Ekin Topatan

Attorney

18.07.2023

Eligibility Conditions For Arbitration İn Turkish Law

INTRODUCTION

In Hesiod's poem "Works and Days," the age expressed by the humankind as the golden age[1] can be taken as a symbol of the social order that is described as a transition to civilization. According to Rousseau, the actual natural state of life can be described as the golden age of humankind. According to Hobbes, who introduces us with the darkest scenario in every situation, when people live without an overall power to keep them all under fear, they are in a situation called war, and this war is everyone's war against everyone, until the state arrives to the scene. According to Hobbes, the golden age has never existed at all. One way or another, whether the golden age or not, at some point in the endless flow of time, a structure called the “State” has emerged and we achieved our security in exchange for some of our freedoms. Until the formation of the state judiciary, while the disputes we were in under the name of "freedom" were solved by brute force or by agreement and negotiation in our more reasonable ones, the state judiciary has begun to solve this state of dispute under the names of "jurisdiction", "court" and "arbitrator". At this point, arbitration has manifested itself as a way in which parties in good faith resolve their problems under the arbitration of one or several people they trust, when negotiation and negotiation between the parties is not sufficient, before the state judiciary. Arbitration ultimately emerged when there was no state jurisdiction and continues to exist under the umbrella of the state judiciary. 

Two of the most substantial conditions for resolving a dispute through arbitration are the eligibility for arbitration in terms of parties and subject of the dispute. Otherwise, it shall not be possible to resolve the dispute by arbitration. 

GENERAL PRINCIPLES

Arbitration, which means to consolidate, solidify, to make steadfast, is a method of resolving disputes by appointing an arbitrator for the settlement of a dispute and controversy in law.[2] In other words, arbitration is a trial-like alternative solution that the parties prefer instead of the court and resolves the dispute definitively in matters that they can freely dispose of.[3]

As we are well aware from Article 9 of the 1982 Constitution, jurisdiction belongs to the State as a rule and the State exercises this authority through independent courts on behalf of the Turkish Nation. In this direction, the person who claims her/his rights can, as a rule, is only entitled to apply to the authorities and courts authorized by the State. A person is not entitled and have the freedom to claim, find, apply her/his right by her/his own efforts, and to obtain it by force. An exception to the requirement that the person claiming rights must apply to the courts is that the parties agree to resolve the disputes that have arisen or may arise through the persons authorized in this regard instead of resolving them under the roof of the state judiciary. This is where the "arbitration" institution comes into the scene. 

The parties apply to experts who know the technique of the work with the aim of settling the dispute quickly and relatively inexpensively. However, there is no doubt that the main purpose is to resolve the dispute with a judgment.[4] Thus, the parties applying to the arbitration institution close the way to the jurisdiction carried out in the state courts through the arbitration called "substitute of jurisdiction". 

In this context, first of all, the Code of Civil Procedure and the International Arbitration Law regulated the general conditions of arbitration. Since duly enacted international conventions are also considered an important part of Turkish Law, the Geneva European Convention on International Commercial Arbitration, to which Türkiye is a party, International Center for Settlement of Investment Disputes (ICSID), the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the World Intellectual Property Organization (WIPO) rules also regulate the eligibility for arbitration. In this article, the issue of eligibility for arbitration within the framework of Turkish Law is addressed accordingly. 

ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE CODE OF CIVIL PROCEDURE

The rule in arbitration is the freewill of the parties. The parties may freely determine the arbitrator or arbitrators to resolve their disputes, their number, characteristics, place of arbitration, applicable law, judicial procedure and form, evidence, etc. Although the principle of freedom of contract is essential in arbitration, this freedom is not absolute. Akıncı seeks the existence of two conditions for the dispute to be resolved through arbitration; the subject matter of the dispute is eligible for the arbitration and the parties have agreed that their disputes shall be resolved by arbitration. 

We can divide the arbitration institution into two types. In compulsory arbitration, it is imperative that the parties refer the dispute to the arbitrator and at this point, in which cases compulsory arbitration will be applied is regulated in various laws. In voluntary arbitration, "Arbitration Agreements" emerge. In cases other than compulsory arbitration, arbitration is a voluntary remedy and the parties may agree to resolve the dispute through the arbitrator or arbitrators. At this point, we are able to divide the the condition of eligibility for arbitration into two as follows;

1.     Objective eligibility regarding the legal arrangements on which issues the parties may or may not arbitrate,
2.     Subjective eligibility of the parties' ability to conclude the Arbitration Agreement forming the basis of the voluntary arbitration to be resorted to in cases other than compulsory arbitration.

Beyond this, eligibility for arbitration is essentially expressed as the point at which the free will of the parties to take disputes that have arisen or may arise between them before the arbitrator or arbitrators instead of the state court ceases and sensitive public interests come to the forefront. [5]

1.     OBJECTIVE ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE CODE OF CIVIL PROCEDURE

Objective eligibility for arbitration is the possibility of resolving a dispute through arbitration in terms of its subject matter. In other words, whether there is a legal limitation on a matter tells us whether that issue is eligible for arbitration. 

Although it varies from country to country, the main reasons for objective arbitration are that some issues are closely connected with the public order of the states, that a matter falling within the jurisdiction of the arbitrator(s) is regulated by special laws and resolved by the competent public authority, that the society is considered weak (such as consumers, workers, tenants) to be protected, and that it is not appropriate to hear such cases in the arbitration proceedings. [6]

In our law, issues ineligible for arbitration are mainly handled with in Article 408 of the Code of Civil Procedure and Article 1 of the International Arbitration Law. Article 408 of the Code of Civil Procedure titled "Eligibility for Arbitration" includes the provision "Disputes arising from real rights on immovable property or from works not subject to the will of both parties are not eligible for arbitration ", and the fourth paragraph of Article 1 of the International Arbitration Law titled "Purpose and scope" includes the provision "This Law does not apply to disputes related to real rights on immovable property in Türkiye and disputes not subject to the wills of both parties."     

In this context, eligibility for arbitration is grouped under two headings; the in-kind rights over the immovable property and deeds not subject to the wills of both parties. At this point, we can exemplify the issue of ineligibility for arbitration under several headings;

1.     Criminal law, 
2.     Family law,
3.     Disputes arising from lease contracts,
4.     Disputes related to associations and foundations,
5.     Securities,
6.     Competition rules,
7.     Disputes arising from wrongful acts,
8.     Disputes arising from bankruptcy law (except for public privilege conditions and contracts and transactions made by the administration subject to private law),
9.     Disputes subject to tax law,
10.  Claims of fraud and bribery related to the in-kind immovable and contracts,
11.  Consumer lawsuits,
12.  Contracts arising from the corporate law. 
 
2.     SUBJECTIVE ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE CODE OF CIVIL PROCEDURE

As explained above, subjective eligibility for arbitration relates to the ability of the parties to enter into an arbitration agreement. Subjective eligibility for arbitration is essentially the ability of a natural or legal person to become a party to an arbitration agreement. As with all other agreements, a natural or legal person must be qualified to be a party to the arbitration agreement. 

The ability of the parties to resort to arbitration is directly related to the legal nature of the arbitration and the arbitration agreement. When the arbitration agreement is considered as a pure "substantive law agreement" (or a substantive law contract with procedural effects), the ability to exercise the rights (capacity) and the ability to exercise the rights (capacity to act) shall be sought to conclude this agreement; when the arbitration agreement is described as a "procedural contract", party and litigation capacities will come to the fore as valid conditions.[7] However, the arbitration agreement, according to the prevailing opinion, is a substantive law agreement that governs procedural law relations.

In this case, if one of the parties does not have the capacity to act – the case/party, it is not possible to accept a agreement or condition concluded or to be concluded between the said parties as valid. 

            ELIGIBILITY FOR ARBITRATION IN CASE THE ATTORNEY/GUARDIAN IS A PARTY 

            Another substantial point is the case in which the attorney or guardian concludes the arbitration agreement. In the eighth article of Article 462 of the Turkish Civil Code, which is included in the Third Distinction titled "Duties of the Guardianship Offices", it is stipulated that the guardian can only arbitrate upon the authorization of the civil court of peace.  As a matter of fact, the authority to represent does not include the authority to conclude an arbitration agreement and to be a party to the arbitration. This authority can only be exercised upon the authorization of the civil courts of peace. 

            However, in the case of a person under guardianship, if such person has been granted permission by the guardianship authority to carry out a profession or art in accordance with Article 453 of the Civil Code, he/she may also be a party to an arbitration agreement since he/she is authorized to carry out all ordinary transactions related to it and is responsible for such transactions with all his/her properties. 

            Similarly, the attorney is required to be authorized for each transaction to be performed on behalf of the principal. In this case, the attorney who concludes an arbitration agreement on behalf of the principal without special authorization shall also be invalid. 

The legal action of the attorney in the capacity of direct representative becomes invalid due to exceeding the limits of the power of attorney and the attorney becomes an unauthorized representative against third parties in exterior relations. The gains of bona fide third parties are not protected as the transactions carried out by the persons who lack or have lost the authority to represent on behalf of someone else shall not give rise to any provision and result, but if the principal grants authorization for the transaction, the transaction shall be valid from the moment it is performed.[8]

ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE INTERNATIONAL ARBITRATION LAW 

The field of implementation of the International Arbitration Law is disputes that have an element of foreignness and where the place of arbitration is determined as Türkiye or the provisions of this law are selected by the parties arbitrator or arbitral tribunal. 

1.     OBJECTIVE ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE INTERNATIONAL ARBITRATION LAW

The law excludes disputes regarding the rights in kind over immovable property in Türkiye. The fourth paragraph of Article 1 of the Law states as "This Law shall not apply to disputes regarding the rights in kind on immovable property located in Türkiye and disputes that are not subject to the will of the two parties".  As can be seen, the Code of Civil Procedure and the International Arbitration Law includes parallel regulations. Accordingly, disputes arising from property rights, pledge rights, easement rights for immovable properties are ineligible for arbitration. 

Since only the immovable properties in Türkiye are mentioned in the law, the question of whether the rights in-kind on immovable properties in foreign countries are eligible for arbitration or not comes to the fore. Even if this question is responded positively, it may not be possible for an arbitral award on rights in-kind on immovable property in foreign countries to have consequences in the country where the immovable property is located.[9]

2.     SUBJECTIVE ELIGIBILITY FOR ARBITRATION IN ACCORDANCE WITH THE INTERNATIONAL ARBITRATION LAW

For the implementation of the International Arbitration Law No. 4686, the dispute is required to have an element of foreignness. According to Article 2 of the Law, the presence of any of the situations listed in this article indicates that the dispute has an element of foreignness and in this case, arbitration is qualified as an international case. 

Accordingly, the parties of the arbitration agreement are required to satisfy at least one of the following conditions;

1. Residential or ordinary residence or workplaces are located in separate states. 

2. Place of residence or usual residence or workplaces are located at another state rather than; 

a) The place of arbitration in cases specified in the arbitration agreement or determined on the basis of this agreement,

b) The place where a significant part of the obligations arising from the original contract will be fulfilled or where the subject matter of the dispute is most related. 

3. At least one of the company partners that is a party to the original agreement constituting the basis of the arbitration agreement has brought foreign capital in accordance with the foreign capital incentive legislation or it is necessary to make credit and/or security agreements in order to provide capital from abroad in order to implement this agreement. 

4. The main contract or legal relationship constituting the basis of the arbitration agreement must carry out the transfer of capital or goods from one country to another and must meet any of its conditions. 

Otherwise, it shall be considered that the dispute does not have the qualification of an element of foreignness and international nature and thus the condition of subjective eligibility for arbitration is not satisfied. 

CONCEPT OF PUBLIC ORDER 

As explained above, the eligibility of arbitration of a dispute in our law is subject to the condition that the parties can freely dispose on that dispute. However, the concept that the parties can freely dispose of it calls to mind the concept of public order and some of the limitations it evokes in the concept. 

The general trend, also revealed by doctrine and jurisprudence, is that there is an obstacle to arbitration as matters relating to public order fall within the scope of matters which the parties cannot freely dispose of. [10]

The concept of public order, on the other hand, introduces different characteristics for each concrete event and varies in terms of place and time. In essence, we can define the concept of public order as rules in which the state and society have a supreme interest in their observance and protection. At this point, for instance, many rules on labor law are related to public order. 

In terms of eligibility for arbitration, an answer should be sought to the question of whether there is a social interest in the dispute, in other words, whether the regulations related to the dispute serve the benefit of the society. [11] If the answer to the question is that there is a social interest, the dispute in question shall not be heard in arbitration because it is ineligible for arbitration; if there is no social interest, the dispute can be heard in arbitration. 

CONCLUSION

Since the time when the freedom of people to seek rights and to fulfill them by force has been transferred to an establishment called the State, people have been resorting to the courts, the judicial organ of the State, for the injustices they have encountered and suffered. However, the increasing workload in the courts in recent years, the prolonged judicial processes have pushed the legislators to produce alternative solutions. Although it is considered that it is a new field of application when the effective dates of legal regulations are examined, in fact, the arbitration path extends beyond the existence of the state. Today, a number of rules that draw the boundaries of the society in which we gather and live under the same roof have not forgotten the arbitration institution. The arbitration process, which has been initiated on the basis of freedom of agreement, has been reshaped today with both normative legal rules and the requirements of "public interest" in which the state is directly focused on the understanding of sovereignty. A correct understanding of the essence of the issue of eligibility in arbitration and in this context, of course, its application by avoiding narrowing interpretations without harming the superior interests of the society shall take arbitration beyond being an alternative to classical court jurisdiction.



[1] Ferhat Ağırman, Hobbes ve Rousseau’nun Devlet Kuramlarında Doğa Durumu, Pamukkale University Journal of Social Sciences Institute, edition 32, Denizli, 2018, p.115-120; For Hesiod's view on different ages of humanity, please refer to; Mustafa Günay, Felsefe Tarihinde İnsan Sorunu, Karahan Printing House, Adana, 2010, p.8.
[2] Hilmi Ergüney, Türk Hukuku’nda Lügat ve Istılahlar, İstanbul, 1973, p.430.
[3] Kuru, Baki/Arslan, Ramazan/Yılmaz, Ejder, Medeni Usul Hukuku, 23. Edition, Ankara 2012, p.800
[4] Alangoya/Yıldırım/Deren-Yıldırım, Medeni Usul Esasları, İstanbul 2005, p.642
[5] Burak Huysal, Milletlerarası Ticari Tahkimde Tahkime Elverişlilik, 1. Edition, Istanbul, Vedat Printing House 2010, p.13; Aydemir p.219
[6] Bengi Sargın, Bireysel İş Uyuşmazlıklarında Tahkime Elverişlilik, Terazi Hukuk Journal, March 2021; Huysal, p.12; Mustafa Erkan, Milletlerarası Tahkimde Yetki Sorunları, 1. Edition, Ankara, 2013, p.75.
[7] Mehmet Sarı, Tahkime Elverişlilik, Terazi Hukuk Journal, 32. Edition, April 2009, p.145-172; Deren- Yıldırım, Milletlerarası Tahkimin Esaslı Sorunları, p.31

[8] Mehmet Sarı, Tahkime Elverişlilik, Terazi Hukuk Journal, 32. Edition, April 2009, p.145-172; Deren- Yıldırım, Milletlerarası Tahkimin Esaslı Sorunları, p.31
[9] Nomer/Ekşi/Öztekin Gel Gel, Milletlerarası Tahkimde Esas Uygulanacak Hukuk, Ankara 1986, p.13
[10] Huysal, p.197; Aydemir, p.253; Akıncı, p.274
[11] Bengi Sargın, Bireysel İş Uyuşmazlıklarında Tahkime Elverişlilik, Terazi Hukuk Journal, March 2021, p.921