As a preliminary observation, it is crucial to highlight that Turkey does not currently possess a dedicated arbitration center established solely for the administration of maritime law.
There are several main arbitration organizations based in Turkey, including the Istanbul Arbitration Centre (ISTAC), Istanbul Chamber of Commerce Arbitration and Mediation Centre (ITOTAM), Turkish Union of Chambers and Commodity Exchanges Court of Arbitration, and Turkish Bar Association Arbitration Center.
Among these institutions, ISTAC is commonly preferred, thus, the following comparisons will be made between ISTAC and the London Maritime Arbitrators Association (LMAA).
ARBITRATION
Preferences and Drawbacks
In terms of costs, timing, complexity, predictability (sustainability of practice), independence, and attention to foreign parties, there are several aspects to consider for companies involved in cargo/charter party disputes.
Duration
ISTAC has implemented rules governing expedited arbitration, known as Fast Track Arbitration. According to these rules, the dispute must be finally resolved within three months from the date the case is referred to the arbitrator. For proceedings not subject to expedited arbitration, the time limit for adjudication, as determined under the ISTAC Arbitration Rules, is six months.
Note: Fast Track Arbitration is mandatory if the claim amount is below 3 million Turkish Liras. However, if the claim amount exceeds 3 million Turkish Liras, the parties may also request fast-track arbitration.
Expertise
The expertise of ISTAC arbitrators provides an advantage to the parties involved. In cases where the parties fail to reach an agreement, the ISTAC Panel appoints an arbitrator specialized in the relevant field. This ensures that disputes concerning specific areas of law are resolved by experts, eliminating the need for external expert consultancy and resulting in more accurate decisions. Additionally, some of the world's most renowned arbitrators serve as ISTAC International Court Members, which further enhances its credibility.
However, compared to LMAA, it can be argued that ISTAC has fewer cases and less specialization in the field of maritime trade.
Complexity of the Proceedings
Below are the stages involved in initiating and conducting a legal proceeding according to ISTAC's defined process:
How The Proceedings Run?
1) The Claimant submits its Statement of Claims and evidence to the Secretariat.
2) The Respondent submits its Statement of Defence and its evidence to the Secretariat within 15 days (The Statement of defence and annexes may be sent by email to [email protected]).
3) Holding a hearing or evaluation based solely on the basis of documents
4) Closure of proceedings
5) Submission of the arbitral award to the Secretariat
Cost
According to the arbitration rules of ISTAC, the fees of ISTAC arbitrators and administrative charges are predetermined and based on the disputed amount. ISTAC provides a cost calculator on its website for easy determination of arbitration costs. The fixed nature of both administrative expenses and arbitrator's fees allows for accurate cost estimation even before initiating the arbitration process.
To review the fees charged by ISTAC for arbitration, you can visit the following link:
https://istac.org.tr/tr/uyusmazlik-cozumu/masraflar-ve-ucretler/tarifeler/
In contrast, the costs of arbitration proceedings under LMAA depend on the applicable arbitration terms for the dispute.
One advantage of choosing ISTAC is that its arbitrators' fees and administrative costs are generally lower compared to other well-established institutions, including LMAA. This makes ISTAC a more cost-effective option.
Additionally,
For international arbitrations seated in Turkey or when agreed upon by the parties or arbitrators, the International Arbitration Code (No. 4686) applies. Domestic arbitrations seated in Turkey with no international element are subject to the Civil Procedural Code (No. 6100). Both laws are based on the UNCITRAL Model Law.
Predictability (Sustainability of Practice)
ISTAC has been in operation since the third quarter of 2015 and has published its set of arbitration and mediation rules, including emergency arbitrator and Fast Track Arbitration rules. While ISTAC aims to gain recognition beyond Turkey and is mindful of its reputation, it would not be statistically accurate to claim that it has the same level of experience regarding maritime disputes as LMAA, considering the duration of its operations. However, it should be noted that ISTAC is an independent institution in terms of its arbitration procedures and as an official arbitration entity, is conducting its operations securely and reliably.
Attention to Foreign Parties in Case of Turkish Company Involved in Cargo/Charter Party Disputes
The decision-making process is not influenced by the national origin of either the plaintiff or the defendant. ISTAC ensures equal treatment and attention to all parties involved, regardless of their nationalities.
Which arbitration option would be deemed advisable for selection? Is there an established system for the simplified consideration of smaller claims?
Considering the value of the claims, the Fast Track Arbitration procedure offered by ISTAC is advised for smaller disputes. The ISTAC Fast Track Arbitration Rules apply to disputes where the claim value does not exceed TRY 3,000,000. (As of August 2023, this amount roughly equates to 111,000 USD. Given that the stated amount was determined in Turkish Lira, potential fluctuations in the exchange rate would impact the USD equivalent of the sum. Furthermore, the Turkish Lira threshold set by the secretariat, which was initially established in Turkish Lira, retains the possibility of modification.) This simplified and expeditious procedure allows both domestic and foreign parties to resolve their disputes within 3 months through the issuance of a final, binding, and enforceable arbitral award by a Sole Arbitrator.
Fast Track arbitral awards can be enforced in the same manner as court decisions. Awards made under the ISTAC Fast Track Arbitration Rules can be immediately enforced without the need for appeal. (Notably, it should be pointed that the direct enforceability of arbitral awards is linked to their enforcement within Turkey. For the recognition of the award to be obtained from ISTAC in other countries, the procedural requirements outlined within the legal framework of the relevant jurisdiction where such recognition is sought may come into effect.)
This alternative provides a cost-effective way for parties to settle disputes under TRY 3,000,000 within 3 months through a binding arbitral award, avoiding lengthy state court proceedings.
Could foreign law be selected, or would it be more advisable to recommend the choice of Turkish law?
While Turkish arbitration practice allows for the application of foreign law, if Turkish arbitration is ultimately chosen as the preferred arbitral body, opting for Turkish law may be more advantageous in terms of promptness. This decision depends on preference, as Turkish arbitration centers are equipped with practitioners well-versed in international law, making them effective in enforcing the preferred law.
Could disputes not involving a Turkish party or lacking direct relations to Turkey be deemed admissible for consideration in the event of mutual agreement on Turkish arbitration?
ISTAC provides dispute resolution services to all parties, regardless of nationality or direct connection to Turkey. Companies, individuals, government agencies, and foreign entities can avail themselves of ISTAC's services without any membership requirements. Therefore, even if the subject matter or the parties involved have no direct connection to Turkey, ISTAC would accept and examine the dispute.
Are Turkish arbitration awards enforceable in states that are parties to the 1958 New York Convention?
Turkey is a party to the 1958 New York Convention, which came into force on September 25, 1992. Turkey has both reciprocity and commercial relationship reservations. As per Article III of the convention, which embodies a pro-enforcement policy, each Contracting State is obligated to recognize and enforce arbitral awards. Therefore, Turkish arbitration awards would be enforceable.
Turkey, being a party to the New York Convention, has the necessary legislative regulations in place. Its International Arbitration Law is drafted in accordance with the UNCITRAL Model Law. When the seat of arbitration is in Turkey, ISTAC awards are enforced as domestic awards without undergoing the recognition procedure for foreign awards.
A COMPARISON WITH TURKISH COURTS
Compared to LMAA London arbitration,
The main preferences and drawbacks concerning costs, timing, complexity, predictability (sustainability of practice), independence, and attention to foreign parties, particularly if the cargo/charter party involves a Turkish company
Apart from the comparison with the LMAA, it is generally recognized that arbitration has advantages over court proceedings in many respects, excluding expenses. The main advantages of the arbitration such as procedural flexibility, ability to select the language of the proceedings, faster resolution of the dispute, ability to choose arbitrators who have experience and expertise in the subject matter of the dispute, ability to make the proceedings confidential, easier and wider enforceability also apply to this comparison and will be elaborated below.
Complexity - Expertise
In Turkey specialized courts have been established to handle the cases requiring expertise and special knowledge. If such specialized courts do not exist in a province or sub province, cases falling under the competence of specialized courts are handled by civil courts. In Turkey, several specialized maritime courts have been established, these courts are assigned to deal with commercial cases on maritime issues.
At the disputes arising from maritime claims a court is appointed by the Department of Judges and Prosecutors (a jurisdictional body in duty of organizing local competence of the courts and appointment of the judges etc).
In general, the city’s which has a port have experienced judges to handle maritime claims. Regarding flexibility and timing Turkish Courts are not the most preferable choice and sometimes do not act very timely manner, of course these qualifications can very case to case but the workload of the judges are not easy to underestimate. For example as a major waterway, İstanbul has only one court handling maritime claims which is located at the European Side of the City and any claim from charter disputes to recourse claims of the insurance companies are handled by İstanbul 17th Commercial Court/Maritime Court.
The courts handle claims over 1 Mln TRL with judges committee of three judges, maritime court judges are hardworking and in deep knowledge for common disputes but when it comes to the application of a foreign law, the context of the foreign law is to be presented by the parties to the court or relevant Codes or Practice notes are asked to be delivered by Country’s Ambrassador or Turkish MoJ‘s Legal Opinion Department and generally the expert committees reports are obtained. All parties are entitled to challenge reports and submit privately drafted legal Opinions which are generally drafted by Professors of Law.
If a party is dissatisfied with the judgment of the trial court, an appeal can be filed with the Appeal Court within a specified time frame. The duration of appeal against the decisions of Turkish Courts of First Instance is 2 weeks. This period begins with the service of the detailed decision of the Court, by the Court. The Appeal Court may uphold, modify, or overturn the trial court's decision based on its evaluation. If the parties remain dissatisfied with the Appeal Court's decision, pursue an appeal to the Court of Cassation can be made. Please kindly note that in terms of specialization the regional courts of appeal (Bölge Adliye Mahkemeleri) in Turkey do not have specialized chambers specifically dedicated to maritime law.
To apply for an appeal to the Court of Cassation, a party must file a cassation petition within a specific period (generally within two weeks) from the notification of the Appeal Court's decision. The Court of Cassation does not conduct a re-examination of the facts; instead, it focuses on examining legal issues and ensuring the correct application of the law.
It should be noted that the Court of Cassation (Yargıtay) has specialized chambers known as "hukuk daireleri" (civil chambers) that handle appeals in specific areas of law, including maritime law. The 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) is indeed specialized in maritime law matters. When a maritime dispute goes through the appeal process, it is typically reviewed and decided upon by the 11th Civil Chamber of the Court of Cassation, ensuring that the court handling the appeal has a specialized understanding of maritime law and its complexities.
Since LMAA does not have an internal appeal process and LMAA arbitration awards are generally considered final and binding, and there is no formal mechanism for appealing an LMAA arbitration award within the LMAA itself it can be regarded as an advantage and disadvantage at the same time. While there is the possibility to argue and appeal to a higher court in the event of an undesirable outcome in court, the absence of this option in LMAA also results in a less complex judicial process. Applying for LMAA arbitration is generally considered straightforward and less complex compared to traditional court proceedings.
Duration
Cases heard in Turkish courts might be unfavorable in terms of duration due to the length of the trial process. Yet, compared to LMAA, even though it is difficult to provide an exact average duration without specific information about the case in question and knowing that the duration of an LMAA arbitration can range from several months to over a year, depending on the complexity and the cooperation of the parties involved, it can be stated that Turkish courts are not in a very favorable position in terms of judicial promptness.
Predictability (Sustainability Of Practice)
In terms of the legal framework, Turkey has a well-established legal framework for maritime law, including the Turkish Commercial Code, Maritime Commerce Law, and international conventions to which Turkey is a party. These laws provide a basis for predictability and consistency in maritime law proceedings.
Turkish courts, including the Court of Cassation, rely on precedents when deciding cases. Precedents help establish legal principles and interpretations, which can provide some level of predictability in subsequent maritime law proceedings.
Attention To Foreign Parties In Case If The Cargo/Charter Party Is A Turkish Company
In the circumstance where one party is of Turkish nationality and the opposing party is of foreign nationality, and in the absence of an agreement between the two countries, if the plaintiff is of foreign nationality, it is admissible to request a guarantee of foreignness. The amount of the foreignness guarantee, at the discretion of the presiding judge, may be usually 15% of the claimed amount. Moreover, the nationality of either the plaintiff or the defendant does not bear any influence on the determination of the matter.
The basic rule of cost and fee allocation in Turkish Courts
The court costs as a general concept comprise the litigation expenses, and certain proportional court charges and attorney fees fixed and announced officially in a yearly basis. Within the light of abovementioned legislation the basic rule in contentious matters is that in principle, the losing party has to pay all the court costs. When both parties win partially, the court will charge both of them with costs equally or divide the costs between them on the merits of the decision.
The main disadvantage of arbitration compared to litigation is that it is generally more costly where the amount in dispute is high. In comparison to Turkish court litigation, LMAA arbitration can be relatively more expensive due to the specialized nature of maritime arbitration and the associated fees. However, it is important to consider that the time and cost savings offered by arbitration, such as streamlined procedures, flexibility, and quicker resolution, may offset the higher fees.
The Obligation of Providing Security for Foreign Parties in Lawsuits in Turkey (Cautio Judicatum Solvi)
Security refers to the financial guarantee required from the plaintiff in lawsuits initiated by foreign parties in Turkey to cover the court's litigation expenses and potential damages of the defendant.
In accordance with Article 48(1) of the Turkish Code of Civil Procedure (MÖHUK), "foreign natural and legal persons who file lawsuits, intervene in lawsuits, or carry out enforcement proceedings in Turkish courts must provide the security determined by the court to cover the litigation and enforcement expenses and compensate the other party's loss and damages."
The second paragraph of the same article regulates the exemption from providing security, stating that the court shall exempt the party filing the lawsuit, intervening in the lawsuit, or carrying out enforcement proceedings based on the principle of reciprocity.
Reciprocity aims to extend the same exemption to Turkish citizens in the foreign country of the foreign party filing the lawsuit, intervening in the lawsuit, or conducting enforcement proceedings.
Reciprocity can be established in two ways under Turkish Private International Law: contractual, legal, and factual reciprocity.
Contractual reciprocity will be established when there is a bilateral or multilateral agreement between the Republic of Turkey and the state to which the foreign natural or legal person filing the lawsuit, intervening in the lawsuit, or conducting enforcement proceedings belongs, foreseeing exemption from providing security.
Agreements related to mutual legal assistance (letters rogatory) and exemption from providing security between the Republic of Turkey and other contracting states will also be applicable. Information about the countries with which the Republic of Turkey has such agreements can be obtained from the website of the General Directorate of International Law and Foreign Relations of the Ministry of Justice.[1]
Would it be advisable to enter into an agreement designating a specific court? Is there a system in place for the simplified consideration of smaller claims?
In Turkey, the Istanbul 17th Commercial Court of First Instance is the court that has the most diverse case jurisdiction regarding disputes arising from maritime law. This court operates as a specialized maritime court and has the opportunity to work with numerous experts in the field, including renowned academics and experienced sea captains. It can be agreed upon in the contract signed between the parties that Istanbul courts shall have jurisdiction over any disputes that may arise. In such a case, the court to which the case will be submitted is the Istanbul 17th Commercial Court of First Instance.
Regarding the smaller claims, in the Turkish legal system under the scope of the Turkish Code of Civil Procedure (TCCP), the expedited trial procedure has been regulated as a method that offers a swift and economical resolution for comparatively low-value monetary claims. The expedited trial procedure is a more straightforward and accelerated legal process established for cases that require quicker resolution, involve a shorter examination, and can be concluded through a simpler review. The types of cases subject to the expedited trial procedure are specified in the codes. Within this procedure, parties are not allowed to submit response to response or second response petitions apart from the initial statement of claim and response petitions. In this context, parties are required to clearly present all evidence along with the indication of which fact they relate to in their pleadings, attach their available evidence to their pleadings, and provide information in their pleadings about how documents and files from other locations can be obtained, when necessary.The expedited trial procedure will be applied in cases where the value of the claim does not exceed 1,000,000 Turkish Liras as of 2023.
Could foreign law be selected, or would it be more advisable to recommend the choice of Turkish law?
The Turkish Code of Private International Law (Law No. 5718) allows parties to select a foreign law to govern their contractual relationship, as long as it does not violate public order or mandatory provisions of Turkish law. Turkish courts generally respect the principle of party autonomy in choosing the governing law of their contracts. Therefore, parties in Turkey have the freedom to choose foreign law as the governing law in contracts and agreements, even when the dispute is brought before Turkish courts. This is known as a choice of law or governing law clause. Turkish courts will apply the chosen law to determine the rights and obligations of the parties, interpretation of contractual provisions, and resolution of any disputes arising from the contract.
Please kindly note that while Turkish courts will apply the chosen foreign law, parties may need to provide evidence and expert opinions on the content and interpretation of foreign law to assist the court in its decision-making process. It should be borne in mind that this may affect the speed of the proceedings and may bring along certain consequences of the judge's failure to apply accustomed law. It should be emphasized that the language to be used in the proceedings conducted in Turkish courts shall be exclusively Turkish.
It is surely more preferable to agree on Turkish Law to be applied considering that legal context will not be necessary to deliver to the court. Turkish Commercial Core was announced in 2011 and several amendments were added so far and in compliance with the major liberal countries’ law systems.
Would disputes not involving a Turkish party or having no direct relation to Turkey be accepted for consideration if Turkish courts are agreed upon?
If the parties agree to the jurisdiction of Turkish courts in their contract, Turkish courts generally have the authority to consider and adjudicate disputes, even if they do not involve a Turkish party or have no direct relation to Turkey. The principle of party autonomy allows parties to choose the jurisdiction and governing law for their contracts, even if they are not directly connected to the chosen jurisdiction.
In general, which of the two options would be considered more suitable and appropriate for a foreign shipowner and Turkish counterparts?
Although Turkish courts particularly the Istanbul 17th Commercial Court specialize in Maritime disputes, in cases where there are concerns about time constraints (since courts have additional stages such as appellate proceedings), and when the choice of foreign law as the applicable law will be preferred (as the application of foreign law may pose difficulties for the courts) opting for arbitration would be more advantageous.
Salih Arif YARAR, Esq.
of GUR LAW FIRM
BIBLIOGRAPHY & REFERENCIAL
[1] https://diabgm.adalet.gov.tr/Home/SayfaDetay/yabancilarin-teminat-yatirma-yukumlulugu05032021034324
