Domestic Arbitration vs. International Arbitration in Turkey: Legal Framework, Differences and Practical Considerations

Introduction

Arbitration has become an increasingly important method of dispute resolution for businesses operating in Turkey. Companies involved in construction, infrastructure, energy, technology, manufacturing, transportation, international trade, corporate transactions and financial services frequently include arbitration clauses in their commercial contracts.

However, parties often use the terms domestic arbitration and international arbitration without fully understanding the legal distinction between them. Under Turkish law, this distinction is not merely descriptive. It determines which arbitration legislation applies, which courts may intervene, how the proceedings are conducted and how the resulting arbitral award may be challenged or enforced.

Domestic arbitration in Turkey is principally governed by Articles 407 to 444 of the Turkish Code of Civil Procedure No. 6100, commonly referred to as the HMK. International arbitration is primarily governed by the Turkish International Arbitration Law No. 4686, commonly referred to as the MTK.

The decisive issue is generally whether the dispute contains a legally recognised foreign element and whether the seat of arbitration is in Turkey. The nationality of the parties is relevant, but it is not the only factor. A dispute between two Turkish companies may qualify as international arbitration if the transaction involves foreign investment, cross-border performance or international movement of capital or goods.

This comprehensive guide examines domestic arbitration vs. international arbitration in Turkey, explains the applicable legal frameworks and identifies the practical considerations businesses should evaluate when drafting arbitration agreements or commencing proceedings.

What Is Arbitration under Turkish Law?

Arbitration is a private dispute resolution procedure through which the parties agree to submit an existing or future dispute to one or more independent arbitrators rather than to national courts.

The jurisdiction of the arbitrator or arbitral tribunal arises from the parties’ arbitration agreement. This agreement may be included as a clause in the principal commercial contract or executed as a separate agreement.

The parties may generally determine:

• The seat of arbitration;
• The arbitration institution;
• The applicable procedural rules;
• The number of arbitrators;
• The method of appointing arbitrators;
• The language of arbitration;
• The substantive law governing the dispute;
• The procedure for presenting evidence;
• The confidentiality arrangements;
• The allocation of arbitration costs.

Arbitration is therefore based on party autonomy. Nevertheless, the parties’ freedom is not unlimited. Mandatory legal provisions, arbitrability requirements, due-process principles and public policy continue to apply.

Under both domestic and international arbitration regimes in Turkey, courts generally intervene only where the applicable legislation expressly permits judicial assistance or supervision.

What Is Domestic Arbitration in Turkey?

Domestic arbitration, also known as internal arbitration, is governed by the arbitration provisions contained in the Turkish Code of Civil Procedure.

Article 407 of the Code of Civil Procedure provides that these provisions apply to disputes that do not contain a foreign element within the meaning of the International Arbitration Law and where the seat of arbitration is determined as Turkey.

Domestic arbitration therefore generally requires two elements:

1. The dispute does not contain a foreign element as defined by Law No. 4686.
2. The legal seat of arbitration is located in Turkey.

A typical domestic arbitration may involve two Turkish companies, a contract performed entirely in Turkey, payments made in Turkey and no international capital, goods or commercial connection.

Examples may include:

• A payment dispute between two Turkish construction companies concerning a project located in Turkey;
• A dispute between a Turkish supplier and a Turkish distributor;
• A domestic shareholder dispute arising from a Turkish company;
• A service fee dispute between two Turkish commercial enterprises;
• A dispute concerning a domestic lease, supply or agency agreement, provided that the subject matter is arbitrable.

The fact that the contract is written in English or that one party uses foreign currency does not necessarily make the arbitration international. The entire legal and commercial structure of the transaction must be assessed.

What Is International Arbitration in Turkey?

International arbitration is principally governed by the Turkish International Arbitration Law No. 4686.

The law applies to disputes containing a foreign element where the seat of arbitration is Turkey. It may also apply within its statutory scope where the parties, arbitrator or arbitral tribunal have selected its provisions.

An arbitration becomes international when one or more of the foreign-element criteria stated in Article 2 of the International Arbitration Law are present.

These criteria include circumstances where:

• The parties to the arbitration agreement have their domiciles, habitual residences or places of business in different countries;
• The seat of arbitration is located outside the country where the parties have their places of business;
• A substantial part of the contractual obligations will be performed in another country;
• The place most closely connected with the dispute is situated in another country;
• Foreign capital has been brought into Turkey under the relevant investment framework;
• The underlying transaction requires the movement of capital or goods from one country to another.

The existence of any qualifying circumstance may give the arbitration an international character.

International arbitration does not therefore depend exclusively on whether one party is foreign.

A contract between two Turkish companies may still involve international arbitration where, for example:

• The project is located outside Turkey;
• The contract is financed through foreign investment;
• Equipment will be supplied from another country;
• Performance requires international movement of goods or capital;
• The place of substantial contractual performance is outside Turkey.

Conversely, the presence of a foreign shareholder or foreign-language contract should not be assessed in isolation. The statutory foreign-element criteria must be examined carefully.

The Main Legal Difference

The principal distinction between domestic and international arbitration in Turkey concerns the applicable procedural legislation.

Domestic arbitration

Domestic arbitration is governed by Articles 407 to 444 of the Turkish Code of Civil Procedure where:

• No foreign element exists; and
• The seat of arbitration is Turkey.

International arbitration

International arbitration is principally governed by the International Arbitration Law No. 4686 where:

• The dispute contains a statutory foreign element; and
• The seat of arbitration is Turkey or the law otherwise applies within its statutory scope.

This distinction is important because the arbitration clause itself may not identify the applicable statute. Even where the contract merely states that disputes will be resolved by arbitration in Istanbul, the factual structure of the transaction may determine whether the HMK or MTK applies.

Comparison of Domestic and International Arbitration in Turkey

The table provides a general overview. The proper classification of a specific arbitration requires examination of the seat, transaction, parties, investment structure and contractual performance.

The Seat of Arbitration

The seat of arbitration is the legal home of the arbitration. It determines the procedural law applicable to the proceedings and identifies the courts with supervisory jurisdiction.

The seat must not be confused with the physical venue of the hearing.

For example, the parties may agree that:

• Istanbul is the legal seat of arbitration;
• Hearings will be conducted online;
• Witnesses will give evidence from London and Dubai;
• English will be the language of arbitration.

The arbitration will still be legally seated in Istanbul.

Similarly, holding a hearing in Turkey does not automatically make Turkey the seat. The parties may select Paris as the seat while conducting an evidentiary hearing in Istanbul for convenience.

Under domestic arbitration, the seat must be Turkey for the HMK arbitration provisions to apply. Article 425 permits the parties or the selected institution to determine the seat; if they fail to do so, the tribunal determines it according to the circumstances of the case.

The seat is equally important in international arbitration because it affects:

• The lex arbitri;
• Court assistance;
• Interim measures;
• Challenges to arbitrators;
• Extension of the arbitration period;
• Setting-aside proceedings;
• The legal nationality of the award.

An arbitration clause should therefore clearly state the city and country of the seat.

The Arbitration Institution Does Not Determine Classification

A frequent misconception is that an arbitration administered by an international institution must automatically qualify as international arbitration.

This is incorrect.

The use of the Istanbul Arbitration Centre, ICC or another institution does not by itself determine whether an arbitration is domestic or international under Turkish law.

ISTAC may administer both domestic and international disputes. The classification depends on the legal criteria under the applicable Turkish legislation, not merely on the chosen institution.

ISTAC’s official model clause provides that disputes arising out of or connected with the contract will be finally settled under the ISTAC Arbitration Rules. It also recommends that parties specify the seat, language, number of arbitrators and law governing the merits.

Accordingly, the following two disputes may both be administered by ISTAC:

• A domestic payment dispute between Turkish companies under the HMK;
• An international construction dispute involving a foreign contractor under the MTK.

The institution may be the same, while the applicable arbitration statute differs.

Arbitration Agreements in Domestic and International Arbitration

Both domestic and international arbitration require a valid arbitration agreement.

The agreement must demonstrate a clear and binding intention to submit disputes to arbitration. Clauses that merely state that the parties “may consider arbitration” may be interpreted as optional and therefore may not exclude court jurisdiction.

Under Article 412 of the Turkish Code of Civil Procedure, the arbitration agreement may be included in the main contract or executed separately. It must satisfy the written-form requirement. The requirement may be fulfilled through a signed document, exchanged correspondence, electronic communications, incorporation by reference or an undisputed allegation of a written arbitration agreement in court pleadings.

The International Arbitration Law provides a substantially similar written-form framework.

A well-drafted arbitration clause should specify:

• Whether all or only certain disputes are arbitrable;
• The chosen institution and rules;
• The seat;
• The language;
• The number of arbitrators;
• The governing substantive law;
• Any pre-arbitration negotiation or mediation process;
• Whether emergency arbitration applies;
• Confidentiality requirements;
• Arrangements for multiple contracts or parties.

The clause should avoid conflicting provisions. For example, a contract should not provide that all disputes are subject to both the exclusive jurisdiction of Istanbul courts and final arbitration without explaining the intended relationship between those mechanisms.

Arbitrability in Both Regimes

Not every dispute may be resolved through arbitration.

Article 408 of the Turkish Code of Civil Procedure provides that disputes arising from rights in rem over immovable property or matters not subject to the parties’ free disposition are not arbitrable.

The International Arbitration Law applies a similar limitation, particularly regarding rights in rem over immovable property located in Turkey and disputes outside the parties’ free disposition.

Commercial claims are generally capable of arbitration, including disputes arising from:

• Construction contracts;
• International sales;
• Supply agreements;
• Distribution agreements;
• Share purchase contracts;
• Shareholders’ agreements;
• Joint ventures;
• Licensing arrangements;
• Technology contracts;
• Transport agreements;
• Insurance relationships;
• Commercial service agreements.

However, special analysis may be required for disputes involving:

• Ownership of immovable property;
• Bankruptcy and insolvency status;
• Certain corporate-law matters;
• Consumer protection;
• Employment rights;
• Family law;
• Administrative decisions;
• Criminal liability;
• Matters affecting third-party rights.

A dispute connected with real estate is not necessarily non-arbitrable. A contractor’s claim for payment under a construction contract may be arbitrable even though the project concerns real property. A direct claim determining ownership of immovable property in Turkey, however, is generally not arbitrable.

Separability of the Arbitration Agreement

Both domestic and international arbitration recognise the separability principle.

Under this principle, the arbitration clause is legally independent from the principal contract. An allegation that the main contract is invalid, terminated, rescinded or unenforceable does not automatically invalidate the arbitration clause.

This allows the tribunal to determine disputes concerning:

• Whether the main agreement was validly formed;
• Whether the contract was terminated lawfully;
• Whether a party committed a fundamental breach;
• Whether the contract was induced by misrepresentation;
• Whether restitution or damages are payable.

Without separability, any party could attempt to avoid arbitration simply by alleging that the principal contract was invalid.

Article 412 of the Code of Civil Procedure expressly prevents an objection to the arbitration agreement solely on the ground that the main contract is invalid.

Competence-Competence

Under both regimes, an arbitral tribunal may rule on its own jurisdiction.

This is known as the competence-competence principle.

Jurisdictional objections may concern:

• The existence of the arbitration agreement;
• Its validity;
• The scope of the clause;
• Whether a particular claim is covered;
• Whether a party is bound;
• Whether pre-arbitration requirements were fulfilled;
• Whether the subject matter is arbitrable.

The Turkish Code of Civil Procedure expressly provides that the tribunal may decide jurisdictional objections as a preliminary issue and continue the arbitration if it concludes that it has jurisdiction.

Turkish courts retain a supervisory role at legally defined stages, but a jurisdictional objection does not automatically transform the court into an appellate body reviewing every procedural determination made by the tribunal.

Procedural Flexibility

Domestic and international arbitration both provide substantial procedural flexibility.

Under Article 424 of the Code of Civil Procedure, parties to domestic arbitration may determine the procedural rules, subject to mandatory provisions, or incorporate arbitration rules by reference. If the parties do not agree, the tribunal may conduct the proceedings in a manner it considers appropriate while observing the statutory framework.

The International Arbitration Law also gives the parties broad freedom to determine procedure.

The parties may regulate:

• The exchange of written submissions;
• Document production;
• Witness statements;
• Expert evidence;
• Hearing format;
• Online participation;
• Translation;
• Confidentiality;
• Procedural timetable;
• Costs submissions.

International arbitration is often more heavily influenced by transnational arbitration practice. It may involve written witness statements, cross-examination, party-appointed experts and structured document production.

Domestic arbitration may follow a procedure closer to Turkish civil litigation, but it is not required to reproduce court procedure.

Language of Arbitration

The classification of arbitration does not automatically determine its language.

Domestic arbitration between Turkish companies is commonly conducted in Turkish. International arbitration is frequently conducted in English, particularly where the parties, arbitrators, experts and contractual documents are from different countries.

Parties should consider:

• The language of the principal contract;
• The language of project records;
• Witness language;
• Availability of suitable arbitrators;
• Translation costs;
• Enforcement requirements;
• The possibility of bilingual evidence.

A clause providing for two equally authoritative languages may create substantial expense and procedural confusion. Unless bilingual proceedings are genuinely necessary, one procedural language should ordinarily be selected.

Applicable Substantive Law

The procedural law of arbitration should be distinguished from the substantive law governing the dispute.

An international contract may provide that:

• Istanbul is the seat;
• The MTK is the applicable arbitration law;
• ISTAC Rules govern the administration;
• English is the procedural language;
• Turkish law governs the merits.

Alternatively, the parties may select foreign substantive law.

International arbitration frequently provides greater practical scope for selecting a foreign or neutral governing law. In domestic disputes with no foreign element, Turkish substantive law will usually have the closest connection, although the exact legal analysis depends on the contract and mandatory rules.

The tribunal may decide according to equity or act as an amiable compositeur only where the parties expressly authorise it. Article 433 of the Code of Civil Procedure states that a domestic arbitral tribunal may decide according to equity and good conscience only with the parties’ express authority.

Appointment and Number of Arbitrators

Both domestic and international arbitration may be conducted by a sole arbitrator or a tribunal of three or more arbitrators.

A sole arbitrator may be appropriate for:

• Lower-value claims;
• Straightforward payment disputes;
• Cases requiring cost control;
• Disputes requiring a faster decision.

A three-member tribunal may be preferred where:

• The amount in dispute is substantial;
• The issues are technically complex;
• Several legal systems are involved;
• The dispute is commercially sensitive;
• The parties wish to participate directly in appointments.

The arbitration agreement should avoid requiring an even number of arbitrators. It should also provide a workable appointment mechanism or refer to institutional rules that contain one.

In international arbitration, the parties may consider nationality, language, experience and neutrality when selecting arbitrators. Domestic arbitration may place greater emphasis on expertise in Turkish substantive and procedural law.

Duration of Arbitration

Unless the parties agree otherwise, domestic arbitration under Article 427 of the Code of Civil Procedure is subject to a one-year period beginning from the appointment of the sole arbitrator or, in multi-member tribunals, from the preparation of the first meeting record. The period may be extended by agreement or, failing agreement, through a court application.

The International Arbitration Law contains a comparable statutory arbitration period.

However, institutional rules may introduce separate deadlines or case-management mechanisms. Fast-track arbitration may provide a significantly shorter timetable.

The parties should not assume that arbitration will automatically be faster than litigation. Duration depends on:

• Complexity;
• Number of parties;
• Jurisdictional objections;
• Expert evidence;
• Document volume;
• Tribunal availability;
• Procedural conduct;
• Court applications.

Effective case management and a properly drafted clause are critical.

Interim Measures and Court Assistance

Arbitration does not eliminate the need for judicial assistance.

Courts may assist with matters such as:

• Interim injunctions;
• Interim attachment;
• Appointment or challenge of arbitrators;
• Extension of the arbitration period;
• Evidence collection;
• Enforcement;
• Setting aside.

Under domestic arbitration, Article 410 identifies the regional court of appeal connected with the seat as the competent court for judicial matters assigned by the arbitration provisions. Where the seat has not been determined, jurisdiction is connected with the respondent’s domicile, residence or place of business in Turkey.

Under the International Arbitration Law, judicial functions are generally assigned according to Article 3, while setting-aside proceedings are brought before the territorially competent regional court of appeal.

The exact court depends on the type of application. Parties should therefore avoid treating every arbitration-related court request as subject to the same jurisdictional rule.

Setting Aside Domestic Arbitral Awards

A domestic arbitral award is not subject to an ordinary appeal on its merits.

Article 439 of the Code of Civil Procedure provides that the only ordinary challenge against an arbitral award is a setting-aside action. The court may set aside an award only on limited statutory grounds.

These grounds include:

• Incapacity of a party or invalidity of the arbitration agreement;
• Improper appointment of the tribunal;
• Failure to issue the award within the arbitration period;
• An unlawful decision concerning jurisdiction;
• A decision beyond the scope of the arbitration agreement;
• Failure to decide the entirety of a claim;
• Procedural irregularity affecting the merits;
• Violation of equality or the right to be heard;
• Non-arbitrability;
• Violation of public policy.

The setting-aside period is one month from notification of the award or the relevant correction, interpretation or additional award. Filing a setting-aside action does not automatically stay enforcement, although the court may order a stay upon request and provision of sufficient security.

The reviewing court is not permitted to reassess the evidence or replace the tribunal’s contractual interpretation merely because it would have reached a different conclusion.

Setting Aside International Arbitral Awards

International arbitral awards seated in Turkey may also be challenged only on limited grounds under Article 15 of the International Arbitration Law.

The grounds broadly concern:

• Invalidity or incapacity;
• Improper tribunal constitution;
• Lack of proper notice;
• Inability to present a case;
• Excess of jurisdiction;
• Procedural irregularity;
• Non-arbitrability;
• Public policy;
• Failure to issue the award within the statutory or agreed period.

A setting-aside action is heard by the competent regional court of appeal and is not a full appeal on the merits.

The similarity between the domestic and international setting-aside regimes reflects the principle that arbitral awards should be final and subject only to limited judicial supervision.

Domestic, International and Foreign Arbitral Awards Are Not the Same

A particularly important distinction exists between:

• A domestic arbitral award;
• An international arbitral award seated in Turkey;
• A foreign arbitral award rendered outside Turkey.

An award may be “international” because the dispute contains a foreign element but still be legally seated in Turkey. Such an award is subject to the Turkish International Arbitration Law and setting-aside proceedings in Turkey.

A foreign arbitral award generally refers to an award rendered with a legal seat outside Turkey or otherwise treated as foreign under the applicable enforcement framework.

Foreign awards are usually recognised and enforced in Turkey under:

• The 1958 New York Convention; or
• The Turkish International Private and Procedural Law No. 5718.

Turkey is a contracting state to the New York Convention. The Convention provides the principal international framework for recognising arbitration agreements and enforcing qualifying foreign arbitral awards.

Therefore, the expression “international award” should not automatically be used as a synonym for “foreign award.”

Enforcement of Awards

The commercial value of arbitration depends on whether the award can be enforced.

A Turkey-seated arbitral award may be enforced through Turkish execution mechanisms after the relevant procedural conditions are fulfilled.

Where the debtor has assets abroad, the award creditor may seek enforcement in another country under the New York Convention, provided that the destination country is also a contracting state and the Convention’s requirements are met.

Potential enforcement assets may include:

• Bank accounts;
• Real estate;
• Company shares;
• Commercial receivables;
• Vehicles;
• Machinery;
• Intellectual-property rights;
• Ships or other registered assets.

Asset investigation should begin before the end of arbitration. A legally successful award may have limited commercial value if the debtor has transferred or concealed its recoverable assets.

Advantages of Domestic Arbitration

Domestic arbitration may provide several advantages over Turkish court litigation:

Specialist decision-makers

The parties may select arbitrators with expertise in the relevant industry.

Procedural flexibility

The parties may establish a timetable and evidence procedure suited to the dispute.

Privacy

Commercially sensitive information may receive greater protection than in public litigation.

Finality

The absence of a full merits appeal may prevent prolonged proceedings.

Institutional support

ISTAC and other institutions may administer domestic disputes under established rules.

Business continuity

A private procedure may reduce reputational damage and assist parties seeking to preserve their commercial relationship.

Domestic arbitration may nevertheless be disproportionately expensive for very small claims, particularly where the parties select three arbitrators or require extensive expert evidence.

Advantages of International Arbitration

International arbitration offers additional benefits for cross-border transactions:

Neutrality

Neither party is required to litigate exclusively before the other party’s national courts.

Choice of language

The proceedings may be conducted in English or another commercially appropriate language.

Choice of substantive law

The parties may select an appropriate national law or agreed rules of law, subject to mandatory provisions.

International enforcement

Awards may benefit from the New York Convention enforcement framework.

Cross-border expertise

Arbitrators may be selected for experience in international contracts, industry practice and comparative law.

Procedural adaptability

The procedure may accommodate witnesses, experts and documents located across several jurisdictions.

International arbitration may, however, involve higher costs, translation needs, foreign experts and complex enforcement strategy.

Which Arbitration Regime Is More Appropriate?

The parties do not ordinarily choose whether a genuinely domestic dispute will be legally classified as international merely by labelling it as such. Classification depends on statutory criteria.

Nevertheless, parties have substantial control over the structure of their dispute resolution mechanism.

Before drafting the clause, they should evaluate:

• Whether the transaction contains a foreign element;
• Where the contractual obligations will be performed;
• Where the parties and assets are located;
• Whether foreign investment or cross-border financing is involved;
• The appropriate seat;
• The preferred institution;
• The likely value of disputes;
• The required technical expertise;
• The language of contractual documents;
• The need for emergency relief;
• The potential enforcement countries.

A domestic project may be well suited to a Turkish-language ISTAC arbitration before a sole arbitrator.

A multinational construction or supply dispute may require English-language arbitration, three arbitrators, extensive expert evidence and an international enforcement strategy.

Common Drafting Mistakes

Commercial parties should avoid:

• Failing to identify the seat;
• Confusing the seat with the hearing venue;
• Referring simultaneously to inconsistent institutions;
• Providing for both mandatory arbitration and exclusive court jurisdiction;
• Using optional wording;
• Requiring an even number of arbitrators;
• Failing to address related contracts;
• Naming a non-existent institution;
• Omitting the language;
• Using different clauses in the main contract and guarantee;
• Assuming that ISTAC arbitration is always domestic;
• Assuming that the presence of a foreign party is the only foreign-element test.

A defective clause may lead to costly preliminary litigation before the merits are considered.

Frequently Asked Questions

What is the main difference between domestic and international arbitration in Turkey?

Domestic arbitration lacks the foreign element defined by Law No. 4686 and is seated in Turkey. International arbitration contains a statutory foreign element and is primarily governed by the International Arbitration Law.

Can two Turkish companies use international arbitration?

Yes. A dispute between Turkish companies may contain a foreign element because of foreign investment, performance abroad or international movement of capital or goods.

Does choosing ISTAC make the arbitration domestic?

No. ISTAC administers domestic and international cases. Classification depends on statutory criteria.

Can domestic arbitration be conducted in English?

The parties may agree on procedural arrangements, but the transaction, mandatory law and practical requirements must be considered. Domestic arbitrations are commonly conducted in Turkish.

Can international arbitration be conducted in Istanbul?

Yes. Istanbul is frequently selected as the seat of international arbitration.

Can an arbitral award be appealed?

There is no ordinary appeal on the merits. The award may be challenged only through a setting-aside action on limited grounds.

Are all commercial disputes arbitrable?

No. Disputes involving rights in rem over immovable property in Turkey and matters outside the parties’ free disposition are generally not arbitrable.

Is an international award the same as a foreign award?

No. An international award may be rendered in an arbitration seated in Turkey. A foreign award generally has a seat outside Turkey and requires recognition or enforcement under the New York Convention or domestic private international law.

Conclusion

The distinction between domestic arbitration and international arbitration in Turkey has significant procedural and commercial consequences.

Domestic arbitration is governed by Articles 407 to 444 of the Turkish Code of Civil Procedure where the dispute does not contain a foreign element and the seat is Turkey.

International arbitration is primarily governed by the International Arbitration Law No. 4686 where the dispute contains a recognised foreign element and the statutory conditions for application are satisfied.

Although the two regimes share fundamental principles—including party autonomy, written arbitration agreements, separability, competence-competence, procedural equality and limited judicial review—their application depends on the structure of the underlying transaction.

Businesses should not classify an arbitration solely by reference to the nationality of the parties, the language of the contract or the selected institution. Foreign investment, cross-border performance, movement of capital and the seat of arbitration may all affect the applicable regime.

A carefully drafted arbitration clause should specify the institution, seat, language, number of arbitrators and governing law. It should also address emergency relief, multiple contracts, confidentiality and enforcement strategy where appropriate.

Legal advice obtained at the contract-drafting stage can prevent jurisdictional disputes, reduce procedural costs and ensure that the selected arbitration mechanism functions effectively when a dispute arises.