In international commercial relations, disputes rarely involve a simple question of who is right or wrong. The real issue is usually broader: which country’s law will apply, where the dispute will be resolved, how long the process will take, whether the outcome will remain confidential, and most importantly, whether the final result can be enforced against the debtor’s assets.
Two major alternative dispute resolution mechanisms are commonly used in cross-border business disputes: mediation and arbitration. Mediation is a negotiation-based process where the parties try to reach a voluntary settlement with the assistance of a neutral mediator. Arbitration, on the other hand, is a private adjudicatory process where the dispute is decided by one or more arbitrators and ends with a binding arbitral award.
Under Turkish law, Law No. 6325 on Mediation in Civil Disputes applies to private-law disputes, including those containing a foreign element, provided that the parties may freely dispose of the subject matter. The law also defines mediation as a voluntary process conducted with the help of an impartial and independent third person. International arbitration in Turkey is mainly governed by Law No. 4686 on International Arbitration, which applies to disputes containing a foreign element where the seat of arbitration is Turkey or where the parties or arbitral tribunal choose the application of that law.
What Is Mediation?
Mediation is a flexible and confidential dispute resolution method. The mediator does not decide the case. Instead, the mediator facilitates communication, identifies the parties’ commercial interests, and helps them explore settlement options.
In international commercial disputes, mediation is particularly useful where the parties wish to preserve their business relationship. For example, a Turkish manufacturer and a European distributor may disagree over delayed delivery, defective goods, exclusivity obligations, or unpaid invoices. A formal arbitration may determine liability, but mediation may allow the parties to restructure payment terms, agree on future deliveries, revise pricing, or continue cooperation under new commercial conditions.
Mediation is also beneficial where time is critical. While arbitration may be faster than litigation, it still involves pleadings, appointment of arbitrators, evidence, hearings, expert reports, and an award. Mediation can often be completed within a much shorter period if the parties are commercially realistic.
Confidentiality is another major advantage. International companies often prefer not to disclose pricing structures, supply chains, customer lists, technical documents, or internal communications in public court proceedings. Mediation offers a private environment for discussing sensitive commercial issues.
What Is Arbitration?
Arbitration is a private dispute resolution mechanism where the parties agree to submit their dispute to an arbitral tribunal instead of national courts. Unlike mediation, arbitration does not require the parties to reach a settlement. The arbitrator or arbitral tribunal hears the case, examines the evidence, applies the relevant law, and issues a binding award.
The most important advantage of arbitration in international commercial disputes is enforceability. The 1958 New York Convention is the cornerstone of international arbitration enforcement. According to UNCITRAL, the Convention aims to ensure that foreign and non-domestic arbitral awards are recognized and generally enforceable without discrimination in contracting states.
This is crucial where the debtor’s assets are located abroad. If the losing party has assets in Germany, France, the United Kingdom, the United Arab Emirates, the Netherlands, the United States, or another New York Convention jurisdiction, an arbitral award may offer a more practical enforcement route than a national court judgment.
Arbitration is generally preferable where the dispute is high-value, technically complex, or where one party is unlikely to negotiate in good faith. It is also suitable where the parties want a neutral forum and wish to avoid litigating before the courts of the other party’s home jurisdiction.
Key Differences Between Mediation and Arbitration
The core difference is decision-making power. In mediation, the parties control the outcome. In arbitration, the arbitral tribunal decides the outcome. Mediation is settlement-oriented; arbitration is rights-based. Mediation is flexible and interest-driven; arbitration is procedural and adjudicatory.
In terms of cost, mediation is usually cheaper. Arbitration may involve institutional fees, arbitrator fees, legal fees, expert evidence, translation, and hearing costs. However, where the amount in dispute is substantial and enforceability is critical, arbitration costs may be commercially justified.
In terms of speed, mediation is often faster. Arbitration takes longer but produces a binding and enforceable award. In many cross-border contracts, the best strategy is not to choose one method absolutely, but to combine them.
Mandatory Commercial Mediation in Turkey
For certain commercial disputes in Turkey, mediation is a precondition before filing a lawsuit. Under Article 5/A of the Turkish Commercial Code, commercial cases involving monetary receivables, compensation, actions for annulment of objection, negative declaratory actions, and restitution actions require an application to a mediator before litigation. The mediation process must generally be completed within six weeks from the mediator’s appointment, with a possible extension of up to two weeks in mandatory circumstances.
This is highly relevant for international commercial disputes connected to Turkey. If a foreign company wishes to file a commercial monetary claim in Turkey, or if a Turkish company intends to sue a foreign business partner before Turkish courts, the mandatory mediation requirement must be reviewed carefully.
However, arbitration clauses, multi-tier dispute resolution clauses, and mandatory mediation rules must be analyzed together. A valid arbitration clause may direct the dispute to arbitration, but the relationship between arbitration and mandatory mediation should be assessed according to the contract, the type of claim, and the procedural law applicable to the dispute.
Enforceability of Mediated Settlement Agreements
One of the most common concerns regarding mediation is enforceability. What happens if the parties settle but one party later refuses to perform?
Under Turkish law, a mediated settlement agreement may become enforceable. Article 18 of Law No. 6325 provides that the parties may request an enforceability annotation for the settlement agreement, and an agreement containing such annotation is deemed a document equivalent to a court judgment for enforcement purposes. For commercial disputes, official guidance from the Turkish Ministry of Justice also states that, except where an enforceability annotation is legally mandatory, a settlement agreement signed by the attorneys and the mediator is considered a document equivalent to a court judgment without the need for a separate enforceability annotation.
At the international level, the Singapore Convention on Mediation is important. The Convention establishes a harmonized framework for the enforcement of international settlement agreements resulting from mediation and aims to promote mediation as an effective method for resolving trade disputes. Türkiye signed the Convention on 7 August 2019, ratified it on 11 October 2021, and it entered into force for Türkiye on 11 April 2022.
Nevertheless, in practice, arbitral awards still benefit from a longer-established and more widely tested enforcement framework under the New York Convention.
When Should Mediation Be Preferred?
Mediation should be preferred where the parties still have a commercial reason to cooperate. If the relationship has value, if the dispute can be resolved through payment restructuring, delivery adjustments, price reductions, replacement goods, revised exclusivity terms, or a new business plan, mediation may provide a better commercial outcome than a win-or-lose judgment.
Mediation is also appropriate where confidentiality and speed matter more than a formal legal victory. It is particularly effective in distribution disputes, supply contracts, service agreements, joint ventures, franchise relationships, construction negotiations, and long-term trade partnerships.
Another advantage is flexibility. A court or arbitral tribunal generally grants or rejects legal claims. A mediator, however, can help the parties craft business solutions that no court or tribunal could impose.
When Should Arbitration Be Preferred?
Arbitration should be preferred where a binding decision is necessary. If the debtor refuses to engage, if there is a risk of asset dissipation, if the amount in dispute is significant, if the evidence is technical, or if enforcement abroad is essential, arbitration is often the stronger option.
A well-drafted arbitration clause is critical. The contract should clearly define the seat of arbitration, applicable law, language of arbitration, number of arbitrators, arbitral institution, confidentiality, interim measures, emergency arbitrator options, and allocation of costs. A vague clause such as “disputes shall be resolved by arbitration” may create unnecessary jurisdictional and procedural disputes.
For example, a stronger clause may state that all disputes arising from or in connection with the contract shall be finally settled under the arbitration rules of a selected institution, with a specified seat, language, number of arbitrators, and governing law. The precise wording should always be adapted to the transaction, the countries involved, the location of assets, and the commercial risk profile.
Can Mediation and Arbitration Be Used Together?
Yes. In international commercial contracts, the most effective model is often a multi-tier dispute resolution clause. The parties may agree to negotiate first, proceed to mediation if negotiation fails, and finally commence arbitration if no settlement is reached.
ISTAC’s Med-Arb model is an institutional example of this approach. ISTAC describes Med-Arb as a two-tier dispute resolution mechanism where the parties first attempt to resolve their dispute through mediation, and if no settlement is reached, arbitration is initiated.
This model is particularly useful for Turkey-related transactions involving Europe, the Middle East, Central Asia, and international supply chains. It preserves the possibility of amicable settlement while ensuring that the dispute will not remain unresolved if mediation fails.
Conclusion: Mediation or Arbitration?
There is no universal answer. The right method depends on the nature of the dispute, the amount at stake, the parties’ relationship, the location of assets, confidentiality concerns, urgency, enforceability, and the dispute resolution clause in the contract.
Mediation is faster, more flexible, more relationship-friendly, and generally less expensive. It is the better first step where the parties still have a commercial interest in settlement. Arbitration is more suitable where a binding, enforceable, and internationally recognizable decision is required.
In many international commercial disputes, mediation and arbitration should not be viewed as rivals. They should be designed as complementary tools. A carefully drafted clause that provides for mediation first and arbitration if settlement fails can protect both commercial flexibility and legal certainty.
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