ABSTRACT
International disputes have started to emerge due to the international trade that develops day by day because of globalization. Nowadays, especially due to technological developments and innovations, more technical issues have begun to be addressed in the disputes that are subject to commercial life and accordingly alternative dispute resolution methods such as arbitration have been established in order to settle the disputes by means other than the court proceedings.
Today, arbitration is one of the most preferred alternative dispute resolution methods. Arbitrators are authorized to settle the dispute with the parties’ agreement that the dispute between them shall be settled by arbitration.
Especially in the arbitration dispute resolution method, which manifests itself in international commercial contracts; place of arbitration law plays a role in the validity, supervision and regulation of arbitration and, determining the law to be applied to the main contract which includes the main points adopted in the determination of the law to be applied to the arbitration when the parties do not choose a law of arbitration. In this context, the determination of the place of arbitration is of great importance both in determining the rules of law to be applied to the main contract and in the implementation of the arbitration agreement.
I. INTRODUCTION
When alternative dispute resolution methods are analysed, it is seen that arbitration is the most common alternative dispute resolution method. Arbitration is one of the most frequently used dispute resolution methods especially in international commercial disputes.
In settling the disputes through arbitration, it is foreseen that the disputes that have arisen or may arise shall be resolved by the arbitrators and not by the courts. The place of arbitration is the place where the arbitration is judicially linked and it determines the procedural law to be applied to the arbitration The designation of the place of arbitration is particularly important for the determination of the law to which the arbitration proceedings are governed. Because if the parties have not decided otherwise, place of arbitration law shall apply to the merits of the dispute subject to arbitration.
In this article, what kind of dispute resolution method arbitration is, determination of the place of arbitration which is one of the elements of the supreme law and place of arbitration to be determined by the parties' agreement, the importance of the place of arbitration and, the issues to be considered in the selection process of the place of arbitration will be examined.
II. ARBITRATION, ARBITRATION TYPES AND PLACE OF ARBITRATION
A. Arbitration and Arbitration Types
As a result of technological developments and innovations that have emerged in the international arena caused by the globalisation, more technical issues have started to addressed in settling disputes and therefore, there is a need for swift, effective and permanent dispute resolution methods1.
Arbitration is one of the alternative dispute resolution methods that have been used more with the development of international trade. Nowadays, especially in commercial disputes, it is seen that the arbitration procedure is frequently resorted because of the high workload of local courts and inadequacy of resolving disputes requiring expertise. Arbitration may be defined as the parties agreeing in writing to settle the disputes that have arisen or may arise between the parties by arbitrators, instead of state courts, provided that the disputes are allowed to be resolved by arbitration2. In this way arbitration provides the parties with faster dispute resolution than lawsuits in the state courts. Although arbitration is not essentially a judicial activity carried out by the state; the decision given at the end of the arbitration has a binding effect as the decision of the first instance courts.
Arbitration is subjected to classifications such as optional or mandatory arbitration, national or international arbitration, ad hoc or institutional arbitration. Mandatory or statutory arbitration is to resolve certain disputes related to private law in spite of not signing an arbitration agreement by certain people, and it is regulated by private regulations that in which cases arbitration should be obligatory.
Examples for private statutes that regulate compulsory arbitration are Law on the Resolution Through Arbitration of Disputes Between Agencies and Municipalities with General, Supplementary and Special Budges and Agencies and Institutions That are Fully Owned by the State of Municipalities or the Agencies3 numbered 3533 (abolished) and Law on Arbitration of Debts of Some Public Institutions and Organizations numbered 2974 (abolished)4 Optional arbitration, on the other hand, is defined as resolving the dispute with arbitrators by signing an arbitration agreement between the parties5. In addition to this, institutive arbitration is an arbitration type that such disputes can be resolved by an arbitrator or arbitral tribunal decided by arbitration institution chosen by the parties. Institutional arbitration has predetermined procedural rules that apply to dispute resolution process6. Lastly, in ad hoc arbitration, the arbitrators, the procedures that applies to arbitration, the place of arbitration and the material laws applied to arbitration decided by the parties themselves without any mediation of any institution7.
B. Place of Arbitration
Although it is not a compulsory element required in arbitration clauses or agreements8, the place of arbitration decided by the parties plays an important role in determining the rules that apply in arbitration procedure9. Selection of the place of arbitration, determines the law which regulates the arbitration procedure and more importantly, parties’ rights and the enforcement of arbitration awards10.
Parties, determine the which procedural law shall apply to arbitration by agreeing on the place of arbitration (lex arbitri). It is not a common practice to select the laws to be applied to arbitration while determining the laws to be applied to arbitration by the parties’ free will has been accepted. For this reason, it is necessary to decide on the place of arbitration if the applicable law has not been selected. If applicable law to the case has not been selected, European Convention on International Commercial Arbitration 1961 resolves that issue by applying the law of the place of arbitration to dispute11.
According to the one of the most attended International treaty – that Turkey became a party in 1991- New York Convention article12 V (1), the state court that has been taken for recognition and approval has entitled to refuse the recognition of arbitration awards which based on an arbitration clause in contrast to law of the place of arbitration. For this reason, according to an opinion in doctrine, the risk of invalidity in both action for annulment and recognition removed by subordinating the validity of the arbitration agreement to the law of the place of arbitration and draw up such agreements up accordingly13.
However, it should be noted that, as per the view of some authors in doctrine, the term of seat of arbitration is different from the place of arbitration where the arbitral procedures to be performed, such as hearings14. Determination of seat of arbitration does not mean that all hearings and negotiations will be held at designated place, parties are still free to choose another place (place of arbitration) to hold such hearings.
Even though determination of the validity of the arbitration agreement by the law applicable on the place of arbitration is frequently observed, according to the New York Convention article V/1(a) and United Nations Commission on International Trade Law (“UNCITRAL”) article 36/1, arbitration agreement shall be evaluated accordingly first the determined law by the parties and if the applicable law has not determined, the law of the state’s where the arbitral decisions have awarded.
In the practise, generally parties do not predetermine the place of arbitration, in such cases – if the competent arbitration institution selected as International Chamber of Commerce (ICC)- the place of arbitration determined by the arbitrators according to ICC’s arbitrations rules under article 18.
III. SIGNIFICANCE OF PLACE OF ARBITRATION
Determination of the place of arbitration is one of the most important features of the settling of disputes with the way of arbitration. Because place of arbitration determines which courts are competent on and the scope of this competence of the disputes that will resolve by arbitration. The most important role played by the selection of the place of arbitration by the parties because legal results arising from that selection15.
It is necessary to take into consideration that parties’ decision on place of arbitration and their free will. However, Court of Cassation annulled the first instance court decision16 on recognition of the arbitration award with following reason, “despite the fact that conflicts may arise from the contract by and between the parties will be resolved before the British Arbitration Courts, the conflict has been resolved before the International Chamber of Commerce Court placed in France. Therefore, first of all whether if there is an International Arbitration Court placed in England should be investigated and if so the conflict should be resolved by such court. “
It should be noted that arbitrations that independent from the national laws (a-national) or has no place of arbitration laws (delocalised), stayed theoretical and couldn’t put into practice17. United Nations Trade and Development Conference (“UNCTAD”) points out the necessity of the place of arbitration and emphasizes that UNCITRAL Model law does not recognize delocalised jurisdictions. According to this, “delocalised or transnational arbitration award is not acceptable by UNCITRAL Model Law18.” UNCITRAL and UNCTAD are not the only ones that emphasise the importance and necessity of the place of arbitration, also first instance courts in some countries accept the necessity of place of arbitration
For instance, British Law does not accept delocalized and non-national arbitration.19 In this scope, in Dubai Islamic Bank v Paymentech Merchant Services Inc case it is stated that the place of arbitration is a necessity with regards to arbitration20.
Generally, the following factors are taken into consideration in designating place of arbitration; the only competent court which dealing with the action for annulment in the arbitration is the court at the place of arbitration, the court at the place of arbitration which will be applying court in the case of assistance is required to the arbitration proceedings and applicable law to procedure of arbitration is specified according to place of arbitration.
A. The Court Located In The Place of Arbitration is The Only Competent Court Dealing with The Action For Annulment with Regards to Arbitration
Action for annulment may be brought before the court located in the place of arbitration. Action for annulment is the only legal remedy against the arbitral award that issued at the end of the arbitration process, pursuant to International Arbitration Code (“IAC”) which numbered 4686. Reasons for requesting an action of annulment against arbitration awards are stated in article 15 of IAC. According to 439th Article entitled ‘Action for Annulment’ from The Code of Civil Procedure (“CCP”) numbered 6100 states the following judgment, “Action for annulment is the only remedy against arbitration awards. Action for annulment could file at Regional Courts of Appeals; put into process prior and urgent.” Action for annulment that filing at competent court in Turkey is possible only in the cases of selecting place of arbitration as Turkey21.
Furthermore, Court of Cassation has a following judgement regarding this matter; ”The specified proceedings will be made by the court according to the competent court and the territorial competent court that in Arbitration proceedings are civil courts of the first instance or commercial court of the first instance, if the place of arbitration has not been selected, , the territorially competent court is a civil court of the first instance or commercial court of the first instance and the competent court is the place or the residential area or workplace of the claimant within Turkey. (CCP 410/1), the only legal remedy against arbitration results is action for annulment. Action for annulment could file at Regional Courts of Appeals; put into process prior and urgent22.”
B. The Court at The Place of Arbitration Which Will Be Applying Court in The Case of Assistance is Required to The Arbitration Proceedings And Applicable Law to Procedure of Arbitration is Specified According to Place of Arbitration
If assistance necessary during the arbitration proceedings, petition for such assistance will be submitted to the court of arbitration place23. If the law of procedure to be applied to the arbitration proceedings has not been decided, the law of procedure which will be applied during arbitration proceedings is the law of the place of the arbitration.
In this scope, it should be noted that law of the place of the arbitration is especially important in the case of the arbitration proceeding is ad hoc arbitration and the parties have not decided the rules of procedure that will be applied to merits of the arbitration proceedings. Yet, in the case of institutional arbitration, the procedural rules for dispute that applied among the parties will be determined by the arbitration institution authorized to settle the dispute. For instance, in institutional arbitration, arbitrators may be denied on the basis of impartiality and independence in which cases, and this is regulated in the arbitration rules of the institutions, while ad hoc arbitration must include the procedural rules regarding the refusal of the arbitrator meantime determining the applicable law. If the parties have determined procedures regarding the rejection of arbitrator procedure in ad hoc arbitration, the rejection procedure shall operate in accordance with these rules. However, if the parties have not determined these rules for the rejection procedure, this gap shall be filled by the arbitration court in accordance with the law of the arbitration place24.
As a matter of fact, Court of Cassation stated that according to the following judgment25 the Civil Code of Procedure will be applied if the place of arbitration is determined as Turkey “CCP’s related articles between 407 and 444 will be applied as a rule to the disputes that the place of arbitration specified as Turkey…”
IV. THE REMARKABLE FACTORS IN THE SELECTION OF THE PLACE OF ARBITRATION
The remarkable factors in the selection of the place of arbitration are as follow; the country of arbitration place court’s positive approach, convenience of recognition and enforcement at the country of arbitration place, the independence of the arbitration place from nationality of parties, bringing to equal convenience and burden to parties in the selection of the place of arbitration and availability of arbitration support services in the country of arbitration place.
A. The Country of Arbitration Place Court’s Approach and The Country Which Will be Place of the Arbitration is Arbitration Friendly
The place of arbitration will determine the state courts’ support and assistance to the judiciary and, to what extent first instance court will take part in the arbitration process in during the arbitration procedure. Some countries are characterized as arbitration-friendly according to their legal regulations, compared to other countries these are prominent about convenience and they give parties wide autonomy and assistance and easiness in several fields during the arbitration proceedings. In this context, the court that is arbitration-friendly may be preferred for the benefit of the arbitration proceeding and the parties of dispute in consideration the country of arbitration place court’s approach to arbitration.
B. The Convenience of Recognition and Enforcement
As a sign of states’ sovereignty and independence of judiciary, court decisions in one country cannot enforced directly in another country. In other words, court decisions only have direct effects and consequences in those countries where the relevant decision is made as a rule. In this context, , executive bodies in another country cannot be directly activated and/or the decision of the courts of that country cannot be taken into consideration, on the basis of a decision taken by a particular state’s court.26 The exception to this is the recognition or enforcement of a foreign court decision in order to have effect and bear consequence outside the country in which it was made. As a rule, recognition and/or enforcement takes place in a separate case. When choosing a place of arbitration, according to multilateral and bilateral agreements, it is necessary to choose a location that will facilitate recognition and enforcement. In this respect, in accordance with the membership criterion of the New York Convention, the determination of the place of arbitration in the arbitration agreement would be a judgement since it would allow recognition and enforcement of arbitral awards made in a state that is party to the New York Convention.
C. The Independence of Place of Arbitration from Nationality of Parties
In settling of each dispute, it is important that the institution and/or person resolving the dispute is impartial. In this context, it is important that the arbitration location of the parties agreed to settle disputes by arbitration is different from the nationality of the parties. The importance of impartiality, the choice of an arbitration place different from the nationality of the parties and the place where the parties are registered were emphasized by a former general secretary of the Court of International Arbitration with regards to criteria to be taken into consideration in determining the place of arbitration27.
D. Availability of Arbitration Support Services in the Country of Arbitration
Apart from the factors discussed above, existence of support services in the arbitration place may be another factor to take into consideration on the selection of arbitration place. The following factors indicate aforementioned support services; rental courtroom and translator, which will be assisted during the process of the arbitration proceeding.
V. CONCLUSION
The place of arbitration is determined as procedure law for arbitration and connected to arbitration as judicial. The place of arbitration determines the relevant legislation of regulating arbitration procedure and more importantly, process and rights regarding the execution of the arbitration award. Especially, the legal consequences, which will emerge depending on the place of arbitration, are the most important factors on selecting of arbitration place. In light of these, when deciding on details of arbitration clause and especially the place of arbitration one should take into consideration, including but not limited to, how does the country which as been selected as a place of arbitration process its arbitration law and whether the country is arbitration-friendly or not.
FOOTNOTE
1 Alper Bulur, Alternatif Uyuşmazlık Çözüm Yolları ve Arabuluculuk Yöntemi, Ankara Barosu Dergisi, Year:65, Issue:4, 2007, p. 31.
2 Ziya Akıncı, Milletlerarası Tahkim, Vedat Kitapçılık, İstanbul 2013, p. 3. Cevdet Yavuz, Türk Hukukunda Tahkim Sözleşmesi ve Tabi Olduğu Hükümler (Tahkim Sözleşmesi), Tasarruf Mevduatı Sigorta Fonu Marmara Üniversitesi Hukuk Fakültesi II. Uluslararası Özel Hukuk Sempozyumu “Tahkim”, İstanbul 2009, p. 133. Article 2 of Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated 10 June 1958. Article 4 of International Arbitration Law numbered 4686.
3 Official Gazette numbered 3961, dated 16.07.1938.
4 Official Gazette numbered 18306, dated 08.02.1984.
5 YAVUZ, p. 133-135.
6 Cemile Demir GÖKYAYLA, Milletlerarası Tahkimde Ad Hoc Tahkim ve Kurumsal Tahkim, Uğur Alacakaptan’a Armağan, Volume 2, (İstanbul: İstanbul Bilgi Üniversitesi Yayınları, 2008), p. 162.
7 Fatih AYDEMİR, Türk Hukukunda Tahkim Sözleşmesi, İstanbul: On İki Levha Yayınları, 2017, p.12.
8 YAVUZ, Tahkim Sözleşmesi, p. 138.
9 Loukas MISTELIS, Çev. Bahar Ceyda Süral, “Milletlerarası Tahkim: Kurumsal Yaklaşımlar ve Uygulamalar” TBB Dergisi, Issue: 70, 2005, p. 176.
10 William KIRTLEY, “The İmportance of the Seat of Arbitration”, https://www.international-arbitration-attorney.com/importance-seat-arbitration/ (Access Date: 26.08.2019).
11 Hüseyin Afşın İLHAN, Tahkim Sozleşmesinin Gecerliliği, (Ankara: Adalet Yayınevi, 2016), p. 250.
12 Günseli ÖZTEKİN GELGEL, “New York Konvansiyonu’na Göre Haken Kararlarının Tenfizinde Yargıtay’ın Bazı Kararlarının Değerlendirilmesi” Milletlerarası Hukuk ve Milletlerarası Özel Hukuk Bülteni, Volume: 22, Issue:2, p. 1137 https://dergipark.org.tr/iumhmohb/ issue/9369/117348 (Access Date: 08.08.2019).
13 İLHAN, p. 251.
14 Leyla BERBER KESER, Uluslararası Ticaret Odası Tahkim Tüzüğü Uygulaması, (Ankara: Seçkin Yayıncılık, 1999), p. 75.
15 Ali YEŞİLIRMAK, ICC Tahkim Kuralları ve Uygulaması, (İstanbul: On İki Levha Yayıncılık, 2018) p. 27.
16 Court of Cassation 19.Department of Law, T. 15.09.2009, E. 2009/5703, K. 2009/8256.
18 UNCTAD, Dispute Settlement, International Commercial Arbitration, “5.7. Recognation and Enforcement or Arbitral Awards: the New York Convention” p. 8, dn. 14.”, naklen TEKİN, p. 26.
19 Dejan JANICIJEVIC, “Delocalisation in International Commercial Arbitration”, Law and Politics, Volume: 3, Issue: 1, 2005, p. 65.
20 Ali ER, Decision: Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc., Date: 20 October 2001, p. 514.
21 YEŞİLIRMAK, p. 93.
22 H. Akif KARACA, “Milletlerarası Tahkimde Hakemin Reddi Sebebi Olarak Hakemin Tarafsızlığını ve Bağımsızlığını Ortadan Kaldıran Haller”, Marmara Üniversitesi Hukuk Fakültesi Hukuk Araştırmaları Dergisi, Issue: 21, Issue: 205, 2017, p. 215.
23 YEŞİLIRMAK, p. 27.
24 H. Akif KARACA, “Milletlerarası Tahkimde Hakemin Reddi Sebebi Olarak Hakemin Tarafsızlığını ve Bağımsızlığını Ortadan Kaldıran Haller”, Marmara Üniversitesi Hukuk Fakültesi Hukuk Araştırmaları Dergisi, Cilt: 21, Sayı: 205, 2017, p. 215.
25 Court of Cassation 13.Department of Law, T. 06.02.2019 E. 2016/5227, K. 2019/1333.
26 Cemal ŞANLI/Emre ESEN/İnci ATAMAN FİGANMEŞE, Milletlerarası Özel Hukuk, (İstanbul: Vedat Kitapçılık, 2014), p. 466.
27 Sigvard JARVIN, “The Place of Arbitration – A Review of the Court’s Guiding Principles and Practice when Fixing the Place of Arbitration”, ICC Court of Arbitration Bulletin, V: 7, No: 2, 1996, p. 54.
