the past few years might have played a role in this, an ISTAC-route has been spelled out for public procurement contracts in 2017. Construction projects within the Public Procurement Authority’s sphere of application require contractors to be bound by a standard form of contract, and these contracts previously only set forth litigation as the only legal remedy option. Following the change in legislation, these standard forms now provide a right of option to choose between litigation or ISTAC arbitration.
Surely, the reasons for the rise of ISTAC’s popularity in construction were manifold. The construction sector has already been in a hard-fought battle with fluctuation of foreign exchange rates before COVID-19, and recent inflation rates and post-COVID 19 effects certainly did not do much help. Likewise, the fact that ISTAC charges over Turkish Lira rather than foreign currency might have been a fresh breath of air for parties.
Other than the cost-aspect, ISTAC’s Arbitration and Mediation Rules are almost too familiar to arbitration practitioners in Turkey and abroad as they are heavily influenced by the ICC Rules. Trends in terms of party-autonomy related aspects however, organically show differences. For example, in most ISTAC arbitrations, arbitrators are chosen among law professors. In 2021, 68% of arbitrators selected were law scholars (i.e., professors, assistant professors, or academics holding a PH. D in law at least) where 30% were practicing attorneys, and a striking 2% were other professionals including civil engineers. In 2022, tentative statistics show no professionals other than lawyers or academics in law were chosen as arbitrators at all. It would therefore be wise to expect that each party chooses a law professor as an arbitrator in proceedings. Another good example is demonstrated by the tribunal-appointed expert rates announced by ISTAC. It is common in arbitrations in Turkey for a tribunal to appoint a panel of experts, particularly in cases with complex technical matters. According to ISTAC’s 2021 statistics, the tribunal-appointed expert rate was 72%, which increased to 74% in 2022 (be it upon party request or not).
These tendencies may be related to the fact that Turkey has a civil law system, and Turkish arbitrators may be influenced by the distinctive features of civil law systems which are distinctively inquisitorial rather than adversarial. This manifests itself in a wide breadth of features in proceedings, notably including collection of evidence and conduct of hearings. By way of example, witness statements are increasingly becoming common practice in foreign arbitration proceedings in Turkey, but some tribunals might be unwilling to attach importance to witness examination and cross-examination in hearings.
ABOUT THE AUTHOR
Ceren Ak Güngör is currently a Partner at YAZICI Attorney Partnership where she has been working since 2010, Ceren Ak Güngör’s practice focuses on construction, infrastructure, energy production, transmission and storage projects and industrial facilities. She advises clients on international sales agreements, construction (including EPC contracts), procurement, operation and maintenance contracts and subcontracts within the scope of a variety of projects such as superstructures, industrial production facilities and energy projects including onshore wind farms, combined cycle power plants, transmission and storage facilities. Ceren also advises clients on claim building and contract management throughout the execution of the projects and represents clients in disputes arising out of contracts, including in international and domestic arbitration.
Ceren holds an LL. B from Bilkent University School of Law (2010) and an LL.M from Queen Mary University of London School of Law (2013).
Find more data-backed insights in our 2023 Construction Arbitration Report
