This article was featured in Jus Mundi‘s 2023 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Bilge Kağan Çevik, Senior Associate at Baysal & Demir
Emel Özaltun, LL.M. Candidate at Queen Mary University of London
Throughout 2023, Türkiye has taken important steps in refining its approach to international arbitration with national and international developments As Turkish courts deliver remarkable rulings in the field of arbitration, Türkiye has navigated a tough year marked by two international arbitration awards involving different states. Despite these challenges, Türkiye has remained committed to enhancing its role in international arbitration by ratifying a new bilateral investment treaty. We are excited to share the significant developments concerning arbitration of 2023 with you in this review, shedding light on Türkiye’s development with regard to the arbitration practice.
Recent Developments in Investment Treaty Arbitration
Ratification of a Bilateral Investment Treaty
As per the Presidential Decree issued on April 25, 2023, the Belarus-Türkiye BIT (2018) became effective on December 30, 2022, replacing the former treaty between the two nations.
Disputes
While no claims have been brought against Türkiye in 2023, Güriş İnşaat ve Mühendislik Anonim şirketi, which is a Turkish construction company, has filed a case (Güriş v. Saudi Arabia) with the International Centre for Settlement of Investment Disputes (“ICSID”) against Saudi Arabia on August 21, 2023. The company claims it has suffered a denial of justice within the Saudi judicial system.
Awards
Despite not being an investment treaty arbitration, an important decision rendered in 2023 deserves to be highlighted for its significance. The ongoing dispute between the Republic of Türkiye and Iraq is finally ended with the decision given on February 13, 2023, in the arbitration administered by the International Chamber of Commerce (“ICC”). The arbitration commenced in 2014 when Iraq brought the case before the ICC against Türkiye after Kurdish oil was loaded onto a tanker in Ceyhan. Iraq claimed that Türkiye violated the Iraq Türkiye Pipeline (“ITP”) Agreement with its actions. The dispute basically concerned the Energy Framework Agreement between Türkiye and the Kurdish Regional Government (“KRG”), and Türkiye’s actions taken in accordance with that agreement, which were contrary to the ITP, like oil loading and denying Iraqi access to the facilities. On 13 February 2023, the arbitral tribunal awarded Iraq over 1.9 billion USD before offsetting Türkiye’s counterclaims.
Another important decision was given on March 3, 2023. The arbitral tribunal rendered its award in the Westwater Resources v. Türkiye case, administered under ICSID according to the ICSID Arbitration Rules (2006). The tribunal found that Türkiye breached the BIT with the US by revoking uranium licenses from Adur Madencilik Limited Şirketi, Westwater Resources Inc.’s subsidiary. However, the tribunal found no link between this breach and the claimed profit losses, citing low uranium prices and funding issues. Westwater, therefore, received just $1.3 million for costs, and none of the $36.5 million sought, as the claim for lost profits could not be substantiated.
In 2023, Turkish investors ended the protracted legal dispute as Tekfen Holding and TML successfully settled their case against Libya. The intricate legal saga, originating in 2018 with a partial award that denied jurisdiction over Libya but held the state-owned Libyan Man-Made River Authority (“MMRA”) liable for around USD 40 million, finally reached a resolution. In mid-2023, Tekfen Holding revealed that negotiations with MMRA had commenced following the partial award. These negotiations, which had in fact concluded in 2022, ultimately resulted in MMRA agreeing to pay approximately 35.4 million USD to settle the claims. Tekfen Holding and TML had also pursued a treaty claim under the Libya-Turkey BIT before the ICC, but the tribunal rejected the claim.
Commercial Arbitration – Decisions by the Court of Cassation
Law Governing the Arbitration Agreement
The identification of the law governing arbitration agreements has become increasingly intricate, drawing heightened attention—especially in the aftermath of the UK Supreme Court’s Enka v. Chubb Russia and Chubb Europe judgment. The Turkish Court of Cassation dealt with the issue in its recent decision.
The dispute arose from a personal guarantee agreement in which a bank extended a loan to a Maltese company in 2014, secured by the personal guarantee of its ultimate owner. Despite a deadline for repayment by September 1, 2016, neither the borrower nor the guarantor fulfilled their obligations, leading to settlement negotiations. These negotiations culminated in creating an agreement titled “Extension of the Personal Guarantee Agreement” (the “Extension”) in 2019. The Extension changed the forum selection from German courts to ICC arbitration seated in Istanbul, Turkey, with the governing law specified as German. Following further discussions, the guarantor eventually signed the Extension. However, disputes resurfaced shortly after its execution, prompting the bank to initiate an ICC arbitration against the guarantor based on the arbitration clause in the Extension. The personal guarantor then challenged jurisdiction based on, among others, the lack of consent.
In the Final Award, the Sole Arbitrator determined that German law, not Turkish law—the law of the seat of arbitration—governed the substantial validity of the arbitration agreement. Citing recent English judgments, the Sole Arbitrator asserted that the issue of consent should be governed by the law applicable to the underlying contract, which, in this case, was German law. The Sole Arbitrator maintained jurisdiction and ordered the guarantor to pay the outstanding amount under the Loan Agreement.
Subsequently, the guarantor sought set-aside actions in Turkish courts, arguing that the Sole Arbitrator unlawfully assumed jurisdiction due to an invalid arbitration agreement under Turkish law. Additionally, the guarantor contended that the award violated public policy as the Sole Arbitrator applied German law, not Turkish law, to the substantive validity of the arbitration agreement.
However, the Regional Appellate Court and the Court of Cassation rejected these arguments, affirming the Sole Arbitrator’s jurisdiction. Both courts determined that the Sole Arbitrator correctly evaluated the substantive validity of the arbitration agreement based on German law—the governing law of the underlying contract. Moreover, the Court held that the award did not violate public policy, as the Sole Arbitrator applied the appropriate law to the substantial validity of the arbitration agreement.
“Arbitration Term” and Set-Aside Action
Under Turkish lex arbitri, arbitral awards must be delivered within a year after appointing a sole arbitrator or preparing the first minutes of the arbitral tribunal’s meeting. Failure to comply with this “arbitration term” could lead to the setting aside the arbitral award by Turkish courts.
Although the one-year period can be extended by mutual agreement of the parties or, in the case of institutional arbitration, by the institution’s decision or the Turkish courts, issues rarely arise in practice. In a recent decision, the Court of Cassation set aside an arbitral award, emphasising that the parties had not extended the arbitration term, resulting in the award being rendered after the mandatory one-year period.
In another related decision, the Court of Cassation cautioned parties to arbitration agreements to ensure the extension of the arbitration term when necessary. The Court stated that the parties should have been aware of the arbitration term and should have sought an extension if they intended for the arbitration procedures to continue.
Non-Participating Arbitrator
In a late 2023 decision, the Turkish Court of Cassation examined the influence of non-participating arbitrators on set-aside proceedings. The dispute arose from the termination of a construction contract and the subsequent claims for damages. Initially, all three arbitrators actively engaged in the arbitration proceedings. However, during the deliberations of the arbitral tribunal, one arbitrator could not attend one or more sessions for specific reasons that were duly communicated. As a result, the remaining two arbitrators proceeded to render a decision, excluding the signature of the absent arbitrator, ultimately rejecting the claim.
The claimant subsequently turned to the Turkish courts, seeking a set aside on the grounds that the decision was rendered by only two arbitrators, contrary to the arbitration agreement’s requirement for three arbitrators. The Regional Appellate Court set aside the award in response to these arguments. Upon further appeal, the Court of Cassation emphasized a crucial distinction. If the third arbitrator was not invited to the deliberations (which, in this case, was not true), and the decision was issued by the remaining two arbitrators, then the award should be set aside. However, if the arbitrator was invited to the deliberations (i.e., was allowed to be present), the failure of that arbitrator to attend should not automatically result in a set-aside decision.
No Obligation to Appoint Tribunal Appointed Expert
In 2023, the Court of Cassation reiterated that arbitral tribunals are not obligated to appoint tribunal-appointed experts. In certain arbitration proceedings, counsel may anticipate the tribunal appointing its technical or quantum experts to review the party-appointed expert’s findings or analyse the parties’ positions, influenced by the practices in some national courts, including Turkish courts. However, the Court of Cassation clarified once again in 2023 that arbitral tribunals have the discretion to determine whether appointing a tribunal-appointed expert is necessary based on the circumstances of each case. Consequently, any attempts to challenge arbitration awards on the grounds of the tribunal’s refusal or failure to appoint such experts are unlikely to succeed.
ABOUT THE AUTHORS:
Bilge Kağan Çevik is a senior associate at Baysal & Demir with experience in 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 acting under major arbitration institutions under different applicable laws, including Swiss, German, and Turkish law. He has experience representing clients in the recognition and enforcement of foreign arbitral awards in Turkey.
Emel Özaltun is a Bilkent University Faculty of Law graduate with five years at Çetinel Law Firm, currently pursues an LLM in Comparative and International Dispute Resolution at Queen Mary University of London. Her expertise basically covers complex international construction and investment arbitration cases, including pre-and post-arbitral management. Emel advises both contractors and subcontractors on non-contentious matters concerning international construction contracts and holds considerable experience in the management of FIDIC contracts.
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