Application of Turkish Law in International Arbitration: Balancing Global Standards with Local Legal Requirements

Introduction

International arbitration is a widely preferred method for resolving cross-border disputes, offering neutrality, flexibility, and enforceability. While many arbitration cases involve international rules, such as the UNCITRAL Arbitration Rules or institutions like the International Chamber of Commerce (ICC), Turkish law often becomes relevant in disputes involving Turkish parties, performance in Turkey, or contracts governed by Turkish law. This article explores the interaction between Turkish law and international arbitration, focusing on the Turkish International Arbitration Law (Law No. 4686), the role of public policy, and the enforcement of awards in Turkey.

Legal Framework Governing Arbitration in Turkey

1. Turkish International Arbitration Law (Law No. 4686)
   • Turkey adopted Law No. 4686 in 2001 to harmonize with international arbitration standards. The law governs arbitrations involving foreign elements and aligns with the UNCITRAL Model Law.
   • Key Provisions:
     • Parties can choose the seat of arbitration and the applicable law.
     • Turkish law applies by default if the parties do not specify the governing law.
     • The law emphasizes party autonomy but restricts it in matters involving public policy.
2. New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)
   • Turkey is a signatory to the New York Convention, ensuring the recognition and enforcement of foreign arbitral awards, subject to limited grounds for refusal, such as public policy violations.

When Turkish Law Applies in International Arbitration

1. Choice of Law in Contracts
   • In contracts where parties select Turkish law as the governing law, arbitrators must interpret and apply Turkish legal principles during arbitration. This is common in sectors such as construction, energy, and infrastructure, where foreign investors enter into agreements with Turkish counterparts.
2. Public Policy as a Limit to Party Autonomy
   • Although international arbitration emphasizes party autonomy, Turkish courts may refuse to enforce awards that conflict with public policy. For example, awards that contravene mandatory provisions of Turkish law—such as labor rights or anti-corruption laws—may be challenged.
3. Mandatory Application of Turkish Law
   • In certain cases, Turkish law applies mandatorily, even if the parties choose foreign law. For example, disputes involving immovable property in Turkey or public procurement contracts governed by Turkish law cannot be entirely resolved by foreign legal principles.

Challenges in Applying Turkish Law

1. Interpretation of Public Policy
   • One of the most significant challenges in applying Turkish law is the broad interpretation of public policy by Turkish courts. This can lead to the refusal of enforcement for arbitral awards that conflict with public interest.
2. Consistency between Arbitration Awards and Local Laws
   • Arbitrators must ensure that their awards align with Turkish mandatory rules, especially in cases involving consumer protection, labor law, or taxation. Failure to do so may result in the annulment or refusal of the award.
3. Limited Judicial Review
   • Turkish courts generally respect arbitration agreements and awards, but they retain limited jurisdiction to review awards in terms of procedural fairness and compliance with Turkish law. The grounds for setting aside an award include lack of due process or invalid arbitration agreements.

Enforcement of Arbitral Awards in Turkey

1. Recognition and Enforcement Process
   • Awards issued by foreign arbitral tribunals can be enforced in Turkey under the New York Convention. The enforcement process involves an application to the competent Turkish court.
2. Grounds for Refusal of Enforcement
   • Turkish courts may refuse enforcement if the award:
     • Contravenes public policy.
     • Involves a matter not arbitrable under Turkish law (e.g., family law or criminal matters).
     • Was issued without proper notice or due process.
3. Judicial Attitude towards Arbitration
   • Turkish courts have increasingly adopted a pro-arbitration stance, minimizing interference in arbitration proceedings unless public policy or mandatory laws are involved.

Conclusion

The application of Turkish law in international arbitration highlights the balance between party autonomy and local legal requirements. While Turkish law offers flexibility and alignment with international arbitration standards, certain limitations—particularly related to public policy and mandatory rules—must be carefully managed. Foreign parties engaging in arbitration with Turkish counterparts should seek local legal counsel to ensure compliance with Turkish law and to mitigate the risks associated with enforcement challenges. With its modern legal framework and strategic location, Turkey continues to position itself as a favorable jurisdiction for international arbitration, provided parties understand the nuances of its legal system.