International Arbitration

1. Concept and Legal Nature of International Arbitration

1.1 What is arbitration?

Arbitration is a private dispute resolution mechanism in which parties agree to submit current or future disputes to one or more independent arbitrators instead of state courts. The arbitrators examine the facts and the law, conduct hearings and ultimately render a binding decision called an “arbitral award.”

Arbitration differs from other forms of alternative dispute resolution such as negotiation or mediation. Those methods are essentially consensual and non-binding unless the parties voluntarily reach and formalise a settlement. By contrast, an arbitral award is binding and, subject to limited defences, can be recognised and enforced by state courts in many jurisdictions.

1.2 When does arbitration become “international”?

An arbitration is “international” when the dispute includes a foreign or cross-border element. Different legal systems use slightly different tests, but typical indicators include:

• The parties’ places of business are in different states;
• The place of arbitration (seat) is in a state different from at least one party’s country of incorporation or residence;
• A substantial part of the contractual obligations is performed abroad; or
• The dispute concerns foreign investments or assets located in another state.

Many modern arbitration statutes distinguish between domestic and international arbitration and adopt more flexible rules for the latter, reflecting the needs of international commerce.

1.3 Contractual and jurisdictional character

International arbitration has a dual legal nature. It is contractual because the parties’ consent, reflected in the arbitration clause or submission agreement, is the foundation of the tribunal’s authority. It is also jurisdictional because once the tribunal is constituted, it exercises adjudicatory power similar to that of a court: it decides on its own jurisdiction, determines liability and quantum, and renders an award that may be enforced with the assistance of state organs.

This dual nature explains the relationship between arbitral tribunals and state courts. Courts do not supervise every step of the proceedings, but they play supporting and controlling roles at key stages: referring parties to arbitration, appointing or removing arbitrators where necessary, granting interim measures, and later deciding on annulment and enforcement of awards.

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2. Legal Framework of International Arbitration

International arbitration operates within a layered legal framework composed of:

1. International treaties (such as multilateral conventions and investment treaties);
2. National arbitration laws at the seat of arbitration;
3. Institutional or ad hoc arbitration rules chosen by the parties; and
4. The parties’ own agreement on procedure and applicable law.

2.1 International conventions

The most important convention for commercial arbitration is the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. It obliges contracting states to recognise written arbitration agreements and to recognise and enforce foreign arbitral awards, subject to a limited list of refusal grounds, such as invalidity of the agreement, serious violations of due process, excess of mandate, non-arbitrability and public policy.

For investor–state disputes, another key instrument is the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). It establishes a specialised institution and a self-contained regime for the arbitration of investment disputes between host states and foreign investors who have consented to ICSID arbitration, typically through investment treaties, investment laws or contracts.

2.2 National arbitration laws and the “seat”

Every arbitration is anchored in a particular legal system through the concept of the “seat” or “place” of arbitration. The law of the seat – commonly referred to as the lex arbitri – governs crucial issues such as:

• The validity and interpretation of the arbitration agreement, to the extent not governed by other laws;
• The power of courts to assist the arbitration (interim measures, taking of evidence, appointment or challenge of arbitrators);
• Non-derogable procedural guarantees (equality of parties, right to be heard); and
• The grounds and procedure for setting aside (annulling) the award.

Many modern arbitration laws are inspired by or based on the UNCITRAL Model Law on International Commercial Arbitration. This model provides a balanced and arbitration-friendly framework that limits court intervention and gives parties broad autonomy to organise their proceedings.

Several jurisdictions, including Turkey, have adopted legislation following this model for international arbitration. Turkey’s International Arbitration Law, for example, applies to disputes with a foreign element and reflects core Model Law principles such as competence-competence, separability of the arbitration agreement and limited grounds for setting aside awards.

2.3 Institutional rules and ad hoc arbitration

The parties may choose to submit their disputes to an arbitral institution or opt for ad hoc arbitration.

• Institutional arbitration is administered by a permanent institution (for example, ICC, LCIA, SIAC, HKIAC, ISTAC or ICSID). The institution provides administrative support, model clauses and procedural rules and may intervene in the appointment and challenge of arbitrators and in scrutiny of awards.
• Ad hoc arbitration is conducted without institutional administration. The proceedings are organised directly by the parties and the tribunal, often under procedural rules such as the UNCITRAL Arbitration Rules.

Institutional arbitration offers more predictable administration and built-in solutions for common procedural problems. Ad hoc arbitration provides maximum flexibility and can be cost-effective where parties and counsel are experienced.

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3. The Arbitration Agreement

3.1 Form and essential elements

The arbitration agreement is the cornerstone of international arbitration. It may be drafted as a clause within a larger contract (arbitration clause) or as a standalone agreement concluded after a dispute arises (submission agreement).

Key elements of a robust arbitration agreement include:

1. Clear consent to arbitrate: The wording should make it unambiguous that the parties agree to submit disputes to arbitration rather than to state courts.
2. Defined scope: The clause should specify which disputes are covered – for example, “any dispute arising out of or in connection with this contract, including its existence, validity, termination or interpretation.”
3. Designation of seat: The seat of arbitration determines the applicable arbitration law and the courts that will have supervisory powers.
4. Number of arbitrators: Most international disputes are heard by three arbitrators, but the parties may opt for a sole arbitrator in smaller cases.
5. Method of appointment: The clause can describe how arbitrators are to be appointed, often by reference to institutional rules.
6. Language of arbitration: Choosing the language avoids preliminary disputes and ensures predictability in document production and hearings.
7. Reference to rules: Incorporating the rules of a reputable arbitral institution or a set of ad hoc rules provides a ready-made procedural framework.

3.2 Separability and competence-competence

Two widely accepted principles protect the effectiveness of arbitration agreements:

• Separability: The arbitration clause is treated as legally separate from the main contract. Even if the main contract is alleged to be invalid, the arbitration clause may survive and enable the tribunal to decide on the validity issue.
• Competence-competence: The arbitral tribunal has the power to rule on its own jurisdiction, including objections to the existence or validity of the arbitration agreement. Courts generally respect this principle by referring parties to arbitration unless the arbitration agreement is manifestly invalid or inapplicable.

3.3 Multi-tier dispute resolution clauses

Commercial parties frequently include multi-tier clauses requiring negotiation, mediation, dispute boards or other amicable steps before arbitration. These mechanisms can preserve business relationships and encourage early settlement.

However, badly drafted escalation clauses may generate procedural objections (for example, whether the pre-arbitration steps are mandatory or merely optional, and whether they are conditions precedent to arbitration). To minimise such risks, the clause should indicate:

• The nature of the pre-arbitration step;
• How long it will last;
• Who must participate (e.g., senior executives); and
• Whether the arbitral tribunal may proceed even if the step has not been fully completed.

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4. Seat of Arbitration, Applicable Law and Jurisdictional Issues

4.1 Importance of choosing the seat

The choice of seat is one of the most strategic decisions for parties. In practice, it determines:

• Which national arbitration law will apply;
• Which courts have jurisdiction to assist the arbitral process;
• Which courts can set aside the award; and
• Whether the jurisdiction is considered arbitration-friendly and supportive.

Parties often choose seats known for neutral courts, developed arbitration legislation, and minimal interference with arbitral proceedings. For disputes involving Turkish parties or assets, Istanbul is increasingly considered as a convenient and cost-effective seat, especially under the rules of the Istanbul Arbitration Centre (ISTAC).

4.2 Applicable substantive law

The law governing the merits of the dispute is distinct from the law governing the arbitration itself. Parties are free to choose the substantive law applicable to their contract or investment relationship. That law will guide the tribunal’s analysis of liability, interpretation of contractual clauses, limitation periods, damages and remedies.

Where the parties have not chosen a governing law, arbitral tribunals may apply conflict-of-laws rules or directly determine the most appropriate law with regard to the connecting factors of the dispute.

4.3 Arbitrability and public policy

Not every dispute can be submitted to arbitration. Issues that are considered inherently public in nature, such as certain criminal matters, family status or some aspects of competition law and administrative acts, may be treated as non-arbitrable in a given jurisdiction.

Public policy also plays a role both at the stage of setting aside and at the enforcement stage. Courts may refuse to recognise an arbitral award that is fundamentally incompatible with the basic principles of the forum’s legal system, for example because it violates due process, is obtained through fraud or enforces a clearly illegal contract.

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5. Stages of International Arbitration

Although the exact process may vary depending on the applicable rules and the parties’ choices, most international arbitrations follow similar stages.

5.1 Commencement of proceedings

Arbitration usually begins with a notice of arbitration or a request for arbitration. This document identifies the parties, the arbitration agreement, a summary of the dispute, the relief sought and any initial proposals on the seat, language and number of arbitrators. The respondent may file an answer setting out preliminary objections and counterclaims.

5.2 Constitution of the arbitral tribunal

The tribunal is typically composed of either a sole arbitrator or three arbitrators. In three-member tribunals, each party often nominates one arbitrator, and the two co-arbitrators or the institution appoint the chair. If a party fails to appoint an arbitrator within the prescribed time, the institution or a national court may step in to avoid obstruction.

Arbitrators must be independent and impartial. Most arbitration rules allow parties to challenge an arbitrator if circumstances exist that give rise to justifiable doubts as to independence or impartiality, such as a close relationship with one of the parties or counsel.

5.3 Procedural timetable and case management

Once constituted, the tribunal and parties usually hold a case management conference. During this meeting they set the procedural calendar, decide on the number of written submissions, the scope of document production, the form of witness and expert evidence, and the dates of hearings.

International arbitration combines elements from civil-law and common-law traditions. Many tribunals require:

• A statement of claim and statement of defence;
• One or two subsequent rounds of submissions (reply and rejoinder);
• Written witness statements and expert reports instead of purely oral testimony; and
• Limited and targeted document production rather than broad discovery.

Tribunals are encouraged to manage time and cost actively by narrowing issues, limiting repetitive evidence and using technology (virtual hearings, electronic bundles).

5.4 Jurisdictional and admissibility objections

Respondents frequently raise jurisdictional objections (for example, arguing that no valid arbitration agreement exists, that the dispute falls outside its scope, or that a multi-tier clause was not complied with). The tribunal may decide these objections as a preliminary question or join them to the merits.

In investment arbitration, admissibility objections may concern issues such as cooling-off periods, fork-in-the-road clauses or the investor’s compliance with nationality requirements.

5.5 Evidence and hearings

Evidence in international arbitration commonly includes:

• Contemporaneous documents;
• Witness statements from factual witnesses;
• Expert reports on technical, financial or legal issues; and
• Party-appointed or tribunal-appointed experts.

Oral hearings give the parties an opportunity to cross-examine witnesses and experts and to present legal arguments. Tribunals often issue directions on the order of testimony, the duration of cross-examination and the use of demonstrative exhibits.

5.6 Post-hearing phase and deliberations

After the hearing, the tribunal may invite post-hearing briefs to address key points, new authorities or updated damages calculations. The tribunal then deliberates confidentially and prepares the award. Most modern arbitration rules require reasoned awards unless the parties agree otherwise.

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6. Interim Measures and Emergency Relief

Arbitral tribunals have the power, subject to the applicable law and rules, to grant interim or conservatory measures to protect the effectiveness of the proceedings. These may include orders to:

• Preserve evidence;
• Maintain or restore the status quo;
• Prevent dissipation of assets; or
• Require security for costs.

Many institutional rules now provide for emergency arbitration, enabling parties to obtain urgent relief before the constitution of the main tribunal. In parallel, parties may also seek interim measures from national courts, especially where coercive powers (such as freezing bank accounts or registering liens over property) are required.

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7. Arbitral Awards, Annulment and Enforcement

7.1 Form and types of awards

An arbitral award must generally be in writing, signed by the arbitrators, state the reasons on which it is based and indicate the date and place of arbitration. Tribunals may issue different types of awards, such as:

• Partial awards (deciding jurisdiction or liability only);
• Interim awards (resolving specific issues along the way); and
• Final awards (disposing of all remaining claims and costs).

7.2 Setting aside (annulment) proceedings

The award may be challenged before the courts of the seat through an action for setting aside. Grounds are usually limited and mirror those found in the New York Convention. Typical grounds include:

• Incapacity of a party or invalidity of the arbitration agreement;
• Lack of proper notice or inability to present one’s case;
• The tribunal exceeding its mandate by deciding issues beyond the scope of the submission;
• Irregular composition of the tribunal or procedure not in accordance with the parties’ agreement or the law of the seat; and
• Non-arbitrability of the subject-matter or violation of public policy.

Importantly, annulment proceedings are not an appeal on the merits. Courts should not re-evaluate the evidence or substitute their view of the law for that of the tribunal. Their task is to check whether fundamental procedural guarantees and jurisdictional limits were respected.

7.3 Recognition and enforcement of foreign awards

For cross-border enforcement, the successful party will usually rely on the New York Convention regime. The party seeking enforcement typically submits the original award and the arbitration agreement (or certified copies) to the competent court, together with translations where necessary.

The court examines whether any of the convention’s limited refusal grounds are present. If none is established, the court recognises and enforces the award, allowing the prevailing party to proceed with execution measures such as attachment or sale of assets.

Where states or state entities are involved, questions of sovereign immunity may arise. Many jurisdictions distinguish between immunity from jurisdiction and immunity from execution and may allow enforcement against commercial assets of the state while protecting assets used for sovereign purposes.

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8. Investment Arbitration and ICSID

Investment arbitration deals with disputes between host states and foreign investors. Its legal basis often lies in bilateral or multilateral investment treaties, which grant investors substantive protections such as fair and equitable treatment, protection against expropriation without compensation, and free transfer of capital. Many investment treaties contain standing offers by host states to arbitrate disputes with investors, typically under ICSID or UNCITRAL rules.

When both the investor’s home state and the host state are parties to the ICSID Convention, and both have consented to ICSID arbitration, the dispute may be submitted to ICSID. The ICSID system has several distinctive features:

• The award is not subject to setting aside by national courts;
• Instead, it can be subject to an internal annulment procedure within ICSID on narrowly defined grounds; and
• Contracting states must recognise ICSID awards as if they were final judgments of their own courts, subject to their own execution rules.

Investment arbitration is closely scrutinised because it balances the sovereign right of states to regulate in the public interest with the need to protect foreign investors from arbitrary or discriminatory measures. For investors, it represents an essential risk-management tool complementing political risk insurance and contractual protections.

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9. Turkey as a Seat and Forum for International Arbitration

Turkey has progressively positioned itself as an arbitration-friendly jurisdiction bridging Europe, Asia and the Middle East. Key features include:

• Membership in the New York Convention and the ICSID Convention;
• A dual arbitration regime: the Turkish Code of Civil Procedure for domestic arbitration and the International Arbitration Law for disputes with a foreign element;
• Court practice increasingly aligned with international arbitration standards and respectful of party autonomy; and
• The establishment of the Istanbul Arbitration Centre (ISTAC), which provides modern arbitration and mediation rules, emergency arbitrator procedures and specialised fast-track rules for smaller claims.

For foreign investors active in Turkey or using Turkish entities as part of their supply chains, Istanbul can be a cost-effective and strategically located seat of arbitration, especially where the dispute has connections to Turkish law or Turkish-law governed contracts.

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10. Strategic Considerations for Parties

10.1 Arbitration or litigation?

When designing dispute resolution clauses, parties should weigh:

• Enforceability of judgments versus awards in relevant jurisdictions;
• Neutrality and reputation of state courts;
• Availability of interlocutory relief;
• Confidentiality needs; and
• Complexity and value of potential disputes.

For many cross-border commercial relationships, the enforceability and neutrality advantages of arbitration outweigh the perceived disadvantages.

10.2 Drafting effective arbitration clauses

A poorly drafted clause can generate costly jurisdictional battles. As a rule of thumb, parties should:

• Use clear and standard pro-arbitration language;
• Choose a reliable arbitral institution and incorporate its rules;
• Specify the seat, language, number of arbitrators and method of appointment;
• Decide whether multi-tier dispute resolution steps are mandatory and define them carefully; and
• Align the arbitration clause with related contracts (e.g., guarantees, side letters, shareholders’ agreements) to avoid fragmented dispute resolution mechanisms.

10.3 Managing time and cost

International arbitration can be expensive and time-consuming if not properly managed. Practical tools include:

• Agreeing on page limits and a limited number of submissions;
• Narrowing issues in dispute during case management conferences;
• Using joint expert reports or “hot-tubbing” of experts;
• Employing technology for hearings and document management; and
• Considering early settlement or mediation, even after arbitration has begun.

10.4 Evidence and document management

Because documentary evidence plays a central role in international arbitration, parties should implement robust record-keeping policies. Contemporaneous emails, minutes, technical reports and internal approvals often carry more weight than ex post witness testimony. During contract performance, careful drafting of notices, variation orders and claims letters can later prove decisive in arbitration.

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11. Conclusion

International arbitration is now a central component of the legal infrastructure of global commerce and foreign investment. It offers parties a neutral and flexible process, adjudicated by specialist decision-makers and backed by a powerful transnational enforcement regime.

To fully benefit from arbitration, however, parties must take it into account from the very beginning of their commercial relationship. The quality of the arbitration clause, the choice of seat and rules, document management during contract performance, and a coherent strategy when a dispute arises will often determine whether the process is efficient and the outcome enforceable.

For companies and investors operating in or with Turkey, international arbitration – including proceedings seated in Istanbul and administered by institutions such as ISTAC or ICSID – is a key instrument for protecting rights, managing risk and supporting long-term cross-border cooperation.