1. Introduction: What Is Arbitration?
Arbitration is a private dispute resolution method in which parties agree to resolve their disputes outside of state courts, through independent and impartial arbitrators.
It is particularly preferred by foreign investors due to its neutrality, efficiency, confidentiality, and international enforceability.
2. Legal Grounds for Foreign Investors’ Right to Arbitration
Foreign investors in Turkey may resort to arbitration in the event of commercial disputes based on the following legal instruments:
🔹 Bilateral Investment Treaties (BITs):
Turkey has signed over 100 BITs granting foreign investors the right to submit investment disputes to international arbitration, including arbitration against the host state.
🔹 ICSID Convention (1965):
Turkey is a party to the ICSID Convention, which allows qualifying foreign investors to bring disputes to the International Centre for Settlement of Investment Disputes (ICSID) under the World Bank.
🔹 Turkish International Arbitration Law No. 4686:
Applicable to contracts involving a foreign element, this law governs arbitration proceedings seated in Turkey with international aspects.
🔹 Turkish Commercial Code (TCC):
Allows parties to include arbitration clauses in commercial agreements, widely used in contracts involving foreign investors.
3. Types of Disputes Eligible for Arbitration
Foreign investors may initiate arbitration in a variety of disputes, including:
- Shareholder or partnership conflicts
- Breach of commercial contracts (e.g., sales, supply, distribution, construction)
- State measures such as expropriation or license revocation
- Investment-related tax disputes (under limited conditions)
- Joint venture or franchise-related issues
⚠️ Disputes related to criminal law or public policy are generally not arbitrable.
4. Common Arbitration Mechanisms for Investors
✅ Institutional Arbitration
Investors frequently choose well-established arbitration institutions, such as:
- ICC (International Chamber of Commerce) – Paris
- ICSID – Washington, D.C.
- LCIA (London Court of International Arbitration)
- SIAC (Singapore International Arbitration Centre)
- ISTAC (Istanbul Arbitration Centre) – A Turkish institution with investor-friendly rules
✅ Ad Hoc Arbitration
Parties may also choose ad hoc arbitration, typically governed by UNCITRAL Arbitration Rules, without relying on an institution.
5. Arbitration Clauses and Their Importance
Foreign investors and Turkish counterparties often include arbitration clauses such as:
“Any dispute arising from or in connection with this agreement shall be finally settled by arbitration under the rules of [Institution], by [number] arbitrators, in [language], with the seat of arbitration in [city/country].”
✅ Such clauses must be clear, specific, and enforceable to avoid jurisdictional challenges.
6. Recognition and Enforcement of Arbitral Awards in Turkey
Turkey is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
- Arbitral awards issued outside Turkey can be enforced through a recognition and enforcement application before Turkish civil courts.
- Turkish courts may not review the merits of the case but only examine public policy and procedural fairness.
7. Hypothetical Case Study
Scenario: A Canadian energy company enters into a joint solar project with a Turkish partner. Their agreement includes an ICSID arbitration clause. When the relationship breaks down, the Canadian investor initiates arbitration at ICSID.
- The contract explicitly provided for ICSID jurisdiction.
- A BIT between Turkey and Canada exists.
- The ICSID tribunal orders Turkey to compensate the investor.
- The award is recognized and enforced in Turkey through domestic courts.
8. Conclusion and Legal Evaluation
Foreign investors have a strong legal basis to resort to arbitration in commercial and investment-related disputes in Turkey. Turkish law provides a pro-arbitration environment, respecting international norms and facilitating enforcement.
📌 Recommendations:
- Arbitration clauses should be drafted at the contract negotiation stage, with precision.
- Institutional arbitration (ICC, ICSID, ISTAC) is recommended for predictability and procedural clarity.
- Investment disputes should be structured in line with BITs and international investment law.
- Investors should engage with experienced legal counsel throughout the process.
Prepared by:
Attorney Ferhat Küle
Istanbul Bar Association
Expert in Arbitration and Foreign Investment Disputes
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