Commercial Litigation Proceedings and Alternative Dispute Resolution Methods in Turkey
In this article, we intend to give general outlook about Turkish Civil Litigation Proceedings and specifically we focus on commercial litigation proceedings and alternative dispute resolution methods in Turkey.
Turkish civil litigation proceedings is mostly governed by the Code of Civil Procedure, numbered 6100 ("CCP"). In addition, the following legislations are also relevant to more specific civil disputes:
Turkish Commercial Code
Code of Labour Courts
International Arbitration Code
The Code of Istanbul Arbitration Centre
In the recent years, alternative dispute resolutions methods including mediation and arbitration have become more popular instead of traditional litigation proceedings in Turkey. Furthermore, last year the mediation become compulsory for commercial disputes in order to tackle heavy workloads of the courts.
I.COURT LITIGATION AND PROCEEDINGS
i.Pre-Litigation, Court Proceedings and Structure
The CCP endeavours to turn civil litigation into a time-efficient, practical and simple process. For instance, plaintiffs are now required to pay, at the outset, not only court fees but an estimated 'advance for costs'. Prior to CCP, they could avoid depositing even insignificant fees earmarked for official notifications, court-appointed experts or on-site fact-finding until specifically ordered to do so by the judge at a hearing.
Another issue was the submission of documentary evidence. They would procrastinate, sometimes as a tactic but often owing simply to disorganisation, until the judge set a final deadline for submission of evidence. It is now mandatory to submit full claims, counterclaims and defences at the outset, together with all documentary evidence available. A trial will not be set in motion until the full sequence of written pleadings is complete.
Once all pleadings are exchanged, the judge will schedule a preliminary examination hearing. This procedural stage is new in Turkish litigation and is most welcome. With a complete understanding of factual and legal questions at issue, courts will now address preliminary objections early on in the process. The nightmare scenario of a case being fully tried on its merits only to be ultimately dismissed for being time-barred should no longer happen.
In Turkey, the courts are independent and have no superior- subordinate relations among themselves which may sometimes result in decisions contradicting each other. However, the two subsequent appeal options fully independent from each other ensures a legitimate review of the dispute and a judgment not contracting with judgments granted on similar legal matters. Also, judges are now specifically authorised to urge the parties to settle or resort to alternative dispute resolution mechanisms as early as during this preliminary examination stage.
As it can be seen above, the starting proceedings regarding litigation are;
- In the written procedure, the parties can file the following:
Claim petition,
Response petition.
Rebuttal.
Rejoinder.
However, in the simple procedure, only claim and response petitions can be filed by the parties. After the exchange of petitions, the subsequent stages are as follows:
- Preliminary investigation stage, where the court:
determines the disputed matters of the case;
evaluates the preliminary objections of the parties;
takes necessary actions for the collection and submission of evidence; and
invites the parties to settle their case.
Examination stage, where the court investigates whether the claims raised by both parties correspond with the material facts and evidence. During this stage, the court can:
hear witnesses;
conduct on-site examinations; and
appoint experts (if required).
issuance of the decision, which is made after hearing the final statements of the parties in the oral proceedings stage.
appeal, if requested by one of the parties
II.ALTERNATIVE DISPUTE RESOLUTION [ADR]
Considering the heavy workload of the Turkish courts and long-lasting adjudication processes, there is an increasing tendency for both natural and legal persons to resolve their disputes through alternative dispute resolution (ADR) methods. The two most preferred methods are arbitration and mediation.
Upon going into effect, the International Arbitration Code and the Code on Mediation have collectively caused a significant increase in the number of disputes that are subject to ADR methods.
ii.Arbitration
The main used ADR in Turkey is arbitration. It can be stated that, there is two arbitration process for parties. One of them is local arbitration and the other one is international arbitration.
Local arbitration is governed by the CCP and international arbitration is governed by the International Arbitration Code No. 4686 (the International Arbitration Code) and modelled on the UNCITRAL Model Law (1985) as well as the international arbitration section of the Swiss Federal Private International Law of 1987. The IAC applies to a dispute if either:
The dispute involves a foreign element and the place of arbitration is Turkey.
The parties or the arbitrators choose to apply the IAC
Local arbitration among local parties that does not involve any foreign element is addressed within the scope of the CCP. The arbitration section of the CCP resolved longstanding conflicts between the International Arbitration Code and the arbitration section of the now defunct Civil Procedure Code of 1927. The current CCP aligned itself with the International Arbitration Code and, in turn, the UNCITRAL Model Law. Its arbitration section regulates domestic arbitral procedures and the enforcement of domestic arbitral awards in an attempt to encourage local arbitration in Turkey.
The main piece of legislation governing international arbitration in Turkey is the International Arbitration Code No. 4686 (the International Arbitration Code). This Code entered into force in 2001 and was modelled on the UNCITRAL Model Law (1985) and the international arbitration section of the Swiss Federal Private International Law of 1987.
The International Arbitration Code governs arbitrations seated in Turkey that involve a foreign element. Even if the seat of arbitration is not Turkey, the parties can contractually subject the arbitration to the International Arbitration Code, to the extent that the 'foreign element' condition is present.
The following circumstances are considered to constitute a foreign element under Article 2 of the Code:
the usual residences, domiciles or places of business of the parties to the arbitration agreement are located in different countries;
the usual residence, domicile or place of business of any party to the arbitration agreement is located in a country not the place of arbitration designated in the arbitration agreement or determined on the basis of this agreement;
the usual residence, domicile or place of business of any party to the arbitration agreement is located in a country not the place where the majority of the obligations under the main agreement will be performed or the place to which the subject of the dispute is primarily connected;
at least one of the shareholders of a company that is a party to the main agreement containing the arbitration clause has injected foreign capital into the company under applicable foreign investment legislation, or it is required to execute a loan or a guarantee agreement in order to bring foreign investment to Turkey for performance of the relevant agreement; and
the main agreement or legal relationship constituting the basis of the arbitration agreement calls for the flow of capital or goods from one country to another.
Arbitral tribunals may rule on their own jurisdiction, including any objections regarding the existence or validity of the arbitration agreement. A plea that the arbitral tribunal does not have jurisdiction must be raised in, or prior to the submission of, the statement of defence. A party is not precluded from raising such plea by the fact that he or she has appointed, or participated in the appointment of, an arbitrator. The arbitral tribunal will rule on the above-mentioned plea as a preliminary question and, if it should decide that it has jurisdiction, it will resume the arbitral proceedings. Such a decision by the arbitral tribunal cannot be appealed to the courts.
The main bodies that offer arbitration services in Turkey are the:
Istanbul Arbitration Centre.
Turkish Union of Chambers and Commodity Exchanges Court of Arbitration
Istanbul Chamber of Commerce Arbitration Institution.
Mediation Centre.
iii.Mediation
Mediation is the second type of proceeding in which the dispute may be terminated by mutual agreement. Mediation for civil disputes was highly debated within the Turkish judiciary and was codified in the Code on Mediation.
The Code on Mediation was passed into law in June 2012, and its substantive provisions entered into effect a year later, in June 2013. The Law proved to be a divisive factor in the National Assembly as well as civil society. The government presented it as an effort to alleviate the burden on the courts already struggling under a massive docket backlog.
Currently, mediation is mandatory prior to filing suit in certain cases has resulted in mediation being sought considerably often in the past year. It appears that the provision on mandatory mediation in employment cases has indeed changed the way that these cases are litigated.
The scope of mediation is defined as civil law matters, including those with foreign elements, as long as the resolution thereof is subject to the parties' discretion. The mediator does not render a decision on behalf of the parties but encourages an amicable solution by facilitating communication between them. Litigants may agree to apply for a mediator prior to or during litigation; in the latter case, pending lawsuits will be adjourned for three months and can be extended by the parties' agreement. The procedure is very flexible. The parties are free to appoint one or more mediators and to agree on the mediation method to be used.
Furthermore, the provisions of Law on Labour Courts of 2017, which required mediation prior to filing suit in such cases as receivable claims and reinstatement demands, Law No. 7155 on the Procedures to Initiate Debt Collection Proceedings for Receivables Arising out of Subscription Agreements has made it mandatory, as of 1 January 2019, to seek mediation prior to filing commercial lawsuits for damages or to collect receivables. If a party files a lawsuit without fulfilling this requirement, the court will dismiss the case on procedural grounds.
III.CONCLUSION
In Turkey, commercial litigation disputes plays a huge role in court proceedings in which the reason of heavy workloads of the courts, CCP encourages ADR mechanisms. Some of the ADR mechanisms are mandatory. According to the CCP, once all pleadings are exchanged, the judge could schedule a preliminary examination hearing at which the judge specifically authorised to urge the parties to settle the dispute or resort to ADR mechanisms before continuing with litigation. Mediation and arbitration are the only dispute resolution methods that are embraced in the Turkish practice. All other methods of ADR are rare. For further assistance, please feel free to contact us.